Tax Notes

Recent Updates & Tax Notes

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Inflation Adjusted Exemptions and Deductions

Personal exemptions and standard deductions for tax year 2011 were released by the IRS. These inflation adjustments relate to eight tax provisions that were either modified or extended by the Tax Relief Act. Some of the adjustments include:

	The value of each personal and dependent exemption available to most taxpayers is $3,700, a $50 increase from 2010.
	The new standard deduction is $11,600 for married couples filing a joint return, a $200 increase; $5,800 for singles and married individuals filing separately, a $100 increase; and $8,500 for heads of household, a $100 increase. The additional standard deduction for blind people and senior citizens is $1,150 for married individuals and $1,450 for singles and heads of household, each an increase of $50. Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.
	Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $69,000, up from $68,000 in 2010.
	The maximum earned income tax credit (EITC) for low- and moderate- income workers and working families rises to $5,751, up from $5,666 in 2010. The maximum income limit for the EITC rises to $49,078, up from $48,362 in 2010. The credit varies by family size, filing status and other factors, with the maximum credit going to joint filers with three or more qualifying children.
	The modified adjusted gross income threshold at which the lifetime learning credit begins to phase out is $102,000 for joint filers, up from $100,000, and $51,000 for singles and heads of household, up from $50,000.
	The detailed list can be found here.

12/17/2010 H.R. 4853 - Tax Relief, Unemployment Reauthorization, and Job Creation Act of 2010, click here.

09/27/2010 H.R. 5297 - Small Business Jobs Act of 2010, click here.

03/30/2010 H.R. 3590 - Patient Protection and Affordable Care Act of 2010, click here.

03/18/2010 H.R. 2847 - Hiring Incentives to Restore Employment Act of 2010, click here.

11/06/2009 H.R. 3548 - Worker, Homeownership, and Business Assistance Act of 2009, click here.

06/24/2009 H.R. 2346 - Consumer Assistance to Recycle and Save Act of 2009, click here.

02/17/2009 H.R. 1 - American Recovery and Reinvestment Act of 2009, click here.

Hiring Incentives to Restore Employment (HIRE) Act of 2010 – Passed on March 18, 2010 Latest Updates! Under the Hiring Incentives to Restore Employment (HIRE) Act, enacted March 18, 2010, two new tax benefits are available to employers who hire certain previously unemployed workers (“qualified employees”).

The first, referred to as the payroll tax exemption, provides employers with an exemption from the employer’s 6.2 percent share of social security tax on wages paid to qualifying employees, effective for wages paid from March 19, 2010 through December 31, 2010.

In addition, for each qualified employee retained for at least 52 consecutive weeks, businesses will also be eligible for a general business tax credit, referred to as the new hire retention credit, of 6.2 percent of wages paid to the qualified employee over the 52 week period, up to a maximum credit of $1,000.

First Time Homebuyers Credit – The credit has been extended for purchases made between 12/01/2009 through 04/30/2010. You must enter into a binding contract by May 1, 2010 and close on the house by July 1, 2010. The refundable credit is still up to $8,000 or 10% of the purchase price. (click here for more)

Upgrade Homebuyers Credit – Effective for purchases between November 7, 2009 and April 30, 2009, you may be eligible for a refundable credit of up to $6,500 if you purchase a home. You must have owned and lived in your present home for any five-consecutive of the past 8 years, and the new home must be your primary residence. [The loophole is that you can keep your old home as a rental property and still qualify for the credit.] (click here for more)

Mandatory Electronic Filing – Paid tax preparers, such as me, are now required to file all tax returns electronically. Fortunately we already do.

S-Corporation and Partnership Late Filing Penalties – The new law increases the late filing penalty on S-Corps and Partnerships from $89 to $195 per shareholder or partner for each month or part of a month (up to 12 months) that the return is filed late.

2011 Standard Mileage Rates – The 2011 standard mileage rates in Rev. Proc. 2010-51 were revised on June 23, 2011. As a result, you will need to track your mileage separately for the first and last 6 months of 2011. The rate was increased to 55.5 cents per mile for all business miles driven from July 1, 2011, through Dec. 31, 2011. This is an increase of 4.5 cents from the 51 cent rate in effect for the first six months of 2011, as set forth in Revenue Procedure 2010-51. The new six-month rate for computing deductible medical or moving expenses will also increase by 4.5 cents to 23.5 cents a mile, up from 19 cents for the first six months of 2011. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile

Mileage Rate Changes

Purpose	Rates 1/1 through 6/30/11	Rates 7/1 through 12/31/11
Business	51	55.5
Medical/Moving	19	23.5
Charitable	14	14

Miscellaneous Notes

S-Corporation Late Filing Penalties

The late filing penalty for S-Corporation returns was initially levied on 2007 tax returns at $85 per month, times the number of shareholders, for each month or part of a month that the return is late (up to 12 months maximum). This was increased to $89 per month on 2008 and 2009 returns, and later increased to $195 per month on 2010 and subsequent returns.

S-Corporation returns are due on March 15th of each year, although a six-month extension, timely filed by March 15th, changes the due date to September 15th.

Section 179 Depreciation - 2011

In 2011 businesses can immediately expense up to $500,000 in qualified code section 179 property placed in service during the tax year. This amount is phased out dollar for dollar by the amount that qualifying purchases exceed $2,000,000. The 2011 amount of $500,000 far exceeds the maximum deductible expense for code section 179 property proposed for tax year 2012 of $125,000 (phased out when qualifying purchases exceed $500,000). In 2011 the definition of property qualifying for section 179 expensing also includes qualified leasehold improvement property, qualified restaurant property and qualified retail improvements. This expansion to include leasehold improvements will not be available in 2012. Section 179 expensing of property and improvements cannot be used to create a net operating loss, but unused amounts may be carried forward.

Bonus Depreciation - 2011-2012

Also available in 2011 in code section 168 is a provision allowing 100% bonus depreciation of qualified assets, including qualifying leasehold improvements. In order to be eligible for 100% bonus depreciation assets must be placed in service after September 8, 2010 and before January 1, 2012. One of the main differences between section 168 and section 179 is that in order to qualify for section 168 bonus depreciation assets must be new. Another difference is that there is no phase out associated with section 168 bonus depreciation. Conceivably an unlimited amount of qualifying purchases are eligible for 100% bonus depreciation in 2011. Bonus depreciation will revert back to 50% for 2012. Also, the section 168 bonus depreciation can be used to create a net operating loss which could potentially be carried back.

Code sections 179 and 168 do not apply to "luxury passenger automobiles", even if the auto is used exclusively for business. However, code section 280F provides bonus depreciation for passenger automobiles placed in service in 2011 in the maximum amount of $8,000. This is in addition to the standard depreciation allowed for passenger automobiles of $3,060 in the first year of service for a potential total of $11,060 in the first year. The only drawback is that depreciation of the remainder may not be allowed to resume until the 7th year, in other words, you have to skip the next five years in order to take the extra $8,000 write-off in 2011. There is a special exception for heavy SUVs. An SUV over 6,000 pounds is eligible for up to $25,000 in section 179 expense, and if the vehicle is used 100% for business the remaining value can be taken as 100% bonus depreciation in 2011. Thus, you could potentially write off the entire price of a heavy SUV in 2011, even if financed for 7 years.

Charitable Contributions (In Process)

Medical Expenses (In Process)

Employee Business Expenses (In Process)

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