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Posts Tagged ‘tax year’
Wednesday, September 8th, 2010
IRS Releases Form to Help Small Businesses Claim New Health Care Tax Credit
IR-2010-96 Sept. 7, 2010
WASHINGTON –– The Internal Revenue Service today released a draft version of the form that small businesses and tax-exempt organizations will use to calculate the small business health care tax credit when they file income tax returns next year. The IRS also announced how eligible tax-exempt organizations –– which do not generally file income tax returns –– will claim the credit during the 2011 filing season.
The IRS has posted a draft of Form 8941 to this website. Both small businesses and tax-exempt organizations will use the form to calculate the credit. A small business will then include the amount of the credit as part of the general business credit on its income tax return.
Tax-exempt organizations will instead claim the small business health care tax credit on a revised Form 990-T. The Form 990-T is currently used by tax-exempt organizations to report and pay the tax on unrelated business income. Form 990-T will be revised for the 2011 filing season to enable eligible tax-exempt organizations –– even those that owe no tax on unrelated business income –– also to claim the small business health care tax credit.
The final version of Form 8941 and its instructions will be available later this year.
The small business health care tax credit was included in the Affordable Care Act signed by the President in March and is effective this year. The credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.
In 2010, the credit is generally available to small employers that contribute an amount equivalent to at least half the cost of single coverage towards buying health insurance for their employees. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ moderate- and lower-income workers.
For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations. Beginning in 2014, the maximum tax credit will go up to 50 percent of premiums paid by eligible small business employers and 35 percent of premiums paid by eligible, tax-exempt organizations for two years.
The maximum credit goes to smaller employers –– those with 10 or fewer full-time equivalent (FTE) employees –– paying annual average wages of $25,000 or less.
The credit is completely phased out for employers that have 25 FTEs or more or that pay average wages of $50,000 per year or more. Because the eligibility rules are based in part on the number of FTEs, and not simply the number of employees, businesses that use part-time help may qualify even if they employ more than 25 individuals.
IRS Releases Form to Help Small Businesses Claim New Health Care Tax Credit
IR-2010-96 Sept. 7, 2010
WASHINGTON –– The Internal Revenue Service today released a draft version of the form that small businesses and tax-exempt organizations will use to calculate the small business health care tax credit when they file income tax returns next year. The IRS also announced how eligible tax-exempt organizations –– which do not generally file income tax returns –– will claim the credit during the 2011 filing season.
The IRS has posted a draft of Form 8941 to this website. Both small businesses and tax-exempt organizations will use the form to calculate the credit. A small business will then include the amount of the credit as part of the general business credit on its income tax return.
Tax-exempt organizations will instead claim the small business health care tax credit on a revised Form 990-T. The Form 990-T is currently used by tax-exempt organizations to report and pay the tax on unrelated business income. Form 990-T will be revised for the 2011 filing season to enable eligible tax-exempt organizations –– even those that owe no tax on unrelated business income –– also to claim the small business health care tax credit.
The final version of Form 8941 and its instructions will be available later this year.
The small business health care tax credit was included in the Affordable Care Act signed by the President in March and is effective this year. The credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.
In 2010, the credit is generally available to small employers that contribute an amount equivalent to at least half the cost of single coverage towards buying health insurance for their employees. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ moderate- and lower-income workers.
For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations. Beginning in 2014, the maximum tax credit will go up to 50 percent of premiums paid by eligible small business employers and 35 percent of premiums paid by eligible, tax-exempt organizations for two years.
The maximum credit goes to smaller employers –– those with 10 or fewer full-time equivalent (FTE) employees –– paying annual average wages of $25,000 or less.
The credit is completely phased out for employers that have 25 FTEs or more or that pay average wages of $50,000 per year or more. Because the eligibility rules are based in part on the number of FTEs, and not simply the number of employees, businesses that use part-time help may qualify even if they employ more than 25 individuals.
