Dear friends of RC Jones & Associates
The "first-time homebuyer credit" isn't just for first-time homebuyers anymore. Thanks to a new tax law change, longtime homeowners may also qualify.
Under the new "Worker, Homeownership and Business Assistance Act of 2009," you must complete the purchase of the home before May 1, 2010. If you secure a binding contract before May 1, you actually have until June 30, 2010 to finalize the sale. Best of all, you don't have to wait until you file your 2010 tax return to reap the rewards. You can claim the credit on your 2009 return -- even if you buy the home in 2010. Taxpayers who claim the first-time homebuyer credit on their 2009 returns will not be able to file electronically.
The new law includes the following changes effective as of Nov. 6, 2009 (the date of enactment).
• The deadline for the credit is extended from Dec. 1, 2009 to May 1, 2010. No further extension is expected.
• The credit is available to more taxpayers. Previously, it was limited to "first-time homebuyers" who did not own a principal residence for three years prior to purchasing a home. For purchases after Nov. 6, 2009, you may qualify for a maximum $6,500 credit if you've owned and used a home as your principal residence for any five consecutive years during the last eight years. The replacement home doesn't have to cost more than the old one.
• The phase-out ranges are increased. The new phase-out ranges are between $125,000 and $145,000 of MAGI for unmarried filers, and $225,000 and $245,000 for joint filers.
• The price of the home is capped at $800,000 for all purchases after Nov. 6, 2009. No credit is allowed for homes priced above this threshold.
• The credit isn't available for a home purchased from your spouse or your spouse's relatives. This extends the rule denying the credit for purchases from your own lineal ancestors or descendants.
• To curb abuses, homebuyers must provide proof of purchase (i.e., an HUD-1form). The homebuyer (or spouse) must be at least 18 years and can't be claimed by someone else as a dependent.
The revamped homebuyer credit is available to a much wider group of taxpayers. To determine whether you or another family member is eligible, call our office at (816) 792-9966.
Very truly yours,
Robert C. Jones
www.rcjonesinc.com
Monday, December 21, 2009
DOUBLE TAX BENEFIT FOR NOL’S
Dear friends of RC Jones & Associates
The new "Worker, Homeownership and Business Assistance Act of 2009" extends and expands the tax break for net operating losses (NOLs) created by the 2009 economic stimulus law. What's more, some business owners may be able to realize a double tax benefit.
Here's a quick recap: A business can normally carry back an NOL for two years and then forward for up to 20 years until the loss is exhausted. However, the 2009 economic stimulus law allowed a qualified small business to carry back NOLs for up to five years (either three, four or five years). This opportunity was only available for NOLs in tax years beginning or ending in 2008.
For this purpose, a "small business" was defined as a business with an average of no more than $15 million in gross receipts over the three-year period ending with the tax year of the NOL.
Other businesses could still carry back losses for two up to two years. The new law sweetens the deal in two ways.
• The election to carry back losses for up to five years is extended to businesses of all sizes, but the carry-back to the fifth year is limited to 50% of the available taxable income for the year.
• The election to carry back losses for up to five years is extended to NOLs incurred in either 2008 or 2009, but generally not both tax years.
However, if an eligible small business elected to carry back a 2008 loss under the prior rules, it can make the election for an additional year. Therefore, your small business may benefit from extended carry-backs for NOLs in 2008 and 2009.
For more details about this new tax break, contact our office at (816) 792-9966. One of our expert staff members will be glad to assist you.
Very truly yours,
Robert C. Jones
www.rcjonesinc.com
The new "Worker, Homeownership and Business Assistance Act of 2009" extends and expands the tax break for net operating losses (NOLs) created by the 2009 economic stimulus law. What's more, some business owners may be able to realize a double tax benefit.
Here's a quick recap: A business can normally carry back an NOL for two years and then forward for up to 20 years until the loss is exhausted. However, the 2009 economic stimulus law allowed a qualified small business to carry back NOLs for up to five years (either three, four or five years). This opportunity was only available for NOLs in tax years beginning or ending in 2008.
For this purpose, a "small business" was defined as a business with an average of no more than $15 million in gross receipts over the three-year period ending with the tax year of the NOL.
Other businesses could still carry back losses for two up to two years. The new law sweetens the deal in two ways.
• The election to carry back losses for up to five years is extended to businesses of all sizes, but the carry-back to the fifth year is limited to 50% of the available taxable income for the year.
• The election to carry back losses for up to five years is extended to NOLs incurred in either 2008 or 2009, but generally not both tax years.
However, if an eligible small business elected to carry back a 2008 loss under the prior rules, it can make the election for an additional year. Therefore, your small business may benefit from extended carry-backs for NOLs in 2008 and 2009.
For more details about this new tax break, contact our office at (816) 792-9966. One of our expert staff members will be glad to assist you.
Very truly yours,
Robert C. Jones
www.rcjonesinc.com
Wednesday, November 18, 2009
IRS RAISES PER DIEM RATES FOR 2010
Dear friends of RC Jones & Associates
Keeping detailed records of employee travel expenses is a hassle. But there's a way your business can simplify matters without any tax downside: Use the IRS-approved "per diem rates. This way, employees don't have to account for every last cup of coffee or cab ride. The reimbursements are tax-free to the employees up to certain prescribed limits.
Furthermore, your company can deduct the per-diem reimbursements in full. One exception: The usual 50% deduction limit on meal expenses still applies.
The per-diem allowances are actually the approved travel rates for U.S. government employees, but the IRS also allows companies to take advantage of them. However, the per diem rates cannot be used for an employee who owns more than 10% of the company.
Employers have a choice between two per diem rates. The first is based on the specific travel destination of the employee. The General Services Administration (GSA) sets the following each year:
• The per diem rates for the 48 states in the contiguous United States and the District of Columbia (the "CONUS" rates)
• The per diem rates for areas outside the contiguous United States such as Alaska, Hawaii, Puerto Rico and U.S. possessions (the "OCONUS" rates); and
• The per diem rates for areas in foreign countries.
The second method identifies each city as either a "high-cost" or "low-cost" area. The GSA adjusts the per diems for both areas each year. It recently announced the new rates and high-cost areas in effect for the government's 2010 fiscal year.
The IRS often challenges deductions for business travel expenses, so it’s extremely important to meet all the requirements in this area. If you’re unsure of the obligations or opportunities, Our staff can assist your firm in implementing the new per-diem rates.
Call us at (816) 792-9966 to streamline your recordkeeping procedures.
Very truly yours,
Robert C. Jones
www.rcjonesinc.com
Keeping detailed records of employee travel expenses is a hassle. But there's a way your business can simplify matters without any tax downside: Use the IRS-approved "per diem rates. This way, employees don't have to account for every last cup of coffee or cab ride. The reimbursements are tax-free to the employees up to certain prescribed limits.
Furthermore, your company can deduct the per-diem reimbursements in full. One exception: The usual 50% deduction limit on meal expenses still applies.
The per-diem allowances are actually the approved travel rates for U.S. government employees, but the IRS also allows companies to take advantage of them. However, the per diem rates cannot be used for an employee who owns more than 10% of the company.
Employers have a choice between two per diem rates. The first is based on the specific travel destination of the employee. The General Services Administration (GSA) sets the following each year:
• The per diem rates for the 48 states in the contiguous United States and the District of Columbia (the "CONUS" rates)
• The per diem rates for areas outside the contiguous United States such as Alaska, Hawaii, Puerto Rico and U.S. possessions (the "OCONUS" rates); and
• The per diem rates for areas in foreign countries.
The second method identifies each city as either a "high-cost" or "low-cost" area. The GSA adjusts the per diems for both areas each year. It recently announced the new rates and high-cost areas in effect for the government's 2010 fiscal year.
The IRS often challenges deductions for business travel expenses, so it’s extremely important to meet all the requirements in this area. If you’re unsure of the obligations or opportunities, Our staff can assist your firm in implementing the new per-diem rates.
