Tax News- What is new?

The newly passed and signed 2010 Tax Act, formally named the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, includes several provisions that will affect taxpayers. Here is the information you need to know now about this legislation, formally named the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.

Major Provisions
The new law
• postpones the sunset of the 2001 and 2003 tax cuts;
• reduces the estate tax;
• extends unemployment benefits;
• includes an alternative minimum tax (AMT) patch;
• continues through 2012 the lower capital gains tax rate introduced by the Jobs and Growth Tax Relief Reconciliation Act of 2003; and
• extends for two years the repeal of the itemized deduction phase-out and the personal exemption phase-out.

Provisions That May Affect You
Estate Tax
The Act temporarily reinstates the estate tax, with an estate tax rate of 35% and an estate tax exemption of $5 million (adjusted for inflation after 2011).

Payroll Tax

For 2011, the Act reduces the rate for the Social Security portion of payroll taxes to 10.4% by reducing the employee rate from 6.2% to 4.2%. The employer’s portion remains 6.2%.

Family
The Act extends several expired or expiring provisions affecting families, including the following:

• The increased standard deduction for married taxpayers filing jointly, which is scheduled to expire after 2010, continues for two years.
• The $1,000 child tax credit amount continues for two years instead of reverting to $500.
• The increased starting and ending points for the earned income credit continues for two years.
• The $3,000 amount for the child and dependent care credit, which was scheduled to revert to $2,400 after 2010, continues for two years.
• The American Opportunity Tax Credit continues for two years.

The Act also makes adjustments to the gift exclusion and generation-skipping transfer (GST) tax that will affect family giving:

• The federal gift tax exemption is increased to $5 million for 2011 and 2012, up from $1 million in 2010.
• The GST tax exemptions are set at $5 million for 2011 and 2012. The exemption limit is scheduled to drop to $1 million beginning in 2013.

Business

The Act extends the 100% bonus depreciation for business property acquired after September 8, 2010, before January 1, 2012, and placed in service before January 1, 2012 (or before January 1, 2013, in the case of certain property). It also sets the expensing limitation under IRC §179 at $125,000 and the phase-out threshold amount at $500,000 for 2012. The Act then reduces these amounts to $25,000 and $200,000 for tax years beginning after 2012.

The temporary 100% exclusion of gain from the sale of certain small business stock under IRC §1202, enacted by the Small Business Jobs Act of 2010, is extended through 2011.

AMT
The Act includes an AMT patch for 2010 and 2011.

• For 2010, the AMT exemption amounts will be $47,450 for unmarried individuals and $72,450 for married individuals filing jointly.
• For 2011, the amounts will be $48,450 and $74,450, respectively.

Needless to say, the 2010 Tax Act is still very new. It is only just being analyzed by professional advisers. The law is potentially subject to modifications by technical correction acts. In addition, provisions of the law may be interpreted by the Treasury Department issuing regulations and by the IRS issuing forms and instructions.
_________________________________________________________
This material was compiled by Martin M. Shenkman, CPA, MBA, PFS, AEP, JD

New Email

New email addresses @ Top Notch Tax. Do not worry. Emails sent to the old email addresses will come through. The change allows us to receive larger file sizes (up to 25MB), so our clients can send us just about any of their record keeping files without any problems. The emails follow this format firstname@topnotchtax.com. (example: fred@topnotchtax.com) . Although the majority of our clients do not know about our blog yet, I hope to have it fully active by this tax season.

IRS Alerts Taxpayers to EFTPS Fraud Scheme

The IRS has issued a Problem Alert to advise taxpayers of a scheme targeting users of the Electronic Federal Tax Payment System (EFTPS). The scam begins with an e-mail telling the taxpayer the a tax payment has been rejected. The e-mail recipient is directed to a website for "additional information," but in fact that website contains malware that can potentially infect computers.

The IRS emphasizes that it does not initiate e-mail communications with taxpayers. Anyone who receives a message purporting to be from the IRS or EFTPS should:

(1) Not reply to the sender, open any links included in the email, or submit any information; and

(2) Report this, or other "phishing" e-mail scams or false IRS websites, to the IRS by forwarding the information to phishing@irs.gov.

For More Info: http://www.irs.gov/privacy/article/0,,id=226755,00.html

Child Tax Credit

Many of our clients have been asking about the Child Tax Credit and if for 2010 it is only $500 per child. The $1000 child tax credit comes from The Economic Growth and Tax Relief Reconciliation Act of 2001 which is set to sunset at the end of 2010. So for 2010 the child tax credit will remain the same $1000. However, unless the provision is extended, starting in 2011, the Child Tax Credit will be lowered back to its original $500.

Interest Rates Remain the Same for the Fourth Quarter Of 2010

The Internal Revenue Service today announced that interest rates for the calendar quarter beginning October 1, 2010, will remain the same. The rates will be:

• four (4) percent for overpayments [three (3) percent in the case of a corporation];
• four (4) percent for underpayments;
• six (6) percent for large corporate underpayments; and
• one and one-half (1.5) percent for the portion of a corporate overpayment exceeding $10,000.

Elimination of federal tax deposit coupons

http://www.irs.gov/newsroom/article/0,,id=226706,00.html

WASHINGTON — Consistent with a Financial Management Service initiative announced in April of this year, the IRS today issued proposed regulations to significantly increase the number of electronic transactions between taxpayers and the federal government.
The proposed regulations (REG 153340-09) would eliminate the rules for making federal tax deposits by paper coupon because the paper coupon system will no longer be maintained by the Treasury Department after Dec. 31, 2010. The proposed regulations generally maintain existing rules for depositing federal taxes through the Electronic Federal Tax Payment System (EFTPS).
Using EFTPS to make federal tax deposits provides substantial benefits to both taxpayers and the government. EFTPS users can make tax payments 24 hours a day, seven days a week from home or the office.
Deposits can be made online with a computer or by telephone. EFTPS also significantly reduces payment-related errors that could result in a penalty. The system helps taxpayers schedule dates to make payments even when they are out of town or on vacation when a payment is due. EFTPS business users can schedule payments up to 120 days in advance of the desired payment date.

First Time Home Buyers Credit

The deadline for the First Time Home Buyers Credit has been extended to September 30 from June 30. The caveat is that you must have signed a purchase contract on or before April 30. As an update to the First Time Home Buyers Credit, there have been many receiving letters for further clarification. If you receive one of these letters, drop it by TNT and we will help you get the information together to send back to the IRS.