From AICPA Tax News
President Obama’s FY2011 Budget includes a list of tax proposals that will impact individuals and businesses. Several proposals will appear familiar as they are just extensions from last year’s stimulus legislation while others are revisits to past proposals. Congress will shortly begin to review these proposals and probably add some of its own to this list. Following is a partial listing separated by whether they are tax reduction or tax increase proposals.

Business Proposals
 Tax Reductions:

• Extend Section 179 expensing limit of $250,000 one more year
• Extend 50% Bonus Depreciation one more year
• Remove cell phones and other similar devices from the definition of Listed Property
• Make the R&E credit permanent
• Extend COBRA Subsidy payments until Jan. 1, 2011
• Create a new Jobs Tax credit for hiring new employees

 Tax Increases:

• Tax Carried Interest as ordinary income
• Repeal Last in First Out (LIFO) inventory accounting method
• Repeal lower of cost or market inventory accounting method
• Codify the Economic Substance Doctrine
• Institute International Tax Reforms
• Rewrite the definition of “Independent Contractor”

Individual Proposals
 Tax Reductions:

• Extend AMT indexation permanently
• Extend Making Work Pay Credit for one year
• Extend Education Tax Credits permanently
• Extend Energy Tax Credits for one more year
• Extend Economic Recovery Payment for one more year

 Tax Increases:

• Allow 2001 Tax Rates to expire and continue current rates for taxpayers below $250,000 but increase rates for those above
• Reinstate 3% limitation on itemized deductions and on personal exemptions
• Limit the tax benefit of itemized deductions to 28%
• Increase Capital Gains Rates to 20% for those with incomes above $250,000, keep 15% rate for those below
• Estate Taxes- The President’s budget presumes that the 2009 estate tax rates and exemption levels will be reinstated for 2010 and 2011. It also proposes changes in valuation rules by limiting valuation discounts for minority interests and tightening rules on the use of grantor retained annuity trusts (GRATs).

In addition to these the list of expiring provisions proposed by the House of Representatives in December, would be extended for one year. The full FY 2011 Budget Proposal is available at the Department Of Treasury.

IR-2009-69, July 29, 2009

WASHINGTON — The Internal Revenue Service today announced its first successful prosecution related to fraud involving the first-time homebuyer credit and warned taxpayers to beware of this type of scheme.

On Thursday July 23, 2009, a Jacksonville, Fla.-tax preparer, James Otto Price III, pled guilty to falsely claiming the first-time homebuyer credit on a client’s federal tax return. Price faces the possibility of up to three years in jail, a fine of as much as $250,000, or both.

To date, the IRS has executed seven search warrants and currently has 24 open criminal investigations in pursuit of potential instances of fraud involving the credit. The agency has a number of sophisticated computer screening tools to quickly identify returns that may contain fraudulent claims for the first-time homebuyer credit.

“We will vigorously pursue anyone who falsely tries to claim this or any other tax credit or deduction,” said Eileen Mayer, Chief, IRS Criminal Investigation. “The penalties for tax fraud are steep. Taxpayers should be wary of anyone who promises to get them a big refund.”

Whether a taxpayer prepares his or her own return or uses the services of a paid preparer, it is the taxpayer who is ultimately responsible for the accuracy of the return. Fraudulent returns may result not only in the required payment of back taxes but also in penalties and interest.

First-Time Homebuyer Credit

The First-Time Homebuyer Credit, originally passed in 2008 and modified in 2009, provides up to $8,000 for first-time homebuyers. The purchaser, however, must qualify as a first-time homebuyer, which for purposes of this credit means someone who has not owned a primary residence in the past three years. If the taxpayer is married, this requirement also applies to the taxpayer’s spouse. The home purchase must close before Dec. 1, 2009, to qualify, and the credit may not be claimed on the purchaser’s tax return until after the taxpayer closes and has purchased the home.

Different rules apply for homes bought in 2008.

Full details and instructions are available on the official IRS Web site: http://www.irs.gov

Many clients are interested in the tax benefits associated with residential energy expenditures. Tax credits are available at 30% of the cost, up to $1,500, in 2009 and 2010 (for existing homes only). Here is a brief overview on which home improvements are eligible:

* Credit equals 30% of expenditures, capped at $1,500.

Qualifying improvements:

• Insulation materials
• Exterior windows (including skylights)
• Exterior doors
• Central air conditioners
• Natural gas, propane and oil water heaters or furnaces
• Hot water boilers
• · Electric heat pump water heaters
• Certain metal roofs and stoves
• Advanced main air circulating fans

If you have questions regarding this or other tax related topics, contact Doug Mathey, CPA, MT at (330) 864-6661 or Douglas.Mathey@BCGcompany.com

The American Recovery and Reinvestment Act has brought on many changes, it is hard to keep up with all of them, and more importantly know which ones affect you.  We will try and post them as they come through.

