2011 Changes That May Affect -or Help Your Business

Considering the Tax changes implemented this year by the IRS would be wise as you're making business decisions this year:

Health Insurance Deduction Reduces Self Employment Tax
With the enactment of the Small Business Jobs Act of 2010, self-employed taxpayers who pay their own health insurance costs can now reduce their net earnings from self-employment by these costs. Previously, the self-employed health insurance deduction was allowed only for income tax purposes. Back in tax year 2008, the most recent year for which data is available, the self-employed health insurance deduction was claimed on 3.6 million tax returns, reducing taxpayers’ adjusted gross incomes by $21 billion.

Small Business Health Care Tax Credit
In general, the Small Business Health Care Tax 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 employees –– paying annual average wages of $25,000 or less. The credit is completely phased out for employers that have 25 or more full-time equivalent employees OR for those who pay average wages of $50,000 or more per year. Due to the fact that the eligibility rules are based partially on the number of full-time equivalent employees(not the number of employees), employers that have part-time workers may qualify even if they employ more than 25 individuals.


General Business Credit for Employers
The general business credits of eligible small businesses in 2010 are not subject to alternative minimum tax The new law allows general business credits to offset both regular income tax and alternative minimum tax of eligible small businesses as described in Section 2012 of the Small Business Jobs Act. The provision is effective for any general business credits determined in the first taxable year beginning after December 31, 2009, and to any carryback of relevant credits.

Small Businesses Can Benefit from Higher Expensing / Depreciation Limits
For tax years beginning in 2010 and 2011, small businesses can expense up to $500,000 of the first $2 million of certain business property placed in service during the year.
In general, businesses can choose to treat the cost of certain property as an expense and deduct it in the year the property is placed in service instead of depreciating it over several years.  Those included are properties that you acquire by purchase for use in the active conduct of your trade or business, such as:
a) Tangible personal property.
b) Other tangible property (except buildings and their structural components) used as:

1. An integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services;
2. A research facility used in connection with any of the activities in (1) above; or
3. A facility used in connection with any of the activities in (1) above for the bulk storage of fungible commodities.

c) Single purpose agricultural (livestock) or horticultural structures.
d) Storage facilities (except buildings and their structural components) used in connection with distributing   petroleum or any primary product of petroleum.
e) Off-the-shelf computer software.

The IRS Section 179 property generally does not include land, investment property (section 212 property), property used mainly outside the United States, property used mainly to furnish lodging and air conditioning or heating units.

The Small Business Jobs Act (SBJA) of  2010 increases the section 179 limitations on expensing of depreciable business assets for tax years beginning in 2010 and 2011 and expands temporarily the definition of section 179 property, for tax years beginning in 2010 and 2011, to include certain qualified real property a taxpayer elects to treat as section 179 property. Qualified real property means qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property.
The $500,000 amount provided under the new law is reduced, but not below zero, if the cost of all section 179 property placed in service by the taxpayer during the tax year exceeds $2 million.
For tax years beginning in 2012, the maximum amount is $125,000; before enactment of the 2010 tax relief legislation, it was set at $25,000.

Depreciation limits on business vehicles
The total depreciation deduction (including the section 179 expense deduction and the 50 or 100 percent bonus depreciation) you can take for a passenger automobile (that is not a truck or a van) you use in your business and first placed in service in 2010 is increased to $11,060. The maximum deduction you can take for a truck or van you use in your business and first placed in service in 2010 is increased to $11,160.  If you do not take any bonus depreciation for the passenger automobile, truck, or van you use in your business and first placed in service in 2010, the maximum deduction you can take for a passenger automobile is $3,060 and for a truck or van is $3,160.

50 or 100 Percent Bonus Depreciation
Generally, businesses can take a special depreciation allowance to recover part of the cost of qualified property placed in service during the tax year. The allowance applies only for the first year you place the property in service.

Businesses that acquired and placed a qualified property into service after Sept. 8, 2010 can now claim a depreciation allowance of 100 percent of the cost of the property. The property must be placed in service before Jan. 1, 2012 (Jan. 14, 2013 in the case of certain longer-lived and transportation property).   Businesses that acquire qualified property during 2010 on or before Sept. 8, 2010 can claim a depreciation allowance of 50 percent of the cost of the property.  The property must be placed in service before Jan. 1, 2013 (Jan. 1, 2014 in the case of certain longer production period property and for certain aircraft.)
The allowance is an additional deduction you can take after any (IRS section 179) deduction and before  figuring regular depreciation under MACRS for the year you place the property in service.

