According to IRS Commissioner Doug Shulman, “This new effort gives those hiding money in foreign accounts a tough, fair way to resolve their tax problems once and for all. And it gives people a chance to come in before we find them.”

The new initiative – called the 2011 Offshore Voluntary Disclosure Initiative (OVDI) — includes several changes from the 2009 Offshore Voluntary Disclosure Program (OVDP). The overall penalty structure for 2011 is higher, meaning that people who did not come in through the 2009 voluntary disclosure program will not be rewarded for waiting. However, the 2011 initiative does add new features.

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 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.

“This is a fair offer for people with offshore accounts who want to get right with the nation’s taxpayers,” Shulman added. “This initiative offers them the chance to get certainty about how their case will be handled. Just as importantly, those who truly come in voluntarily can avoid criminal prosecution as well.”

The IRS has launched a new section on www.IRS.gov that includes the full terms and conditions on the 2011 Offshore Voluntary Disclosure Initiative, including an extensive set of questions and answers to help taxpayers and tax professionals. The web site also includes details on how people can make a voluntary disclosure.

For additional information concerning the 2011 Offshore Voluntary Disclosure Initiative, please contact Michael O’Brien at Sasserath & Zoraian, LLP on (631) 368-3110.

Below you will find ways on how to take advantage of these opportunities:

1. Roth IRA rollovers no longer restricted. You can now make a qualified rollover contribution to a Roth IRA, regardless of the amount of your modified adjusted gross income.
2. Income from Roth rollover can be spread out. Half of any income that results from a rollover or conversion to a Roth IRA from another retirement plan in 2010 is included in income in 2011, and the other half in 2012, unless you elect to include all of it in 2010.
3. Self-employed health insurance deduction. Effective March 30, 2010, a self-employed person who paid for health insurance may be able to include in his self-employed health insurance deduction any premiums he paid to cover his child who was under age 27 at the end of 2010, even if the child was not his dependent. Also, health insurance costs for a taxpayer and his family are deductible in computing 2010 self-employment tax.
4. Small business health insurance credit. There’s a new tax credit for an eligible small employer who makes qualifying contributions to buy health insurance for his employees. This credit is very complex but it can yield substantial tax savings. In general, the credit is 35% of premiums paid and can be taken against regular and alternative minimum tax.
5. Limits on personal exemptions and itemized deductions ended. You no longer lose part of your deduction for personal exemptions and itemized deductions, regardless of the amount of your adjusted gross income.
6. Personal casualty and theft loss limit reduced. Each personal casualty or theft loss is limited to the excess of the loss over $100 (instead of the $50 limit that applied for 2009). This yields larger deductions and thus greater tax savings for affected individuals.
7. Corrosive drywall damage. A taxpayer who paid for repairs to his personal residence or household appliances because of corrosive drywall that was installed between 2001 and 2008 may be able to deduct those amounts as casualty losses under a special safe harbor crafted by IRS.
8. Homebuyer credit. An eligible first-time homebuyer (and a long-term resident treated as a first-time homebuyer) may be able to claim a first-time homebuyer credit for a home that was purchased in 2010. To qualify, the home must have cost $800,000 or less. You generally cannot claim the credit for a home you bought after April 30, 2010. However, you may be able to claim the credit if you entered into a written binding contract before May 1, 2010, to buy the home before July 1, 2010, and actually bought the home before October 1, 2010.
9. Adoption credit. The maximum adoption credit is $13,170 per eligible child for both non-special needs adoptions and special needs adoptions. In addition, the adoption credit is refundable, i.e., you get the credit even if it exceeds your taxes.
10. Gifts to charity. The provision that excludes up to $100,000 of qualified charitable distributions (distributions to a charity from an Individual Retirement Account) has been extended. If you elect, a qualified charitable distribution made in January of 2011, will be treated as made in 2010.
11. Enhanced small business expensing (Section 179 expensing). To help small businesses quickly recover the cost of capital outlays, small business taxpayers can elect to write off these expenditures in the year they are made instead of recovering them through depreciation. For 2010, you generally may expense up to $500,000 of qualifying property placed in service during the tax year. This annual limit is reduced by the amount by which the cost of property placed in service exceeds $2,000,000.
12. Special depreciation allowance. Businesses that acquire and place qualified property into service after September 8, 2010 can now claim a depreciation allowance in the placed-in-service year equal to 100% of the cost of the property. Businesses that acquired qualified property from January 1, 2010 through September 8, 2010 can claim a bonus first-year depreciation allowance of 50% of the cost of the property.
13. Cellular telephones. Cellular telephones (cell phones) and other similar telecommunications equipment have been removed from the categories of “listed property”. This means that cell phones can be deducted or depreciated like other business property, without onerous record keeping requirements.
14. Carryback of general business credits. Generally, a business’s unused general business credits can be carried back to offset taxes paid in the previous year, and the remaining amount can be carried forward for 20 years to offset future tax liabilities. However, for 2010, eligible small businesses can carry back unused general business credits for five years instead of just one.
15. Luxury auto limits. First-year luxury auto limits for vehicles first placed in service in 2010 are $11,060 for autos and $11,160 for light trucks and vans (for vehicles ineligible for bonus depreciation, or if the taxpayer elects out, $3,060 and $3,160, respectively).

