Tuesday, December 27, 2011

Payroll Tax Cut Temporarily Extended into 2012



As you may know, the much publicized Payroll Tax Holiday was extended just prior to Christmas day.  With IR-2011-124, the IRS officially made the following release:

Nearly 160 million workers will benefit from the extension of the reduced payroll tax rate that has been in effect for 2011. The Temporary Payroll Tax Cut Continuation Act of 2011 temporarily extends the two percentage point payroll tax cut for employees, continuing the reduction of their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid through Feb. 29, 2012. This reduced Social Security withholding will have no effect on employees’ future Social Security benefits.

Employers should implement the new payroll tax rate as soon as possible in 2012 but not later than Jan. 31, 2012. For any Social Security tax over-withheld during January, employers should make an offsetting adjustment in workers’ pay as soon as possible but not later than March 31, 2012.

Employers and payroll companies will handle the withholding changes, so workers should not need to take any additional action.

Under the terms negotiated by Congress, the law also includes a new “recapture” provision, which applies only to those employees who receive more than $18,350 in wages during the two-month period (the Social Security wage base for 2012 is $110,100, and $18,350 represents two months of the full-year amount). This provision imposes an additional income tax on these higher-income employees in an amount equal to 2 percent of the amount of wages they receive during the two-month period in excess of $18,350 (and not greater than $110,100).    

This additional recapture tax is an add-on to income tax liability that the employee would otherwise pay for 2012 and is not subject to reduction by credits or deductions. The recapture tax would be payable in 2013 when the employee files his or her income tax return for the 2012 tax year. With the possibility of a full-year extension of the payroll tax cut being discussed for 2012, the IRS will closely monitor the situation in case future legislation changes the recapture provision.
The IRS will issue additional guidance as needed to implement the provisions of this new two-month extension, including revised employment tax forms and instructions and information for employees who may be subject to the new “recapture” provision. For most employers, the quarterly employment tax return for the quarter ending March 31, 2012, is due April 30, 2012.



brad@mcarthurco.com
704.544.8429

Tuesday, December 13, 2011

Traditional Year-End General Business Planning


Self-Employed Business Income. If you are self-employed, it continues to be a good idea to defer as much income into 2012 as possible, if you believe that your marginal tax rate for 2012 will be equal to or less than your 2011 marginal tax rate. If you think that deferring 2011 income to 2012 will save you overall taxes, and you use the cash method of accounting, consider delaying year-end billings until 2012. However, if you have already received the check in 2011, deferring the deposit does not defer the income. Also, you may not want to defer billing if you believe this will increase your risk of not getting paid.

Establishing A New Retirement Plan For 2011. Calendar-year taxpayers wishing to establish a qualified retirement plan for 2011 (e.g. profit-sharing, 401(k), or defined benefit plan) generally must adopt the plan no later than December 31, 2011. However, a SEP may be established by the due date of the tax return (including extensions), and a SIMPLE plan must have been established no later than October 1, 2011.

Personal Use Of Company Cars. If your company provides employees with company-owned cars, the company is required to include the value of the personal use of the car in the employees’ W-2 income. However, this is not required if the employee reimburses the company for the personal use. Planning Alert! If your company does not report the employee’s personal use as W-2 income and the employee does not reimburse the company for the personal use, the IRS says the company’s deductions (for depreciation, gas, tires, insurance, etc.) are lost to the extent of the personal use. In addition, the IRS will include any unreimbursed personal use in the employee’s income even if the company is not allowed a deduction for the personal use portion. Tax Tip. If the employee chooses to reimburse the company for personal use of the car, the obligation for reimbursement should be established on or before December 31st so the employee will not have income in one year and a deduction in the next. This can be accomplished by establishing a published policy for reimbursement of personal use. Furthermore, your company should obtain signed statements from employees listing their business and personal mileage for the company car.

Mileage Reimbursement Rates. Each year the IRS provides an amount per mile that employers may reimburse employees for the business use of their vehicles rather than reimbursing actual expenses. This standard mileage reimbursement amount for 2011 is 51 cents‑per‑mile from January 1, 2011 through June 30, 2011, and 55.5 cents-per-mile from July 1, 2011 through December 31, 2011.

Children Working In The Family Business May Reduce The Family’s Taxes! There has long been a tax incentive for high-income owners of a family business to hire their children to work in the business. Generally, the parents could deduct their child’s wages against their business income (which could be taxed as high as 35%), while the child would be taxed at rates as low as 10% (to the extent of child's unused standard deduction, the child’s wages may avoid federal income taxes completely). Furthermore, if a child is under age 18 and working for a parent's sole proprietorship or a partnership where the only partners are the parents, the child's wages will be exempt from FICA tax while, at the same time, reducing the parents’ self-employment (SECA) tax.

Please contact us if you are interested in a tax topic that we did not discuss. Tax law is constantly changing due to new legislation, cases, regulations, and IRS rulings. Our firm closely monitors these changes. In addition, please call us before implementing any planning ideas discussed in the recent blog posts, or if you need additional information. 

brad@mcarthurco.com
704.544.8429

Monday, December 5, 2011

"Tis the Season - For Tax Planning!

December is always a busy month, but please take some time to make some important year-end tax planning decisions.  Please see below as we review a few of those decisions for C Corp and S Corp owners:

Traditional Year-End Planning for Regular "C" Corporations
  • Should A Closely-Held “C” Corporation Pay Dividends Rather Than Year-End Bonuses To Its Owners? Since a “C” corporation can generally deduct a bonus, and cannot deduct a dividend, the advisability of paying a shareholder/employee a dividend in lieu of a year-end bonus depends largely on the tax rates of both the corporation and the shareholder. If your corporation is experiencing the effects of the recession and would receive little or no tax benefit from a year-end bonus deduction, then a dividend paid in 2011 taxed at a maximum rate of 15% may save overall taxes. On the other hand, if your corporation has significant income and is currently in a high tax bracket, then a bonus paid in 2011 may save overall taxes. Planning Alert! If you decide that a year-end bonus would be more tax beneficial, be sure that you can justify the reasonableness of the bonus. If your corporation pays compensation to a shareholder/employee that is considered unreasonably high, the IRS may attempt to re-classify the payment as a dividend payment. Therefore, the corporation should document the reasonableness of compensation paid to all shareholder/employees.
  • Properly Document Loans To Shareholders. If you borrow from your closely-held corporation, you should make sure there is a written agreement to repay your loan, a fair interest rate is charged, and the loan is authorized by a corporate resolution. Without adequate interest and proper documentation, the IRS may treat your loans as constructive distributions which could result in dividend treatment and double taxation. Planning Alert! A corporation should charge interest at least equal to the Applicable Federal Rate (AFR) on loans to shareholders. Otherwise, subject to certain exceptions, the IRS will impute interest and the imputed interest (in excess of the interest actually charged) will result in dividend treatment if the corporation has earnings and profits.
Traditional Year-End Planning for "S" Corporations
  • Properly Account For Health Insurance Premiums For S Corporation Shareholders ‑ Including Medicare Premiums. Generally, if you own S corporation stock and the S corporation pays for your health insurance premiums, IRS says you can take an "above‑the‑line" deduction (i.e., unrestricted by the 7½% subtraction as an itemized medical expense deduction) for the premiums on your personal tax return if the S corporation timely reports the cost of the premiums paid on your W‑2 as wages. However, if the medical insurance policy is your personal policy, the IRS says that your S corporation must pay the premiums directly, or reimburse you for the premiums before the end of the year and timely report the payment (or reimbursement) on your W‑2 as wages for you to take an "above‑the‑line" deduction on your personal return. Planning Alert! Make sure your S corporation complies with these rules so you will not be limited to a deduction only for the premiums in excess of 7½% of your AGI. Tax Tip. The above rules apply to premiums paid or reimbursed for you, your spouse, your dependents, and any of your children under age 27 at the end of the year (even if the child does not qualify as your dependent). In addition, the IRS has clarified that Medicare premiums qualify as medical insurance premiums. Therefore, the above rules also apply if the S corporation reimburses or pays your Medicare premiums.
  • Check Your Stock And Debt Basis Before Year End. If you think your S corporation will have a taxable loss this year, you should contact us as soon as possible. These losses will not be deductible on your personal return unless and until you have adequate “basis” in your S corporation. Any pass-through loss that exceeds your “basis” in the S corporation will carry over to succeeding years. You have basis to the extent of the amounts paid for your stock (adjusted for net pass-through items and distributions), plus any amounts you have personally loaned to your S corporation. Tax Tip. It may be possible to restructure an outside loan to your corporation in a way that will give you adequate basis. However, this restructuring must occur before the end of the tax year. Planning Alert! Making sure that you have sufficient basis is particularly important in 2011 if your S corporation anticipates generating losses from the 100% §168(k) bonus depreciation deduction. The rules for restructuring existing loans to an S corporation to ensure basis are complicated. Please do not attempt to restructure your loans without contacting a CPA first. Also, if you finance losses of an S corporation with loans from other entities controlled by you, or if you borrow from another shareholder, the IRS may take the position that these loans do not give you basis. It is best not to finance S corporation operations with funds borrowed directly from related entities or from other shareholders
  • Salaries For S Corporation Stockholder/Employees. For 2011, an employer must pay FICA taxes of 7.65% of an employee’s wages up to $106,800 and FICA taxes of 1.45% on wages in excess of $106,800. In addition, for 2011, an employer must withhold FICA taxes from an employee’s wages of 5.65% on wages up to $106,800 (normally 7.65%, but reduced to 5.65% for 2011 only) and 1.45% of wages in excess of $106,800. If you are a stockholder/employee of an S corporation, this FICA tax is generally applied only to your W-2 income from your S corporation. Other income that passes through to you or is distributed on your stock is generally not subject to FICA taxes or to self-employment taxes. Planning Alert! If the IRS determines that you have taken an unreasonably “low” salary from your S corporation, the Service will generally argue that other amounts you have received from your S corporation (e.g., distributions) are disguised "compensation" and should be subject to FICA taxes. Determining "reasonable salaries" for S corporation shareholder/employees is a hot audit issue, and the IRS has a winning record on taking taxpayers to Court on this issue. The IRS has been particularly successful where S corporation owners pay themselves no salary even though they provided significant services to the corporation. Caution! Determining a "reasonable" salary for an S corporation shareholder is a case‑by‑case determination, and there are no rules of thumb for determining whether the compensation is “reasonable.” However, this case makes it clear that salaries to S corporation shareholders should be supported by independent data (e.g., comparable industry compensation studies), and should be properly documented and approved by the corporation. Planning Alert! Keeping salaries low and minimizing your FICA tax could also reduce your Social Security benefits when you retire. Furthermore, if your S corporation has a qualified retirement plan, reducing your salary may reduce the amount of contributions made to the plan on your behalf since contributions to the plan are based upon your “wages.”
Next week, we'll be back to discuss some final traditional year-end planning tips.  In the meantime, if you have any questions, please do not hesitate to contact our Firm.

brad@mcarthurco.com
704.544.8429






Wednesday, November 30, 2011

Other "Business" Tax Breaks Expiring After 2011


In addition to the 100% §168(k) bonus depreciation deduction and the expanded §179 deduction, there are several other important business tax breaks currently scheduled to expire at the end of 2011. Whether or not Congress ultimately extends these expiring tax breaks, there are real tax savings to be obtained if you take advantage of these provisions before the end of 2011. The following are some of the more important expiring provisions that your business should consider utilizing before the end of 2011:

Two Percent Social Security Tax Holiday For “2011.”
For 2011 only, there is a 2% reduction in Social Security taxes for both employees and self-employed individuals. Therefore, if you are an employee, your take-home pay for 2011 is generally being increased by 2% of each dollar of compensation that you earn. However, since Social Security taxes apply only to the first $106,800 of compensation in 2011, your maximum savings will generally be $2,136 (i.e., $106,800 x 2%). Likewise, if you are self-employed, your Social Security taxes are reduced by 2% of your self-employment income for 2011 (up to $106,800). Therefore, if your self-employment income is $106,800 or more, your self-employment taxes will be reduced by $2,136. Tax Tip! Accelerating 2012 compensation or self-employed income into 2011 will save you 2% on your Social Security tax to the extent the income acceleration does not cause you to exceed the $106,800 earned income cap.

100% Exclusion For “Qualified Small Business Stock.”
If you sell “qualified small business stock” (QSBS) acquired after September 27, 2010 and before January 1, 2012, you may be able to exclude the entire gain from taxable income if you hold the stock for more than 5 years (the gain will also be exempt from the alternative minimum tax). QSBS is generally stock of a non-publicly traded domestic “C” corporation engaged in a qualifying business, purchased directly from the corporation, and held for more than 5 years; where the issuing corporation meets certain active business requirements and has assets at the time the stock is issued of $50 million or less. Businesses engaged in a professional service, banking, insurance, financing, leasing, investing, hotel, motel, restaurant, mining, or farming activity generally do not qualify. Planning Alert! If you are considering investing in or starting a new business, we will gladly help you evaluate whether structuring your investment as QSBS will work to your overall tax advantage. However, you must act promptly to take advantage of this narrow window of opportunity to qualify for the 100% exclusion. Only stock acquired from September 28, 2010 through December 31, 2011 qualifies for the 100% exclusion.

