This Blog Has Been Moved to http://www.renucpa.com/blog/

We are excited to share that this blog has been moved to our new website - http://www.renucpa.com/blog/.

OVDI Deadline Extended to Sept. 9, 2011

As a result of the potential impact of Hurricane Irene, the IRS has extended the due date for Offshore Voluntary Disclosure Initiative (OVDI)to September 9, 2011. The original OVDI deadline was August 31, 2011.

This gives some time to the ones deciding to participate in this program.

IRS Increases Mileage Rate to 55.5 Cents per Mile

The Internal Revenue Service announced an increase in the optional standard mileage rates for the final six months of 2011. As a result the rate will increase to 55.5 cents a mile for all business miles driven from July 1, 2011, through Dec. 31, 2011 and will be 51 cent for the first six months of 2011.

Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business and other purposes.

New Offshore Accounts Disclosure Scheme 2011

After the success of the 2009 Offshore Voluntary Disclosure Program, once again, the Internal Revenue Service announced a special voluntary disclosure initiative designed to bring offshore money back into the U.S. tax system and help people with undisclosed income from hidden offshore accounts get current with their taxes. The new voluntary disclosure initiative will be available through Aug. 31, 2011.

For the 2011 initiative, there is a new penalty framework that requires individuals to pay a penalty of 25 percent of the amount in the foreign bank accounts in the year with the highest aggregate account balance covering the 2003 to 2010 time period. Some taxpayers will be eligible for 5 or 12.5 percent penalties. Participants also must pay back-taxes and interest for up to eight years as well as paying accuracy-related and/or delinquency penalties.

Taxpayers participating in the new initiative must file all original and amended tax returns and include payment for taxes, interest and accuracy-related penalties by the Aug. 31 deadline.

Participants in this intiatite generally face a 25 percent penalty, but taxpayers in limited situations can qualify for a 5 percent penalty.

The IRS also created a new penalty category of 12.5 percent for treating smaller offshore accounts. People whose offshore accounts or assets did not surpass $75,000 in any calendar year covered by the 2011 initiative will qualify for this lower rate.

The 2011 initiative offers clear benefits to encourage taxpayers to come in now rather than risk IRS detection. Taxpayers hiding assets offshore who do not come forward will face far higher penalty scenarios as well as the possibility of criminal prosecution.

Rental Property Owners subject to Form 1099 MISC reporting requirements

The 2010 Small Business Jobs Act signed by President Obama on September 27, 2010 expanded the scope of Form 1099 MISC reporting. As a result, for purposes of the information reporting requirements, a person receiving rental income from real estate is now considered to be engaged in a trade or business of renting property.

This means, beginning in 2011, persons who receive rental income from real estate (including individuals) are subject to the same information reporting requirements as taxpayers engaged in a trade or business and are required to report payments after 12/31/10 in excess of $600 on Form 1099s.

This will require businesses and individuals to obtain the required information including name, address and social security numbers from those who provide their services to the rental property owners most preferably on Form W-9.

In particular, rental income recipients making payments of $600 or more to a service provider (such as a plumber, landscaper, painter or accountant) in the course of earning rental income are required to provide an information return (typically Form 1099-MISC) to the IRS and to the service provider.

Exceptions to this reporting requirement are payments made for:
• Any individual, including any individual who is an active member of the uniformed services or an employee of the intelligence community [as defined in Sec. 121(d)(9)(C)(iv)], if substantially all rental income is derived from renting the principal residence (within the meaning of Sec. 121) of such individual on a temporary basis;
• Any individual who receives rental income of not more than the minimal amount, as determined under regulations prescribed by the Secretary; and
• Any other individual for whom the requirements would cause hardship, as determined under regulations prescribed by the Secretary.

Some Relief from Self Employment tax for Sch C filers

Generally, small business owners may not deduct the cost of health insurance when calculating self-employment tax. Under the Small Business Jobs Act, and subject to specific statutory limitations (i.e. deduction is not available if self-employed individual is eligible to participate in an employer-subsidized health plan maintained by the employer of the taxpayer or the taxpayer’s spouse), business owners can deduct the cost of health insurance for themselves and their family in the calculation of their 2010 self-employment tax.
This means atleast some saving for the Sch C filers in the self-employment tax they would owe!

Tax filing begins Mid-February for few Taxpayers

Tax filing that normally would start first or second week of January has been delayed this year. The delay is to update and program the tax breaks included in a compromise tax bill President Obama signed last week into the IRS tax system.

People claiming any of these three items — involving the state and local sales tax deduction, higher education tuition and fees deduction and educator expenses deduction as well as those taxpayers who itemize deductions on Form 1040 Schedule A — will need to wait to file their tax returns until tax processing systems are ready, which the IRS estimates will be in mid- to late February.

This delay means millions of taxpayers will have to wait longer to get their refunds next year.