As you can see, there are many new rules for this filing season. To make sure that you take maximum advantage of them and preexisting rules, which themselves can be complicated, you should come to see us so that we can go over your complex tax picture.

1. Start gathering your records: Round up any documents or forms you’ll need when filing your taxes: receipts, canceled checks and other documents that support income or deductions you’re claiming on your return.
2. Be on the lookout: W-2s and 1099s will be coming soon; you’ll need these to file your tax return.
3. Use Free File: Let Free File do the hard work for you with brand-name tax software or online fillable forms. It’s available exclusively at http://www.irs.gov. Everyone can find an option to prepare their tax return and e-file it for free. If you made $58,000 or less, you qualify for free tax software that is offered through a private-public partnership with manufacturers. If you made more or are comfortable preparing your own tax return, there’s Free File Fillable Forms, the electronic versions of IRS paper forms. Visit www.irs.gov/freefile to review your options.
4. Try IRS e-file: After 21 years, IRS e-file has become the safe, easy and most common way to file a tax return. Last year, 70 percent of taxpayers – 99 million people – used IRS e-file. Starting in 2011, many tax preparers will be required to use e-file and will explain your filing options to you. This is your chance to give it a try. IRS e-file is approaching 1 billion returns processed safely and securely. If you owe taxes, you have payment options to file immediately and pay by the tax deadline. Best of all, combine e-file with direct deposit and you get your refund in as few as 10 days.
5. Consider other filing options: There are many different options for filing your tax return. You can prepare it yourself or go to a tax preparer. You may be eligible for free face-to-face help at an IRS office or volunteer site. Give yourself time to weigh all the different options and find the one that best suits your needs.
6. Consider Direct Deposit: If you elect to have your refund directly deposited into your bank account, you’ll receive it faster than waiting for a paper check.
7. Visit the IRS website again and again: The official IRS website is a great place to find everything you’ll need to file your tax return: forms, publications, tips, answers to frequently asked questions and updates on tax law changes.
8. Remember this number: 17 Check out IRS Publication 17, Your Federal Income Tax on the IRS website. It’s a comprehensive collection of information for taxpayers highlighting everything you’ll need to know when filing your return.
9. Review! Review! Review! Don’t rush. We all make mistakes when we rush. Mistakes will slow down the processing of your return. Be sure to double-check all the Social Security Numbers and math calculations on your return as these are the most common errors made by taxpayers.
10. Don’t panic! If you run into a problem, remember the IRS is here to help. Try http://www.irs.gov or call toll-free at 800-829-1040.

Meanwhile, for most taxpayers, the 2011 tax filing season starts on schedule. However, tax law changes enacted by Congress and signed by President Obama in December mean some people need to wait until mid- to late February to file their tax returns in order to give the IRS time to reprogram its processing systems.

Some taxpayers – including those who itemize deductions on Form 1040 Schedule A – will need to wait to file. This includes taxpayers impacted by any of three tax provisions that expired at the end of 2009 and were renewed by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act Of 2010 enacted Dec. 17. Those who need to wait to file include:

In addition to extending those tax deductions for 2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act also extended those deductions for 2011 and a number of other tax deductions and credits for 2011 and 2012 such as the American Opportunity Tax Credit and the modified Child Tax Credit, which help families pay for college and other child-related expenses. The Act also provides various job creation and investment incentives including 100 percent expensing and a two-percent payroll tax reduction for 2011. Those changes have no effect on the 2011 filing season.

The IRS will announce a specific date when it can start processing tax returns impacted by the recent tax law changes. In the interim, taxpayers affected by these tax law changes can start working on their tax returns, but they should not submit their returns until IRS systems are ready to process the new tax law changes. Additional information will be available at www.IRS.gov.