Call us at (816) 792-9966 to streamline your recordkeeping procedures.
Very truly yours,
Robert C. Jones
www.rcjonesinc.com
NEW MORTGAGE INTEREST BREAK
Dear friends of RC Jones & Associates
The tax law permits generous deductions for mortgage interest paid in connection with "acquisition debt" and "home equity debt" of a qualified residence. Now a new ruling from the IRS says that you can combine these two breaks on an initial mortgage (IRS Chief Counsel Advice 200940030).
Under the tax law, "acquisition debt" is any debt incurred to acquire, construct or substantially improve a qualified residence. The residence may be the principal residence or one other home like a vacation home. But qualified acquisition debt can't exceed $1 million ($500,000 for married taxpayers filing separately).
On the other hand, "home equity debt" is debt secured by the residence that is not acquisition debt, up to a limit of $100,000 ($50,000 for married taxpayers filing separately). Home equity debt can't exceed the difference between the property's fair market value and the amount of the acquisition debt. Unlike acquisition debt, home equity debt may be used for any purpose.
Generally, home equity debt is incurred after the original mortgage has been arranged. For instance, you may take out a home equity debt a few years after buying a home to pay for college, medical expenses or emergencies.
In the new ruling, a taxpayer purchased a principal residence for $1.5 million, paying $200,000 in cash and borrowing $1.3 million through a loan secured by the residence. After carefully examining the law, the IRS characterized an extra $100,000 above the $1 million threshold as home equity debt rather than acquisition debt. Therefore, the taxpayer can effectively deduct interest paid on up to $1.1 million of the initial mortgage debt.
Although this is an extreme example, there may be other tax-saving opportunities you are not aware of. Call us at (816) 792-9966 to arrange a personal consultation. We may be able to find tax savings that have been overlooked.
Very truly yours,
Robert C. Jones
www.rcjonesinc.com
The tax law permits generous deductions for mortgage interest paid in connection with "acquisition debt" and "home equity debt" of a qualified residence. Now a new ruling from the IRS says that you can combine these two breaks on an initial mortgage (IRS Chief Counsel Advice 200940030).
Under the tax law, "acquisition debt" is any debt incurred to acquire, construct or substantially improve a qualified residence. The residence may be the principal residence or one other home like a vacation home. But qualified acquisition debt can't exceed $1 million ($500,000 for married taxpayers filing separately).
On the other hand, "home equity debt" is debt secured by the residence that is not acquisition debt, up to a limit of $100,000 ($50,000 for married taxpayers filing separately). Home equity debt can't exceed the difference between the property's fair market value and the amount of the acquisition debt. Unlike acquisition debt, home equity debt may be used for any purpose.
Generally, home equity debt is incurred after the original mortgage has been arranged. For instance, you may take out a home equity debt a few years after buying a home to pay for college, medical expenses or emergencies.
In the new ruling, a taxpayer purchased a principal residence for $1.5 million, paying $200,000 in cash and borrowing $1.3 million through a loan secured by the residence. After carefully examining the law, the IRS characterized an extra $100,000 above the $1 million threshold as home equity debt rather than acquisition debt. Therefore, the taxpayer can effectively deduct interest paid on up to $1.1 million of the initial mortgage debt.
Although this is an extreme example, there may be other tax-saving opportunities you are not aware of. Call us at (816) 792-9966 to arrange a personal consultation. We may be able to find tax savings that have been overlooked.
Very truly yours,
Robert C. Jones
www.rcjonesinc.com
Thursday, October 22, 2009
2009 PERSONAL YEAR-END TAX PLANNING
Dear friends of RC Jones & Associates
With the end of the year fast approaching, you can often cash in on unique tax-saving opportunities that won’t be available once Jan. 1 rolls around. Be aware that certain new tax developments may also have an impact on year-end planning in 2009.
With that in mind, following are several strategies you might use to cut your personal tax bill at the end of the year.
• Use capital gains and capital losses to offset each other. Depending on your situation, you may realize gains or losses at year-end. Any excess loss can offset up to $3,000 of ordinary income. Key point: For 2009, the maximum tax rate on long-term capital gain is 0% for certain taxpayers (e.g., your children) in the regular 10% or 15% tax brackets.
• Try to minimize the “kiddie tax.” For 2009, the kiddie tax generally applies to a child under age 19 or a full-time student under age 24 receiving more than $1,900 of unearned income. This may eliminate or reduce the benefit of the 0% capital gains rate.
• Have an estimate made of your alternative minimum tax (AMT) liability. It may be possible to avoid or reduce the AMT by postponing certain “tax preference” items to 2010. Note: The new economic stimulus law provides slightly higher AMT exemption amounts for 2009.
• Contribute to your favorite charities. But know that the IRS recently toughened the substantiation rules for monetary gifts. In general, you are required to obtain a written confirmation of your gift.
• Avoid estimated tax penalties. No penalty is imposed if your tax payments for 2009, including withholding, equals at least 90% of this year’s tax liability or 100% of last year’s liability (110% if your 2008 AGI was $150,000 or over).
• Bunch medical expenses in the year you may qualify for a deduction. Your unreimbursed expenses can be deducted only to the extent the total exceeds 7.5% of your adjusted gross income (AGI).
Of course, other year-end planning techniques may be appropriate or preferable for certain taxpayers. Call us to arrange a meeting to discuss your situation at (816) 792-9966.
Very truly yours,
Robert C. Jones
www.rcjonesinc.com
With the end of the year fast approaching, you can often cash in on unique tax-saving opportunities that won’t be available once Jan. 1 rolls around. Be aware that certain new tax developments may also have an impact on year-end planning in 2009.
With that in mind, following are several strategies you might use to cut your personal tax bill at the end of the year.
• Use capital gains and capital losses to offset each other. Depending on your situation, you may realize gains or losses at year-end. Any excess loss can offset up to $3,000 of ordinary income. Key point: For 2009, the maximum tax rate on long-term capital gain is 0% for certain taxpayers (e.g., your children) in the regular 10% or 15% tax brackets.
• Try to minimize the “kiddie tax.” For 2009, the kiddie tax generally applies to a child under age 19 or a full-time student under age 24 receiving more than $1,900 of unearned income. This may eliminate or reduce the benefit of the 0% capital gains rate.
• Have an estimate made of your alternative minimum tax (AMT) liability. It may be possible to avoid or reduce the AMT by postponing certain “tax preference” items to 2010. Note: The new economic stimulus law provides slightly higher AMT exemption amounts for 2009.
• Contribute to your favorite charities. But know that the IRS recently toughened the substantiation rules for monetary gifts. In general, you are required to obtain a written confirmation of your gift.
• Avoid estimated tax penalties. No penalty is imposed if your tax payments for 2009, including withholding, equals at least 90% of this year’s tax liability or 100% of last year’s liability (110% if your 2008 AGI was $150,000 or over).
• Bunch medical expenses in the year you may qualify for a deduction. Your unreimbursed expenses can be deducted only to the extent the total exceeds 7.5% of your adjusted gross income (AGI).
Of course, other year-end planning techniques may be appropriate or preferable for certain taxpayers. Call us to arrange a meeting to discuss your situation at (816) 792-9966.
Very truly yours,
Robert C. Jones
www.rcjonesinc.com
2009 BUSINESS YEAR-END TAX PLANNING
Dear friends of RC Jones & Associates
Despite conventional wisdom, year-end planning isn’t just for personal tax savings. There’s plenty a small business owner or manager can do between now and Dec. 31 to cut taxes in 2009. Furthermore, new legislation may give a boost to year-end tax planning for your business. Consider the following points:
• Under the Section 179 “expensing” deduction, a business can write off the full cost of certain business assets, up to a dollar cap. For 2009, the new economic stimulus law preserves the maximum deduction of $250,000 initially limited to 2008.
• Take advantage of bonus depreciation. For qualified assets placed in service in 2009, you may claim an extra 50% deduction in addition to available Section 179 and regular depreciation deductions.
