Miller, Searles, Bahr & Wills Certified Public Accountants
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Tax Legislation, CurrentBusiness Tax Provisions of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 On December 17, 2010, the president signed into law the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. This Act, in essence, is a two-year extension of the 2001/2003 Bush-era tax cuts. The Act also incorporated many business extensions of the so-called “annual extenders.” The following is a list of the provisions that may affect your 2011, and in some cases, 2010 and 2012 tax liability.
BUSINESS INVESTMENT INCENTIVES
Bonus Depreciation. The Act extends the 50% bonus depreciation provision for qualified property acquired after December 31, 2007, and before January 1, 2013. In addition, it allows 100% bonus depreciation for property acquired and placed in service after September 8, 2010, and before January 1, 2012. Thus, taxpayers can claim a 100% depreciation deduction for property acquired and placed in service in the latter third of 2010, all of 2011 (and 2012, for certain property). Property placed in service during 2012 (2013 for certain property) would be eligible for 50% bonus depreciation. The Act also extends the provision allowing corporate taxpayers to elect to accelerate the AMT and research credits in lieu of bonus depreciation to the 2011 and 2012 taxable years.
Other special rules apply to this new round of extension property, labeled “round 2 extension property.” If you plan on continuing or increasing your business asset investments, we should sit down to discuss all the procedures to qualify for the maximum depreciation deduction allowable.
Small Business Expensing. Under prior legislation, for taxable years beginning in 2010 and 2011, small businesses may elect to expense up to $500,000 of capital investment, with the phase out beginning at $2,000,000. The limits were scheduled to be lowered to $25,000 with a $200,000 limitation for 2012. Under the new law, for 2012, such amount is raised to $125,000, with a phase out threshold of $500,000 (both figures to be adjusted for inflation). A $25,000 maximum and $200,000 phase out threshold will apply for tax years beginning after 2012 and will not be adjusted for inflation.
In view of the 100% bonus depreciation property acquired and placed in service from September 9, 2010, through December 31, 2011, for any property that you acquired or may acquire in excess of the expensing limitations during that period, you should consider whether it would be advantageous to claim 100% bonus depreciation or to accelerate AMT or research credits, rather than electing to expense the cost. Please contact me with the specific property acquired and its cost so that we can determine which alternative would yield the greatest tax benefit for your particular circumstances.
TEMPORARY EMPLOYEE PAYROLL TAX CUT
For 2011 only, the 2010 TRA reduces the Social Security (OASDI) tax rate on employees to 4.2% (from 6.2%) and reduces the self-employment tax (SECA) rate to 10.4% (from 12.4%). The employer OASDI tax rate stays at 6.2%. Note that the 2010 TRA does not reduce the OASDI contribution base, which is $106,800 for 2011. Thus, the maximum OASDI tax in 2011 for employees is $4,485.60
This rate reduction is not taken into account in determining the SECA tax deduction allowed for determining net earnings from self employment. As a result, the deduction for 2011 remains 7.65% of self-employment income (determined without regard to the deduction). For federal laws other than the tax Code, the rate of tax in effect under §3101(a) is determined without regard to the reduction in that rate under the 2010 TRA. Also, the income tax deduction allowed under for taxable years beginning in 2011 is determined using 59.6% of the OASDI tax paid, plus one half of the HI tax paid.
EXTENSION OF CERTAIN EXPIRING PROVISIONS
Energy Incentives
Incentives for Biodiesel and Renewable Diesel. The Act extends, from December 31, 2009, the credits for biodiesel, renewable diesel used as fuel, and biodiesel mixture, and the payments for non-taxable biodiesel mixture, for fuel sold or used through December 31, 2011. The Act also provides that biodiesel mixture credits properly determined during 2010 will be allowed, and any refunds or payments attributable to those credits will be made according to IRS guidance
Credit for Refined Coal Facilities. The Act extends, from December 31, 2009, the renewable electricity production credit for facilities producing refined coal that are placed in service before January 1, 2012.
New Energy Efficient Home Credit. The Act extends, from December 31, 2009, the new energy efficient home credit for qualified homes acquired from an eligible contractor on or before December 31, 2011.
