Tax Changes, Court Cases,Point of Information
Is The Death Tax Dead?
When Congress adjourned at the end of 2009, they left Washington without acting to extend the federal estate tax and generation-skipping transfer taxes into 2010. As a result, a one year repeal of the estate and GST tax took effect on January 1, 2010. If Congress gets to making a retroactive reinstatement that results in the taxation of estates of persons who already died in 2010, there is the possibility of Constitutional issues that could take years to resolve.
With Congress taking no action, the estate of an individual who dies in 2010 will not be subject to federal estate or GST tax, and lifetime transfers made after January 1, 2010 will not be subject to GST tax. However, the federal gift tax will remain in place with a $1 million lifetime exemption and a top rate of 35%. Remember, state estate , gift and GST tax laws are not affected by these changes and still need to be considered. For Connecticut residents, see section on Connecticut News of this website.
With the repeal of the estate and GST taxes on January 1, the estate property will no longer be entitled to the "step-up" in basis that allows an adjustment to fair market value for most of the assets in a decedent's estate. Instead there will be a carryover basis which means property passing to the estate or beneficiary will have the same basis (cost basis), as when it was owned by the decedent. Will the estate, executor have this information to pass to the beneficiary? Executors may allocate $1.3 million to increase the basis of assets passing to any beneficiary and may allocate an additional $3 million to increase the basis of assets that pass to a surviving spouse outright or to certain marital trusts. To the extent assets are not adjusted to fair market value, capital gains tax will be imposed upon the sale of such assets by executors or beneficiaries.
More information will be provided, but this may be a good time for large estates to consider gifts to grandchildren.
Without any further Congressional action, the estate and GST taxes, and step-up basis will be reinstated on January 1, 2011. At that time, the estate and GST exemption amount will revert to $1 million and the top estate and GST tax rate will be 55 percent.
EMPLOYMENT (HIRE) ACT Act signed into law March 15, 2010
- For qualified individuals paid wages on or after March 19, 2010, employers are permitted to avoid paying the OASDI portion of FICA taxes (6.2% Social Security portion of the FICA taxes) through December 31, 2010. A qualified individual is anyone who begins employment after February 3, 2010, signs an affidavit (Form W-11) stating that he or she has not worked more than 40 hours during the 60 day period immediately before the date employment starts with the qualifies employee. The qualified employee must not be a replacement employee unless that former employee separated from employment voluntarily or for cause. In addition, the new employee cannot be related to the employer (children and their descendants, stepchildren, siblings,step siblings, parents, nieces, nephews, aunts, uncles, or in-laws). There are no minimum hours an employee has to work. The business involved has to be a trade or business of a qualified employer or for a tax-exempt qualified employer. The credit is taken on form 941 starting with the second quarter.
- Employers are permitted a general business credit of 6.2% of wages, limited to $1,000, for each "retained worker". The credit will not exist until 2011 tax returns. This applies to any worker defined above who is employed by the employer for not less than 52 consecutive weeks, and whose wages for this employer during the last 26 weeks of this period are at least 80% of the wages during the first 26 weeks of the period. The credit is only claimed at the time the employee reaches the 52nd consecutive week of work.
- Effective for tax years beginning after March 10, 2010, taxpayers with specified foreign assets will have to file a disclosure statement with their income tax return if the value of all such assets is greater than $50,000. A specified foreign asset is a depository or custodial account at a foreign financial institution, stocks or securities issued by foreign persons, or any other financial instrument or contract held for investment that is issued by or has a counterparty that is not a US person, and any interest in a foreign entity. There are significant penalties for not disclosing this information ranging from $10,000 to $50,000. This revenue raising provision Foreign Account Tax Compliance Act (FATCA) was part of the Hiring Incentives to Restore Employment (HIRE) Act.
FEDERAL TAX DEPOSITS MUST BE ELECTRONIC STARTING IN 2011
Starting January 1, 2011, taxpayers will no longer be able to use the paper Federal Tax Deposit coupons. Businesses with $2,500 or less in quarterly tax liabilities can still pay this amount when filing their returns. ($2,500 or less for quarterly 941 tax liability, $500 or less in annual 940 tax liability, etc.).
