Thursday, July 21, 2011

IRS & Per Diem Rates

Every year IRS releases a Revenue Procedure outlining the rules for paying Meal & Lodging Per Diems or claiming a deduction for these.  The Revenue Procedure also provides us with the special Meal Per Diem allowed for the Transportation Industry.  Part of the Revenue Procedure also gives us a High/Low option that can be used by employers as an alternative to using the tables based on actual cities.

During the summer of 2010 IRS asked for comments from taxpayers and tax practitioners regarding the High/Low option.  After receiving NO COMMENTS at all, IRS has decided to no longer accept the High/Low option, presumably as of October 1, 2011, since October 1st is the day the amounts have changed each year.  IRS further announced it would issue a Revenue Procedure this year with the rules for Meals and Lodging per Diems and future Revenue Procedures would not be issued unless the rules change.  IRS will continue publishing an annual notice for the special transportation rate.

We expect IRS to release the Revenue Procedure for 2011 sometime within the next two months and we will produce a summary at that point. Please contact us if you need any assistance today.

Wednesday, July 20, 2011

Tuesday, July 19, 2011

IRS Withholding Calculator Can Help Figure Your Tax


If you have too little federal tax withheld from your pay, you could end up owing a lot of money when you file your taxes. If you withhold too much, you will get a large refund next year, but that means you gave up the use of your money for several months during the year.

You may want to adjust your federal tax withholding with your employer.  You should also evaluate your withholding if you have recently married or divorced, added a dependent, purchased a home, changed jobs or retired. 

The withholding calculator at IRS.gov can help you figure the correct amount of federal withholding and provide information you can use to complete a new Form W-4, Employee’s Withholding Allowance Certificate.
Before you begin, have these items:
  • Your most recent pay stubs.
  • Your most recent federal income tax return.
  • Here are some tips for using the withholding calculator:
  • Fill in all information that applies to your situation.
  • Estimate when necessary. But remember, the results are only as accurate as the information you provide.
  • Check the information links embedded in the program whenever you have a question.
  • Print out the final screen that summarizes your entries and the results. Use it to complete a new Form W-4 (if necessary) and give the completed W-4 to your employer. Keep the print of the final screen and a copy of your new W-4 with your tax records.
For many people, the withholding calculator is a great tool that can simplify the process of determining your withholding.

However, if you are subject to the alternative minimum tax or self-employment tax or if your current job will end before the end of the year, you will probably achieve more accurate withholding by having us run an analysis for you. Please let us know.

Monday, July 18, 2011

After I Do - Best Filing Status for Married Couples

Summer is wedding season. If you are getting married this summer, remember to give some attention to your 2011 tax filing status.

You have two filing status options: married filing jointly, or married filing separately.

Married Filing Jointly


You can choose married filing jointly as your filing status if you are married and both you and your spouse agree to file a joint return. On a joint return, you report your combined income and deduct your combined allowable expenses. You can file a joint return even if one of you had no income or deductions.

According to the IRS, if you and your spouse decide to file a joint return, your tax may be lower than your combined tax for the other filing statuses. Also, your standard deduction (if you do not itemize deductions) may be higher, and you may qualify for tax benefits that do not apply to other filing statuses.

We recommend that if you and your spouse each have income, you figure your tax both on a joint return and on separate returns (using the filing status of married filing separately). You can choose the method that gives you the lower combined tax.

Joint Responsibility. Both of you may be held responsible, jointly and individually, for the tax and any interest or penalty due on your joint return. One spouse may be held responsible for all the tax due even if all the income was earned by the other spouse.

Married Filing Separately


You can choose married filing separately as your filing status if you are married. This filing status may benefit you if you want to be responsible only for your own tax or if it results in less tax than filing a joint return.

We Can Help

Drop us a line if you're unsure of which status to file under.

Thursday, July 14, 2011

Getting a Tax Credit for Your Honey Do List
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Getting a Tax Credit for Your Honey Do List

Summer is a great time to tackle home improvements - and, happily, it's not too late to receive a tax credit when making your home more energy efficient. Although significantly reduced from 2010 levels, energy-efficiency tax credits are still available in 2011.