Excise Tax Credits and Outlay Payments for Alternative Fuel and Alternative Fuel Mixtures. The Act allows credits for alternative fuel and alternative fuel mixtures (excepting, in both cases, liquefied hydrogen) and payments for non-taxable alternative fuel and alternative fuel mixtures (excepting, in both cases, liquefied hydrogen) to such fuels sold or used on or before December 31, 2011. The Act also continues to exclude black liquor from credit eligibility. Finally, the Act provides that credits for alternative fuel or alternative fuel mixtures properly determined during 2010 will be allowed, and refunds or payments attributable to those credits will be made according to IRS guidance.
Suspension of Limitation on Percentage Depletion for Oil and Gas from Marginal Wells. The Act extends the temporary suspension of the taxable income limit on percentage depletion for oil and gas from marginal wells to depletion determined for taxable years beginning before January 1, 2012.
Extension of Grants for Specified Energy Property in Lieu of Tax Credits. The Act extends the American Recovery and Reinvestment Act of 2009 grants for specified energy property in lieu of tax credits through 2011.
Extension of Provisions Related to Alcohol Used as Fuel. The Act extends the alcohol fuels credit to any sale or use of such fuels for any period on or before December 31, 2011. However, the credit does not apply to any period before January 1, 2012, during which time the Highway Trust Fund gasoline excise tax financing rates are 4.3 cents per gallon. In addition, the Act extends the reduced credit for ethanol blenders through 2011. The Act also provides that the payments for non-taxable alcohol fuel mixtures apply to such fuel sold or used on or before 2011.
Energy Efficient Appliance Credit. The Act extends the energy efficient appliance credit for qualifying dishwashers, clothes washers and refrigerators manufactured in calendar year 2011. The Act decreases the aggregate credit amount allowed to $25,000,000, less the credit amount allowed in all prior tax years. Also, the Act excludes the most efficient refrigerators and front-loading clothes washers from the aggregate credit amount.
Alternative Fuel Vehicle Refueling Property. The Act extends, from December 31, 2010, the alternative fuel vehicle refueling property credit to any non-hydrogen related property placed in service on or before December 31, 2011.
Business Tax Relief
Research Credit. Although the research credit expired on December 31, 2009, the Act extends the credit for amounts paid or incurred on or before December 31, 2011. The December 31, 2008 termination date for the alternative incremental credit election remains unchanged.
Indian Employment Credit. The Act extends, from December 31, 2009, the Indian employment credit to tax years beginning on or before December 31, 2011.
New Markets Tax Credit. The Act sets a new national designated investment limitation for the new markets tax credit of $3.5 billion in 2010 and 2011, and permits unused credits to be carried over to 2016.
Railroad Track Maintenance Credit. The Act extends, from December 31, 2010, the railroad track maintenance credit for 50% of qualified railroad track maintenance expenditures paid or incurred in taxable years beginning before January 1, 2012.
Mine Rescue Team Training Credit. The Act extends, from December 31, 2009, the mine rescue team training credit of 20% of the cost of training rescue team members to tax years beginning before January 1, 2012.
Employer Wage Credit for Employees Who Are Active Duty Members of the Uniformed Services. The Act extends, from December 31, 2009, the activated military reservist wage payment credit of 20% of differential wage payments made to activated military reservists for payments made before January 1, 2012.
15-Year Straight-Line Cost Recovery for Qualified Leasehold Improvements, Qualified Restaurant Buildings and Improvements, and Qualified Retail Improvements. The Act extends, from December 31, 2009, the special 15-year cost recovery period for certain leasehold improvements, restaurant buildings and improvements, and retail improvements to qualified property placed in service before 2012.
7-Year Recovery Period for Motorsports Entertainment Copmplexes. The Act extends, from December 31, 2009, the 7-year recovery period for motorsports entertainment complexes to property placed in service before 2012.
Accelerated Depreciation for Business Property on an Indian Reservation. The Act extends, from December 31, 2009, the accelerated depreciation rules for business property located on an Indian reservation to property placed in service before 2012.
Charitable Deduction for Contributions of Food Inventory. The Act extends the special rule for charitable deductions for contributions of food inventory made from the taxpayer's trade or business that expired on December 31, 2009, to contributions made on or before December 31, 2011.
