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Current Tax News

Note: articles preceded by *New* have been posted within the last two weeks

*New* 2012 Deferral Limitations for Defined Contribution Plans
Each year, the Internal Revenue Code provides for cost of living adjustments to dollar limitations on benefits and contributions under qualified retirement plans. Click this link to view the dollar lmiitations for years 2010 through 2012.

Deductible Expenses for Job Seekers:
The IRS reminds job seekers of the expenses they may be able to deduct. To be deductible, the expenses must be spent on a job search in the taxpayer's current occupation—job search expenses cannot be deducted if incurred while looking for a job in a new occupation (or if there is a substantial break between the end of the former job and the time the taxpayer begins looking for a new one). Deductible expenses include (1) employment and outplacement agency fees, (2) costs of preparing and mailing resumes to prospective employers, and (3) travel expenses going to and from another area if the trip is primarily to look for a new job. The time spent on personal activities versus the time spent looking for work is important in determining the primary purpose of the trip. IRS Summertime Tax Tip 2011-11.

IRS Increases Standard Mileage Rate Effective July 1, 2011
In response to higher gasoline prices, the IRS has raised the standard mileage rate for business use of an automobile from 51 cents per mile to 55 1/2 cents per mile effective July 1, 2011. The mileage rate for medical and moving mileage is also increased to 23 1/2 cents per mile. See IRS Accouncement 2011-40 for complete details.

Individuals Should Prepare Now for New Reporting of Foreign Assets
The Hiring Incentives to Restore Employment (HIRE) Act added IRC Section 6038D, requiring an individual taxpayer with an aggregate balance of more than $50,000 in foreign financial assets to file a disclosure statement (Form 8938, Statement of Foreign Financial Assets) with his or her income tax return, typically starting with the 2011 tax year for calendar year individuals. The penalty for failure to disclose the required information under Section 6038D for any taxable year will generally be $10,000. Separate significant penalties also exist for underpayments of tax that are attributable to undisclosed foreign financial assets.
Some examples of foreign assets and investments that must be disclosed are:

Foreign bank accounts;
Foreign pension assets;
Foreign brokerage accounts; and,
Interests in foreign partnerships and hedge funds.

Individuals should work with their investment advisors to create an inventory of all of their offshore assets that may potentially be subject to this new reporting requirement, and discuss these foreign assets with their tax advisor.

It should be noted that this new reporting requirement for foreign financial assets is separate and distinct from the reporting of foreign bank and financial accounts (Form TD F 90-22.1, commonly referred to as FBAR) under the Bank Secrecy Act. Individuals may be required to file one, the other, or both reports, depending upon the specific facts.

6 Work-Life Balance Blunders to Avoid
Achieving perfect work-life balance is not easy, but you already know that. What you may not realize is that dogged pursuit of balance is not always desirable. Click here to read full article...

Senate Vote to Repeal 1099 Requirements; Sends Legislation to President’s Desk
The US Senate on April 5 approved a House-passed bill to repeal enhanced information reporting requirements for businesses and rental property owners, clearing the measure for President Obama's desk after several failed attempts.

In an 87-12 vote, the Senate passed H.R. 4, legislation that had already been approved by the House of Representatives. The Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 would repeal the requirement for businesses to submit to the IRS a Form 1099 for payments made to any single vendor for goods and services totaling more than $600 annually and file a copy with the payee, beginning in 2012. The bill would also repeal a similar requirement that took effect Jan. 1, 2011, which requires rental property owners to issue 1099s for payments over $600 to service providers. If signed into law, it will effectively reinstate the prior rules on who must receive a Form 1099.

What the federal government giveth, California taxes
While the federal government may mandate that adult children can stay on the parent’s health insurance policy until age 26, if that policy is an employer-provided benefit, the value of the non-dependant adult child’s health insurance is taxable for CA purposes and includible in CA wages.

The Patient Protection and Affordable Care Act signed by the President in March of 2010, requires benefit plans that provide coverage for family members to cover adult children of the employee, to age 26 whether or not they qualify as dependents for tax purposes, effective for plan renewals beginning on or after September 23, 2010. The Health Care and Education Reconciliation Act of 2010 extends the general exclusion for reimbursements for medical care expenses under an employer-provided accident or health plan to any child of an employee who has not attained age 27 as of the end of the taxable year. This law also amended federal income tax laws to exclude the value of an eligible adult child’s medical coverage from the taxable income of the parent-employee. Federal law also allows self-employed individuals a deduction for health insurance premiums for an adult child under age 27 who is not a dependent.

California law has not been amended to conform to the 2010 federal income tax rules which exclude the value of the medical coverage provided to nondependent adult children from California gross income and allow a deduction to self-employed individuals for health insurance premiums for nondependent adult children under age 27. For California income tax purposes, the fair market value of employer-provided medical coverage for some adult children in excess of the amount paid by the employee for such coverage may result in taxable income to the employee. Any amount paid by an employee for such additional coverage is excluded from federal, but not California taxable wages.