2011 Tax Benefits - Inflation Adjustments

Following inflation adjustments relate to the tax provisions that were either modified or extended by the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 that became law on Dec. 17 -

• Personal & Dependent Exemption increased to $3700
• Standard Deduction increased to $11,600 for MFJ, $5800 for Single and MFS, $8,500 for HOH. Additional standard deduction for blind people and senior citizens increased to $1,150 for MFJ and $1,450 for singles and HOH.
• Tax-bracket thresholds increase for each filing status.
• Maximum earned income tax credit(EITC) for low and moderate income workers and working families increased to $5,751. The maximum income limit for EITC increased to $49,078.
• Modified adjusted gross income threshold for lifetime learning credit begins to phase out at $102K for MFJ and $51K for singles and HOH.

HSA & FSA - Allows Prescribed OTC medicines & Drugs

Notice 2010-59 issued by the IRS on September 3rd, 2010 provides guidance on use of HSA & FSA accounts to pay for over-the-counter medicines and drugs.

As per the rules, beginning January 1, 2011, over-the-counter medicines and drugs will only be reimbursable from these plans if the individual obtains a prescription. The new rules clarify that a "prescription" means a written or electronic order for a medicine or drug that meets the legal requirements of a prescription in the state in which the medical expense is incurred and that is issued by an individual who is legally authorized to issue a prescription in that state.

Online Registration System for Paid Tax Return Preparers

All compensated tax return preparers are required to register under the new registration system and get a PTIN before preparing returns in 2011. Individuals who currently possess a PTIN will need to reapply under the new system but generally will be reassigned the same number.

Registration fee is $64.25, regardless of whether you currently possess a PTIN or not. Attorneys, Certified Public Accountants (CPAs), and Enrolled Agents (EAs) are not exempt.

Link to the New Registration System

Paid Preparers should apply for or renew their PTINs before January 1st, 2011.

Small Business Jobs Bill of 2010 (HR-5297)

The Senate passed the Small Business Jobs Act of 2010. The House is set to vote on the bill where its expected to pass.

The following provision is included in the Bill...

1. One-year extension of the 50-percent bonus depreciation provision for qualified property placed in service during 2010.

2. Increase Section 179 expense deduction for 2010 and 2011 to $500,000, combined with an increase in the phase out threshold to $2 million.

Will keep you posted on the developments....

Late filing Penalty for S Corp

Time is running out and the tax returns for S Corporation are due soon.
The final deadline to file S Corp tax returns (Form 1120S) is September 15th, 2010 if an extension was requested.

S Corporation's no longer enjoy the luxury to file late and not pay the penalty. One of the recent changes by the IRS is charging penalty on late filing of the S Corporation tax returns.

For tax years beginning after 2009, the late filing penalty for an S corporation return is $195 for each month or part of a month (up to 12 months) the return is late (or does not contain the required information) multiplied by the total number of persons who were shareholders in the corporation during any part of the corporation's tax year

So for a S Corp with two or more stockholders this penalty could add up to an exhorbitant amount.

Relief from penalty is available only if the S Corp shows that the late filing was due to reasonable cause.

Late Filing Penalty for Partnership

Time is running out and the tax returns for partnership are due soon.
The final deadline to file partnership tax returns (Form 1065) is September 15th, 2010 if an extension was requested.

Partnership no longer enjoy the luxury to file late and not pay the penalty.

For tax years beginning in 2009, the late filing penalty for a partnership return is $89 for each month or part of a month (up to 12 months) the return is late (or does not contain the required information) multiplied by the total number of persons who were partners in the partnership during any part of the partnership's tax year.

For tax years beginning after 2009, the late filing penalty for a partnership return is $195 for each month or part of a month (up to 12 months) the return is late (or does not contain the required information) multiplied by the total number of persons who were partners in the partnership during any part of the partnership's tax year.

So for a partnership with two or more partnership this penalty could add up to an exhorbitant amount.

Relief from penalty is available only if the partnership shows that the late filing was due to reasonable cause.

Early Distribution from Retirement Plan & Taxes

Considering the current economic conditions, most of us are turning to our retirement funds for financial needs. However, we need to be aware of the tax consequences that may follow with such distributions.

Since the contributions to these plans are made from our before tax dollars (I have excluded Roth contributions/plans from the discussion here), the distributions when taken out will be fully taxable. In addition,the law imposes a 10% additional tax on early distributions from a qualified retirement plan or deferred annuity contract before reaching age 59 1/2. Whereas you cannot get out of the resulting tax liability, you may be able to save the early withdrawal penalty.

There are certain exceptions to 10% early withdrawal penalty.

The following six exceptions apply to distributions from any qualified retirement plan:

1. Distributions made to your beneficiary or estate on or after your death.
2. Distributions made if you are are totally and permanently disabled.
3. Distributions made as part of a series of substantially equal periodic payments over the life expectancy of the owner or life expectancies of the owner and the beneficiary. If these distributions are from a qualified plan other than an IRA, you must separate from service with this employer before the payments begin for this exception to apply.
4. Distributions that are equal to or less than your deductible medical expenses, that is, the amount of your medical expenses that is more than 7.5% of your adjusted gross income.
5. Distributions made due to an IRS levy of the plan.
6. Distributions to qualified reservists.