Charitable Deduction for Contributions of Book Inventories to Public Schools. The Act extends the special rule for charitable deductions for contributions of book inventory to public schools that expired on December 31, 2009, to contributions on or before December 31, 2011.
Charitable Deduction for Corporate Contributions of Computer Inventory for Educational Purposes. The Act extends the special rule for charitable deductions for contributions of computer technology and equipment for educational purposes that expired on December 31, 2009, to contributions made on or before December 31, 2011.
Election to Expense Mine Safety Equipment. The Act extends, from December 31, 2009, the election to expense mine safety equipment, generally available for 50% of the cost of any qualified advanced mine safety equipment property, to property placed in service before 2012.
Special Expensing Rules for Certain Film and Television Productions. The Act extends, from December 31, 2009, the special expensing rules for certain film and television producers to qualified television or film production costs beginning before 2012. The deduction is generally applicable to the first $15 million of qualified television or film production costs.
Expensing of Environmental Remedial Costs. The Act extends, from December 31, 2009, the election to deduct environmental remediation costs in lieu of capitalization through December 31, 2011.
Deduction Allowable with Respect to Income Attributable to Domestic Production Activities of Puerto Rico. The Act extends the special domestic production activities rules for Puerto Rico to apply for the first six taxable years of a taxpayer beginning after December 31, 2005, and before January 1, 2012.
Modification of Tax Treatment of Certain Payments to Controlling Exempt Organizations. Under §512(b)(13)(E), certain payments made to an exempt organization by a controlled organization must be treated as unrelated business income. For payments received or accrued before January 1, 2010, the amount taken into income was limited to “excess payments” as determined under §482. The Act extends the excess payments rule to include payments received or accrued before January 1, 2012.
Treatment of Certain Dividends of Regulated Investment Companies. The Act extends, from December 31, 2009, the exemption from the 30% withholding tax and for qualified interest-related dividends and short-term capital gain dividends received by a foreign person from a regulated investment company (RIC) through December 31, 2011.
RIC Qualified Investment Entity Treatment Under FIRPTA. The Act extends, from December 31, 2009, the inclusion of a regulated investment company (RIC) within the definition of a “qualified investment entity” for purposes of determining whether a distribution from a RIC is subject to FIRPTA tax and withholding pursuant to §§897 and 1445 through December 31, 2011. The extension, however, does not apply to the withholding requirement for any payment made before the December 17, 2010 enactment date of the Act. However, a RIC that withheld and remitted tax on post-2009 distributions before the enactment date is not held liable to the distributee for such amounts.
Basis Adjustment to Stock of S Corporations Making Charitable Contributions of Property. Section 1367(a)(2) provides that an S corporation shareholder's §1367(a)(2)(B) basis reduction resulting from the corporation's charitable contribution of property equaled the shareholder's pro rata share of the adjusted basis of the contributed property. The Act extends this special rule from December 31, 2009, to contributions made on or before December 31, 2011.
Empowerment Zone Tax Incentives. The Act extends, from 2009, the designation of certain economically depressed census tracts as Empowerment Zones, within which businesses are eligible for special tax incentives, through 2011.
Tax Incentives for Investment in the District of Columbia. The Act extends for two years (through 2011) the designation of certain economically depressed census tracts within the District of Columbia as the District of Columbia Enterprise Zone, within which businesses are eligible for special tax incentives.
Work Opportunity Credit. Businesses are allowed to claim a work opportunity tax credit equal to 40% of the first $6,000 of wages paid to new hires of one of nine targeted groups. While scheduled to expire August 31, 2011, the Act extends the credit through December 31, 2011, effective for individuals who begin work for an employer after December 17, 2010.
Exclusion of 100 Percent of Gain on Certain Small Business Stock. The Act extends the 100% exclusion of the gain from the sale of qualifying small business stock to stock that is acquired before January 1, 2012, and held for more than five years.