The additional income is reportable and taxable to the employee, not to the adult child. The amount of income included in taxable wage is equal to the amount by which fair market value of the taxable benefit received by an employee exceeds the amount the employee pays for the benefit. In addition, self-employed individuals may not deduct the health insurance premium paid for an adult child under age 27 who is not a dependent. For more information, go to www.edd.ca.gov/Payroll_Taxes/

The IRS's "Dirty Dozen"
Each year the IRS releases their "Dirty Dozen" list of tax scams that have been prevalent over the prior 12 months. This year's list highlights the importance of using a well-established, reputable tax preparation firm. The 2010 list is almost exclusively made up of items that unscrupulous firms market to taxpayers as legitimate tax planning ideas. However, two things should be a tip off to unsavory activity. First, the adage, “if it seems too good to be true, it probably is” is very appropriate in the tax world, and second, never file a tax return that you know is incorrect (e.g., don’t let your preparer inflate deductions or omit income that you know exists). Click here for the IRS’s 2010 Dirty Dozen.

Solar Energy Systems: Incentives Are Better Than Ever
Residential and business energy credits have been around for years, but with limits so low that there was virtually tax incentive for installing solar energy systems. Beginning in 2009 the federal caps on these credits has been removed through 2016, thus, for the first time, the major capital investments typically associated with the installation of solar energy systems can be partially recouped through tax credits in a meaningful way. Click here for more information.

'Rapid Refund' loans prompt warning from state attorney general
Loans can cost consumers hundreds in fees and interest and make only a few days' difference in when the taxpayer would see the funds. With tax time around the corner, the California attorney general's office is warning of the dangers of taking out high-cost tax-refund anticipation loans, sometimes presented as "rapid refunds," that can cost consumers hundreds of dollars in fees and come with high interest rates. Click here for additional information.

Offshore Outsourcing Revisited - Bringing Jobs Back to the U.S.

While India and other Asian nations remain prime destinations for many U.S. companies seeking to reduce costs, it may be surprising to know that the U.S. is the worlds most popular outsourcing destination receiving 22% of outsourced jobs. China is number 2 at 16% and India is third with 13%. Years of experience outsourcing to remote destinations has given rise to a new set of math for computing the benefits and true costs of outsourcing and a whole new language has developed with terms such as Farm-sourcing, Right-shoring, Back-shoring and many more. Click here to read the full article on CFO.com.

Study: Startups risk failing with credit card debt
New businesses are more likely to fail in the first three years if they finance startup costs with credit cards, according to a study by Robert H. Scott III, assistant professor of economics and finance at Monmouth University. According to the study, a business's chances of closing increase 2.2% for every $1,000 it has in revolving credit card debt. "While it is not the only determinant of a business's stability, it appears to be an important factor in a firm's likelihood to survive," the study said. Click here for complete article.

Social Security Office Projects Social Security Wage Base Through 2018
The Social Security Administration's (SSA) Office is projecting that the Social Security wage base will remain at $106,800 in 2010. This is the first time in recent history that the wage base has not increased from the prior year, however, SSA is projecting the base could reach as high as $155,400 by 2018. Click this link to view full article.

Business Use of the Automobile - Keep Good Records
Keeping good records to substantial the business use of your automobile is extemely important in order to sustain those deductions on audit. A recent Tax Court case disallowed deductions even where it was agreed by the IRS and the Court that there was significant use of the car for business purposes. Click this link to view the article.

Mandatory Californa E-Pay For Individuals
Beginning January 1, 2009, individuals are required to remit payments electronically once they meet either of the following conditions:

Make an estimated tax or extension payment greater than $20,000 for a taxable year beginning on or after January 1, 2009; or
File an original return with a tax liability greater than $80,000 for a taxable year beginning on or after January 1, 2009. Full article

Charitable Contribution Planning
There are multiple strategies for maximizing your charitable giving and at the same time managing both cashflow and income taxes. Click this link to view several ideas.

Business Buy/Sell Agreements
It is important that businesses with more than one owner have a written buy/sell agreement specifying what happens when an owner withdraws from the business. A buy/sell agreement is a contract between the owners (or the owners and the business entity itself) that establishes rules and restrictions applicable to changes in ownership. Full article

Supreme Court Upholds Exemption for In-State Muni Bond Interest
The U.S. Supreme Court has upheld the traditional state tax treatment of municipal bond interest, under which a state exempts from its corporate and personal income taxes the interest on bonds issued by the state and its own localities, but taxes the interest on bonds issued by other states and their localities. The issue arose after the Kentucky Supreme Court case ruled that the different treatment of in-state and out-of-state muni bond interest was unconstitutional. Levering & Hvasta filed a number of refund claims with the State of California in anticipation of the U.S. Supreme Court ruling on the issue. Those refund claims are now moot and will not result in refunds.

Tax Rebate Info Posted on IRS Website
Starting in May, the Treasury will begin sending economic stimulus payments to more than 130 million individuals. The stimulus payments will go out through the late spring and summer.

New E-Mail and Phone Scams Use IRS Name
http://www.webcpa.com/article.cfm?articleid=26645

IRS Is Likely to Get More Resources to Combat Cheating on Tax Returns
http://online.wsj.com/article/SB120225460358145477.html

Who is likeliest to get audited -- and tips for avoiding scrutiny
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/01/09/BU2AUBCA5.DTL

IRS Sets Rules for Charitable Contributions
http://www.webcpa.com/article.cfm?articleid=26385

Disaster Recovery Resources

In addition to the information from the IRS and Franchise Tax Board, the California Society of Certified Public Accountants has a very informative area on their web site regarding disaster preparedness and recovery at:

CalCPA Disaster Recovery Resources

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