Don’t Overlook The “Retention Credit” For Qualified Unemployed Workers.
If your business 1) hired a qualified unemployed worker after February 3, 2010 and before January 1, 2011, 2) the worker signed a IRS Form W-11 (“HIRE Act Employee Affidavit”), and 3) you retained the worker on your payroll for at least 52 consecutive weeks, you may be entitled to an “income tax” credit of up to $1,000 for each qualifying worker on your 2011 return. If you think your business qualifies for this credit, we will gladly help you determine the exact amount of credit available.

brad@mcarthurco.com
704.544.8429

Monday, November 21, 2011

Year-End Tax Planning For Your Business

We have reached that time of year when businesses need to consider year-end tax planning.  This year is particularly challenging because Congress has enacted a series of tax breaks which are generally scheduled to expire after 2011.  Unless Congress enacts to extend these provisions, the following business tax breaks will generally expire (or become less beneficial) after 2011: 100% §168(k) bonus depreciation; larger and expanded §179 deduction; 100% gain exclusion for “qualified small business stock;” and relaxation of the S corporation built‑in gains tax rules. There have also been recent IRS releases and court cases that address: the ability of self-employed individuals, partners, and S corporation shareholders to deduct health insurance premiums (including Medicare premiums); whether compensation paid to S corporation shareholders is “reasonable”; and the S/E tax exposure of owners of a limited liability partnership.

In the following weeked, we will discuss a number of key areas for business owners to analyze:

  • Taking Maximum Advantage of the 100% §168(k) Bonus Depreciation Deduction And §179 Deduction
  • Other "Business" Tax Breaks Expiring After 2011
  • Other Recent Developments Impacting Business Planning
  • Tradtional Year-End Planning for "S" Corporations
  • Traditional Year-End General Business Planning
Before going any further, it should be noted that although this blog contains many planning ideas, you cannot properly evaluate a particular planning strategy without calculating the overall tax liability (including the alternative minimum tax) with and without the strategy. In addition, this letter contains ideas for Federal income tax planning only. You should also consider any state income tax consequences of a particular planning strategy. We recommend that you call either your CPA or our firm before implementing any tax planning technique discussed in this letter, or if you need more information.

Taking Maximum Advantage of the 100% §168(k) Bonus Depreciation Deduction And §179 Deduction 
The two most significant business tax breaks expiring after 2011 are: 1) the 100% §168(k) bonus depreciation deduction, and 2) the expanded §179 deduction. These two provisions offer unprecedented up-front deduction opportunities for businesses considering significant capital expenditures.

The 100% §168(k) Bonus Depreciation Deduction Generally Expires After 2011. For qualifying new business property placed-in-service from 2008 through September 8, 2010, businesses were allowed a 50% first-year §168(k) bonus depreciation deduction. The Tax Relief Act of 2010 increased this deduction to 100% for “qualifying business property” acquired and placed‑in‑service after September 8, 2010 and through December 31, 2011. In other words, for §168(k) property acquired and placed-in-service during this period, the entire cost of the property can be fully deducted. For qualifying §168(k) property placed-in-service during 2012, the §168(k) bonus depreciation deduction reverts back to 50%, and generally expires altogether for property placed-in-service after 2012.

The following paragraphs summarize the rules for determining if an asset qualifies for the §168(k) deduction:
  • Qualifying 50%/100% §168(k) Bonus Depreciation Property. Property qualifying for the §168(k) bonus depreciation deduction is generally new property that has a depreciable life for tax purposes of 20 years or less; examples include: machinery and equipment, furniture and fixtures, cars and light general purpose trucks, sidewalks, roads, landscaping, depreciable computer software, and “qualified leasehold improvements. Planning Alert! These are only examples of qualifying property. If you have a question about property that we have not mentioned, call us and we will help you determine if it qualifies. 
  • Qualified Leasehold Improvement Property. Even though improvements to a commercial building generally do not qualify for the §168(k) bonus depreciation deduction, "qualified leasehold improvement property" (QLHIP) does qualify, if it is "acquired QLHIP and placed-in-service" after September 8, 2010 and before 2012. QLHIP is generally any capital improvement to an interior portion of a building that is used for nonresidential commercial purposes, provided that 1) the improvement is made under or pursuant to a lease either by the lessee, sublessee or lessor of that interior building portion; 2) the interior building portion is to be occupied exclusively by the lessee or sublessee; and 3) the improvement is placed-in-service more than 3 years after the date the building was first placed-in-service. Planning Alert! QLHIP does not include any improvement attributable to: the enlargement of the building; any elevator or escalator; any structural component benefitting a common area; or the internal structural framework of the building. Caution! Leasehold improvements made to property leased between certain related persons will not qualify.
  • Newly‑Constructed Or Renovated Buildings And Cost Segregation Studies. Depreciable components of newly‑constructed or newly‑renovated buildings that are properly classified as depreciable personal property under a cost segregation study are generally depreciated over 5 to 7 years. Since these non-structural components have a depreciable life of 20 years or less, they should qualify for the 100% 168(k) bonus depreciation if "acquired and placed-in-service" after September 8, 2010 and before 2012. Planning Alert! In certain situations, these components of the building might qualify for the 100% bonus depreciation deduction even if the construction or renovation of the building itself began before September 9, 2010, provided you make a timely election to apply the 100% §168(k) acquisition rules separately to each component.
  • 100% 168(k) Bonus Depreciation Property Generally Must Be “Placed-In-Service” By December 31, 2011.   Whether your business has a “calendar” or “fiscal” tax year, in order to get the 100% §168(k) bonus depreciation deduction, you must place the property in service no later than December 31, 2011.  Generally, if you are purchasing “personal property” (equipment, computer, vehicles, etc.) “placed-in-service” means the property is ready and available for use. To be safe, qualifying property should be set up and tested on or before the last day of 2011. On the other hand, if you are dealing with building improvements (e.g., qualified leasehold improvement property, non-structural components of a building), a certificate of occupancy will generally constitute placing the building or improvement in service.
§168(k) Bonus Depreciation For Passenger Automobiles, Trucks, And SUVs.   For a business auto first placed-in-service in calendar year 2011, the maximum first-year depreciation deduction is generally capped at $3,060 ($3,260 for trucks and vans not weighing over 6,000 lbs). However, Congress previously increased the first-year depreciation cap for vehicles qualifying for the §168(k) up-front bonus depreciation deduction by $8,000 for 2008 and 2009. The Tax Relief Act of 2010 extended this $8,000 increase through 2012 for new vehicles otherwise qualifying for the §168(k) bonus depreciation deduction. For example, let’s say your business is planning to purchase a new vehicle weighing 6,000 lbs or less that will be used 100% for business purposes. If you buy the new car and place it in service during 2011, your first‑year depreciation deduction will be $11,060. Heavy Vehicles. “Heavy Vehicles” (i.e., trucks, vans, and SUVs with loaded vehicle weights over 6,000 lbs.) are generally exempt from the passenger auto annual depreciation caps discussed above. Therefore, if you buy a new “heavy” truck or SUV and use it 100% for business in 2011, you could deduct the “entire cost” for 2011 using the §168(k) deduction.
Expanded §179 Deduction.  For the last several years, Congress has temporarily increased the maximum §179 up-front deduction for the cost of qualifying “new” or “used” depreciable business property. For property placed-in-service in tax years beginning in 2010 and 2011, the overall cap was increased from $250,000 to $500,000, and the beginning of the deduction phase-out threshold was increased from $800,000 to $2,000,000. In addition, for 2010 and 2011 purchases, a taxpayer may elect for “qualified real property” to be §179 property. Prior to this change, real property generally did not qualify for the §179 deduction. Caution! For tax years beginning after 2011, the maximum §179 deduction is currently scheduled to drop back to $139,000 and there will be no §179 deduction for “qualified real property.”
  •   Up To $250,000 Of “Qualified Real Property” Temporarily Qualifies As §179 Property.  Traditionally, the §179 deduction has been limited to depreciable, tangible, “personal” property, such as equipment, computers, vehicles, etc. However, businesses may “elect” to treat qualified “real” property as §179 property, for property placed-in-service in tax years beginning in 2010 or 2011. The maximum §179 deduction that is allowed for qualified real property is $250,000. “Qualified Real Property” includes property within any of the following three categories: 1) Qualified Leasehold Improvement Property (generally capital improvements to an interior portion of certain leased buildings that are more than 3 years old and that are used for nonresidential commercial purposes); 2) Qualified Retail Improvement Property (generally capital improvements made to certain buildings that are more than 3 years old and which are open to the general public for the sale of tangible personal property); and 3) Qualified Restaurant Property (generally capital expenditures for the improvement, purchase, or construction of a building, if more than 50% of the building's square footage is devoted to the preparation of, and seating for, the on‑premises consumption of prepared meals). Caution! If you want to take the §179 write-off for “qualified real property” for your tax year beginning in 2011, you must place the building (or improvements) in service by the end of your 2011 tax year.  A certificate of occupancy will generally constitute placing the building or an improvement to a building in service.
  •     Planning Alert! The §179 rules for “qualified real property” are extremely tricky and time sensitive. Furthermore, the depreciation rules become even more complicated if you are planning to do a cost segregation study where you break out nonstructural components of a building for depreciation purposes. Please call our firm if you are improving, acquiring, or constructing a building. We will help you devise a strategy that will maximize your depreciation deductions, including the §179 deduction.
Tune in next week as we discuss the additional tax planning topics as listed aboce.  If you have any questions the in meantime, please contact our firm at 704.544.8429