Small Businesses' Need To Use the EFTPS for Deposits Beginning in 2011
The paper coupon system for Federal Tax Deposits will no longer be maintained by the Treasury Department after Dec. 31, 2010. Most businesses must now make deposits and pay federal taxes through the Electronic Federal Tax Payment System (EFTPS).

Using EFTPS to make your federal tax deposits provides substantial benefits to both the taxpayers and the government. The best part about it is that EFTPS users can make tax payments 24 hours a day, seven days a week from home or the office online with a computer or by telephone; AND EFTPS business users can schedule payments up to 120 days in advance of their desired payment date. For information on EFTPS you may of course contact the EFTPS Customer Service line directly at 1-800-555-4477, or for assistance with the aforementioned topics as it relates to your business or self-employment contact your business accountants at (407) 951-1492 or on the web at: www.EnvisionTaxandAccounting.com

6 Tips for Paying Estimated Taxes

First of all you may ask: What ARE estimated taxes? Well, the 'Estimated Tax' is a method used to pay tax on income that is not subject to tax withholding. You may need to pay estimated taxes during the course of the year depending on what you do for a living and what type of income you receive. Here are six tips from the IRS that will provide you with a quick overview of estimated taxes and how to pay them. If you have income from varying sources such as self-employment, interest, dividends, alimony, rent, gains from the sales of assets, prizes or awards, then you may have to pay estimated tax. As a general rule, you must pay estimated taxes in 2011 if both of these statements apply:  a) You expect to owe at least $1,000 in taxes after subtracting your tax withholding and credits; b) You expect your withholding and credits to be less than the smaller of 90% of your 2011 taxes or 100% of the tax on your 2010 return. Please keep in mind that there are special rules for farmers, fishermen, certain household employers and certain higher income bracket taxpayers. For Sole Proprietors, Partnerships and S Corporation shareholders, you generally have to make estimated tax payments if you expect to owe $1,000 or more in tax when you file your return. To figure your estimated tax, include your expected gross income, taxable income, taxes, deductions and credits for the year. It is advisable to use the worksheet on Form 1040ES, (Estimated Tax for Individuals). You will need to be as accurate as possible to avoid penalties. The year is divided into four payment periods, for estimated tax purposes. Those dates generally are April 15, June 15, Sept. 15 and Jan. 15. The easiest way to pay estimated taxes, however, is electronically through the Electronic Federal Tax Payment System or EFTPS. You can also pay estimated taxes by check or money order using the Estimated Tax Payment Voucher or by credit or debit card. Hopefully this helps to clear up a few questions regarding estimated taxes! For help with your business accounting or tax related needs contact the professionals at www.EnvisionTaxandAccounting.com

8 Tips About IRS Notices

Have you ever seen a letter in your mailbox from the IRS and freaked out--BEFORE you opened it? Here are 8 IRS Tips about what you should know about receiving an IRS Notice:

1. Don’t panic! Many of these letters can actually be dealt with rather simply and painlessly.
   
   
2. The notice you receive normally covers a very specific issue about your account or tax return. Notices may request payment of taxes, notify you of changes to your account, or request additional information.
   
   
3. Each letter and notice offers specific instructions on what you are asked to do to satisfy their inquiry.
   
   
4. If you receive a  correction notice, you should review the correspondence and compare it with the information on your return.
   
   
5. If you agree with the correction to your account, then usually no reply is necessary unless a payment is due or the notice directs otherwise.
   
   
6. If you do not agree with the correction the IRS made, it is important that you respond as they've requested. You should send a written explanation of why you disagree and always include any documentation that you want the IRS to consider, along with the bottom (tear-off portion) of the notice. You will need to include this with your reply-though a letter from the IRS will make you feel like you are the ONLY person in the universe that they've contacted, you're not. They send out MILLIONS of letters very often and you'll want to ensure your information is properly documented against your account. Moving on...then mail the information to the IRS address shown in the upper left-hand corner of the notice and allow at least 30 days for a response to your submissions.
7. Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper right-hand corner of the notice. Have a copy of your tax return and the correspondence available when you call to help respond to your inquiry.
   
   
8. It’s important that you keep copies of any correspondence with your records.

-Just keeping you in the loop-

For more on this topic, assistance with your small business or nonprofit accounting needs contact our office:

Envision Tax & Accounting Svcs. of Florida

37 N. Orange Ave., Suite. 500

Orlando, FL 32801

(407) 951-1492

 or on the web:

www.EnvisionTaxandAccounting.com

 Enjoy your envisioned business with help from your business accountants!

