| News You Can Use
May 2010
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Stay Informed:
Visit Our Blog
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| For helpful tax information
year-round, visit our blog, where we provide regular updates about tax law changes and even obscure credits that can help save you money.
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Don't Forget About Our Web Portal
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If you haven't already, please contact us to establish your Web Portal password. The Portal is a secure place where you can access your tax records. The login is located in the top right corner of our website. Initially, you'll find your 2009 tax records here, and we'll be adding previous years shortly.
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Record Retention Tips
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| We get a lot of
questions about how long our clients should keep their tax records.
Federal
law requires you to maintain copies of your tax returns and
supporting documents for three years.
This is called the "three-year law" and
leads many people to believe they're safe, provided they retain their
documents
for this period of time.
However, if the IRS believes you have significantly under-reported
your income
(by 25 percent or more), or believes there may be indication of fraud,
it may go
back six years in an audit.
Visit
our Record Retention Guide for more details.
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Greetings!
You can count on Maco & Associates to bring tax issues to your attention year-round. Today, we have a number of updates affecting you now and in the near future!
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| Newsflash: Electronic Filing... |
 The IRS has announced that Tax Preparers preparing 100 returns or more in 2011 (for 2010 tax returns) must file all returns electronically. Additionally, in 2012 (for 2011 tax returns), 100% of the returns filed by Preparers preparing 10 or more returns must be filed electronically. What does this mean for you? We'll be working with you a lot more electronically in
the 2011 tax season to ensure that you are comfortable with the security of the
web portal and the electronic return process, since we no longer have any
choice but to efile. You'll be hearing more about our electronic processes
throughout the year!
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| An Update for Freelancers... |
 Many of our clients have turned
to freelancing as a way to make more money in these hard times. If
you're one of them, you are now a bona fide
business, and have assumed the complexities of a business return. But
you also have opportunities to save money with judicious record-keeping
before you get
that surprise 1099- MISC in 2011! According to the IRS, you can deduct anything
that's considered "ordinary and necessary" to conduct your specific
business. This is a broad definition that should not be abused. What can you deduct? Allowable deductions include the cost
of an individual golf outing at the country club, a single event
in your
Skybox seats, or entertaining business guests for the day at your summer
house,
provided you document the guests and business purpose. But, you cannot
deduct
the entire year of country club dues. The list is endless. More ideas for legitimate business deductions can be found online. |
| Alternative Minimum Tax: Worse in 2010... |
Statistics indicate that 17% of Americans will be hit with the Alternative Minimum Tax (AMT) in 2010, compared with the rate of 1% that was subject to it in 2009. What a dramatic shift! If
you wailed when we gave you the AMT bad news with your 2009 tax return, the odds are that you're ready to plan to avoid it in the future. Those of you
who weren't hit in 2009 will probably be surprised next year.
 The AMT began as a way to ensure that taxpayers pay
at least a minimum amount of tax. It has a completely different set
of calculations than the regular tax. For the regular tax, you add up
your total income, subtract out various deductions and personal
exemptions, then calculate the tax. Against the regular tax, you can
claim various credits to reduce your tax even further. The AMT, however,
does not allow the standard deduction, personal exemptions, or certain
itemized deductions. Also, some income which is not subject to the
regular tax is added for AMT purposes. Your tax under AMT rules may be
higher than your tax under regular tax rules.
Let's talk numbers
The AMT is a recomputation of your
federal income tax bill at a flat 26% rate. What you end up paying is the higher of this 26% or what you owe under regular tax rules. For our clients with AMT taxable income over $175,000, it becomes a flat 28%
rate, except for those in the "married filing separately" category (for
them, the 28% rate applies to income above $87,500). So you need to carefully
manage your income and deductions between years to minimize the impact of AMT.
Under the AMT, you're going to be taxed at a 26% or 28% rate. If you're in a
higher bracket under the regular tax computation, income acceleration will
yield a smaller net tax under the AMT. Alternatively, deduction deferral to a
year in which you're in that higher bracket should give you a greater tax
benefit. Although there is a long list of items that can trigger the
AMT, for most individuals, the triggers include the following or a combination
of the items listed below:
- Preference income from exercising stock options from an
employer's qualified plan, sometimes referred to as incentive stock
options (ISOs);
- Having large itemized tax deductions;
- Having large miscellaneous itemized deductions;
- Large itemized deductions for state income or sales
tax, real property tax and personal property tax;
- Large medical itemized tax deductions;
- Home equity debt interest deduction; and
- Interest income from private activity bonds.
Kiplinger has a great reference article on how to avoid the AMT for those that are interested.
And, as always, you can rely on us to offer advice and strategies to minimize your tax liability.
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| Changes & Expiring Tax Credits for 2010... |
Individuals
should be aware of the important changes below before filing taxes for the 2010 tax year.
- Adjusted
gross income (AGI) limitations will no longer affect personal exemptions
and itemized deductions
- Individuals
will be allowed to claim personal casualty and theft losses in excess of
$100
- IRA
deduction will open up to even more taxpayers
- Maximum
allowable AGI will increase in relation to the Earned Income Credit (EIC)
- More
credits may be taken against alternative minimum tax
- The
alternative minimum tax (AMT) exemption will decrease
 A reminder that those who took the First Time Homebuyer Credit in 2008
must begin repaying in 2010.
The government giveth and the
government taketh away! Below are the expiring tax credits:
-
Reduced Capital Gains Rate: The current long-term capital
gains rates are capped out at 15%. These rates are set to expire at the
end of 2010, at which time the maximum rate will increase to 20%.
- Reduced Dividend Rate: Dividends are currently taxed at
capital gains rates (currently maxed out at 15%). This provision is set
to expire at the end of 2010, at which time dividends will be taxed as ordinary
income. Ordinary income currently has a maximum tax rate of 35%. We expect some
relief on dividends for lower income tax payers, but those with higher incomes
will likely be paying additional taxes on their dividends in 2011.
- Estate Tax Exemption: The estate tax is set to disappear
in 2010 and then to reappear in 2011 with an estate exemption of $1,000,000.
Receiving the full benefit of this provision in 2010 is a bit difficult to plan
for, unless you yourself are planning on expiring!
- Making Work Pay Tax Credit: Working individuals will
receive a tax credit in 2010 up to $400. Couples will receive up to
$800. This law is set to expire after 2010.
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| An Update for Businesses... |
 The HIRE Act provides an employer who hires a previously unemployed person
(some terms apply - for example it looks like hiring your relatives is a no-no)
with a tax incentive for the employer's share of Social Security taxes (a 6.2% savings).
This credit will be claimed on your employer tax returns and we'll need the
IRS form W-11 from the newly hired employee.
Secondly, the HIRE Act provides a general business tax credit for each
eligible worker retained for at least a year. The credit amount may be up to
$1,000 per employee and would be claimed on the 2011 employer tax
returns.
There will be more news to come regarding this and the
impact of the Patient Protection and Affordable Care Act in future issues...
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We know that it's hard to absorb all of the tax updates, changes, and expiring credits that we write about in our newsletter. Rest assured that Maco & Associates stays abreast of all tax news and looks out for you. We do the research so you don't have to! As always, we're here year-round to help you make sense of the
numbers. Give us a call at
610-489-7215 or send us an email any time throughout the year. We look forward to hearing from you. |
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