Until then,  Happy Turkey Day to you all!

brad@mcarthurco.com
704.544.8429


















Wednesday, November 16, 2011

Small Business Saturday

November 26th has been deemed Small Business Saturday by American Express.  In an effort to raise the profile of small businesses, American Express has called for us all to shop "small" on November 26th.  As a Firm who works closely with small businesses and is a small business, I can say this is an effort near and dear to our hearts and one that our employees make a conscious effort to do regularly.  A "small" business can provide the consumer with options, service, and even pricing not regularly available at the big box stores.  If you don't already, take a chance on going outside of your comfort zone and visit a local small business. I have no doubt that you won't regret it!

Have a safe and happy Thanksgiving!

brad@mcarthurco.com
704.544.8429

Monday, November 7, 2011

2012 - Adjusted Limits

At the end of every year, we in the CPA world wait patiently for the IRS to release the new limits on various items that are indexed for inflation, and determine how they will affect our clients.  The last few years have yielded few changes as inflation has remained at historically low levels.  However, as we move into 2012 a majority of limits have been adjusted.  Please note some of the more common items below.

Social Security Wage Base
In 2012, the wage base will increase $3,300 up to $110,100.  This is the first increase in the wage base since 2009. An increase in the wage base results in a direct increase in the taxes you pay through the FICA system.  The Social Security portion of your FICA taxes is capped at the wage base.  As the wage base has increased, so will that portion of the taxes you pay.  In 2010 and 2011, the wage base did not go up since there was not a cost-of-living increase to Social Security beneficiaries.

Retirement Plans
-The maximum 401(k) employee elective contribution rises $500 to $17,000 in 2012.  The catch-up provision for those 50 and older is set at $5,000 making the maximum $22,500.
-There are no changes on the limits for the SIMPLE IRA, Traditional IRA, or Roth IRA.
          -Simple--$11,500
          -IRA--$5,000
          -Roth IRA--$5,000

Stay tuned to our blog and be in contact with your CPA as we move closer to year-end; and tax legislation becomes a hotter topic in the world of politics.  Depending on what comes out of Washington, you just might find that the 2012 rules that exist today might be different tomorrow.

brad@mcarthurco.com
704.544.8429

Tuesday, October 25, 2011

As stated by the IRS through their release dated October 20, 2011, many tax benefits in 2012 have been adjusted due to inflation metrics.  For the 2012 tax year, personal exemptions and standard deductions will rise and tax brackets will widen due to inflation.  The adjustments discussed below are for the 2012 tax year, meaning January 1, 2012 through December 31, 2012 with tax filings due, generally, April 15, 2013. 

By matter of law, dollar amounts attached to various IRS provisions are revised on annual basis to keep “pace” with inflation.  Some of the highlights are as follows for the most recent release of changes:

·         Personal and Dependent Exemption – Up $100 to $3,800 for per exemption.
·         Standard Deduction –
o   Up $300 for those Married Filing Jointly to $11,900
o   Up $150 for those filing Single to $5,950
o   Up $200 for those filing as Head of Household to $8,700
·         Tax brackets widened – For a complete listing of your bracket, please follow this link www.irs.gov/pub/irs-drop/rp-11-52.pdf

A few other changes that I want to highlight are as follows:

·         Adoption Credit – The maximum credit allowed is the amount of qualified adoption expenses up to $12,650 subject to phase out limits for income in excess of $189,710 to $229,710.
·         Eligible Long-Term Care Premiums – In order to be includible in the term “medical care” the limits on premiums are as follows as determined by age group:
o   Age 40 or less -- $350
o   Age 40 to 50 -- $660
o   Age 50 to 60 -- $1,310
o   Age 60 to 70 -- $3,500
o   Age 70 or older -- $4,370

As always, if you have any questions about your tax position for 2011 or as you we move into 2012, please contact your CPA directly or our Firm for a consultation.  Happy Halloween to all!

Wednesday, October 12, 2011

There's Still Time...

....to take advantage of qualified real property expensing.

Historically, Code Sec. 179 expensing has been available only for tangible personal property, but the Small Business Act of 2010 provides an exception for certain types of real property. Specifically, under Code Sec. 179(f)(1), for any tax year beginning in 2010 or 2011, a taxpayer may elect to treat up to $250,000 of qualified real property as Code Sec. 179 property. Unless Congress changes the rules, otherwise eligible property placed in service in tax years beginning after 2011 generally will have to be depreciated over 39 years via the straight line method.

What is qualified real property for expensing purposes? Qualified real property is:

(A) qualified leasehold improvement property described in Code Sec. 168(e)(6)

(B) qualified restaurant property described in Code Sec. 168(e)(7)

(C) qualified retail improvement property described in Code Sec. 168(e)(8)

The qualified property must be depreciable, acquired for use in the active conduct of a trade or business, and can't be certain ineligible property.