Don't be fooled-- Beware! 2011 'Dirty Dozen' Tax Scams

The IRS says that hiding income in offshore accounts, identity theft, return preparer fraud, and filing false or misleading tax forms top the annual list of “dirty dozen” tax scams in 2011.

Don't YOU be fooled- you be AWARE!

1. Hiding Income Offshore
The IRS aggressively pursues taxpayers involved in abusive offshore transactions as well as the promoters, professionals and others who facilitate or enable these schemes. Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks, brokerage accounts or through the use of nominee entities. Taxpayers also evade taxes by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or insurance plans.
In early February, the IRS 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. The IRS decision to open a second special disclosure initiative follows continuing interest from taxpayers with foreign accounts. In response to numerous requests, information about this initiative is available on IRS.gov in eight different languages, including: Chinese, Farsi, German, Hindi, Korean, Russian, Spanish, and Vietnamese.

2. Identity Theft and Phishing
Identity theft occurs when someone uses an unsuspecting individual’s name, Social Security number, credit card number or other personal information without permission to commit fraud or other crimes. For example, a criminal can use someone else's information to run up bills on that person's credit card, empty that person’s bank account or take out a loan in that person’s name. And when it comes to taxes, a criminal with someone else’s personal information can file a fraudulent tax return and collect a refund.
Phishing is one tactic used by scam artists to trick unsuspecting victims into revealing personal or financial information online. Phishing involves the use of phony e-mail or websites -- even social media. A scammer may pose as an institution such as the IRS. IRS impersonation schemes flourish during tax season. Spyware, which can be loaded onto an unsuspecting taxpayer’s computer by opening an e-mail attachment or clicking on a link, is another tool identity thieves use to steal personal information.
Identity theft is a major problem that affects many people each year. That's why it's important that taxpayers protect their personal information. Anyone who believes his or her personal information has been stolen and used for tax purposes should immediately contact the IRS Identity Protection Specialized Unit at 1-800-908-4490. A suspicious e-mail or an “IRS” Web address that does not begin with http://www.irs.gov/ should be forwarded to the IRS at phishing@irs.gov.

3. Return Preparer Fraud
While most return preparers are professionals who provide honest and excellent service to their clients, some make basic errors or engage in fraud and other illegal activities.
Dishonest return preparers can cause big trouble for taxpayers who fall victim to their ploys. These fraudsters derive benefit by skimming a portion of their clients’ refunds, charging inflated fees for return preparation services and attracting new clients by making false promises. Taxpayers should choose carefully when hiring a tax preparer. Federal courts have issued hundreds of injunctions ordering individuals to cease preparing returns, and the Department of Justice has pending complaints against dozens of others.
To increase confidence in the tax system and improve compliance with the tax law, the IRS is implementing a number of requirements for paid tax preparers, including registration with the IRS and a preparer tax identification number (PTIN), as well as competency tests and ongoing continuing professional education.
The new regulations require paid tax preparers (including attorneys, CPAs, and enrolled agents) to apply for a Preparer Tax Identification Number (PTIN) before preparing any federal tax returns in 2011.
Higher standards for the tax preparer community will result in greater compliance with tax laws, increase confidence in the tax system and ultimately lead to a better experience for taxpayers.

4. Filing False or Misleading Forms
IRS personnel are seeing various instances in which scam artists file false or misleading returns to claim refunds to which they are not entitled. In one variation of this scheme, a taxpayer seeks a refund by fabricating an information return and falsely claiming the corresponding amount as withholding. Phony information returns, such as a Form 1099 Original Issue Discount (OID), which claims false withholding credits, are usually used to legitimize erroneous refund claims. One version of the scheme is based on the bogus theory that the federal government maintains secret accounts for its citizens and that taxpayers can gain access to funds in those accounts by issuing 1099-OID forms to their creditors, including the IRS.
The IRS continues to see instances in which people file false or fraudulent tax returns to try to obtain improper tax refunds. The IRS takes refund fraud seriously, has programs to aggressively combat it and stops the vast majority of incorrect refunds.
Because scammers often use information from family or friends in filing false or fraudulent returns, beware of requests for such data. Don’t fall prey to people who encourage you to claim deductions or credits you are not entitled to or willingly allow others to use your information to file false returns. If you are a party to such schemes, you could be liable for financial penalties or even face criminal prosecution.