Qualified Zone Academy Bonds. Qualified zone academy bonds (QZABs) are tax credit bonds which offer the holder a tax credit instead of interest. They are used to finance renovations, equipment and course material purchases, and teacher training at a qualified zone academy. A qualified zone academy is generally a public school or academic program within that school located in an enterprise community or empowerment zone). The program is designed to work with the business community to increase graduation and employment rates. The Act extends the QZAB program by providing an additional $400 million for 2011. The Act also repeals the prior law direct subsidy feature of QZABs.
GO Zone Disaster Relief
Increase in Rehabilitation Credit. The Act extends, from December 31, 2009, the increased rehabilitation credit for qualified rehabilitation buildings and certified historic structures located in the Gulf Opportunity Zone, for amounts paid or incurred on or before December 31, 2011.
Low-Income Housing Credit Rules for Buildings in GO Zones. The Act extends the placed in service date for qualification of additional allocations of low-income housing credits made in 2006, 2007, and 2008 for buildings located in the GO Zone, the Rita GO Zone, or the Wilma GO Zone to buildings placed in service before January 1, 2012.
Bonus Depreciation Deduction Applicable to the GO Zone. The Act extends, from December 31, 2009, the additional depreciation deduction for Gulf Opportunity Zone extension property for property be placed in service by December 31, 2011.
As you can see, the Act covers many, but not all, of the various proposed tax provisions important to the business community. Please contact me so that I can review your particular circumstances in order to maximize your tax benefits for 2010, as well as plan for 2011, and beyond.
Individual Tax Provisions of the Tax Relief, Unemployment Insurance Reauthorization, an d Job Creation Act of 2010:
After much speculation and anticipation, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 TRA) was signed into law. The 2010 TRA, in essence, is an extension of the 2001/2003 Bush-era tax cuts for two years. Also, the 2010 TRA provides a payroll tax holiday for 2011 and a change in the exemption amount and maximum tax rate for estate taxation. The 2010 TRA extends and modifies many of the provisions first enacted in the 2009 American Recovery and Relief Act. Finally, the bill incorporated many business and individual extensions of the so-called annual extenders. The following is a list of individual provisions that will certainly affect your tax liability for 2011, 2012, and possibly 2010, as well.
Individual Tax Rate Provisions
• Reduction in income tax rates for individuals: The 2010 TRA extends the 10% individual income tax bracket as well as the 25%, 28%, 33%, and 35% individual income tax brackets for an additional two years, through 2012.
• Reduction in capital gains rates: The 2010 TRA allows the capital gains rates to remain at 0% for taxpayers below the 25% bracket and 15% for taxpayers in the 25% rate and above, through 2012. Prior to the 2010 TRA, the capital gains rates were scheduled to expire at the end of 2010, and revert to 10% and 20%, respectively.
• Dividends of individuals taxed at capital gains rates: The current dividend rates of 0% for taxpayers below the 25% bracket and 15% for taxpayers in the 25% bracket and above are extended through 2012. These rates were set to expire at the end of 2010, taxing dividends at the ordinary income rates.
• Phaseout of marriage penalty in the 15% bracket: The 15% regular income tax bracket for married couples filing joint returns at twice the corresponding bracket for an unmarried individual filing a single return (marriage penalty relief for the 15% bracket ) is extended through 2012.
• Temporary employee payroll tax cut: For 2011 only, the 2010 TRA reduces the Social Security (OASDI) tax rate on employees to 4.2% (from 6.2%) and reduces the self-employment tax (SECA) rate to 10.4% (from 12.4%). The employer OASDI tax rate stays at 6.2%. Also, the 2010 TRA does not reduce the amount that can be deducted against income, which is $106,800 for 2011. Thus, the maximum OASDI tax in 2011 for employees would be $4,485.60. In addition, the rate reduction is not taken into account in determining the SECA tax deduction allowed for determining net earnings from self- employment. As a result, the deduction for 2011 would remain 7.65% of self-employment income (determined without regard to the deduction). The income tax deduction for taxable years beginning in 2011 is determined using 59.6% of the OASDI tax paid, plus one half of the HI tax paid. For federal laws other than the tax Code, the rate of tax in effect under §§3101(a) is determined without regard to the reduction
Alternative Minimum Tax Relief
• Extension of alternative minimum tax exemption amount and credit provisions The 2010 TRA increases the AMT exemption amount to $72,450 for tax years beginning in 2010, and $74,450 for tax years beginning in 2011. For an individual who is not married and is not a surviving spouse, the 2010 TRA increases the AMT exemption amount to $47,450 for tax years beginning in 2010, and $48,450 for tax years beginning in 2011. In addition, both the personal credits and nonrefundable credits can offset AMT through 2011.