Qualified Leasehold Improvement Property

As one of the above categories that qualifies as qualified real property component, qualified leasehold improvements are a hot button topic with many of our clients as they look to improve and grow their business. A qualified leasehold improvement property is an interior building improvement that qualifies for bonus first-year depreciation, except that if a lessor makes an improvement that is a qualified leasehold improvement, it can't be qualified leasehold improvement property to any subsequent owner, subject to exceptions.

In general, qualified leasehold improvement property includes interior improvements to a building if:

(1) The improvement is Code Sec. 1250 property.

(2) The improvement is made “under or pursuant to a lease”

(3) The portion of the building is to be occupied exclusively by the lessee

(4) The improvement is placed in service more than three years after the date the building was first placed in service.

The Code doesn't define what types of building improvements are eligible to be treated as qualified leasehold improvement property. Rather, it lists the types of property that can't be so treated. Under Code Sec. 168(k)(3)(B), qualified leasehold improvement property does not include any improvement for which the expense is attributable to:

the enlargement of the building,

any elevator or escalator,

any structural component benefiting a common area, and

the internal structural framework of the building.

What kinds of improvements are qualified leasehold improvements after eliminating those that are ineligible? The following types of improvements would appear to qualify, if they benefit the tenant's space only rather than a common area:

(1) electrical or plumbing systems (including a sprinkler system);

(2) permanently installed lighting fixtures; and

(3) ceilings and doors.

Two breaks apply to qualified leasehold improvement property bought and placed in service this year. It qualifies for up to $250,000 of expensing under Code Sec. 179, and there's a 100% bonus first-year depreciation allowance under Code Sec. 168(k)(2)(A) for the portion of such property that is not expensed.

Is it Real or Personal?

A number of assets installed in commercial buildings are personal property depreciable over five or seven years under MACRS. As a result, these assets are subject to the general expensing rules for personal property, rather than the more-restrictive rules for qualified real property. Shorter-lived assets also are potentially eligible for the bonus first-year depreciation allowance if bought and placed in service this year. These shorter-lived assets include carpeting, movable and removable partitions, and electrical and plumbing equipment necessary for the operation of specialized equipment (rather than for overall building maintenance and operation).

Identifying whether or not your business is eligible for these write-offs is an important task in determining your tax liability for the year and one that should bear importance on your business and tax planning. If you've made these sort of improvements, have a discussion with your CPA about how they plan to treat the items. If you are planning these sort of improvements, know that time is of the essence and discuss with your CPA the rules that govern your improvements. These elections can provide a positive tax outcome; however, like with any deductions for your business, the business purpose cannot be forgotten. If you have questions regarding this information, please reach out to our Firm and we will be glad to assist.

brad@mcarthurco.com
704.544.8429

Wednesday, September 14, 2011

Tax Relief for Hurricane Irene Victims

Last month, Hurricane Irene swept the East Coast of the U.S. with a vengeance. So many people were affected by the storm. The IRS has announced that eligible taxpayers in North Carolina, New Jersey, New York and Puerto Rico will receive tax relief. Other locations could be added as well.

Eligible business facing tomorrow's September 15th tax deadline will be allowed until October 31st to file. This also extends individuals and businesses that are facing the October 15th deadline, as well as estimated tax payments that are normally due on September 15th.

Who is eligible? Those taxpayers that are in federal disaster areas from Hurricane Irene are eligible. To find out more, visit http://www.disasterassistance.gov/

Currently in North Carolina, Beaufort, Carteret, Craven, Dare, Hyde, Pamlico and Tyrell counties are eligible.

Our thoughts and prayers go out to those affected by Hurrican Irene.

brad@mcarthurco.com
704.544.8429

Tuesday, August 23, 2011

Back To School Basics

As the end of summer is upon us, it ushers in the college students’ return to campus and memories of the first day of class, football, and tailgating. Many students and parents are facing this adventure for the first time and others are veterans of the process. In either case, it’s an active, exciting and increasingly expensive period in a young adults life. As this transition takes place, be mindful of the expenses you incur and how you are tracking them as they may provide you with tax benefits at year-end. Tax benefits, generally, are applicable to you, your spouse, or a dependent for whom you claim an exemption for on your tax return. There are four primary tax benefits available to you as a taxpayer: the American Opportunity Credit, the Lifetime Learning Credit, the Tuition and Fees Deduction, and the Student Loan Interest deduction. The premise is simple, pay for college and receive a tax benefit. Unfortunately, as with many credits and deductions, you must read the fine print. Let’s take a look at each credit a little closer to determine where you might benefit.

American Opportunity Credit

This credit is available through 2012. The credit can be up to $2,500 per eligible student and is available for the first four years of post secondary education. Forty percent of this credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes. Qualified expenses include tuition and fees, course related books, supplies and equipment. The full credit is generally available to eligible taxpayers whose modified adjusted gross income is below $80,000 ($160,000 for married couples filing a joint return).

Lifetime Learning Credit

In 2011, you may be able to claim a Lifetime Learning Credit of up to $2,000 for qualified education expenses paid for a student enrolled in eligible educational institutions. There is no limit on the number of years you can claim the Lifetime Learning Credit for an eligible student, but to claim the credit, your modified adjusted gross income must be below $60,000 ($120,000 if married filing jointly).

Tuition and Fees Deduction

This deduction can reduce the amount of your income subject to tax by up to $4,000 for 2011 even if you do not itemize your deductions. Generally, you can claim the tuition and fees deduction for qualified higher education expenses for an eligible student if your modified adjusted gross income is below $80,000 ($160,000 if married filing jointly).

Student Loan Interest Deduction

Generally, personal interest you pay, other than certain mortgage interest, is not deductible. However, if your modified adjusted gross income is less than $75,000 ($150,000 if filing a joint return), you may be able to deduct interest paid on a student loan used for higher education during the year. It can reduce the amount of your income subject to tax by up to $2,500, even if you don’t itemize deductions.

For more information or for an analysis on which of the above tax benefits fits your specific circumstances, please contact our Firm for further guidance. Good luck to all the students beginning their college years. More importantly, good luck to all of the parents on surviving!

brad@mcarthurco.com
704.544.8429

Monday, August 15, 2011

Buy Low, Sell High!

Are you in the process of selling your home? Well, if you are one of the lucky ones that will be facing a gain from the sale of your main home, then there may be an opportunity to exclude some or all of that gain from your income.


  • Typically you are eligible to exclude some or all of the gain if your home has been your main home for at least two out of the last five years

  • The exclusion caps out at a $250,000 gain ($500,000 for a joint return)

  • Any gain that is not eligible for exclusion is taxable. This is reported on Schedule D of your 1040 (individual tax return)

  • Losses from the sale of your home are not deductible

  • Exclusion is not available if you excluded gain from the sale of another home in the last two years

  • Have more than one home? Only your main home is eligible for the exclusion

Remember the first-time homebuyer credit? Those that took advantage of that must live in the home as a primary residence for three years. If you convert this to a rental or non-primary residence less than three years from purchase, you will have to pay the credit back. So before you put your home on the market, or put a rental ad in the paper, be sure that you have owned the home for at least three years to avoid repayment.