Tags: Affordable Care Act, business health care tax credit, file income tax returns, Form 8941, Form 990-T, general business credit, Health Care Tax Credit, income tax, income tax returns, internal revenue service, IRS Releases Form to Help Small Businesses Claim New Health Care Tax Credit, maximum tax credit, pay the tax, tax credit, tax exempt organizations, tax returns, tax year, tax years
Posted in Uncategorized | 3 Comments »
Thursday, August 26th, 2010
Top Ten Tips for Taxpayers Making Charitable Donations
IRS Summertime Tax Tip 2010-21
Did you make a donation to a charity this year? If so, you may be able to take a deduction for it on your 2010 tax return.
Here are the top 10 things the IRS wants every taxpayer to know before deducting charitable donations.
1. Charitable contributions must be made to qualified organizations to be deductible. You can ask any organization whether it is a qualified organization and most will be able to tell you. You can also check IRS Publication 78, Cumulative List of Organizations, which lists most qualified organizations. IRS Publication 78 is available at IRS.gov.
2. Charitable contributions are deductible only if you itemize deductions using Form 1040, Schedule A.
3. You generally can deduct your cash contributions and the fair market value of most property you donate to a qualified organization. Special rules apply to several types of donated property, including clothing or household items, cars and boats.
4. If your contribution entitles you to receive merchandise, goods, or services in return – such as admission to a charity banquet or sporting event – you can deduct only the amount that exceeds the fair market value of the benefit received.
5. Be sure to keep good records of any contribution you make, regardless of the amount. For any contribution made in cash, you must maintain a record of the contribution such as a bank record – including a cancelled check or a bank or credit card statement – a written record from the charity containing the date and amount of the contribution and the name of the organization, or a payroll deduction record.
6. Only contributions actually made during the tax year are deductible. For example, if you pledged $500 in September but paid the charity only $200 by Dec. 31, your deduction would be $200.
7. Include credit card charges and payments by check in the year they are given to the charity, even though you may not pay the credit card bill or have your bank account debited until the next year.
8. For any contribution of $250 or more, you must have written acknowledgment from the organization to substantiate your donation. This written proof must include the amount of cash and a description and good faith estimate of value of any property you contributed, and whether the organization provided any goods or services in exchange for the gift.
9. To deduct charitable contributions of items valued at $500 or more you must complete a Form 8283, Noncash Charitable Contributions, and attached the form to your return.
10. An appraisal generally must be obtained if you claim a deduction for a contribution of noncash property worth more than $5,000. In that case, you must also fill out Section B of Form 8283 and attach the form to your return.
Top Ten Tips for Taxpayers Making Charitable Donations
IRS Summertime Tax Tip 2010-21
Did you make a donation to a charity this year? If so, you may be able to take a deduction for it on your 2010 tax return.
Here are the top 10 things the IRS wants every taxpayer to know before deducting charitable donations.
1. Charitable contributions must be made to qualified organizations to be deductible. You can ask any organization whether it is a qualified organization and most will be able to tell you. You can also check IRS Publication 78, Cumulative List of Organizations, which lists most qualified organizations. IRS Publication 78 is available at IRS.gov.
2. Charitable contributions are deductible only if you itemize deductions using Form 1040, Schedule A.
3. You generally can deduct your cash contributions and the fair market value of most property you donate to a qualified organization. Special rules apply to several types of donated property, including clothing or household items, cars and boats.
4. If your contribution entitles you to receive merchandise, goods, or services in return – such as admission to a charity banquet or sporting event – you can deduct only the amount that exceeds the fair market value of the benefit received.
5. Be sure to keep good records of any contribution you make, regardless of the amount. For any contribution made in cash, you must maintain a record of the contribution such as a bank record – including a cancelled check or a bank or credit card statement – a written record from the charity containing the date and amount of the contribution and the name of the organization, or a payroll deduction record.
6. Only contributions actually made during the tax year are deductible. For example, if you pledged $500 in September but paid the charity only $200 by Dec. 31, your deduction would be $200.
7. Include credit card charges and payments by check in the year they are given to the charity, even though you may not pay the credit card bill or have your bank account debited until the next year.