• Increase your business driving or decrease personal driving—or both—to preserve top deductions for personally-owned vehicles. In lieu of deducting actual expenses, you might use the standard mileage rate. The rate for 2009 is 55 cents per mile (plus related tolls and parking fees).
• If your company operates on the accrual basis, fix bonus amounts before Jan. 1, but pay them early next year. Generally, the bonuses aren’t taxable to employees until 2010, but can be deducted on your company’s 2009 return so long as they’re paid by March 15, 2010.
• Nail down current deductions for repairs to business premises by scheduling them separate and apart from major renovations. As opposed to repairs, capital improvements aren’t deductible but are instead added to the “basis” of property.
• Keep detailed records of collection efforts to support deductions for bad debts that became worthless in 2009.
• Reschedule business trips planned for early next year to December to increase travel deductions for 2010.
Obviously, this is only a quick summary of several popular tax techniques. Give us a call at (816) 792-9966 for more in-depth information about year-end planning for your business.
Very truly yours,
Robert C. Jones
www.rcjonesinc.com
Despite conventional wisdom, year-end planning isn’t just for personal tax savings. There’s plenty a small business owner or manager can do between now and Dec. 31 to cut taxes in 2009. Furthermore, new legislation may give a boost to year-end tax planning for your business. Consider the following points:
• Under the Section 179 “expensing” deduction, a business can write off the full cost of certain business assets, up to a dollar cap. For 2009, the new economic stimulus law preserves the maximum deduction of $250,000 initially limited to 2008.
• Take advantage of bonus depreciation. For qualified assets placed in service in 2009, you may claim an extra 50% deduction in addition to available Section 179 and regular depreciation deductions.
• Increase your business driving or decrease personal driving—or both—to preserve top deductions for personally-owned vehicles. In lieu of deducting actual expenses, you might use the standard mileage rate. The rate for 2009 is 55 cents per mile (plus related tolls and parking fees).
• If your company operates on the accrual basis, fix bonus amounts before Jan. 1, but pay them early next year. Generally, the bonuses aren’t taxable to employees until 2010, but can be deducted on your company’s 2009 return so long as they’re paid by March 15, 2010.
• Nail down current deductions for repairs to business premises by scheduling them separate and apart from major renovations. As opposed to repairs, capital improvements aren’t deductible but are instead added to the “basis” of property.
• Keep detailed records of collection efforts to support deductions for bad debts that became worthless in 2009.
• Reschedule business trips planned for early next year to December to increase travel deductions for 2010.
Obviously, this is only a quick summary of several popular tax techniques. Give us a call at (816) 792-9966 for more in-depth information about year-end planning for your business.
Very truly yours,
Robert C. Jones
www.rcjonesinc.com
Wednesday, September 23, 2009
TAX ANGLES ON DONATED 'CLUNKERS'
Dear friends of RC Jones & Associates
The hugely popular cash-for-clunkers program ended Aug. 25, 2009. This new program enabled vehicle owners to realize a tax-free discount of up to $4,500 on a trade-in. But you can still qualify for big tax benefits if you donate your "clunker" to charity.
Instead of trading in your vehicle, simply give it away to a qualified charitable organization. This entitles you to a deduction on your '09 return.
The rules for charitable donations of vehicles were recently tightened by the American Jobs Creation Act of 2004. However, you may be able to qualify under a special exception.
Prior to 2004, you could generally deduct the fair market value (FMV) of a vehicle you donated to charity. But Congress became concerned about some over-aggressive valuations for beat-up jalopies. Under the 2004 law, the charitable deduction for a vehicle valued above $500 is generally limited to the amount the charity receives from a resale of the vehicle. The crackdown also applies to donations of boats and aircraft.
On the other hand, if (1) the charity "materially improves" the vehicle (e.g., it repairs dents or installs new features like a any system) or (2) it “significantly uses” the vehicle for its tax-exempt purpose and properly certifies its use, you can still deduct the full FMV.
In addition, the regular limit on the donation value doesn’t apply if the charity sells the vehicle after 2004 at a price significantly below FMV, or gives it away, to a "needy individual." To qualify under this exception, the charity must be dedicated to relieving the poor and distressed or the underprivileged that are in need of transportation.
We can help you maximize the tax benefits for charitable donations of vehicles. Before you give away a clunker, call our office at (816) 792-9966. One of our expert staff can provide guidance.
Very truly yours,
Robert C. Jones
www.rcjonesinc.com
The hugely popular cash-for-clunkers program ended Aug. 25, 2009. This new program enabled vehicle owners to realize a tax-free discount of up to $4,500 on a trade-in. But you can still qualify for big tax benefits if you donate your "clunker" to charity.
Instead of trading in your vehicle, simply give it away to a qualified charitable organization. This entitles you to a deduction on your '09 return.
The rules for charitable donations of vehicles were recently tightened by the American Jobs Creation Act of 2004. However, you may be able to qualify under a special exception.
Prior to 2004, you could generally deduct the fair market value (FMV) of a vehicle you donated to charity. But Congress became concerned about some over-aggressive valuations for beat-up jalopies. Under the 2004 law, the charitable deduction for a vehicle valued above $500 is generally limited to the amount the charity receives from a resale of the vehicle. The crackdown also applies to donations of boats and aircraft.
On the other hand, if (1) the charity "materially improves" the vehicle (e.g., it repairs dents or installs new features like a any system) or (2) it “significantly uses” the vehicle for its tax-exempt purpose and properly certifies its use, you can still deduct the full FMV.
In addition, the regular limit on the donation value doesn’t apply if the charity sells the vehicle after 2004 at a price significantly below FMV, or gives it away, to a "needy individual." To qualify under this exception, the charity must be dedicated to relieving the poor and distressed or the underprivileged that are in need of transportation.
We can help you maximize the tax benefits for charitable donations of vehicles. Before you give away a clunker, call our office at (816) 792-9966. One of our expert staff can provide guidance.
Very truly yours,
Robert C. Jones
www.rcjonesinc.com
CAN YOU RE-CONVERT AN IRA?
Dear friends of RC Jones & Associates
Suppose you converted your IRA to a Roth IRA just before the bottom fell out of the stock market last year. Because the tax liability for the conversion is based on the value of the account on the last day of the prior year – Dec. 31, 2007 -- you would have paid tax on an inflated value. So you may have opted to re-characterize your Roth into a traditional IRA.
But now you see signs of a market rebound. And you'd like to take advantage of the Roth IRA setup for all the same reasons that attracted you to it in the first place.
In this case, you might "reconvert" your IRA. In other words, you can convert your re-characterized traditional IRA back into a Roth IRA. This is essentially treated as a new conversion for tax purposes.
With a Roth IRA in existence at least five years, qualified distributions are completely exempt from federal income tax. A qualified distribution is one that is paid after reaching age 59 1/2, received on account of death or disability or used for first-time homebuyer expenses (up to a lifetime limit of $10,000). In contrast, traditional IRA distributions are taxed at ordinary income rates as high as 35% -- probably even higher in future years.
However, the IRS doesn't allow you to keep flip-flopping back and forth between the two types of IRAs. You must meet specific time restrictions for a reconversion. Specifically, a traditional IRA can’t be reconverted to a Roth before the later of:
1. The beginning of the tax year following the tax year of the conversion
2. The end of the 30-day period beginning on the day of the re-characterization.
This rule applies regardless of whether the re-characterization falls into the year of the conversion or the following year.
This is an important decision for taxpayer’s rapidly approaching retirement. We can help you analyze your personal needs. Call us at (816) 792-9966 to arrange a consultation.
Very truly yours,
Robert C. Jones
www.rcjonesinc.com
Suppose you converted your IRA to a Roth IRA just before the bottom fell out of the stock market last year. Because the tax liability for the conversion is based on the value of the account on the last day of the prior year – Dec. 31, 2007 -- you would have paid tax on an inflated value. So you may have opted to re-characterize your Roth into a traditional IRA.