The following additional exceptions apply only to distributions from a qualified retirement plan other than an IRA:

1. Distributions made to you after you separated from service with your employer (State or local government), if the separation occurred in or after the year you reached age 55 or distributions from qualified governmental defined benefit plans if you were a qualified public safety employee who separated from service on or after you reached age 50,
2. Distributions made to an alternate payee under a qualified domestic relations order(QDRO), and
3. Distributions of dividends from employee stock ownership plans.

Affordable Care Act & Health Care

Employer-Provided Health Coverage — Not Taxable
Starting in tax year 2011, the Affordable Care Act requires employers to report the value of the health insurance coverage they provide employees on each employee's annual Form W-2. This reporting is for informational purposes only, to show employees the value of their health care benefits so they can be more informed consumers. The amount reported does not affect tax liability, as the value of the employer contribution to health coverage continues to be excludible from an employee's income and it is not taxable.

Small Business Health Care Tax Credit
This new credit helps small businesses and small tax-exempt organizations afford the cost of covering their employees and is specifically targeted for those with low- and moderate-income workers. The credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees.

Health Coverage for Older Children
Health coverage for an employee's children under 27 years of age is now generally tax-free to the employee. It applies to various work place and retiree health plans. These changes allow employers with cafeteria plans to permit employees to begin making pre-tax contributions to pay for this expanded benefit. This also applies to self-employed individuals who qualify for the self-employed health insurance deduction on their federal income tax return.

Tax Tip - Review your 2009 Tax Return to determine the need to Amend the Return.

If you forgot to include some income or to take a deduction or to claim a credit(including the first time homebuyer or repeat homebuyer credit) on your tax return – you can correct it by amending your tax return.

Generally, to claim a refund, you must file Form 1040X within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later.

Use Form 1040X, Amended U.S. Individual Income Tax Return, to correct a previously filed Form 1040, 1040A or 1040EZ. Be sure to check the box for the year of the return you are amending on the Form 1040X, Line B. The newly revised Form 1040X (Rev. January 2010) has only one column used to show the corrected figures and an area on the front of the form where you explain why you are filing Form 1040X.

Closing Deadline Extended - Eligible Homebuyer Credit

Eligible taxpayers who contracted to buy a home, qualifying for the first-time homebuyer credit, before the end of April now have until Sept. 30, 2010 to close the deal.

The Homebuyer Assistance and Improvement Act of 2010, signed by the President, extended the closing deadline from June 30 to Sept. 30 for any eligible homebuyer who entered into a binding purchase contract on or before April 30 to close on the purchase of the home on or before June 30, 2010.

Time is running out for all those who can benefit from IRA conversion in 2010

Beginning in 2010, the rules for conversions of traditional IRA money to a Roth IRA are changing by eliminating the MAGI limitations and hence, making more investors eligible to convert their traditional IRAs to Roth IRAs.

However, look before you leap....just because you can convert to a Roth IRA doesn't necessarily mean that you should.
First of all, you need to evaluate if you should convert the traditional IRA to Roth. There are various factors to consider including the age to retirement, your income source at retirement, your need for funds, tax rates in future and appreciation expected in these accounts.

If you are already retired and over 59 1/2 years than you can take distribution over a period of time and spread the taxes over a number of years.

Higher your tax bracket, the more tax you will have to pay on conversion. But if you expect taxes to go up in the long term, conversion will make sense as you may have to pay a higher tax rate on these distributions later.

Also to note is the special tax treatment for Roth IRA conversions available for 2010 which allows taxpayers to spread the taxes due on the conversion over two years and thus making the tax burden much easier to handle by requiring only one-half of the taxes to be paid during 2011 and the other half of the Roth conversion taxes to be paid in 2012.

Feel free to contact for a detailed evaluation considering your financials facts and long term goals.

One-Time Special Filing Relief Program for Small Charities

Small nonprofit organizations at risk of losing their tax-exempt status because they failed to file required returns for 2007, 2008 and 2009 can preserve their status by filing returns by Oct. 15, 2010, under a one-time relief program.

The relief announced is not available to larger organizations required to file the Form 990 or to private foundations that file the Form 990-PF.

Fees for Preparer Tax Identification Numbers

IRS released proposed regulations that would establish a fee for individuals who apply for a preparer tax identification number (PTIN).

The proposed regulations (REG-139343-08) would establish a fee of $50, payable to the IRS, to cover technology costs, as well as compliance and outreach efforts associated with the new PTIN program. The proposed regulations would also provide for an additional fee (expected to be substantially lower than $50) to be charged by the third-party vendor chosen to operate the new online system. That fee amount is expected to be announced soon, as well as additional details about the launch of a new online application system. These fees could change in future years as program costs are reevaluated.

Click the link to find more details on Oversight of Federal tax return preparation