8. For any contribution of $250 or more, you must have written acknowledgment from the organization to substantiate your donation. This written proof must include the amount of cash and a description and good faith estimate of value of any property you contributed, and whether the organization provided any goods or services in exchange for the gift.
9. To deduct charitable contributions of items valued at $500 or more you must complete a Form 8283, Noncash Charitable Contributions, and attached the form to your return.
10. An appraisal generally must be obtained if you claim a deduction for a contribution of noncash property worth more than $5,000. In that case, you must also fill out Section B of Form 8283 and attach the form to your return.
Tags: 2010 tax return, cash contributions, Charitable contributions, Charitable Donations, Cumulative List of Organizations, donated property, form 1040, Form 1040 Schedule A, Form 8283, Form 8283 Noncash Charitable Contributions, irs gov, IRS Publication 78, IRS Publication 78 Cumulative List of Organizations, Noncash Charitable Contributions, Schedule A, Tax Tip, tax year, Tips for Taxpayers, top 10, top ten, Top Ten Tips for Taxpayers Making Charitable Donations, www irs gov
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Tuesday, July 27th, 2010
Six Tax Tips for New Business Owners
IRS Summertime Tax Tip 2010-05
Are you opening a new business this summer? The IRS has many resources available for individuals that are opening a new business. Here are six tax tips the IRS wants new business owners to know.
First, you must decide what type of business entity you are going to establish. The type of business entity will determine which tax form you have to file. The most common types of business are the sole proprietorship, partnership, corporation and S corporation.
The type of business you operate determines what taxes you must pay and how you pay them. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.
An Employer Identification Number is used to identify a business entity. Generally, businesses need an EIN. Visit IRS.gov for more information about whether you will need an EIN. You can also apply for an EIN online at IRS.gov.
Good records will help you ensure successful operation of your new business. You may choose any recordkeeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any special kind of records. However, the business you are in affects the type of records you need to keep for federal tax purposes.
Every business taxpayer must figure taxable income on an annual accounting period called a tax year. The calendar year and the fiscal year are the most common tax years used.
Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to report income and expenses. The most commonly used accounting methods are the cash method and an accrual method. Under the cash method, you generally report income in the tax year you receive it and deduct expenses in the tax year you pay them. Under an accrual method, you generally report income in the tax year you earn it and deduct expenses in the tax year you incur them.
Six Tax Tips for New Business Owners
IRS Summertime Tax Tip 2010-05
Are you opening a new business this summer? The IRS has many resources available for individuals that are opening a new business. Here are six tax tips the IRS wants new business owners to know.
- First, you must decide what type of business entity you are going to establish. The type of business entity will determine which tax form you have to file. The most common types of business are the sole proprietorship, partnership, corporation and S corporation.
- The type of business you operate determines what taxes you must pay and how you pay them. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.
- An Employer Identification Number is used to identify a business entity. Generally, businesses need an EIN. Visit IRS.gov for more information about whether you will need an EIN. You can also apply for an EIN online at IRS.gov.
- Good records will help you ensure successful operation of your new business. You may choose any recordkeeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any special kind of records. However, the business you are in affects the type of records you need to keep for federal tax purposes.
- Every business taxpayer must figure taxable income on an annual accounting period called a tax year. The calendar year and the fiscal year are the most common tax years used.
- Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to report income and expenses. The most commonly used accounting methods are the cash method and an accrual method. Under the cash method, you generally report income in the tax year you receive it and deduct expenses in the tax year you pay them. Under an accrual method, you generally report income in the tax year you earn it and deduct expenses in the tax year you incur them.
Tags: accounting methods, accrual method, business entity, calendar year, cash method, corporation, EIN, Employer Identification Number, employment tax, excise tax, federal tax, fiscal year, income and expenses, income tax, irs, irs gov, New Business Owners, partnership, recordkeeping, recordkeeping system, S corporation, self-employment tax, Six Tax Tips for New Business Owners, sole proprietorship, tax tips, tax year, tax years, taxable, taxes, taxpayer
Posted in Uncategorized | 1 Comment »
Thursday, June 10th, 2010
Alien Taxation – Certain Essential Concepts
The taxation of aliens involves certain essential concepts as follows.