But now you see signs of a market rebound. And you'd like to take advantage of the Roth IRA setup for all the same reasons that attracted you to it in the first place.
In this case, you might "reconvert" your IRA. In other words, you can convert your re-characterized traditional IRA back into a Roth IRA. This is essentially treated as a new conversion for tax purposes.
With a Roth IRA in existence at least five years, qualified distributions are completely exempt from federal income tax. A qualified distribution is one that is paid after reaching age 59 1/2, received on account of death or disability or used for first-time homebuyer expenses (up to a lifetime limit of $10,000). In contrast, traditional IRA distributions are taxed at ordinary income rates as high as 35% -- probably even higher in future years.
However, the IRS doesn't allow you to keep flip-flopping back and forth between the two types of IRAs. You must meet specific time restrictions for a reconversion. Specifically, a traditional IRA can’t be reconverted to a Roth before the later of:
1. The beginning of the tax year following the tax year of the conversion
2. The end of the 30-day period beginning on the day of the re-characterization.
This rule applies regardless of whether the re-characterization falls into the year of the conversion or the following year.
This is an important decision for taxpayer’s rapidly approaching retirement. We can help you analyze your personal needs. Call us at (816) 792-9966 to arrange a consultation.
Very truly yours,
Robert C. Jones
www.rcjonesinc.com
Thursday, August 20, 2009
NEW TAX BREAKTHROUGH FOR LLC'S
Dear friends of RC Jones & Associates
An important new Tax Court case could provide valuable tax savings for owners of limited liability corporations (LLCs) and partners in limited liability partnerships (LLPs). The decision permits a couple to use a loss from an LLC or LLP to offset highly taxed income. Previously, it was presumed that such losses could only be used to offset income from other "passive" activities.
Background: New forms of business ownership featuring limited liability are growing in popularity. In particular, the LLC setup is advantageous for its owners (called "members"). As with other pass-through entities, like S corporations and partnerships, items of income and loss of an LLC are passed through to the members. There's only one level of tax as opposed to double taxation for C corporations.
However, the IRS has long presumed that the passive activity loss (PAL) rules automatically apply to LLCs. If a business activity is characterized as a passive activity, the loss may only be used to offset income from other passive activities. Therefore, you can't use a PAL to offset income from wages or other highly taxed income. Any excess loss is suspended and is carried forward to future years.
A passive activity is defined as a trade or business in which you do not “materially participate.” The IRS has established several tests for determining material participation. But certain activities, such as rental real estate and limited partnership interests, are treated as passive activities right from the start.
In the new case, a couple's losses from several LLCs and LLPS were disallowed by the IRS. But the Tax Court disagreed with the IRS' presumption. Unlike a limited partner in a limited partnership, LLC and LLP owners do not compromise their limited liability under state law by participating in management. Therefore, the taxpayers should not automatically be treated as passive investors. If they qualify as material participants, they can deduct the losses against other income.
This new decision may have particular significance for many LLC members. Based on the new Tax Court case, some LLC members may be entitled to refunds for prior years. Call us at (816) 792-9966 to see if it affects your situation.
Very truly yours,
Robert C. Jones
An important new Tax Court case could provide valuable tax savings for owners of limited liability corporations (LLCs) and partners in limited liability partnerships (LLPs). The decision permits a couple to use a loss from an LLC or LLP to offset highly taxed income. Previously, it was presumed that such losses could only be used to offset income from other "passive" activities.
Background: New forms of business ownership featuring limited liability are growing in popularity. In particular, the LLC setup is advantageous for its owners (called "members"). As with other pass-through entities, like S corporations and partnerships, items of income and loss of an LLC are passed through to the members. There's only one level of tax as opposed to double taxation for C corporations.
However, the IRS has long presumed that the passive activity loss (PAL) rules automatically apply to LLCs. If a business activity is characterized as a passive activity, the loss may only be used to offset income from other passive activities. Therefore, you can't use a PAL to offset income from wages or other highly taxed income. Any excess loss is suspended and is carried forward to future years.
A passive activity is defined as a trade or business in which you do not “materially participate.” The IRS has established several tests for determining material participation. But certain activities, such as rental real estate and limited partnership interests, are treated as passive activities right from the start.
In the new case, a couple's losses from several LLCs and LLPS were disallowed by the IRS. But the Tax Court disagreed with the IRS' presumption. Unlike a limited partner in a limited partnership, LLC and LLP owners do not compromise their limited liability under state law by participating in management. Therefore, the taxpayers should not automatically be treated as passive investors. If they qualify as material participants, they can deduct the losses against other income.
This new decision may have particular significance for many LLC members. Based on the new Tax Court case, some LLC members may be entitled to refunds for prior years. Call us at (816) 792-9966 to see if it affects your situation.
Very truly yours,
Robert C. Jones
DONATE IRA FUNDS TO CHARITY
Dear friends of RC Jones & Associates
Time is running out on a unique tax break for older taxpayers with charitable intentions. If you donate funds directly from your IRA to a qualified charity of your choice, you can avoid tax on the distribution.
The 2006 pension law created a two-year window for these tax-free distributions. This provision was extended through 2009 by last year's bailout law, so there are just a few months left to cash in on this tax break.
Here are more details: If you are age 70 ½ or older, you can exclude from tax “qualified charitable distributions” of up to $100,000 that would otherwise be taxable as IRA distributions. A qualified charitable distribution isn’t reported as taxable income or claimed as a charitable deduction. The distribution also will not increase your adjusted gross income (AGI) for other tax purposes.
For example, if you have unreimbursed medical expenses this year, the IRA distribution to charity may help you qualify for a medical expense deduction. Similarly, you might be able to reduce the tax due on Social Security benefits through such a gift.
Note that your contribution must otherwise qualify as a charitable donation. Also, contributions must be made directly by an IRA trustee to the charitable organization.
We can help you determine if this technique is appropriate for your particular circumstances. Remember this tax break expires on Dec. 31. Call us at (816) 792-9966 to arrange a one-on-one
Very truly yours,
Robert C. Jones
Time is running out on a unique tax break for older taxpayers with charitable intentions. If you donate funds directly from your IRA to a qualified charity of your choice, you can avoid tax on the distribution.
The 2006 pension law created a two-year window for these tax-free distributions. This provision was extended through 2009 by last year's bailout law, so there are just a few months left to cash in on this tax break.
Here are more details: If you are age 70 ½ or older, you can exclude from tax “qualified charitable distributions” of up to $100,000 that would otherwise be taxable as IRA distributions. A qualified charitable distribution isn’t reported as taxable income or claimed as a charitable deduction. The distribution also will not increase your adjusted gross income (AGI) for other tax purposes.
For example, if you have unreimbursed medical expenses this year, the IRA distribution to charity may help you qualify for a medical expense deduction. Similarly, you might be able to reduce the tax due on Social Security benefits through such a gift.
Note that your contribution must otherwise qualify as a charitable donation. Also, contributions must be made directly by an IRA trustee to the charitable organization.
We can help you determine if this technique is appropriate for your particular circumstances. Remember this tax break expires on Dec. 31. Call us at (816) 792-9966 to arrange a one-on-one
Very truly yours,
Robert C. Jones
Thursday, July 23, 2009
PENALTY-FREE WITHDRAWALS FROM YOUR 401(K) OR IRA
Dear friends of RC Jones & Associates
Normally, it is not advisable to take withdrawals from your qualified retirement plans and IRAs prior to age 59 1/2. Not only does this erode your nest egg, but you're generally hit with a 10% penalty tax on top of regular income tax.
However, you may be facing a cash crunch during this recession with no place else to turn. In that case, you can minimize your exposure to income tax and penalties if you qualify for one of several tax-law exceptions. Here are five prime examples.
1. No penalty will be assessed if you arrange to receive “substantially equal periodic payments” (SEPPs) from a qualified plan or IRA based on your life expectancy or the joint life expectancies of you and a designated beneficiary. The payments must last for the longer of five years or until you reach age 59 1/2.
