McKonomics

IRS News and Updates

 Due to passage of the huge new tax law in mid-December, the IRS has announced that the tax season will start on time for many people, but other taxpayers need to wait until mid-to-late February to file their individual returns. In addition, taxpayers who itemize deductions on Form 1040 Schedule A will need to wait until mid-to late February to file as well.

That means affected taxpayers who were planning to file in January to receive an early refund will have to wait.

Reason: The last-minute law passed by Congress on December 17 didn't give the IRS time to get ready for the tax return filing season, which started a couple weeks later.

The IRS needs to reprogram its processing systems for three provisions that were extended in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010.

Strategic Estate Planning under the New Tax Rules

 The new tax cut extension package, which was signed into law on December 17, 2010, establishes a new (but temporary) estate and gift tax regime for 2011 and 2012. It also clarifies the situation for the estates of individuals who died in 2010. 

Here is a brief summary of the relevant estate and gift tax provisions in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. 

Exemption and Tax Rate  

Important Tax Figures for 2011

 This table provides some important federal tax information for 2011, compared with 2010. Many of the dollar amounts are unchanged or have changed only slightly due to low inflation. Other amounts are changing due to legislation.

  
** Under a 2001 law, the estate tax exemption was gradually increased and the tax rate levied on estates decreased. For one year only in 2010, the estate tax was repealed.

New Tax Law Did NOT Repeal 1099 Reporting Requirements

 Despite efforts by some members of Congress, the burdensome 1099 reporting requirements for businesses and rental property owners were not repealed as part of the new law passed on December 17, 2010. And Congress has adjourned for the year so a repeal of the requirements will now have to wait for the new Congress to take up the issue in 2011. 

The new requirements were part of two laws passed in 2010: 

IRS Gives Employers Guidance on 2011 Withholding

 Employers must quickly get their payroll systems in line to account for the two percent cut in the Social Security tax for 2011. Congress passed the new law with just two weeks for employers to make changes. 

Shortly after the new law passed, the IRS issued instructions and new withholding tables. Employers should start using the new tables no later than January 31, 2011, according to the IRS.  "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," the IRS added. 

For more information and to see the tables, go to this link on the IRS website.

Tax Relief Act of 2010, A Decision in Time for the Holidays?

 The tree is decorated, the stockings are hung, and the holiday festivities are planned. However, there is still one thing left to do as 2010 is drawing closer to an end. Congress needs to make a final decision on the Bush-era tax cuts along with various other tax breaks that have been proposed.

Late on December 9, H.R. 4853, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the Tax Relief Act) was introduced into the senate. The following paragraphs contain only a summary of some of the most relevant provisions included in the bill which benefit individuals and businesses.

Currently, the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 are set to expire, which means that individual tax rates will go back to the rates (15%, 28%, 31%, 36%, and 39.6%) that were in effect prior to the enactment of this act.

In addition, a number of other individual provisions are set to expire. The Tax Relief Act, if passed, will extend the current tax rates through 2012. Here are some of the highlights that will impact individuals:

- Income tax rates for individuals will stay at 10%, 15%, 25%, 28%, 33%, and 35%. 

- Itemized deductions for higher-income taxpayers are not reduced. 

- The personal exemptions of a higher-income taxpayer are not phased out when AGI exceeds an inflation-adjusted threshold.

Tax-Saving Moves for Individuals at Year End

 Even though New Year's Eve is just around the corner, there's still a little time left for year-end tax planning. If you move fast enough, a few eleventh-hour tax moves can cut your tax bill or increase a refund for the 2010 tax year.

Keep in mind that the "Bush tax cuts" are scheduled to expire December 31, 2010, thereby raising tax rates for some individuals in 2011. But a late reprieve from Congress could preserve lower rates for another year or longer. Until the uncertainty is removed, focus on what you can do now to reduce your 2010 liability.

Here are ten tax strategies to consider:

Pennsylvania Governor-Elect Tom Corbett’s Tax Reform Initiatives

 The 2010 Pennsylvania gubernatorial election results may bring new tax reforms to Pennsylvania businesses once governor-elect Tom Corbett takes office in January 2011. Corbett's economic plan for revitalizing Pennsylvania's economy focuses on innovation, improved job creation, and an educated workforce. Tax reform is a focus of Corbett's intentions for improving the business climate and creating jobs in Pennsylvania. Tax reform will certainly be a highly-debated issue in the coming months, with the Pennsylvania budget deficits growing into the billions of dollars because of decreased state tax revenues, unfunded state pensions, and Federal stimulus money running out. In addition, Corbett plans to revitalize Pennsylvania's economy through a blended tax reform program that assists small and large job creators with the following proposed reforms:

Finish Phase-Out of the Capital Stock/Foreign Franchise Tax - The Capital Stock and Foreign Franchise Tax is imposed on the assets of incorporated entities, including S-Corps and LLC's. The tax is imposed on both Pennsylvania entities and non-Pennsylvania entities that conduct business in Pennsylvania. The tax is scheduled to phase-out by 2014 and Corbett intends to maintain the full phase-out schedule.

Year-End Charitable Gift Planning

 Americans donated more than $303 billion to charitable causes last year, according to the Giving USA Foundation. And while that represents a slight decline from the year before, Americans continued to give generously despite the economy.

The holidays are a popular time to make gifts. If you're getting ready to donate, be aware of the charitable tax deduction rules and some important

Monetary Donation Guidelines

To deduct a charitable donation of money, regardless of the amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the organization, as well as the date and amount of the contribution.

IRS Grants W-2 Relief for Employers

 More Time to Report the Value Of Healthcare Coverage

The Patient Protection and Affordable Care Act does a lot more than mandate healthcare coverage. It also requires that companies report the value of employer-sponsored group health coverage on employee W-2s.

Under the health reform law, reporting was supposed to begin with W-2s for the 2011 tax year. But thanks to a recent ruling from the IRS, employers now have an additional year to comply with this requirement. (IRS Notice 2010-69)

New rules: Beginning with W-2s issued for 2012, employers will have to include the value of the healthcare coverage they sponsor for staff members. The purpose is "to provide employees with greater transparency into overall healthcare costs." The IRS wants to make it clear that this reporting is for information only, and the value of the health insurance does not represent taxable income to recipients.