Individual Deductions and Credits
• Elimination of marriage penalty in standard deduction: The 2009 and 2010 basic standard deduction for married couples filing joint returns is twice the basic standard deduction for an unmarried individual filing a single return. The 2010 TRA extends this marriage penalty relief for an additional two years, through 2012.
• Repeal of phaseout for personal exemptions: You may recall that the phase out of the personal exemption (referred to as PEP) for higher income individuals had been gradually decreasing, so that by 2010, the phaseout was entirely repealed. The Act extends the repeal of PEP for an additional two years, through 2012. Thus, personal exemption amounts will continue to be allowed regardless of the taxpayer's income.
• Phaseout of overall limitation on itemized deductions: Similar to the PEP, the phase-out of the overall limitation on deductions for higher income taxpayers had gradually decreased until its 2010 complete repeal. The 2010 TRA extends this repeal for an additional two years, through 2012.
• Modifications to child tax credit: Generally, taxpayers with income below certain threshold amounts may claim the child tax credit to reduce federal income tax for each qualifying child under the age of 17. Prior legislation increased the credit from $500 to $1,000 (per child), allowed the credit to offset AMT as well as regular tax, and converted it from nonrefundable to refundable for certain taxpayers. The 2010 TRA preserves the child tax credit amount at $1,000 per child, extends the allowance against the regular tax as well as AMT, and maintains the refundability provision by allowing earnings above $3,000 to count towards the refundable portion of the credit (subject to the 2009 special rules discussed below) through 2012.
• Expansion of adoption credit and adoption assistance programs: The 2010 TRA extends for one additional year, through 2012, the $13,170 adoption credit amount and the income exclusion of the same amount for employer-assistance programs. Note , however, that although the current refundable credit will still exist through 2011, the 2012 credit amount is presently slated to become nonrefundable and return to the inflation-adjusted lower amount of $12,170. For 2013 and after, barring further legislation, the credit will revert back to its pre-2001 levels of $6,000, adjusted for inflation; and only adoptions for special needs children will qualify for the credit or assistance exclusion
• Dependent care credit: This is a credit based on an applicable percentage of child and dependent care expenses for children under age 13 and disabled dependents. Eligible expenses of $3,000 for one eligible dependent and $6,000 for two or more eligible dependents, along with the increased applicable percentage of 35% are extended for an additional two years, through 2012.
• Earned income credit: The 2009 American Recovery and Reinvestment Act (2009 ARRA) increased the earned income credit to 45% of a working family's first $12,570 (inflation-adjusted $12,590 for 2010) of earned income for families with three or more children and also increased the beginning point of the phase-out for married couples filing a joint return. The 2010 TRA extends, through 2012, the 2009 ARRA increases to the credit percentage and the married filing jointly phase-out threshold.
• Refunds disregarded in the administration of Federal programs and federally assisted programs: The 2010 TRA disregards all refundable tax credits, such as the refundable portion of the EITC and the child tax credit, as income for means tested programs. However, this provision does not apply to amounts received after December 31, 2012.
• Deduction for Certain Expenses of Elementary and Secondary School Teachers: The 2010 TRA extends the $250 above-the-line deduction for professional expenses incurred by elementary and secondary schoolteachers. The deduction, available for tax years beginning in 2002-2009 prior to extension, is now available for taxable years beginning in 2002-2011.
• Deduction of State and Local Taxes: The 2010 TRA extends the election available to taxpayers who itemize their deductions to deduct state and local sales taxes in lieu of state and local income taxes. This election expired at the end of 2009, and is now available through 2011
• Contributions of Capital Gain Real Property Made for conservation Purposes: The increased contribution limitations and carryover period for charitable contributions of certain conservation property expired on December 31, 2009. The 2010 TRA extends this provision to include contributions made through December 31, 2011.