2. If your family has been hit with some unexpected medical bills, you can tap into your plan or IRA to pay for medical expenses. The withdrawals are exempt from the penalty to the extent that the cost qualifies for the medical expense deduction (i.e., unreimbursed medical expenses above 7.5% of your adjusted gross income).
3. The tax law includes a special tax break for "first-time homebuyers." You don't have to pay the penalty on pre-age 59 1/2 withdrawals if you take money out of an IRA to buy or build a qualified home. Similarly, you might use IRA funds to help your child buy a home. Caution: There’s a lifetime dollar cap of $10,000 on this exception. (Don’t forget about the $8,000 credit that is currently available)
4. Distributions from an IRA made before age 59 1/2 won’t trigger the penalty if the funds are used to pay for a child's qualified higher education expenses. This includes tuition, books, supplies, etc. -- even room and board if your child is a full-time student.
5. If IRA funds are used to continue health insurance coverage under COBRA, early withdrawals are exempt from the penalty. In a new field advice memo, the IRS says self- employed individuals are also exempt if they can show they would have received unemployment benefits for 12 weeks if they were an employee.
Everyone's situation is different and early withdrawals from retirement accounts should be viewed as a last resort. We can analyze whether you should take an early withdrawal or utilize other resources. Call us at (816) 792-99666 to arrange a consultation.
Very truly yours,
Robert C. Jones
www.rcjonesinc.com
Normally, it is not advisable to take withdrawals from your qualified retirement plans and IRAs prior to age 59 1/2. Not only does this erode your nest egg, but you're generally hit with a 10% penalty tax on top of regular income tax.
However, you may be facing a cash crunch during this recession with no place else to turn. In that case, you can minimize your exposure to income tax and penalties if you qualify for one of several tax-law exceptions. Here are five prime examples.
1. No penalty will be assessed if you arrange to receive “substantially equal periodic payments” (SEPPs) from a qualified plan or IRA based on your life expectancy or the joint life expectancies of you and a designated beneficiary. The payments must last for the longer of five years or until you reach age 59 1/2.
2. If your family has been hit with some unexpected medical bills, you can tap into your plan or IRA to pay for medical expenses. The withdrawals are exempt from the penalty to the extent that the cost qualifies for the medical expense deduction (i.e., unreimbursed medical expenses above 7.5% of your adjusted gross income).
3. The tax law includes a special tax break for "first-time homebuyers." You don't have to pay the penalty on pre-age 59 1/2 withdrawals if you take money out of an IRA to buy or build a qualified home. Similarly, you might use IRA funds to help your child buy a home. Caution: There’s a lifetime dollar cap of $10,000 on this exception. (Don’t forget about the $8,000 credit that is currently available)
4. Distributions from an IRA made before age 59 1/2 won’t trigger the penalty if the funds are used to pay for a child's qualified higher education expenses. This includes tuition, books, supplies, etc. -- even room and board if your child is a full-time student.
5. If IRA funds are used to continue health insurance coverage under COBRA, early withdrawals are exempt from the penalty. In a new field advice memo, the IRS says self- employed individuals are also exempt if they can show they would have received unemployment benefits for 12 weeks if they were an employee.
Everyone's situation is different and early withdrawals from retirement accounts should be viewed as a last resort. We can analyze whether you should take an early withdrawal or utilize other resources. Call us at (816) 792-99666 to arrange a consultation.
Very truly yours,
Robert C. Jones
www.rcjonesinc.com
BEAT THE NEW *WORK OPPORTUNITY TAX CREDIT* DEADLINE
Dear friends of RC Jones & Associates
The new economic stimulus law enacted earlier this year -- the American Recovery and Reinvestment Act of 2009 -- expanded the Work Opportunity Tax Credit (WOTC) to include more workers. Now employers can claim the credit for certain unemployed veterans and "disconnected youth" hired in 2009 and 2010.
But you must request certification of these workers by Aug. 17, 2009. In a new Notice, the IRS has established this as an extended cutoff date for making requests to the appropriate state workforce agency.
For this purpose, an "unemployed veteran" is defined as someone who has been discharged or released from the military during the five years preceding the hiring date and who has received unemployment benefits for at least four weeks during the one-year period ending on the hiring date. A “disconnected youth” is a person who is between the ages of 16 to 24 on the hiring date and has not been regularly employed or is attending school and meets other requirements.
The WOTC is generally equal to 40% of the first $6,000 of the worker's first-year wages, assuming the worker completes a minimum of 400 hours of service. Thus, the maximum credit per targeted worker is $2,400. The WOTC is reduced to 25% of qualified wages for workers who complete less than 400 hours of service, for a maximum credit of $1,500 per worker.
Remember that the WOTC is also available for workers in 10 other targeted groups. Certification requirements apply to workers in all the other groups except employees who were Hurricane Katrina victims.
The WOTC can reduce your company's tax bill on a dollar-for-dollar basis. RC Jones & Associates can provide whatever assistance you need in this area. One of our expert staff will be glad to answer all your questions; simply call us at (816) 792-9966.
Very truly yours,
Robert C. Jones
www.rcjonesinc.com
The new economic stimulus law enacted earlier this year -- the American Recovery and Reinvestment Act of 2009 -- expanded the Work Opportunity Tax Credit (WOTC) to include more workers. Now employers can claim the credit for certain unemployed veterans and "disconnected youth" hired in 2009 and 2010.
But you must request certification of these workers by Aug. 17, 2009. In a new Notice, the IRS has established this as an extended cutoff date for making requests to the appropriate state workforce agency.
For this purpose, an "unemployed veteran" is defined as someone who has been discharged or released from the military during the five years preceding the hiring date and who has received unemployment benefits for at least four weeks during the one-year period ending on the hiring date. A “disconnected youth” is a person who is between the ages of 16 to 24 on the hiring date and has not been regularly employed or is attending school and meets other requirements.
The WOTC is generally equal to 40% of the first $6,000 of the worker's first-year wages, assuming the worker completes a minimum of 400 hours of service. Thus, the maximum credit per targeted worker is $2,400. The WOTC is reduced to 25% of qualified wages for workers who complete less than 400 hours of service, for a maximum credit of $1,500 per worker.
Remember that the WOTC is also available for workers in 10 other targeted groups. Certification requirements apply to workers in all the other groups except employees who were Hurricane Katrina victims.
The WOTC can reduce your company's tax bill on a dollar-for-dollar basis. RC Jones & Associates can provide whatever assistance you need in this area. One of our expert staff will be glad to answer all your questions; simply call us at (816) 792-9966.
Very truly yours,
Robert C. Jones
www.rcjonesinc.com
Tuesday, June 23, 2009
TAX BREAK FOR COMPANY STOCK PAYOUTS
Dear Friends of RC Jones & Associates
If you’re getting ready to retire, you may be receiving a big payout from your company retirement plan. That is especially true for successful small business owners who have invested in their own company’s stock.
Surprisingly, it’s what you take out of a retirement plan, not necessarily how much you take out, that counts most for tax purposes. Following are some of the details.
Absent any special circumstances, a lump-sum distribution from a qualified retirement plan is taxed as ordinary income, at individual tax rates reaching as high as 35%. That can put a big tax dent in your nest egg for retirement. However, there’s a giant loophole in the tax law for payouts in the form of company stock. In that case, your taxable gain is figured on the plan’s original cost of the stock.
In other words, you don’t have to pay any tax on the distribution of company stock. The payout is 100% tax-free until you actually sell the stock!
To sweeten the deal even further, your taxable gain from the stock sale will be treated as a favorably-taxed capital gain. Currently, the maximum tax rate on long-term capital gain is only 15%. So, you’re a tax winner twice -- once at the time of distribution and once upon the sale of the company stock.
Naturally, you face several critical decisions as you near your expected retirement date and you can literally save thousands of tax dollars by making the right tax choices for your particular situation. For example, one possible alternative is to roll over funds into an IRA to continue tax deferral. We would be happy to provide whatever assistance you require in these matters even refer you to qualified investment professionals. Don’t hesitate to give us a call at (816)792-9966.