Check out this publication from the IRS on Selling Your Home: http://http://www.irs.gov/publications/p523/ar01.html


brad@mcarthurco.com


704.544.8429



Wednesday, August 10, 2011

Who's On First?

I'm not the one who typically participates in email forwards, but today I'll make an exception for one of my favorite skits of all-time. I hope you enjoy.


You have to be old enough to remember Abbott and Costello, and too old to REALLY understand computers, to fully appreciate this. For those of us who sometimes get flustered by our computers, please read on...

If Bud Abbott and Lou Costello were alive today, their infamous sketch, 'Who's on First?' might have turned out something like this:

COSTELLO CALLS TO BUY A COMPUTER FROM ABBOTT

ABBOTT: Super Duper computer store. Can I help you?

COSTELLO: Thanks I'm setting up an office in my den and I'm thinking about buying a computer.

ABBOTT: Mac?

COSTELLO: No, the name's Lou.

ABBOTT: Your computer?

COSTELLO: I don't own a computer. I want to buy one.

ABBOTT: Mac?

COSTELLO: I told you, my name's Lou.

ABBOTT: What about Windows?

COSTELLO: Why? Will it get stuffy in here?

ABBOTT: Do you want a computer with Windows?

COSTELLO: I don't know. What will I see when I look at the windows?

ABBOTT: Wallpaper.

COSTELLO: Never mind the windows. I need a computer and software.

ABBOTT: Software for Windows?

COSTELLO: No. On the computer! I need something I can use to write proposals, track expenses and run my business. What do you have?

ABBOTT: Office.

COSTELLO: Yeah, for my office. Can you recommend anything?

ABBOTT: I just did.

COSTELLO: You just did what?

ABBOTT: Recommend something.

COSTELLO: You recommended something?

ABBOTT: Yes.

COSTELLO: For my office?

ABBOTT: Yes.

COSTELLO: OK, what did you recommend for my office?

ABBOTT: Office.

COSTELLO: Yes, for my office!

ABBOTT: I recommend Office with Windows.

COSTELLO: I already have an office with windows! OK, let's just say I'm sitting at my computer and I want to type a proposal. What do I need?

ABBOTT: Word.

COSTELLO: What word?

ABBOTT: Word in Office.

COSTELLO: The only word in office is office.

ABBOTT: The Word in Office for Windows.

COSTELLO: Which word in office for windows?

ABBOTT: The Word you get when you click the blue 'W'.

COSTELLO: I'm going to click your blue 'w' if you don't start with some straight answers. What about financial bookkeeping? You have anything I can track my money with?

ABBOTT: Money.

COSTELLO: That's right. What do you have?

ABBOTT: Money.

COSTELLO: I need money to track my money?

ABBOTT: It comes bundled with your computer.

COSTELLO: What's bundled with my computer?

ABBOTT: Money.

COSTELLO: Money comes with my computer?

ABBOTT: Yes. No extra charge.

COSTELLO: I get a bundle of money with my computer? How much?

ABBOTT: One copy.

COSTELLO: Isn't it illegal to copy money?

ABBOTT: Microsoft gave us a license to copy Money.

COSTELLO: They can give you a license to copy money?

ABBOTT: Why not? THEY OWN IT!

(A few days later)

ABBOTT: Super Duper computer store. Can I help you?

COSTELLO: How do I turn my computer off?

ABBOTT: Click on 'START'.....

brad@mcarthurco.com
704.544.8429

Monday, August 1, 2011

I can deduct that?

With the current status of the economy, it is likely that most everyone knows at least one person that is seeking employment. Often there are costs associated with finding a job, did you know that some items can be a deduction on your taxes?

Here are some quick guidelines:


  • Costs are not deductible if you are searching for your first job

  • Employment and outplacement agency fees may be deductible

  • The printing and postage costs for mailing resumes my be deductible

  • All deductions only apply if you are seeking a job in your current occupation

  • Travel may be deductible, but there are some specific guidelines to follow related to amount of time spent looking for the job versus the amount of personal time spent while traveling

  • Costs are not deductible if there has been a significant amount of time between the end of your last job and the time you starting seeking employment

  • To deduct qualified expenses, the amount must be more than two percent of your income

To find out more about what expenses are deductible, visit www.irs.gov or consult with your CPA.


brad@mcarthurco.com


704.544.8429

Tuesday, July 19, 2011

Know Your Rights

This summer you might receive some heat in the form of an IRS Notice or other communications regarding this year or a previous year tax returns. Many of these notices will indicate that further funds are owed or that a mistake was made. If you receive any documents of the sort, it is important that you (1) understand what your are receiving, (2) know your options and rights in dealing with the matter, and (3) actually resolve the issue. The worst thing you can do as a taxpayer is receive a notice from the IRS and ignore it; simply hoping it will disappear. This can cost you more time and money in the long run.

The IRS actually provides a great starting point for reviewing your taxpayer rights at the following link:

http://www.irs.gov/advocate/article/0,,id=98206,00.html

In many cases, taxpayers are left confused about what the IRS Notice means and what the implications are for them as they move toward trying to resolve the issues with the IRS. If you find yourself in this situation, contact your CPA, provide them with the Notice, and file a Power of Attorney with the IRS granting your CPA the right to discuss the matter directly with the IRS. This will remove you as the middleman and allow your CPA to most effectively provide the IRS with the information needed to resolve your issues.

There’s not enough time or space on this blog to discuss the multitude of Notices that exists and varying implications for your personal tax situation; however, please take home with you today the importance of acknowledging IRS Notices and finding a solution.

brad@mcarthurco.com
704.544.8429

Wednesday, July 13, 2011

Congratulations John!






During the doldrums of the summer heat, we'd like to share some exciting news regarding our Firm. Our President, John McArthur has been recognized in Charlotte Magazine as a 2011 Five Star Wealth Manager!


This is the third consecutive year that John has been recognized for this award, and it is because of our loyal clients and colleagues that he has again received this accolade. Only two percent of the Five Star award recipients have been recognized three years in a row.


What does this award mean? The Five Star award recipients are selected through a survey process. The survey given is blank and nominations must be written in, not chosen from a list. The recipients are chosen because they provide excellent service for their clients, act with integrity and are committed to consistently performing their job to the best of their ability.


We are thrilled that John has been recognized again this year, please look for the awards in the September 2011 issue of Charlotte Magazine. Thank you for your continued support of John and our Firm.

brad@mcarthurco.com
704.544.8429







Tuesday, July 5, 2011

Back to Retirement Planning

This week, we’ll pick up where we left off in our series on Retirement planning for the small business owner. Today, we’re going to take a look at the Owner-Only 401(k), also commonly referred to as the Solo 401(k).

The IRS actually has a great resource regarding this plan and its specifics as found at the following link:

http://http://www.irs.gov/retirement/article/0,,id=238750,00.html

Let’s hit the highlights!