Resident Aliens
A resident alien’s income is generally subject to tax in the same manner as a U.S. citizen. If you are a resident alien, you must report all interest, dividends, wages, or other compensation for services, income from rental property or royalties, and other types of income on your U.S. tax return. You must report these amounts whether from sources within or outside the United States.
Nonresident Aliens
A nonresident alien usually is subject to U.S. income tax only on U.S. source income. Under limited circumstances, certain foreign source income is subject to U.S. tax.
Dual-Status Aliens
You are a dual status alien when you have been both a resident alien and a nonresident alien in the same tax year.
Source of Income
A nonresident alien (NRA) usually is subject to U.S. income tax only on U.S. source income.
Income Types
In general, all income of a nonresident alien is Fixed, Determinable, Annual, Periodical (FDAP) income. However, certain kinds of FDAP income are considered to be effectively connected with a U.S. trade or business. These two types of income are taxed in different ways.
Reporting your Income in U.S. Currency
You must express the amounts you report on your U.S. tax return in U.S. dollars. If you receive all or part of your income, or pay some or all of your expenses in foreign currency, you must translate the foreign currency into U.S. dollars.
Tax Withholding on Foreign Persons
Payments of income to foreign persons are subject to special withholding rules. In particular, foreign athletes and entertainers are subject to substantial withholding on their U.S. source gross income. This withholding can be reduced by entering into a Central Withholding Agreement with the Internal Revenue Service.
Foreign Students and Scholars
Special rules apply to the taxation of foreign students and scholars which do not apply to other kinds of aliens.
Taxpayer Identification Numbers (TIN)
Anyone (including aliens) who files a U.S. federal tax return must have a Taxpayer Identification Number (TIN). In addition, aliens who request tax treaty exemptions or other exemptions from withholding must also have a TIN.
Tax Treaties
The U.S. tax liability of aliens is determined primarily by the provisions of the U.S. Internal Revenue Code. However, the United States has entered into certain agreements known as tax treaties with several foreign countries which oftentimes override or modify the provisions of the Internal Revenue Code.
U.S. Person
cf. IRC 7701(a)(30) and Treas.Reg. 1.1441-1(c)(2)
The term ‘United States person’ means:
A citizen or resident of the United States,
A partnership created or organized in the United States or under the law of the United States or of any State,
A corporation created or organized in the United States or under the law of the United States or of any State,
Any estate or trust other than a foreign estate or foreign trust.
See Internal Revenue Code section 7701(a)(31) for the definition of a
foreign estate and a foreign trust, or
Any other person that is not a foreign person.
Foreign Person
cf. Treas.Reg. 1.1441-1(c)(2)
The term “foreign person” means:
A nonresident alien individual;
A corporation created or organized in a foreign country or under the laws of a foreign country;
A partnership created or organized in a foreign country or under the laws of a foreign country;
A foreign trust;
A foreign estate, or
Any other person that is not a U.S. person.
See Internal Revenue Code section 7701(a)(31) for the definition of a foreign estate and a foreign trust.
Alien Taxation – Certain Essential Concepts
The taxation of aliens involves certain essential concepts as follows.
Resident Aliens
A resident alien’s income is generally subject to tax in the same manner as a U.S. citizen. If you are a resident alien, you must report all interest, dividends, wages, or other compensation for services, income from rental property or royalties, and other types of income on your U.S. tax return. You must report these amounts whether from sources within or outside the United States.
Nonresident Aliens
A nonresident alien usually is subject to U.S. income tax only on U.S. source income. Under limited circumstances, certain foreign source income is subject to U.S. tax.
Dual-Status Aliens
You are a dual status alien when you have been both a resident alien and a nonresident alien in the same tax year.
Source of Income
A nonresident alien (NRA) usually is subject to U.S. income tax only on U.S. source income.