5. Frivolous Arguments
Promoters of frivolous schemes encourage people to make unreasonable and outlandish claims to avoid paying the taxes they owe. The IRS has a list of frivolous legal positions that taxpayers should avoid. These arguments are false and have been thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or IRS guidance.

Nontaxable Social Security Benefits with Exaggerated Withholding Credit
The IRS has identified returns where taxpayers report nontaxable Social Security Benefits with excessive withholding. This tactic results in no income reported to the IRS on the tax return. Often both the withholding amount and the reported income are incorrect. Taxpayers should avoid making these mistakes. Filings of this type of return may result in a $5,000 penalty.

6. Abuse of Charitable Organizations and Deductions
The IRS continues to observe the misuse of tax-exempt organizations. Abuse includes arrangements to improperly shield income or assets from taxation and attempts by donors to maintain control over donated assets or income from donated property. The IRS also continues to investigate various schemes involving the donation of non-cash assets including situations where several organizations claim the full value for both the receipt and distribution of the same non-cash contribution. Often these donations are highly overvalued or the organization receiving the donation promises that the donor can repurchase the items later at a price set by the donor. The Pension Protection Act of 2006 imposed increased penalties for inaccurate appraisals and set new definitions of qualified appraisals and qualified appraisers for taxpayers claiming charitable contributions.

7. Abusive Retirement Plans
The IRS continues to find abuses in retirement plan arrangements, including Roth Individual Retirement Arrangements (IRAs). The IRS is looking for transactions that taxpayers use to avoid the limits on contributions to IRAs, as well as transactions that are not properly reported as early distributions. Taxpayers should be wary of advisers who encourage them to shift appreciated assets at less than fair market value into IRAs or companies owned by their IRAs to circumvent annual contribution limits. Other variations have included the use of limited liability companies to engage in activity that is considered prohibited.
8. Disguised Corporate Ownership
Corporations and other entities are formed and operated in certain states for the purpose of disguising the ownership of the business or financial activity by means such as improperly using a third party to request an employer identification number.
Such entities can be used to facilitate underreporting of income, fictitious deductions, non-filing of tax returns, participating in listed transactions, money laundering, financial crimes and even terrorist financing. The IRS is working with state authorities to identify these entities and to bring the owners of these entities into compliance with the law.

9. Zero Wages
Filing a phony wage-or-income-related informational return to replace a legitimate information return has been used as an illegal method to lower the amount of taxes owed. Typically, a Form 4852 (Substitute Form W-2) or a “corrected” Form 1099 is used as a way to improperly reduce taxable income to zero. The taxpayer may also submit a statement rebutting wages and taxes reported by a payer to the IRS.
Sometimes, fraudsters even include an explanation on their Form 4852 that cites statutory language on the definition of wages or may include some reference to a paying company that refuses to issue a corrected Form W-2 for fear of IRS retaliation. Taxpayers should resist any temptation to participate in any of the variations of this scheme. Filings of this type of return may result in a $5,000 penalty.

10. Misuse of Trusts
For years, unscrupulous promoters have urged taxpayers to transfer assets into trusts. While there are many legitimate, valid uses of trusts in tax and estate planning, some highly questionable transactions promise reduction of income subject to tax, deductions for personal expenses and reduced estate or gift taxes. Such trusts rarely deliver the tax benefits promised and are used primarily as a means to avoid income tax liability and hide assets from creditors, including the IRS.
IRS personnel have recently seen an increase in the improper use of private annuity trusts and foreign trusts to shift income and deduct personal expenses. As with other arrangements, taxpayers should seek the advice of a trusted professional before entering a trust arrangement.

11. Fuel Tax Credit Scams
The IRS receives claims for the fuel tax credit that are excessive. Some taxpayers, such as farmers who use fuel for off-highway business purposes, may be eligible for the fuel tax credit. But other individuals are claiming the tax credit for nontaxable uses of fuel when their occupations or income levels make the claim unreasonable. Fraud involving the fuel tax credit is considered a frivolous tax claim and can result in a penalty of $5,000.

12. How to Report Suspected Tax Fraud Activity
Suspected tax fraud can be reported to the IRS using Form 3949-A, Information Referral. The completed form or a letter detailing the alleged fraudulent activity should be addressed to the Internal Revenue Service, Fresno, CA, 93888. The mailing should include specific information about who is being reported, the activity being reported, how the activity became known, when the alleged violation took place, the amount of money involved and any other information that might be helpful in an investigation. The identity of the person filing the report can be kept confidential.

~Keeping you in the loop...www.EnvisionTaxandAccounting.com