• Above-the-Line Deduction for Qualified Tuition and Related Expenses: The 2010 TRA extends the above-the-line deduction for qualified tuition and related expenses. The maximum deduction is $4,000 for taxpayers with adjusted gross incomes not exceeding $65,000 ($130,000 for joint returns) and $2,000 for taxpayers with adjusted gross incomes not exceeding $80,000 ($160,000 for joint returns). This deduction expired at the end of 2009 and is now available through 2011.
• Tax-Free Distributions from Individual Retirement Plans for Charitable Purposes: Through 2011, the 2010 TRA allows taxpayers age 701/2 or older to make tax-free distributions to charities from their traditional individual retirement accounts (IRAs) and Roth IRAs up to $100,000 per taxpayer, per taxable year. This provision expired at the end of 2009. Thus, in order to, in effect, retroactively reinstate this provision, the 2010 TRA permits individuals to make charitable transfers during January of 2011 as if they were made during 2010.
• Parity for Exclusion from Income for Employer-Provided Mass Transit and Parking Benefits: The 2010 TRA extends the increase in the monthly exclusion for employer-provided transit and vanpool benefits through the end of 2011. Prior to February 17, 2009, $100 per month could be excluded as a qualified transportation fringe benefit in combined vanpooling and transit pass benefits and $175 per month in qualified parking benefits. All limits were adjusted annually for inflation. In 2009, the combined monthly exclusion for employer-provided vanpool and transit pass benefits was increased temporarily to the same level as the exclusion for employer-provided parking ($230 for 2010, as indexed for inflation). This provision was set to expire on December 31, 2010.
• Deduction for mortgage insurance premiums: The 2010 TRA extends for one year, through 2011, the itemized deduction for the cost of mortgage insurance on a qualified personal residence. The deduction is phased-out ratably by 10% for each $1,000 by which the taxpayer's adjusted gross income (AGI) exceeds $100,000, so that the deduction is unavailable for a taxpayer with an AGI in excess of $110,000.
Tax provisions to expire on 12/31/09: Above the line teacher deduction
Additional standard deduction for real property taxes for non-itemizers
Election to deduct sales tax instead of state and local income tax
Above the line deduction on pruchase of certain vehicles
Higher education expense deduction
Waiver of minimum required distribution rules for certain retirement plans
Tax-free treatment of qualified charitable distributions from IRA's for individuals over age 70 1/2
Using nonrefundable personal credits against both regular and AMT tax
Alternative motor vehicle credit for qualified hybred motor vehicles
Research and experimentation expenses credit
New markets tax credit
Credit for construction of new energy efficient homes
Economic recovery payment - $250 refundable credit
Increased AMT exemption
Five year cost recovery for farm business machinery and equipment
Fifteen year straight line recovery for certain qualified leasehold improvements
Expensing of brownfields environmental remediation costs.
100% of net income limitation on oil and gas percentage depletion
Enhanced charitable contributions for certain food, books and computers
Unemployment excluded from income up to $2,400
Reduced estimated tax payments for qualifying small businesses.
Tax provisions set to expire on 12/31/10:
Mortgage insurance premium deduction
American opportunity tax credit (reinstates the Hope Credit as it was in 2008)
Computer technology and equipment for a 529 college account distribution
The lower $3,000 threshold for calculating the refundable portion of the child tax credit; credit reduced to $500
Personal energy property credit
Alternative motor vehicle credit for qualified vehicles
Acquisition date for qualified small business stock to qualify for the 75% gain exclusion
Increased EIC percentage for taxpayers with greater than three children and increase married filing joint phase out.
Making work pay credit
Energy efficient appliance credit.
Increased IRC section 179 depreciation
Work opportunity tax credit
Repeal of itemized deduction overall limit and personal exemption phase-out
Deferral of business debt discharge income from reacquiring debt
Income exclusion for benefits paid to volunteer firefighters and emergency medical responders
Seven year recognition period for S-corporation built in gains tax.