This plan is, as the name indicates, applicable to employers/owners with no eligible non-owner employees other than their spouse. Your business can be a corporation, partnership, or sole proprietorship. It offers flexibility and the ability to put away a large of sum of funds based on your taxable compensation.

What are your funding options?

There are two elements to the funding of a Solo 401(k). First, like any 401(k) plans, the employee (you the owner) can make elective deferrals up to 100% of compensation up to the annual contribution limit - $16,500 in 2011 ($22,000 if age 50 or over). In addition to this elective deferral, the employer (you the owner) can make nonelective contributions up to 25% of compensation as defined by the plan or per the self-employed individual guidelines as established in IRS Publication 560. The overall level of contributions cannot exceed $49,000 (or 54,500 if over age 50) in 2011.

In order to establish your funding pattern and understand your funding deadlines, contact your CPA to coordinate with your payroll service provider and your 401(k) provider.

Nondiscrimination Testing

One roadblock that small business owners often cite regarding 401(k) plans is that of nondiscrimination testing. This testing, “top heavy” testing, ties what you as an owner can match in employer funds directly to that of your employees. With the Solo 401(k), this potential roadblock is removed since there are no employees who could have received disproportional benefits. It is important to note that this test-free advantage disappears if an employee is hired.

Administration & Reporting

This sort of plan is generally required to file an annual report on Form 5500-EZ once plan assets are $250,000 or more in value at the end of the year. A plan with fewer assets may be exempt from the annual filing requirement.


As with any retirement plan decisions, your specific facts will determine the best fit for you. However, this plan can be a great tool for those business owners who do not employee any statutory employees. If you fall into this category and want more information on whether this plan is a good fit for you, please contact our Firm.

brad@mcarthurco.com
704.544.8429

Friday, June 24, 2011

Standard Mileage Rate Increased by IRS

We’re going to take a quick reprieve from discussing business retirement planning in order to pass out some information recently released by the IRS. For the majority of us, the rising price of gas has not gone unnoticed. With Announcement 2011-40, the IRS has taken notice as well by establishing a new standard mileage rate for the final six months of 2011. The optional standard mileage rates can be used by taxpayers for computing the deductible costs of operating an automobile for business, medical, or moving expense purposes and for determining the reimbursed amount of these expenses that is deemed substantiated.

The revised standard mileage rates effective July 1, 2011 are as follows:

• Business: 55.5 cents per mile
• Medical: 23.5 cents per mile
• Moving: 23.5 cents per mile
• Charitable: 14 cents per mile (no change from previous rate)

In lieu of using the standard mileage rates, taxpayers always have the option of calculating the actual costs of using their vehicle. If you own your business, this is a conversation you should be having with your CPA. Owning your automobile through your business can be tax advantageous under the right circumstances. If you are asking yourself that question and not receiving any advice, then contact our Firm and we will be glad to assist you in that decision.

brad@mcarthurco.com
704.544.8429

Monday, June 13, 2011

Retirement Planning for your Small Business

For the small business owner, day-to-day business decisions can be daunting enough to occupy their time and energy. However, from a retirement planning and tax deferral perspective, it is important to not neglect selecting and employing the right retirement plan for your business. There are a number of plans out there, each of which has its own unique characteristics, limits, and rules. We will take some time in our next few blogs to briefly review some of these plans. As always, these decisions should not be made in a vacuum, so please consult your CPA and other financial advisors before implementing a retirement plan in your business.

SEP IRA

The SEP IRA is an inexpensive plan to put into place and requires little commitment or maintenance from the business owner. If discretion is a key component of the plan you are looking for as a business owner, then the SEP IRA can fit that need. A SEP is established by executing a formal written agreement, providing each eligible employee with certain information about the SEP per the mandated guidelines, and establishing a SEP-IRA for each eligible employee. SEP plans must be established and funded by the tax-filing deadline of the business, including extensions.

Who is an Eligible Employee?

As defined by the IRS, an eligible employee is any individual who has attained the age of 21, has worked for the employer in at least 3 of the last 5 years, and has received at least $550 in compensation from the employer for the year. These are the maximum requirements; however, and employer can establish less restrictive requirements if desired.

What are the funding/contribution guidelines?

First and foremost, employee elective deferrals are not permitted. Only employer contributions are permitted and they are discretionary. Funding a SEP IRA is discretionary in the sense that you can elect whether or not to make a contribution and you can elect at what percentage that contribution will be made of total compensation. However, it is not discretionary as to who receives the contributions. If you, as a business owner, elect to make a SEP contribution at 10% of compensation, then that 10% must go to every eligible employee; you are not able to pick and choose.

Annual contributions an employer can make to the employee’s SEP-IRA cannot exceed the lesser of 25% of compensation or $49,000 for 2010 and 2011 (indexed for inflation). Once these contributions are made, they are vested 100% immediately. These contributions are not taxable to employees and are a tax deduction on the business tax return being filed.

A SEP IRA has its place in the retirement planning arena, and is worth considering for certain small business owners. It’s important to know your options, so we will look further into retirement plans in our next blog post as to analyze the Owner-Only 401(K) plan.

brad@mcarthurco.com
704.544.8429

Tuesday, May 24, 2011

Have You Ever Been Audited?

If your answer to that question is yes, then you make up a small percentage of taxpayers. You also know that it can be a time consuming activity and cause you frustration from start to finish. The IRS recently issued its annual data book, which provides statistical data on its fiscal year 2010 activities, and sheds some light on just who is getting audited out there.

Over 140 million individual income tax returns with a filing requirement were filed for 2009. Out of that amount a total of 1,581,394 were audited. Over 1.5 million audits sound like a lot, but it only represents about 1% of the total tax returns. Of those audits, only 21.7% of the individual audits were conducted by revenue agents, tax compliance officers, tax examiners and revenue office examiners. The remainder of the the audits were correspondence/mail audits.

Not surprisingly, your chances of being audited increase as your income increases. The audit percentages are as follows in respect to income levels:



  • .71% for those returns with adjusted gross income (AGI) between $100,000 and $200,000


  • 1.92% for those with $200,000 to $500,000 of AGI


  • 6.67% for those with at least $1 million but less than $5 million of AGI

The audit rates for business returns were as follows:



  • For all corporate returns other than Form 1120S, 1.4%


  • For partnership and S corporation returns, the audit rate was .4%


  • For corporations, size matters (values below indicate total assets reported):




    • $250,000 to $1.4 million, 1.4%


    • $1-$5 million, 1.7%


    • $5-$10 million, 3%


    • $10-$50 million, 13.4%


    • $250-$500 million, 16.1%


    • $5-$20 billion, 45.3%


    • $20 billion or more, 98%


Penalties. IRS assessed 27.1 million civil penalties against individual taxpayers. Of the 2010 assessments, the "top three" penalties in percentage terms were 57.3% for failure to pay, 27.3% for underpayment of estimated tax, and 13% for delinquency. On the business side, there were a total of 1,145,931 civil penalty assessments and 42.1% of these assessments were for either failure to pay or underpayment of estimated tax.