The home energy credit applies to energy-related improvements, such as adding insulation, energy-efficient exterior windows, and energy-efficient heating and air-conditioning systems to an existing home that is your primary residence. The tax credit is not available on rental properties or new construction.

The tax credit is 10% of the cost of the home improvement, up to a maximum of $500. There is a lifetime limit of $500, so if you took a $500 credit in 2010, you do not qualify in 2011. The tax credit expires December 31, 2011.

The credit on some items have been reduced below $500:
Windows limited to $200; Energy Star qualification.
Air conditioners, water heaters, and biomass stoves limited to $300.
Furnace and boiler improvements limited to $150 and must meet certain standards.
$50 credit for advanced main air circulating fans.

Further, the Residential Energy Efficient Property Credit is a nonrefundable energy tax credit that helps individual taxpayers pay for certain alternative-energy equipment, such as solar hot water heaters, geothermal heat pumps, and wind turbines. The maximum amounts for a credit equal 30% of the cost of qualified property, with no upper limit. This credit expires on December 31, 2016, and is available for new and existing homes, whether primary or second. Rentals do not qualify.

We're happy to help you sort out the tax credits available for your home improvements this summer. Just give us a call or send us an email.

Wednesday, July 13, 2011

Don't Plan to Fail...check out NFS July Financial Facts
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Tax Tips from the IRS for Students Starting a Summer Job

School’s out and many students will be starting summer jobs. The Internal Revenue Service reminds students that not all the money you earn may make it to your pocket. That’s because your employer must withhold taxes.

Here are six things the IRS wants students to be aware of when they start a summer job.

1. When you first start a new job you must fill out a Form W-4, Employee’s Withholding Allowance Certificate. This form is used by employers to determine the amount of tax that will be withheld from your paycheck. If you have multiple summer jobs, make sure all your employers are withholding an adequate amount of taxes to cover your total income tax liability. To make sure your withholding is correct, use the Withholding Calculator on www.irs.gov.

2. Whether you are working as a waiter or a camp counselor, you may receive tips as part of your summer income. All tips you receive are taxable income and are therefore subject to federal income tax.

3. Many students do odd jobs over the summer to make extra cash. Earnings you receive from self-employment – including jobs like baby-sitting and lawn mowing – are subject to income tax.

4. If you have net earnings of $400 or more from self-employment, you will also have to pay self-employment tax. This tax pays for your benefits under the Social Security system. Social Security and Medicare benefits are available to individuals who are self-employed the same as they are to wage earners who have Social Security tax and Medicare tax withheld from their wages. The self-employment tax is figured on Form 1040, Schedule SE.

5. Food and lodging allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay – such as pay received during summer advanced camp – is taxable.

6. Special rules apply to services you perform as a newspaper carrier or distributor. You are a direct seller and treated as self-employed for federal tax purposes if you meet the following conditions:
  •  You are in the business of delivering newspapers.
  •  All your pay for these services directly relates to sales rather than to the number   of hours worked.
  •  You perform the delivery services under a written contract which states that you will not be treated as an employee for federal tax purposes.
If you need any further assistance, please call or email.

Tuesday, July 12, 2011

How to Save for College Tax-Free

College tuition and fees are on the rise. Shockingly, the cost for 4-year private schools now tops $36,000 per year on average.

But the investment is well worth it. According to the U.S. Census Bureau, individuals with a bachelor's degree earn more than double those with just a high school diploma.

The two most popular college savings programs are 529 plans and Coverdell Education Savings Accounts. Whichever you choose, be sure to start when your child is young. The sooner you begin, the less money you will have to put away each year.

Example: Suppose you have one child, age six months, and you estimate that you'll need $120,000 to finance his college education 18 years from now. If you start putting away money immediately, you'll need to save $3,500 per year for 18 years (assuming an after-tax return of 7%). On the other hand, if you put off saving until your son is six years old, you'll have to save almost double that amount every year for twelve years.

Financial Calculator: College Savings Planner
Use this calculator to help develop and fine-tune your child's college education savings plan.

How Much Will College Cost?