Summary of the 2010 HIRE Act – What’s in it for Your Business? Every day the headlines are ugly: unemployment, possible double dip recession and so on. Headlines such as these do little to encourage business growth because no one is willing to go out on a limb and start hiring new employees. But, in March 2010 a new tax law was passed to encourage more businesses to hire employees from the large ranks of the unemployed. However, in my conversations with business owners I’ve notice that some don’t seem to be aware of passage of this law or how it could absolutely be of benefit to them. This may be especially the case if the company does it’s own payroll in house and the bookkeeper or business owner(s) have not been keeping up with payroll tax law changes as they should. For many businesses that outsource their payroll to a processing company they have probably been made aware of the potential benefit. However, just this past week during a telephone conversation with a payroll company for one of my clients I was surprised to learn that they had not made my client aware of how their business would probably have recent new hires that qualify for the credit. So, my message here is to alert business owners that they may qualify for this credit. Also, if you have your payroll done by an outsourced payroll provider make sure you initiate the conversation with that provider to insure that their payroll records on any recent new hires are carefully evaluated for eligibility. To receive the HIRE Act credit requires careful preparation of the quarterly Form 941’s. But, unless you follow up with your payroll service provider, they may not know that a particular employee(s) is eligible. Payroll Tax Forgiveness for the employer As a qualified employer, the HIRE Act effectively exempts you from paying the 6.2% OASDI Social Security tax for wages paid for any 2010 period beginning after March 18, 2010 (the date of enactment) through December 31, 2010, for new employees if certain conditions are met. Talk with your accountant and/or payroll company to help you understand what the qualifications are and assess whether or not this exemption applies to your business. The primary consideration is that the employee you hire must have previously been unemployed within specific criteria – which can also apply to seasonal employees – The employee will be required to sign a form and provide it to the employer documenting their statement of unemployment prior to hire. Business Credit Increase for Retention of Newly Hired Individuals in 2010 Taxpayers can increase their general business credit by the lesser of $1,000 or 6.2% of wages for a 52-week period for each retained worker that satisfies a minimum employment period. There are certain conditions that apply regarding the definition of "retained worker," duration of employment and number of weeks that the employee receives wages in order to realize this credit that go beyond the context of this brief overview. One thing to keep in mind is that an employer can claim both the work opportunity tax credit and the retention credit on the same qualified employee. So, be sure to discuss all of this with the accountant who prepares your taxes to make sure these valuable credits are not overlooked Summary of the Worker, Homeownership, and Business Assistance Act of 2009 (H.R. 3548) On Nov. 6, President Obama signed into law the Worker, Homeownership, and Business Assistance Act of 2009. The legislation expands both the first-time homebuyer credit and a special net operating loss carryback provision. The House voted 403-12 Nov. 5 after the Senate approved the measure Nov. 4, 98-0. The following is a summary of the tax provisions of the Act.
0.2 Percent FUTA Surtax
The Act extends from 2009 through June 30, 2011, the overall 6.2% tax on employers under the Federal Unemployment Tax Act (FUTA). This tax consists of the 6% permanent tax rate and the temporary 0.2% surtax rate. The Act delays the repeal of the temporary surtax.Effective for wages paid after December 31, 2009. Extension and Modification of First-Time Homebuyer Credit
The Act expands the first-time homebuyer credit by extending the December 1, 2009, expiration date of the first-time homebuyer credit to taxpayers who enter into a written binding contract to purchase a home before May 1, 2010, and who close before July 1, 2010. Thus, taxpayers have until April 30, 2010 (June 30, 2010 to close) to purchase a home and receive the first-time homebuyer credit.Further, the Act increases the income limitations from $75,000 to $125,000 for individuals, and from $150,000 to $225,000 for joint filers.The Act continues to allow taxpayers to elect to treat a home purchase as having occurred in the year prior to the year of purchase in order to expedite any refund.The Act also expands the first-time homebuyer definition to include homebuyers who are long-time residents of the same principal residence. The Act allows for a $6,500 ($3,250 for married filing separately) credit for homebuyers who have been in their current residence for five consecutive years out of the last eight years and who purchase another residence.The Act also places a limit on the purchase price of the home to $800,000 for either the first-time homebuyer credit or its expanded version for long-time residents.The Act places limitations on who is eligible for the credit. Pursuant to the Act, individuals who can be claimed as a dependent of another taxpayer for the taxable year that the credit is claimed are ineligible for the credit. Also, the Act requires that the taxpayer or the taxpayer's spouse be 18 or over to claim the first-time homebuyer credit.The Act also waives the current recapture rules for individuals on qualified official extended duty, including members of the military, foreign services, and intelligence community employees.The Act allows military personnel (including Foreign Service members and intelligence community members) serving outside the United States for at least 90 days in 2009 or before May 1, 2010, one additional year to qualify for the credit. Thus, pursuant to the Act, taxpayers who are members of military, intelligence community, or Foreign Service have until May 1, 2011, to purchase a house and until July 1, 2011, to close.The application of the expanded homebuyer credit, the change in the income limitations, the $800,000 purchase price limit, and the age and dependent limits are effective for purchases after Nov. 6, 2009. The extension of the credit, the binding contract exception, and the extension of the credit for military personnel are effective for purchases after Nov. 30, 2009. The recapture rules regarding individuals on official extended duty are effective for dispositions after Dec. 31, 2008.