Income Types
In general, all income of a nonresident alien is Fixed, Determinable, Annual, Periodical (FDAP) income. However, certain kinds of FDAP income are considered to be effectively connected with a U.S. trade or business. These two types of income are taxed in different ways.
Reporting your Income in U.S. Currency
You must express the amounts you report on your U.S. tax return in U.S. dollars. If you receive all or part of your income, or pay some or all of your expenses in foreign currency, you must translate the foreign currency into U.S. dollars.
Tax Withholding on Foreign Persons
Payments of income to foreign persons are subject to special withholding rules. In particular, foreign athletes and entertainers are subject to substantial withholding on their U.S. source gross income. This withholding can be reduced by entering into a Central Withholding Agreement with the Internal Revenue Service.
Foreign Students and Scholars
Special rules apply to the taxation of foreign students and scholars which do not apply to other kinds of aliens.
Taxpayer Identification Numbers (TIN)
Anyone (including aliens) who files a U.S. federal tax return must have a Taxpayer Identification Number (TIN). In addition, aliens who request tax treaty exemptions or other exemptions from withholding must also have a TIN.
Tax Treaties
The U.S. tax liability of aliens is determined primarily by the provisions of the U.S. Internal Revenue Code. However, the United States has entered into certain agreements known as tax treaties with several foreign countries which oftentimes override or modify the provisions of the Internal Revenue Code.
U.S. Person
cf. IRC 7701(a)(30) and Treas.Reg. 1.1441-1(c)(2)
The term ‘United States person’ means:
- A citizen or resident of the United States,
- A partnership created or organized in the United States or under the law of the United States or of any State,
- A corporation created or organized in the United States or under the law of the United States or of any State,
- Any estate or trust other than a foreign estate or foreign trust.
- See Internal Revenue Code section 7701(a)(31) for the definition of a
- foreign estate and a foreign trust, or
- Any other person that is not a foreign person.
Foreign Person
cf. Treas.Reg. 1.1441-1(c)(2)
The term “foreign person” means:
- A nonresident alien individual;
- A corporation created or organized in a foreign country or under the laws of a foreign country;
- A partnership created or organized in a foreign country or under the laws of a foreign country;
- A foreign trust;
- A foreign estate, or
- Any other person that is not a U.S. person.
See Internal Revenue Code section 7701(a)(31) for the definition of a foreign estate and a foreign trust.
Tags: Alien Taxation, Alien Taxation - Certain Essential Concepts, Central Withholding Agreement, Dual-Status Aliens, FDAP income, Fixed Determinable Annual Periodical (FDAP) income, foreign person, foreign source income, Foreign Students and Scholars, Income Types, internal revenue service, Nonresident Aliens, Reporting your Income in U.S. Currency, Resident Aliens, Source of Income, Tax Treaties, tax treaty exemption, Tax Withholding on Foreign Persons, tax year, taxation of aliens, Taxpayer Identification Number, Taxpayer Identification Numbers (TIN), U.S. citizen, U.S. Currency, U.S. dollars, U.S. Internal Revenue Code, U.S. Person, U.S. source income, U.S. tax liability, U.S. tax return, U.S. trade, United States person
Posted in Uncategorized | 4 Comments »
Wednesday, March 10th, 2010
Optional Write-off of Certain Tax Preferences
You can elect to amortize certain tax preference items over an optional period beginning in the tax year in which you incurred the costs. If you make this election there is no AMT adjustment. The applicable costs and the optional recovery periods are as follows:
Circulation costs — 3 years,
Intangible drilling and development costs — 60 months,
Mining exploration and development costs — 10 years, and
Research and experimental costs — 10 years.
How to make the election. To elect to amortize qualifying costs over the optional recovery period, complete Part VI of Form 4562 and attach a statement containing the following information to your return for the tax year in which the election begins:
Your name, address, and taxpayer identification number; and
The type of cost and the specific amount of the cost for which you are making the election.
Generally, the election must be made on a timely filed return (including extensions) for the tax year in which you incurred the costs. However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Attach Form 4562 to the amended return and write “Filed pursuant to section 301.9100-2” on Form 4562. File the amended return at the same address you filed the original return.