For taxpayers who must wait before filing, the delay affects both paper filers and electronic filers. The IRS urges taxpayers to use e-file instead of paper tax forms to minimize confusion over the recent tax law changes and ensure accurate tax returns.

Except for those facing a delay, the IRS will begin accepting e-file and Free File returns on Jan. 14. Additional details about e-file and Free File will be announced later this month.

Starting on January 1, 2011, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) for the purposes mentioned above will be:

• 51 cents per mile for business miles driven
• 19 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle.

In addition, the business standard mileage rate cannot be used for any vehicle used for hire for more than four vehicles used simultaneously.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

For more details please click Revenue Procedure 2010-51 and Notice 2010-88.

New Form 8941, Credit for Small Employer Health Insurance Premiums, and newly revised Form 990-T are now available on IRS.gov. The IRS also posted on its website the instructions to Form 8941 and Notice 2010-82, both of which are designed to help small employers correctly figure and claim the credit.

Included in the Affordable Care Act enacted in March, the small business health care tax credit is designed to encourage both small businesses and small tax-exempt organizations to offer health insurance coverage to their employees for the first time or maintain the coverage they already have.

The new guidance addresses small business questions about which firms qualify for the credit by clarifying that a broad range of employers meet the eligibility requirements, including religious institutions that provide coverage through denominational organizations, small employers that cover their workers through insured multiemployer health and welfare plans, and employers that subsidize their employees’ health care costs through a broad range of contribution arrangements.

In general, the credit is available to small employers that pay at least half of the premiums for single health insurance coverage for their employees. It is specifically targeted to help small businesses and tax-exempt organizations that primarily employ moderate- and lower-income workers.

Small businesses can claim the credit for 2010 through 2013 and for any two years after that. For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small businesses and 25 percent of premiums paid by eligible tax-exempt organizations. Beginning in 2014, the maximum tax credit will increase to 50 percent of premiums paid by eligible small business employers and 35 percent of premiums paid by eligible tax-exempt organizations.

The maximum credit goes to smaller employers –– those with 10 or fewer full-time equivalent (FTE) employees –– paying annual average wages of $25,000 or less. The credit is completely phased out for employers that have 25 or more FTEs or that pay average wages of $50,000 or more per year. Because the eligibility rules are based in part on the number of FTEs, not the number of employees, employers that use part-time workers may qualify even if they employ more than 25 individuals.

Eligible small businesses will first use Form 8941 to figure the credit and then include the amount of the credit as part of the general business credit on its income tax return.

Tax-exempt organizations will first use Form 8941 to figure their refundable credit, and then claim the credit on Line 44f of Form 990-T. Though primarily filed by those organizations liable for the tax on unrelated business income, Form 990-T will also be used by any eligible tax-exempt organization to claim the credit, regardless of whether they are subject to this tax.

More information about the credit, including a step-by-step guide to claiming the credit and answers to frequently asked questions, is available on the Affordable Care Act page on IRS.gov.

The UK Government wants the UK to be a favored place for businesses to invest. That is why the June Budget announced the reduction of Corporation Tax for large and small businesses with a cut in the main rate from 28% to 24% over the next 4 years and a reduction in the small profits rate from 21% to 20% from April 2011.

However, the Government recognizes that a competitive corporate tax system is not just about rates. That is why the Government has published the document ‘Corporate Tax Reform: delivering a more competitive system.’ This document is designed to provide a degree of certainty to business over the Government’s plans, as it works with business to deliver this ambitious program of reforms.

The tax reform announcements include:

• A Corporate Tax Road Map that commits to principles that will underpin these reforms and a clear timetable to deliver these changes, including how the Government will engage with business at each stage of policy development;
• Details on how the Government will reform the UK’s outdated Controlled Foreign Company (CFC) rules by introducing more targeted rules in 2012 and how they will apply to financing and intellectual property. As a first step to make the rules more competitive, a package of interim improvements will be introduced in 2011;
• introducing a Patent Box in April 2013 – a 10% Corporation Tax rate on profits from patents, reaffirming the Government’s commitment to retain and build on the existing Research and Development (R&D) tax credit scheme to create the right environment for innovative companies to prosper;
• A commitment to legislate an opt-in exemption for profits earned in foreign branches of UK companies in 2011. Under this more territorial approach, companies in the new regime will no longer be subject to UK Corporation Tax on their foreign branch profits.