Five-Year Carryback of Operating Losses
The Act extends the NOL carryback period from two to up to five years for tax years beginning in or ending in 2009.
The American Recovery and Reinvestment Act of 2009 (2009 ARRA) extended the NOL carryback period from two to up to five years for tax years beginning in or ending in 2008. However, the 2009 ARRA extension only applied to small businesses with gross receipts of $15 million or less.The Act allows all businesses to carryback NOLs for up to five years for losses incurred in taxable years beginning after December 31, 2007 and beginning before January 1, 2010, but can only elect for one taxable year, not two. Pursuant to the Act, businesses are able to offset 50% of the available income from the fifth taxable year preceding the loss, and 100% of all income in the remaining four carryback years.
Pursuant to the Act, eligible small businesses that previously elected to carryback an “applicable 2008 NOL” (please keep in mind that under 2009 ARRA taxpayers were given the election to carry back NOLs for taxable years that began or ended in 2008, but not both) under 2009 ARRA are allowed to elect to carry back the “applicable 2008 NOL” (under 2009 ARRA) and are not limited to the 50% limitation applicable to the fifth taxable year preceding the loss with respect to the “applicable 2008 NOL. ”The Act imposes special rules for life insurance company net operating losses, and the alternative tax net operating loss deduction. The Act also provides an exception to these provisions for TARP recipients.
Effective for net operating losses occurring after December 31, 2007.
Exclusion from Gross Income of Qualified Military Base Realignment and Closure Fringe
The Act clarifies that payments made under the Military Homeowner Assistance Program (HAP) are tax-exempt. The 2009 ARRA expanded the HAP program (which provides tax-exempt payments to military personnel who sell their home that declined in value) due to a base closure. While the 2009 ARRA expanded the program to include payments made due to permanent reassignments and certain other purposes, it did not provide that those payments are tax-exempt. The Act makes all HAP payments tax-exempt.Effective for payments made after February 17, 2009.
Delay in Application of Worldwide Allocation of Interest
The Act delays the effective date of worldwide interest allocation rules for seven years, until taxable years beginning after December 31, 2017. Pursuant to the Act, the required dates for making the worldwide affiliated group election and the financial institution group election are changed accordingly.The Act also eliminates the special phase-in rule that applies in the case of the first taxable year to which the worldwide interest allocation rules apply.
Increase in Penalty for Failure to File a Partnership or S Corporation Return
Pursuant to the Act, the amount of the penalty for a failure with respect to filing either a partnership or S corporation return is increased from $89 to $195 per partner or shareholder. The penalty applies to any partner or shareholder who held such status during any part of the taxable year.Effective for returns for taxable years beginning after December 31, 2009.
Certain Tax Return Preparers Required to File Returns Electronically
The Act requires electronic filing by specified tax return preparers. Pursuant to the Act, “specified tax return preparers” are all return preparers except those who reasonably expect to file 10 or fewer individual income tax returns in a calendar year. The Act also defines the term “individual income tax return” to include returns for estates and trusts as well as individuals.Effective for tax returns filed after December 31, 2010.
Time for Payment of Corporate Estimate Taxes
The Act increases the required payment of estimated tax otherwise due in July, August, or September, 2014, by 33 percentage points.
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