The new rules apply to:
- -Payroll taxes(federal withholding, FICA, FUTA taxes)
- -Corporate income and corporate estimated tax payments
- -Trust estimated taxes
- -Tax-exempt UBI taxes
- -Private foundation excise taxes
- -Taxes withheld related to nonresident aliens and foreign corporations
- -Backup withholding and similar taxes
- -Form 720 excise taxes
Now is the time to get set up with EFTPS with the IRS
New 1099 Reporting Requirements
Effective with payments after December 31, 2010, debit cards, credit cards, many gift cards, some cards tied to FSAs and HRAs, some third party network transactions, shared-service organization payments, and many electronic payment facilitators, each payment settlement entity will have to file Form 1099-K showing the gross amount of monies collected and turned over to each taxpayer. What this means is that if your business accepts credit cards, your credit card processing company will send you a 1099-K. The processing entities will be required to issue the 1099-K to any taxpayer who receives more than 200 transactions AND more than $20,000 in total from those transactions.
Effective for payments made after December 31, 2011 Form 1099s will have to be issued not just to contract workers, but to any individual, corporation, business from which they buy more than $600 in goods or services in a tax year. If a business (individual, entity) engaged in a trade or business purchases goods (amounts in consideration of property) during a year in excess of $600, the business will be required to issue Form 1099 to the person/entity. Under these new rules if a self-employed individual (or entity) purchases say a computer from Staples, Best Buy, Joe Smith Computers, etc. a 1099 Form will have to be issued to these businesses. Payments to corporations (that are not tax-exempt)-which had been previously exempt from reporting requirements-would be subject to information reporting. Note that if payment is made by credit card, the processing company will be reporting the payment as indicated above for the 1099-K.
The Small Business Jobs Act of 2010 added Form 1099s will now have to be completed for expenses in connection with rental activities for payments after January 1, 2011. IRS is allowed to create exceptions for small rental activities, so more will follow.
It should be noted that on November 12, Senate Finance Committee Chairman Max Bacus announce he would introduce legislation to repeal requirements for businesses to file form that would report to IRS payments made for goods and certain services. More to follow.............On November 29, the Senate failed to gain the necessary votes on two amendments that would have repealed the expanded Form 1099 reporting requirements. Check back for further updates.........
Small Business Health Care Tax Credit
For taxable years beginning in 2010 through 2013, eligible employers will receive the small employer insurance credit if they provide medical insurance to their employees. The credit is available to small employers that pay at least 50% of the cost of single coverage for their employees.
A small business for this credit applies:
=Has fewer than 25 full-time equivalent employee (FTEs) for the taxable year.
=Has average annual wages of its employees for the year less than $50,000 per FTE, and
=maintains a qualifying arrangement as discussed in the opening paragraph.
When counting FTEs, certain people are not considered employees. Their wages are not part of the wage test calculation, and their premiums are not counted towards the credit-Sole proprietors, partners, shareholders owning more than 2%, and any owners of more than 5% of the business, family members of the above (need to see definition) and any member of the household of these owners or partners if the other member qualifies as a dependent.
FORM 8941 has been released (draft as of 9/7/2010) to report the calculation of the credit.
IRS Notice 2010-44, released in May, provides a procedure by which employers can determine their eligibility for the credit and instructions with examples of how to calculate and claim the credit as a general business credit.
The credit is available for tax years beginning after December 31, 2009, and is phased in during 2010-2013. In the phase-in years, the maximum credit is 35% of the employer's eligible premium expense (25% for tax-exempt employers). For employers with 10 or fewer employees and average wages of less than $25,000 will receive 100% of the credit; for other eligible employers, the credit will be reduced based upon the number of employees over 10 and the excess of the employees' average wages over $25,000. The $25,000 average annual wages figure will be indexed for inflation after 2013. For 2014 and 2015, the credit increases to 50%, but only if the employer offers one or more qualified health plans purchased through an exchange during those two years.
Small Business Jobs Act of 2010
See the November 2010 Monthly Client Newsletter for some of the provisions.
**1099 Requirement for Rental Income Recipients-This provision subjects recipients of rental income from real estate to the same information reporting as tapayers engaged in a trade or business. For payments made after 2010, rental income recipients making payments of $600 or more to a service provider in the course of earning rental income are required to provide an information return to the service provider and to the IRS.
**There will be increased penalties for Failure to File Information Returns
**Start-up expenses-The maximum first-year deduction for start-up expenses increases from $5,000 to $10,000 for 2010 only with the phase-out level increasing from $50,000 to $60,000.
**Self employment health insurance reduces SE Tax-The self-employment health insurance deduction will reduce self-employment income for self-employment tax purposes only for 2010.
**Rollovers from elective Deferral Plans to Roth Accounts-Any distributions from an elective deferral plan rollover to a Roth account have the same 50/50 reporting as traditional IRA conversions to Roth IRAs. This provision is applicable for any distributions in any taxable year beginning in 2010 and only for distributions after September 27, 2010.