Very Truly Yours
Robert C Jones
If you’re getting ready to retire, you may be receiving a big payout from your company retirement plan. That is especially true for successful small business owners who have invested in their own company’s stock.
Surprisingly, it’s what you take out of a retirement plan, not necessarily how much you take out, that counts most for tax purposes. Following are some of the details.
Absent any special circumstances, a lump-sum distribution from a qualified retirement plan is taxed as ordinary income, at individual tax rates reaching as high as 35%. That can put a big tax dent in your nest egg for retirement. However, there’s a giant loophole in the tax law for payouts in the form of company stock. In that case, your taxable gain is figured on the plan’s original cost of the stock.
In other words, you don’t have to pay any tax on the distribution of company stock. The payout is 100% tax-free until you actually sell the stock!
To sweeten the deal even further, your taxable gain from the stock sale will be treated as a favorably-taxed capital gain. Currently, the maximum tax rate on long-term capital gain is only 15%. So, you’re a tax winner twice -- once at the time of distribution and once upon the sale of the company stock.
Naturally, you face several critical decisions as you near your expected retirement date and you can literally save thousands of tax dollars by making the right tax choices for your particular situation. For example, one possible alternative is to roll over funds into an IRA to continue tax deferral. We would be happy to provide whatever assistance you require in these matters even refer you to qualified investment professionals. Don’t hesitate to give us a call at (816)792-9966.
Very Truly Yours
Robert C Jones
PRODUCE BIG MANUFACTURING DEDUCTIONS
Dear Friends of RC Jones & Associates
The so-called "manufacturing deduction" isn't just limited to companies that manufacture products in the traditional sense of the word. It's available to a wider range of business operations than you might think.
What's more, the maximum deduction is increasing to 9% of qualified production activity income (QPAI) in 2010. If your company is in the top 34% tax bracket, this effectively amounts to a 3.15% tax cut.
Here's some background information. Under Section 199 of the tax code, a qualified domestic producer can currently deduct 6% of the lesser of its QPAI or its taxable income. The maximum deduction was initially doubled from 3% after 2006.
Production activities must be performed in whole, or in significant part, on U.S. soil. The annual deduction is limited to 50% of the W-2 wages.
Obviously, the deduction is fair game for traditional manufacturers of goods, but it also applies to farmers, fishermen, miners and a variety of businesses in the construction field. In fact, IRS regulations single out construction activities for special treatment. For instance, a qualified company doesn’t actually have to construct buildings. The deduction may be extended to certain taxpayers in the business of painting, drywalling and landscaping.
Similarly, the deduction is generally available to engineers and architects. As long as the services are related to construction, the costs qualify for the deduction, even if no actual construction takes place. The deduction may also be claimed by businesses conducting feasibility and environmental impact studies.
Don’t make any snap judgments if your business operation appears to fall outside the scope of a traditional manufacturing activity, we can you make a definitive assessment of your situation. Call us at (816) 792-9966 to schedule a review of your situation today.
Very Truly Yours
Robert C Jones
The so-called "manufacturing deduction" isn't just limited to companies that manufacture products in the traditional sense of the word. It's available to a wider range of business operations than you might think.
What's more, the maximum deduction is increasing to 9% of qualified production activity income (QPAI) in 2010. If your company is in the top 34% tax bracket, this effectively amounts to a 3.15% tax cut.
Here's some background information. Under Section 199 of the tax code, a qualified domestic producer can currently deduct 6% of the lesser of its QPAI or its taxable income. The maximum deduction was initially doubled from 3% after 2006.
Production activities must be performed in whole, or in significant part, on U.S. soil. The annual deduction is limited to 50% of the W-2 wages.
Obviously, the deduction is fair game for traditional manufacturers of goods, but it also applies to farmers, fishermen, miners and a variety of businesses in the construction field. In fact, IRS regulations single out construction activities for special treatment. For instance, a qualified company doesn’t actually have to construct buildings. The deduction may be extended to certain taxpayers in the business of painting, drywalling and landscaping.
Similarly, the deduction is generally available to engineers and architects. As long as the services are related to construction, the costs qualify for the deduction, even if no actual construction takes place. The deduction may also be claimed by businesses conducting feasibility and environmental impact studies.
Don’t make any snap judgments if your business operation appears to fall outside the scope of a traditional manufacturing activity, we can you make a definitive assessment of your situation. Call us at (816) 792-9966 to schedule a review of your situation today.
Very Truly Yours
Robert C Jones
Tuesday, May 26, 2009
MID-YEAR TAX MOVES FOR BUSINESS OWNERS
Dear friends of RC Jones & Associates
Summertime is here but there's no vacation from tax planning. Here are five tax moves small business owners might make now to reduce tax liability for 2009.
1. Cut back quarterly installment payments. Self-employed taxpayers must pay federal income tax and self-employment tax in quarterly installments to avoid an "estimated tax" penalty. Normally, no penalty will be assessed if annual payments equal at least 90% of the taxpayer's current tax liability or 100% of last year's liability (110% if the AGI for the prior year exceeded $150,000). But the new economic stimulus law allows certain small business owners to base payments on 90% of 2008 tax liability.
2. Put your child on the payroll. Is your teenage child looking for a summer job? Have the child work in the plant or the office. Besides gaining valuable experience, the teenager can earn up to $5,700 tax-free in 2009. For the business, the wages are tax deductible like wages paid to any other employee so long as the child is paid a reasonable amount for the services actually rendered.
3. Combine business with pleasure. When you travel away from home on business, you can deduct the travel expenses—including air fare, meals and lodging—so long as the primary purpose of the trip is business-related. So you may tack on a few days of sightseeing or relaxation as long as you spend more time on business than pleasure. Of course, no deduction is allowed for personal side trips or activities or meals and lodging for non-business days.
4. Hire a crew of summer workers. If your business employs workers from disadvantaged groups, it is entitled to the Work Opportunity Tax Credit (WOTC). The regular credit is 40% of the first $6,000 of wages paid to a qualified worker during the year. But you can also claim a special summertime credit for hiring certain youths age 16 or 17 who work between May 1 and Sept. 15. The WOTC for these workers is 40% of the first $3,000 of wages.
5. Switch to the actual expense method. The standard mileage rate for business driving is 55 cents per business mile (plus tolls and parking fees) for 2009 (down from 58.5 cents per mile for the last six months of 2008). If you started using the standard mileage rate this year, it may not be too late to switch to the actual expense method. Hunt down records for gasoline, oil and repairs. Even if you can’t substantiate all costs from earlier in the year, a midyear switch still can increase deductions.
Don't wait until the end of the year to address tax planning for your business. One of our experienced tax practitioners can assist you right now.
Very truly yours,
Robert C. Jones
www.RCJonesInc.com
Summertime is here but there's no vacation from tax planning. Here are five tax moves small business owners might make now to reduce tax liability for 2009.
1. Cut back quarterly installment payments. Self-employed taxpayers must pay federal income tax and self-employment tax in quarterly installments to avoid an "estimated tax" penalty. Normally, no penalty will be assessed if annual payments equal at least 90% of the taxpayer's current tax liability or 100% of last year's liability (110% if the AGI for the prior year exceeded $150,000). But the new economic stimulus law allows certain small business owners to base payments on 90% of 2008 tax liability.
2. Put your child on the payroll. Is your teenage child looking for a summer job? Have the child work in the plant or the office. Besides gaining valuable experience, the teenager can earn up to $5,700 tax-free in 2009. For the business, the wages are tax deductible like wages paid to any other employee so long as the child is paid a reasonable amount for the services actually rendered.
3. Combine business with pleasure. When you travel away from home on business, you can deduct the travel expenses—including air fare, meals and lodging—so long as the primary purpose of the trip is business-related. So you may tack on a few days of sightseeing or relaxation as long as you spend more time on business than pleasure. Of course, no deduction is allowed for personal side trips or activities or meals and lodging for non-business days.