This program ensures the Government’s commitment to a competitive and stable tax system that provides businesses with the confidence to expand and invest in the UK in the years ahead.

The UK Exchequer Secretary to the Treasury, David Gauke MP said:

In recent years, too many businesses have left the UK amid concerns over tax competitiveness. It’s time to reverse this trend. Our tax system was once viewed as an asset. And it needs to be an asset again.”

Gauke added, “That is why the Government is prioritizing corporate tax reform. Responding to the concerns of businesses, the UK is headed for a more competitive, simpler, and more stable tax system in the future, creating the right conditions for investment.”

Details of the announcement may be found at: http://www.hm-treasury.gov.uk/corporate_tax_reform.htm.

]]> http://blog.sz-cpas.com/2010/12/30/uk-publishes-detail-of-tax-reform-program/feed/ 0 http://blog.sz-cpas.com/2010/12/20/payroll-tax-cut-to-boost-take-home-pay-for-most-workers-new-withholding-details-now-available-on-irs-gov/ http://blog.sz-cpas.com/2010/12/20/payroll-tax-cut-to-boost-take-home-pay-for-most-workers-new-withholding-details-now-available-on-irs-gov/#comments Mon, 20 Dec 2010 06:29:57 +0000 Alan R. Sasserath, CPA, MS and staff http://blog.sz-cpas.com/?p=473 The New Year seems to be going to start right as the Internal Revenue Service released instructions to help employers implement the 2011 cut in payroll taxes, along with new income-tax withholding tables that employers will use during 2011. The instructions will help millions of Americans take home higher pay as the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 comes into effect.

Information to help implement the 2011 cut in payroll taxes is now on IRS.gov. Notice 1036 contains the percentage method income tax withholding tables, the lower Social Security withholding rate and related information that most employers need to implement these changes. Publication 15, (Circular E), Employer’s Tax Guide, containing the extensive wage bracket tables that some employers use, will be available on IRS.gov soon.

With these developments, workers will see their take-home pay rise during 2011 because the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 provides a two percentage point payroll tax cut for employees, reducing their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid. This reduced Social Security withholding will have no effect on the employee’s future Social Security benefits.

The new law also maintains the income-tax rates that have been in effect in recent years.

Employers should start using the new withholding tables and reducing the amount of Social Security tax withheld as soon as possible in 2011 but not later than Jan. 31, 2011.
The IRS recognizes that the late enactment of these changes makes it difficult for many employers to quickly update their withholding systems. For that reason, the agency asks employers to adjust their payroll systems as soon as possible, but not later than Jan. 31, 2011.

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, 2011.

Employers and payroll companies will handle the withholding changes, so workers typically won’t need to take any additional action, such as filling out a new W-4 withholding form.

As always, however, the IRS urges workers to review their withholding every year and, if necessary, fill out a new W-4 and give it to their employer. For example, individuals and couples with multiple jobs, people who are having children, getting married, getting divorced or buying a home, and those who typically wind up with a balance due or large refund at the end of the year may want to consider submitting revised W-4 forms. >a href=”http://www.irs.gov/pub/irs-pdf/p919.pdf”>Publication 919, How Do I Adjust My Tax Withholding?, provides more information to workers on making changes to their tax withholding.

In another development, the IRS issued temporary and final regulations requiring all Federal tax deposits to be made using the Electronic Federal Tax Deposit System (EFTPS) beginning January 1, 2011.

The regulations note that the Treasury Department will no longer maintain the paper deposit coupon system after 2010. The regulations do not change the deposit requirements or thresholds. Taxpayers who owe minimal amounts and are not subject to the tax rules will continue to be permitted to make payment with the filed tax return. For example, Form 941 filers with a deposit liability of less than $2,500 for a return may continue to submit payment with the return.

Depositing electronically offers many advantages over the paper coupon system. It allows deposits to be made at any time, from a computer or telephone, and to schedule deposits in advance. The system also greatly reduces the possibility of errors and eliminates the need to order and retain coupons.

For more information, see the final regulations.