Revoking the election. You must obtain consent from the IRS to revoke your election. Your request to revoke the election must be submitted to the IRS in the form of a letter ruling before the end of the tax year in which the optional recovery period ends. The request must contain all of the information necessary to demonstrate the rare and unusual circumstances that would justify granting revocation. If the request for revocation is approved, any unamortized costs are deductible in the year the revocation is effective.
Optional Write-off of Certain Tax Preferences
You can elect to amortize certain tax preference items over an optional period beginning in the tax year in which you incurred the costs. If you make this election there is no AMT adjustment. The applicable costs and the optional recovery periods are as follows:
- Circulation costs — 3 years,
- Intangible drilling and development costs — 60 months,
- Mining exploration and development costs — 10 years, and
- Research and experimental costs — 10 years.
How to make the election. To elect to amortize qualifying costs over the optional recovery period, complete Part VI of Form 4562 and attach a statement containing the following information to your return for the tax year in which the election begins:
- Your name, address, and taxpayer identification number; and
- The type of cost and the specific amount of the cost for which you are making the election.
Generally, the election must be made on a timely filed return (including extensions) for the tax year in which you incurred the costs. However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Attach Form 4562 to the amended return and write “Filed pursuant to section 301.9100-2” on Form 4562. File the amended return at the same address you filed the original return.
Revoking the election. You must obtain consent from the IRS to revoke your election. Your request to revoke the election must be submitted to the IRS in the form of a letter ruling before the end of the tax year in which the optional recovery period ends. The request must contain all of the information necessary to demonstrate the rare and unusual circumstances that would justify granting revocation. If the request for revocation is approved, any unamortized costs are deductible in the year the revocation is effective.
Tags: amortize, circulation costs, development costs, filing an amended return, income tax, income tax preparation, income taxes, Intangible drilling, Mining exploration, Optional Write-off of Certain Tax Preferences, Research and Experimental Costs, Revoking the election, Tax, tax preparation, tax year, taxes
Posted in Uncategorized | 1 Comment »
Saturday, February 27th, 2010
Costs of Organizing a Corporation
Amounts paid to organize a corporation are the direct costs of creating the corporation.
Qualifying costs. To qualify as an organizational cost it must be:
For the creation of the corporation,
Chargeable to a capital account,
Amortized over the life of the corporation if the corporation had a fixed life, and
Incurred before the end of the first tax year in which the corporation is in business.
A corporation using the cash method of accounting can amortize organizational costs incurred within the first tax year, even if it does not pay them in that year.
Examples of organizational costs include:
The cost of temporary directors.
The cost of organizational meetings.
State incorporation fees.
The cost of legal services.
Nonqualifying costs. The following items are capital expenses that cannot be amortized:
Costs for issuing and selling stock or securities, such as commissions, professional fees, and printing costs.
Costs associated with the transfer of assets to the corporation.
Costs of Organizing a Corporation
Amounts paid to organize a corporation are the direct costs of creating the corporation.
Qualifying costs. To qualify as an organizational cost it must be:
- For the creation of the corporation,
- Chargeable to a capital account,
- Amortized over the life of the corporation if the corporation had a fixed life, and
- Incurred before the end of the first tax year in which the corporation is in business.
A corporation using the cash method of accounting can amortize organizational costs incurred within the first tax year, even if it does not pay them in that year.
Examples of organizational costs include:
- The cost of temporary directors.
- The cost of organizational meetings.
- State incorporation fees.
- The cost of legal services.
Nonqualifying costs. The following items are capital expenses that cannot be amortized:
- Costs for issuing and selling stock or securities, such as commissions, professional fees, and printing costs.
- Costs associated with the transfer of assets to the corporation.
Tags: business tax, business taxes, cash method, Costs of Organizing a Corporation, income tax, income taxes, incorporation fees, legal services, nonqualifying costs, qualifying costs, Tax, tax year, taxes
Posted in Uncategorized | 2 Comments »
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