4. Hire a crew of summer workers. If your business employs workers from disadvantaged groups, it is entitled to the Work Opportunity Tax Credit (WOTC). The regular credit is 40% of the first $6,000 of wages paid to a qualified worker during the year. But you can also claim a special summertime credit for hiring certain youths age 16 or 17 who work between May 1 and Sept. 15. The WOTC for these workers is 40% of the first $3,000 of wages.
5. Switch to the actual expense method. The standard mileage rate for business driving is 55 cents per business mile (plus tolls and parking fees) for 2009 (down from 58.5 cents per mile for the last six months of 2008). If you started using the standard mileage rate this year, it may not be too late to switch to the actual expense method. Hunt down records for gasoline, oil and repairs. Even if you can’t substantiate all costs from earlier in the year, a midyear switch still can increase deductions.
Don't wait until the end of the year to address tax planning for your business. One of our experienced tax practitioners can assist you right now.
Very truly yours,
Robert C. Jones
www.RCJonesInc.com
GENERATE ENERGY TAX BREAKS!
Dear friends of RC Jones & Associates
Several clients have asked us about the tax incentives for energy savings contained in the new economic stimulus law (the American Recovery and Reinvestment Act of 2009). The new law changes may benefit both individual and business taxpayers. Following is a brief overview.
For individuals: The new law triples the residential energy credit to 30% of qualified expenditures (up from 10%). Furthermore, the lifetime $500 dollar cap is eliminated. It's been replaced by an overall limit of $1,500 for 2009 and 2010 combined. The changes are effective for energy-saving installations made after 2008 and before 2011.
The enhanced residential energy credit covers a wide range of improvements, including insulation materials; exterior windows (including skylights); exterior doors and central air conditioners.
The new law also removes the dollar caps for the separate 30% credit for expenditures on qualified solar hot water property, geothermal heat pumps and wind energy property. Caveat: A $500 cap per .5 kilowatt hour of capacity applies to qualified fuel cell property costs.
For businesses: A business building owner may claim a tax deduction equal to $1.80 per square foot of new or existing commercial buildings that meet certain conditions. Alternatively, partial deductions of up to $.60 per square foot are available for eco-friendly improvements affecting the building envelope, lighting systems or heating and cooling systems.
Under last year’s Emergency Economic Stabilization Act, deductions may be claimed for property placed in service after 2006 and before 2014 if certain conditions are met.
Finally, the 2009 Stimulus Act includes numerous other technical modifications. For instance, it extends the credit for electricity produced from renewable sources through 2013 (through 2012 for wind facilities).
This is only a brief summary of the key rules. It is important to understand these tax breaks before you make any energy-saving installations. Contact us at (816) 792-9966 to obtain an assessment.
Very truly yours,
Robert C. Jones
www.RCJonesInc.com
Several clients have asked us about the tax incentives for energy savings contained in the new economic stimulus law (the American Recovery and Reinvestment Act of 2009). The new law changes may benefit both individual and business taxpayers. Following is a brief overview.
For individuals: The new law triples the residential energy credit to 30% of qualified expenditures (up from 10%). Furthermore, the lifetime $500 dollar cap is eliminated. It's been replaced by an overall limit of $1,500 for 2009 and 2010 combined. The changes are effective for energy-saving installations made after 2008 and before 2011.
The enhanced residential energy credit covers a wide range of improvements, including insulation materials; exterior windows (including skylights); exterior doors and central air conditioners.
The new law also removes the dollar caps for the separate 30% credit for expenditures on qualified solar hot water property, geothermal heat pumps and wind energy property. Caveat: A $500 cap per .5 kilowatt hour of capacity applies to qualified fuel cell property costs.
For businesses: A business building owner may claim a tax deduction equal to $1.80 per square foot of new or existing commercial buildings that meet certain conditions. Alternatively, partial deductions of up to $.60 per square foot are available for eco-friendly improvements affecting the building envelope, lighting systems or heating and cooling systems.
Under last year’s Emergency Economic Stabilization Act, deductions may be claimed for property placed in service after 2006 and before 2014 if certain conditions are met.
Finally, the 2009 Stimulus Act includes numerous other technical modifications. For instance, it extends the credit for electricity produced from renewable sources through 2013 (through 2012 for wind facilities).
This is only a brief summary of the key rules. It is important to understand these tax breaks before you make any energy-saving installations. Contact us at (816) 792-9966 to obtain an assessment.
Very truly yours,
Robert C. Jones
www.RCJonesInc.com
Monday, May 11, 2009
RELIEF FOR COBRA OBLIGATIONS
Dear friends of RC Jones & Associates
The new economic stimulus law -- the American Recovery and Reinvestment Act of 2009 -- subsidizes the cost of continuing COBRA medical coverage for some employees who have lost, or will lose, their jobs. But the burden of paying the rest of the premiums is shifting to employers.
Fortunately, if your firm is required to pick up the slack for premium payments, it can claim a special tax credit on the quarterly employment tax return (Form 941). Alternatively, you can reduce employment tax deposits by the amount of the subsidiary payments. The IRS recently released additional guidance on these points.
The long-standing law known as COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985) allows an employee who is terminated from employment to continue employer-provided health insurance coverage for up to 18 months. The maximum continuation period is extended to 29 months for an employee who suffers a disability; 36 months for a spouse or dependent facing loss of coverage due to death, divorce or legal separation.
Now the new law offers beleaguered taxpayers a discount. An employee who is "involuntarily terminated" from the job between Sept. 1, 2008 and Dec. 31, 2009, may elect to pay only 35% of the required premiums for a nine-month stretch. It's up to the employer to pick up the remaining 65% of the tab.
However, if an employer is forced to make COBRA subsidiary payments for employees who have been laid off or fired, the business is eligible for the new COBRA premium assistance credit. The new IRS guidance clarifies that a company can't claim the payroll tax credit until it has received the 35% payment from the former employee.
Another option for your firm is to reduce regular employment tax deposits. For this purpose, the COBRA premiums will be treated as having been made on the first day of the quarter and will be applied against the usual deposit requirements for the employment taxes. Note: This does not otherwise affect an employer's obligation to pay employment taxes in a timely fashion.
It makes sense to recoup your firm's COBRA payments as soon as possible; if you have any questions regarding the new COBRA rules; Call us at (816) 792-9966 to examine your options.
Very truly yours,
Robert C. Jones
www.RCJonesInc.Com
The new economic stimulus law -- the American Recovery and Reinvestment Act of 2009 -- subsidizes the cost of continuing COBRA medical coverage for some employees who have lost, or will lose, their jobs. But the burden of paying the rest of the premiums is shifting to employers.
Fortunately, if your firm is required to pick up the slack for premium payments, it can claim a special tax credit on the quarterly employment tax return (Form 941). Alternatively, you can reduce employment tax deposits by the amount of the subsidiary payments. The IRS recently released additional guidance on these points.
The long-standing law known as COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985) allows an employee who is terminated from employment to continue employer-provided health insurance coverage for up to 18 months. The maximum continuation period is extended to 29 months for an employee who suffers a disability; 36 months for a spouse or dependent facing loss of coverage due to death, divorce or legal separation.
Now the new law offers beleaguered taxpayers a discount. An employee who is "involuntarily terminated" from the job between Sept. 1, 2008 and Dec. 31, 2009, may elect to pay only 35% of the required premiums for a nine-month stretch. It's up to the employer to pick up the remaining 65% of the tab.
However, if an employer is forced to make COBRA subsidiary payments for employees who have been laid off or fired, the business is eligible for the new COBRA premium assistance credit. The new IRS guidance clarifies that a company can't claim the payroll tax credit until it has received the 35% payment from the former employee.
Another option for your firm is to reduce regular employment tax deposits. For this purpose, the COBRA premiums will be treated as having been made on the first day of the quarter and will be applied against the usual deposit requirements for the employment taxes. Note: This does not otherwise affect an employer's obligation to pay employment taxes in a timely fashion.