]]> http://blog.sz-cpas.com/2010/12/20/payroll-tax-cut-to-boost-take-home-pay-for-most-workers-new-withholding-details-now-available-on-irs-gov/feed/ 0 http://blog.sz-cpas.com/2010/12/15/irs-announces-retirement-savings-limit-to-remain-unchanged-in-2011/ http://blog.sz-cpas.com/2010/12/15/irs-announces-retirement-savings-limit-to-remain-unchanged-in-2011/#comments Wed, 15 Dec 2010 06:24:27 +0000 Alan R. Sasserath, CPA, MS and staff http://blog.sz-cpas.com/?p=470 The Internal Revenue Service has announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2011. In general, these limits will either remain unchanged, or the inflation adjustments for 2011 will be small. Highlights include:
• The elective deferral (contribution) limit for employees who participate in section 401(k), 403(b), or 457(b) plans, and the federal government’s Thrift Savings Plan remains unchanged at $16,500.
• The catch-up contribution limit under those plans for those aged 50 and over remains unchanged at $5,500.
• The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are active participants in an employer-sponsored retirement plan and have modified adjusted gross incomes (AGI) between $56,000 and $66,000, unchanged from 2010. For married couples filing jointly, in which the spouse who makes the IRA contribution is an active participant in an employer-sponsored retirement plan, the income phase-out range is $90,000 to $110,000, up from $89,000 to $109,000. For an IRA contributor who is not an active participant in an employer-sponsored retirement plan and is married to someone who is an active participant, the deduction is phased out if the couple’s income is between $169,000 and $179,000, up from $167,000 and $177,000.
• The AGI phase-out range for taxpayers making contributions to a Roth IRA is $169,000 to 179,000 for married couples filing jointly, up from $167,000 to $177,000 in 2010. For singles and heads of household, the income phase-out range is $107,000 to $122,000, up from $105,000 to $120,000. For a married individual filing a separate return who is an active participant in an employer-sponsored retirement plan, the phase-out range remains $0 to $10,000.
• The AGI limit for the saver’s credit (also known as the retirement savings contributions credit) for low-and moderate-income workers is $56,500 for married couples filing jointly, up from $55,500 in 2010; $42,375 for heads of household, up from $41,625; and $28,250 for married individuals filing separately and for singles, up from $27,750.

Since many executives are losing the ability to save for retirement under tax-qualified retirement plans, employers may wish to consider  Supplemental Executive Retirement Plan. A SERP is a contractual arrangement between employers and select executives providing additional retirement benefits by taking into consideration amounts, such as compensation, above the statutory limitations noted below:

401(k) Plan Limits                                   2011                      2010                  2009

401(k) Elective Deferrals                          $16,500              $16,500              $16,500

Defined contributions annual

additions limit                                             $49,000              $49,000             $49,000

Annual compensation limit                       $245,000              $245,000         $245,000

Age 50 catch-up deferral limit                   $5,500                 $5,500             $5,500

Highly compensated employee

determination threshold                            $110,000              $110,000         $110,000

Non-401(k) Limits

403(b)/457 Plan elective deferrals             $16,500                 $16,500            $16,500

SIMPLE Employee Deferrals                    $11,500                 $11,500            $11,500

SIMPLE age 50 Catch up deferral limit     $2,500                   $2,500              $2,500

SEP Minimum compensation threshold     $550                       $550                $550

SEP Annual compensation limit                 $245,000               $245,000          $245,000

Defined Benefit Annual Additions Limit   $195,000                $195,000         $195,000

Social Security Wage Base                         $106,800                $106,800          $106,800

]]> http://blog.sz-cpas.com/2010/12/15/irs-announces-retirement-savings-limit-to-remain-unchanged-in-2011/feed/ 0 http://blog.sz-cpas.com/2010/11/25/interest-rates-decrease-for-the-first-quarter-of-2011/ http://blog.sz-cpas.com/2010/11/25/interest-rates-decrease-for-the-first-quarter-of-2011/#comments Thu, 25 Nov 2010 06:32:25 +0000 Alan R. Sasserath, CPA, MS and staff http://blog.sz-cpas.com/?p=476 Amidst the spate of seemingly bad news hounding the nation, some good news has finally arrived. The rainbow indeed appears after the rain.

The Internal Revenue Service has announced a 1% interest rate cut for the calendar quarter beginning January 1, 2011.

The new rates will be:

• three (3) percent for overpayments [two (2) percent in the case of a corporation];
• three (3) percent for underpayments;
• five (5) percent for large corporate underpayments; and
• zero and one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The announced interest rates are computed from the federal short-term rate during October 2010 to take effect November 1, 2010, based on daily compounding.

Revenue Ruling 2010-31, announcing the rates of interest appears in Internal Revenue Bulletin No. 2010-52, dated December 27, 2010.

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