Criminal Cases. IRS initiated 4,706 criminal investigations in 2010 There were 3,034 referrals for prosecution and 2,184 convictions. Of those sentences, 81.5% were incarcerated (a term that includes imprisonment, home confinement, electronic monitoring, or a combination thereof).


For more direct access to related information, please follow the 2010 Data Book (Pub 55B) link: http://www.irs.gove/pub/irs-soi/10databk.pdf



brad@mcarthurco.com


704.544.8429

Monday, May 16, 2011

Cumbersome 1099 Rules Repealed

In mid April, President Obama signed the Comprehensive 1099 Taxpayer Protection and Replacement of Exchange Subsidy Overpayments Act of 2011. The Act repeals the provision of the Health Care Act of 2010 requiring 1099 reporting for the gross proceeds from the disposition of property. The Act also repeals the provision of the Health Care Act expanding the 1099 reporting rules to cover payments to corporations. However, the 1099 reporting requirements of §1041(a) continue to apply (as was the case prior to the Health Care Act) to payments made for attorneys' fees, and amounts paid to a corporation that provides medical or health care services.

The Act also repeals the provision of the Small Business Jobs Act of 2010 providing that landlords are considered to be in a trade or business and are therefore, required to file 1099s. In other words, under the Act, the general information reporting requirement for payments of $600 or more does not apply to persons who receive rental income from real estate who are not otherwise engaged in the trade or business of renting property. Therefore, the treatment of a person as engaged in a trade or business for purposes of the 1099 reporting requirement, based solely upon the receipt of rental income from real estate, is repealed.

All of the repealed items above were retroactively effective to January 1, 2011.

brad@mcarthurco.com
704.5448429

Thursday, April 28, 2011

Disaster Victims in North Carolina and Oklahoma Qualify for Tax Relief

The IRS has announced on its website that victims of severe storms, tornadoes and flooding on April 16, 2011 in counties in North Carolina that are designated as federal disaster areas qualifying for individual assistance have more time to make tax payments, file returns, and perform certain other time-sensitive acts. Similar relief was provided to victims of the severe storms, tornadoes, and straight-line winds on April 14, 2011 in Oklahoma.

Who gets relief?

Only taxpayers considered to be affected taxpayers are eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts. Affected taxpayers include:

1. Any individual whose principal residence, and any business entity whose principal place of business, is located in the counties designated as disaster areas.

2. Any individual who is a relief worker assisting in a covered disaster area, regardless of whether he is affiliated with recognized government or philanthropic organizations.

3. Any individual whose principal residence, and any business entity whose principal place of business, is not located in a covered disaster area, but whose records necessary to meet a filing or payment deadline are maintained in a covered disaster area.

4. Any estate or trust that has tax records necessary to meet a filing or payment deadline in a covered disaster area.

5. Any spouse of an affected taxpayer, solely with regard to a joint return of the husband and wife.

What may be postponed?

The IRS gives affected taxpayers until the extended date, as specified by county, to file most tax returns (including individual, estate, trust, partnership, C corporation, and S corporation income tax returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date falling on or after the onset date of the disaster (specified by county), and on or before the extended date.

North Carolina:

The following are federal disaster areas qualifying for individual assistance on account of severe storms, tornadoes and flooding on Apr. 16, 2011: Bertie, Bladen, Craven, Cumberland, Currituck, Greene, Halifax, Harnett, Herford, Hoke, Johnston, Lee, Onslow, Pitt, Robeson, Sampson, Wake and Wilson counties.

For these North Carolina counties, the onset date of the disaster was Apr. 16, 2011, the extended date is June 30, 2011 (which includes the April 18 deadline for filing 2010 individual income tax returns, making income tax payments and making 2010 contributions to an individual retirement account (IRA)). The deposit delayed date is May 2, 2011.

brad@mcarthurco.com
704.544.8429

Monday, March 28, 2011

Three Weeks and Counting

Until April 18…

Yes that’s right, the 18th of April is this year’s tax deadline, a dreaded day for some. Taxpayers will have until Monday, April 18 to file their 2010 tax returns and pay any tax due because Emancipation Day, a holiday observed in the District of Columbia, falls this year on Friday, April 15. By law, District of Columbia holidays impact tax deadlines in the same way that federal holidays do; therefore, all taxpayers will have three extra days to file this year. Taxpayers requesting an extension will have until Oct. 17 to file their 2010 tax returns. This year the IRS expects to receive more than 140 million individual tax returns, with most of those being filed by the April 18 deadline.

Need an Extension?

If you can't meet the April deadline to file your tax return, you can get an automatic six month extension of time to file from the IRS.
Here are seven things you need to know about filing an extension (directly from IRS Tax Tips):

1. Extra time to file. An extension will give you extra time to get your paperwork to the IRS, but it does not extend the time you have to pay any tax due. You will owe interest on any amount not paid by the deadline, plus a late payment penalty if you have not paid at least 90 percent of your total tax by that date.

2. File on time even if you can’t pay. If your return is completed but you are unable to pay the full amount of tax due, do not request an extension. File your return on time and pay as much as you can. The IRS will send you a bill or notice for the balance due. To apply online for a payment agreement, go to IRS.gov and click “Online Payment Agreement Application” at the left side of the home page under Online Services. If you are unable to make payments, call the IRS at 800-829-1040 to discuss your options.

3. Form to file. Request an extension to file by submitting Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return to the IRS, or make an extension-related electronic credit card payment.

4. E-file extension. You can e-file an extension request using tax preparation software with your own computer or by going to a tax preparer who has the software. The IRS will acknowledge receipt of the extension request if you file by computer.

5. Traditional Free File and Free File Fillable Forms. You can use both Free File options to file an extension.

6. Electronic funds withdrawal. If you ask for an extension via computer, you can also choose to pay any expected balance due by authorizing an electronic funds withdrawal from a checking or savings account. You will need the appropriate bank routing and account numbers.

7. How to get forms. Form 4868 is available for download at IRS.gov or may be ordered by calling 1-800-TAX-FORM (800-829-3676).

Check for a Refund

Once taxpayers file their federal return, they can track the status of their refunds by using the “Where's My Refund?” tool, located on the front page of www.IRS.gov. Taxpayers can generally get information about their refunds 72 hours after the IRS acknowledges receipt of their e-filed returns, or three to four weeks after mailing a paper return.

Taxpayers need to provide the following information from their tax returns: (1) Social Security Number or Individual Taxpayer Identification Number, (2) filing status, and (3) the exact whole dollar amount of your anticipated refund. If the U.S. Postal Service returns the taxpayer’s refund to the IRS, the individual may be able to use “Where’s My Refund?” to change the address the IRS has on file, online.

It’s been a hectic tax season and we are three weeks away to our major deadline of the year. If you work with a CPA, make it a priority to provide them with your documentation as soon as possible.
Look for our next blog after the tax season deadline passes.

Happy Tax Season to all!!!

brad@mcarthurco.com

704.544.8429