It makes sense to recoup your firm's COBRA payments as soon as possible; if you have any questions regarding the new COBRA rules; Call us at (816) 792-9966 to examine your options.
Very truly yours,
Robert C. Jones
www.RCJonesInc.Com
TAX DEDUCTIONS FOR NEW VEHILCES
Dear friends of RC Jones & Associates
Under the new economic stimulus law, you can deduct state and local taxes paid to purchase a new vehicle. The deduction or adjustment to income applies to sales made after Feb. 16, 2009 and before Jan. 1, 2010. At first glance, the rules seem straightforward, but there are a few interesting twists and turns you should know about.
For starters, the new law allows you to write off sales and excise taxes attributable to the first $49,500 of the price of a new (not used) vehicle. This deduction is claimed "above the line" so it can also reduce taxes for other purposes.
Note that the new deduction isn't limited to passenger automobiles. It also covers motorcycles, light trucks and SUVs as long as you're the original buyer and the vehicle doesn't weigh more than 8,500 gross pounds. Motor homes also qualify.
However, like several other tax breaks, the write-off phases out for an AGI between $125,000 and $135,000 for single filers and an AGI of $250,000 and $260,000 for joint filers.
Be aware of a few caveats when comparing deductions: For purposes of the optional sales tax deduction, if the rate of tax on vehicles exceeds the general sales tax rate, the deduction is limited to the general rate and there's no purchase price limit or separate income limit. For instance, if a vehicle costs much more than $49,500, you're probably better off claiming the optional sales tax deduction. If you live in a state with a high income tax rate, you might opt to write off state income tax and tack on the new vehicle deduction.
Also, the new deduction is allowed for the alternative minimum tax (AMT), but the optional sales tax deduction is not. Thus, if you will be subject to the AMT before taking into account a deduction for state or local taxes, the decision is a no-brainer: There is no tax benefit if the optional sales tax deduction is elected instead of deducting state income tax, plus you forfeit any new vehicle deduction.
Can you claim the new deduction for more than vehicle? The law isn't clear on this point, but it stands to reason that deductions would be allowed on multiple purchases up to a $49,500 limit per taxpayer.
This new deduction may affect your decision to buy a vehicle. Contact us at (816) 792-9966 to assess your situation.
Very truly yours,
Robert C. Jones
RCJonesInc.Com
Under the new economic stimulus law, you can deduct state and local taxes paid to purchase a new vehicle. The deduction or adjustment to income applies to sales made after Feb. 16, 2009 and before Jan. 1, 2010. At first glance, the rules seem straightforward, but there are a few interesting twists and turns you should know about.
For starters, the new law allows you to write off sales and excise taxes attributable to the first $49,500 of the price of a new (not used) vehicle. This deduction is claimed "above the line" so it can also reduce taxes for other purposes.
Note that the new deduction isn't limited to passenger automobiles. It also covers motorcycles, light trucks and SUVs as long as you're the original buyer and the vehicle doesn't weigh more than 8,500 gross pounds. Motor homes also qualify.
However, like several other tax breaks, the write-off phases out for an AGI between $125,000 and $135,000 for single filers and an AGI of $250,000 and $260,000 for joint filers.
Be aware of a few caveats when comparing deductions: For purposes of the optional sales tax deduction, if the rate of tax on vehicles exceeds the general sales tax rate, the deduction is limited to the general rate and there's no purchase price limit or separate income limit. For instance, if a vehicle costs much more than $49,500, you're probably better off claiming the optional sales tax deduction. If you live in a state with a high income tax rate, you might opt to write off state income tax and tack on the new vehicle deduction.
Also, the new deduction is allowed for the alternative minimum tax (AMT), but the optional sales tax deduction is not. Thus, if you will be subject to the AMT before taking into account a deduction for state or local taxes, the decision is a no-brainer: There is no tax benefit if the optional sales tax deduction is elected instead of deducting state income tax, plus you forfeit any new vehicle deduction.
Can you claim the new deduction for more than vehicle? The law isn't clear on this point, but it stands to reason that deductions would be allowed on multiple purchases up to a $49,500 limit per taxpayer.
This new deduction may affect your decision to buy a vehicle. Contact us at (816) 792-9966 to assess your situation.
Very truly yours,
Robert C. Jones
RCJonesInc.Com
Thursday, April 30, 2009
IMPROVED TAX BREAKS FOR QSBS
Dear friends of RC Jones & Associates
The new economic stimulus law provides an added tax incentive for investing in fledgling corporations. It all has to do with two tax breaks for "qualified small business stock" (QSBS).
When you sell QSBS, you can exclude 75% of the gain from tax under the new law. Alternatively, an investor may roll over the sale proceeds tax-free into stock of the same company or another qualified small business. In fact, you may be able to combine the enhanced tax exclusion with the rollover for a big tax payoff.
Let’s quickly review both tax breaks.
Tax break No.1: Under prior law, you can exclude capital gains tax on up to 50% of the gain from the sale of QSBS if certain requirements are met. For starters, the investor must hold the stock for at least five years. Also, the stock must have been directly issued to the owner or given to him or her by someone who received the original shares.
The catch: The capital gains tax for QSBS is 28%. Because you're paying tax on half of the gain, the actual tax rate is 14% (50% of 28%) -- just 1% lower than the maximum capital gains rate.
Tax break No. 2: No current tax is due on a gain from selling QSBS if you roll over the proceeds into new shares of the same stock or other QSBS within 60 days. This tax break is available for QSBS held more than six months. If less than 100% of the proceeds are reinvested, you're taxed on gains up to the difference between the sales proceeds and the amount reinvested. The holding period for the new stock dates back to the purchase of the original stock.
Now the new tax law boosts the tax-free payoff at some future date. For sales of QSBS acquired after Feb. 17, 2009 and before Jan. 1, 2011, the tax exclusion increases from 50% to 75%. This lowers the effective tax bite to only 7% (25% of 28%)--less than half of the regular capital gains tax rate.
The optimal approach is to combine the two tax breaks for QSBS. If you're interested in more details, contact us at (816) 792-9966. One of our experienced tax professionals can explain all the intricacies.
Very truly yours,
Robert C Jones
www.RCJonesInc.com
The new economic stimulus law provides an added tax incentive for investing in fledgling corporations. It all has to do with two tax breaks for "qualified small business stock" (QSBS).
When you sell QSBS, you can exclude 75% of the gain from tax under the new law. Alternatively, an investor may roll over the sale proceeds tax-free into stock of the same company or another qualified small business. In fact, you may be able to combine the enhanced tax exclusion with the rollover for a big tax payoff.
Let’s quickly review both tax breaks.
Tax break No.1: Under prior law, you can exclude capital gains tax on up to 50% of the gain from the sale of QSBS if certain requirements are met. For starters, the investor must hold the stock for at least five years. Also, the stock must have been directly issued to the owner or given to him or her by someone who received the original shares.
The catch: The capital gains tax for QSBS is 28%. Because you're paying tax on half of the gain, the actual tax rate is 14% (50% of 28%) -- just 1% lower than the maximum capital gains rate.
Tax break No. 2: No current tax is due on a gain from selling QSBS if you roll over the proceeds into new shares of the same stock or other QSBS within 60 days. This tax break is available for QSBS held more than six months. If less than 100% of the proceeds are reinvested, you're taxed on gains up to the difference between the sales proceeds and the amount reinvested. The holding period for the new stock dates back to the purchase of the original stock.
Now the new tax law boosts the tax-free payoff at some future date. For sales of QSBS acquired after Feb. 17, 2009 and before Jan. 1, 2011, the tax exclusion increases from 50% to 75%. This lowers the effective tax bite to only 7% (25% of 28%)--less than half of the regular capital gains tax rate.
The optimal approach is to combine the two tax breaks for QSBS. If you're interested in more details, contact us at (816) 792-9966. One of our experienced tax professionals can explain all the intricacies.
Very truly yours,
Robert C Jones
www.RCJonesInc.com
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