Tuesday, June 22, 2010
Homebuyer credit extension
For those who met the deadline of April 30, 2010, to enter into a contract a buy a new home, the deadline to close the deal is almost here: June 30, 2010. There have been some instances of paperwork delays that could cause some people to miss the deadline. As a remedy, there is a bill going through Congress now to extend the deadline by another three months. The Senate approved it, and the House of Representatives is expected to act on it soon.
Tanning Tax
A 10% tax on indoor tanning services goes into effect on July 1, 2010. So, hurry up and get your pre-summer tanning done!
Sunday, June 20, 2010
Small Non-Profits
The IRS now has a filing requirement for small non-profit organizations which previously were not required to file returns. It is called form 990-N. It is simple and can even be filed by e-mail. Organizations that are required to file and do not do so for three consecutive years will have their exempt status revoked. The IRS web site has more information at www.irs.gov/eo.
Saturday, May 8, 2010
Health insurance credit for employers
The IRS recently sent out postcards to employers who might qualify for a new credit established by the new health care law. It is a credit worth up to 35% of health insurance premiums paid by employers who have less than 25 “full time equivalent” employees and pay an average of less than $50,000 per year to each employee.
The full 35% credit will be realized only by employers with less than 10 “full time equivalent” employees who are paid an average of less than $25,000 per year. The credit is gradually reduced above that level.
“Full time equivalent” means that you have to divide the total hours worked during the year by part-timers by the number of hours they would have worked if they were full time. (The simplest example is that is you have two employees who each work 20 hours per week all year, you have one full time equivalent employee.)
The average wages are determined by dividing the total wages by the number of full time equivalent employees.
To qualify, the employer must pay at least 50% of covered employees’ health insurance premiums, if they have coverage as a single individual. If they are on a family plan, the employer only has to pay the amount equal to 50% of the single plan.
The credit has a number of other complicated rules, as you may have guessed.
The credit is taken on the employer’s annual income tax return. For example, a sole proprietor will take the credit on form 1040. For a corporation that files form 1120, the credit will be taken on that form.
Tax-exempt organizations can also claim the credit. For them, it is a refundable credit (subject to certain limitations).
For employers other than non-profits, the credit is not refundable; it can only reduce the income tax down to zero.
The full 35% credit will be realized only by employers with less than 10 “full time equivalent” employees who are paid an average of less than $25,000 per year. The credit is gradually reduced above that level.
“Full time equivalent” means that you have to divide the total hours worked during the year by part-timers by the number of hours they would have worked if they were full time. (The simplest example is that is you have two employees who each work 20 hours per week all year, you have one full time equivalent employee.)
The average wages are determined by dividing the total wages by the number of full time equivalent employees.
To qualify, the employer must pay at least 50% of covered employees’ health insurance premiums, if they have coverage as a single individual. If they are on a family plan, the employer only has to pay the amount equal to 50% of the single plan.
The credit has a number of other complicated rules, as you may have guessed.
The credit is taken on the employer’s annual income tax return. For example, a sole proprietor will take the credit on form 1040. For a corporation that files form 1120, the credit will be taken on that form.
Tax-exempt organizations can also claim the credit. For them, it is a refundable credit (subject to certain limitations).
For employers other than non-profits, the credit is not refundable; it can only reduce the income tax down to zero.
Wednesday, March 24, 2010
Estate Tax, part 6
There is some concern that changing the estate tax rules in the middle of the year might be unconstitutional. One proposal that tries to deal with this problem is to give estates a choice of using either the 2009 rules or the 2010 rules.
The 2010 rules, headlined by an absence of any estate tax, are not as simple as they sound. Assets inherited under the rules in place until the end of 2009 become valued at fair market value as of the date of death (or an optional alternative date). Assets inherited under the 2010 rules would keep the same value they had when the decedent owned them. Thus there could be huge capital gains if the heir sells the assets. There is an exemption of $1.3 million in gains for such cases, plus an additional $3 million exemption for surviving spouses.
The Senate may be tied up for a while longer in fighting over changes to the health care bill that just passed. That could further delay action on the estate tax.
The 2010 rules, headlined by an absence of any estate tax, are not as simple as they sound. Assets inherited under the rules in place until the end of 2009 become valued at fair market value as of the date of death (or an optional alternative date). Assets inherited under the 2010 rules would keep the same value they had when the decedent owned them. Thus there could be huge capital gains if the heir sells the assets. There is an exemption of $1.3 million in gains for such cases, plus an additional $3 million exemption for surviving spouses.
The Senate may be tied up for a while longer in fighting over changes to the health care bill that just passed. That could further delay action on the estate tax.
Monday, February 22, 2010
Estate Tax, part 5
Basically, there is nothing new yet on this. Republicans in the Senate want to raise the exemption to $5 million and lower the tax rate to 35%. Maybe they will get to work on this after they finish the work they are doing now on other taxes (see previous post).
Tax changes
The Senate just passed a bill that contains some tax reductions. The headline items are mainly for small businesses. One provision calls for a tax break for businesses that hire new people during 2010. Restoring the expanded write-offs for purchases of new equipment is also part of the bill.
There were a number of tax breaks that expired at the end of 2009. Most of these are being restored in this new tax bill. For example, the option to distribute money from an IRA directly to a charity without paying tax on the distribution--an option that expired this year--is to be restored. Credits for college tuition--valid in 2009 but dead so far in 2010--are also targeted for revival. The House will still have to act on the bill to make it law.
There were a number of tax breaks that expired at the end of 2009. Most of these are being restored in this new tax bill. For example, the option to distribute money from an IRA directly to a charity without paying tax on the distribution--an option that expired this year--is to be restored. Credits for college tuition--valid in 2009 but dead so far in 2010--are also targeted for revival. The House will still have to act on the bill to make it law.
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