The most recent change announced is the the new withholding adjustment for pension plans.

WASHINGTON – As part of a wider outreach effort to educate taxpayers about the benefits they will receive under the American Recovery and Reinvestment Act, the Internal Revenue Service today released new withholding adjustment procedures for pension plans.

In February, the IRS issued revised withholding tables incorporating the Making Work Pay Tax Credit, one of the key provisions of the American Recovery and Reinvestment Act. That change resulted in more take home pay for more than 120 million American households and provided an immediate economic stimulus. The new procedure for pensions will make withholding more accurate for pension recipients. (more…)

Businesses aren’t the only organizations that struggle in a dismal economy. Not-for-profit organizations find that in times like these charitable donations are often minimized. “Overall donations are down compared with 2007, and donations of used clothing and furniture to thrift shops have fallen by 20 percent, “  says Maj. George Hood, a Salvation Army spokesman in an interview with Daniel Gross a senior editor at Newsweek.

Giving back doesn’t always mean giving a monetary donation. Time spent volunteering can make just as big of an impact, you may even be able to receive a tax break. If you are a volunteer worker for a charity, you should be aware that your generosity may entitle you to some tax breaks. (more…)

WASHINGON – The Internal Revenue Service today reminded individual and business taxpayers that many energy-saving steps taken this year may result in bigger tax savings next year.

The recently enacted American Recovery and Reinvestment (ARRA) of 2009 contained a number of either new or expanded tax benefits on expenditures to reduce energy use or create new energy sources.The IRS encouraged individuals and businesses to explore whether they are eligible for any of the new energy tax provisions.

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Taxpayers who buy a new car or several other types of motor vehicles this year may be entitled to a special tax deduction when they file their 2009 federal tax returns next year. The tax break is part of the American Recovery and Reinvestment Act of 2009.

Here are seven things you should know about this new deduction:

1. State and local sales taxes paid on up to $49,500 of the purchase price of qualifying vehicles are deductible.

2. Qualified motor vehicles generally include new (not used) cars, light trucks, motor homes and motorcycles.

3. Purchases must occur after Feb. 16, 2009, and before Jan. 1, 2010.

4. This is an above-the-line deduction and can be taken regardless of whether or not you itemize other deductions on your tax return.

5. Taxpayers will claim this deduction when filing their 2009 federal income tax return next year.

6. The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.

7. The deduction may not be taken on 2008 tax returns.
Consumers who are considering buying a new car may find that this tax incentive means there has never have been a better time to buy.

For more information about the sales and excise tax deduction for motor vehicle purchases visit the official IRS web site at IRS.gov.

While the new law tax changes in the American Recovery and Reinvestment Act of 2009 were the most significant developments in the first quarter of 2009, many other tax developments may affect you, your family, and your livelihood. These other key developments in the first quarter of 2009 are summarized below. Please call us for more information about any of these developments and what steps you should implement to take advantage of favorable developments and to minimize the impact of those that are unfavorable.

Retirement plan account participants, IRA owners, and their beneficiaries do not have to take required minimum distributions (RMDs) for 2009. The IRS has issued guidance clarifying that:

… If you would have been required to make RMDs for 2009 and you do make withdrawals in 2009 (that are not RMDs for 2008): (a) you might be able to roll over the withdrawn amounts into other eligible retirement plans; but (b) you must still include any previously untaxed portion of the withdrawal that you do not roll over in your gross income.

… No 2008 RMDs are waived, even for eligible individuals who chose to delay taking their 2008 RMD until Apr. 1, 2009 (e.g., retired employees and IRA owners who turned 70 1/2 in 2008).

… The 2009 RMD waiver applies to individuals who may be eligible to postpone taking their 2009 RMD until Apr. 1, 2010 (generally, retired employees and IRA owners who attain age 70 1/2 in 2009). However, the law does not waive any RMDs for 2010.

… If a beneficiary is receiving distributions over a 5-year period, he or she can waive the distribution for 2009, effectively permitting the beneficiary to take distributions over a 6-year period. (more…)

Making Work Pay Credit: Questions and Answers, IRS Web Site

IRS has posted a number of questions and answers (Q&As) on the Making Work Pay Credit (MWPC) on its web site. They are grouped into four categories: general issues, Form W-4, new withholding tables, and economic recovery payments. The most widely applicable information from each of the four categories is summarized below. (more…)

The recovery rebate credit is a one-time benefit for people who didn’t receive the full economic stimulus payment last year and whose circumstances may have changed, making them eligible now for some or all of the unpaid portion. Read the complete article to see if you are eligible.

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