Based on the survey completed for the 2010 Trends in College Pricing, the average cost for tuition, fees, and room and board for 2010-11 was:

• $16,140 per year for 4-year public (in state) colleges and universities.
This is an increase of 6.1% from 2009-10 findings.
• $36,993 per year for 4-year private colleges and universities.
This is an increase of 4.3% from 2009-10 findings.

It should be noted that, on average, full-time students receive $16,000 of financial aid per year in the form of grants and tax benefits for private 4-year institutions, $6,100/yr for public 4-year institutions, and $3,400/yr for public 2-year institutions.

Saving with 529 Qualified Tuition Plans

Section 529 plans, also known as Qualified Tuition Programs, are the best choice for many families.

Every state now has a program allowing persons to prepay for future higher education, with tax relief. There are two basic plan types, with many variations:

1. The Prepaid Education Arrangement. You essentially buy future education at today's costs, by buying education credits or certificates. This is the older type of program, and it tends to limit the student's choice of schools within the state.

2. Education Savings Accounts. You contribute to an account earmarked for future higher education.

Tip: When approaching state programs, one must distinguish between what the federal tax law allows and what an individual state's program may impose.

You may open a Section 529 plan in any state. But when buying prepaid tuition credits (less popular than savings accounts), you often need to apply the credits to a specific college or group of colleges.

Unlike certain other tax-favored higher education programs, such as the Hope and Lifetime Learning Credits, federal tax law doesn't limit the benefit only to tuition. Room, board, lab fees, books, and supplies can be purchased with funds from your 529 Savings Account. (Individual state programs could be narrower.)

The key parties to the program are the Designated Beneficiary, the student-to-be, and theAccount Owner, who is entitled to choose and change the beneficiary and who is normally the principal contributor to the program.

There are no income limits on who may be an account owner. There's only one designated beneficiary per account. Thus, a parent with three college-bound children might set up three accounts. (Some state programs don't allow the same person to be both beneficiary and account owner.)

Tax Rules Relating to 529 College Savings Plans

Income Tax. Contributions made by the account owner or other contributor are not deductible for federal income tax purposes. Earnings on contributions grow tax-free while in the program.

Distributions from the fund are tax-free to the extent used for qualified higher education expenses. Qualified expenses include tuition, required fees, books, supplies, equipment, and special needs services. For someone who is at least a half-time student, room and board also qualify.

Tip: In 2009, the American Recovery and Reinvestment Act (ARRA) added expenses for computer technology/equipment or Internet access to the list of qualifying expenses. Software designed for sports, games, or hobbies does not qualify, unless it is predominantly educational in nature. In general, however, expenses for computer technology are not qualified expenses for the American Opportunity Credit, Hope Credit, Lifetime Learning Credit, or tuition and fees deduction.

Gift Tax. For gift tax purposes, contributions are treated as completed gifts even though the account owner has the right to withdraw them - thus they qualify for the up-to-$13,000 annual gift tax exclusion. One contributing more than $13,000 may elect to treat the gift as made in equal installments over that year and the following 4 years, so that up to $65,000 can be given tax-free in the first year.

Estate Tax. Funds in the account at the designated beneficiary's death are included in the beneficiary's estate - an odd result, since those funds may not be available to pay the tax.

Funds in the account at the account owner's death are not included in the owner's estate, except for a portion thereof where the gift tax exclusion installment election is made for gifts over $13,000. For example, if the account owner made the election for a gift of $65,000 in 2011, a part of that gift is included in the estate if he or she dies within 5 years.

Tip: A Section 529 program can be an especially attractive estate-planning move for grandparents. There are no income limits, and the account owner giving up to $65,000 avoids gift tax and estate tax by living 5 years after the gift, yet has the power to change the beneficiary.

State Tax. State tax rules are all over the map. Some reflect the federal rules, some quite different rules. For specifics of each state's program, see http://www.collegesavings.org.

Saving with Coverdell Education Savings Accounts


The total contributions for the beneficiary of a Coverdell Education Savings Account (ESA) cannot be more than $2,000 in any year, no matter how many accounts have been established. (A beneficiary is someone who is under age 18 or is a special needs beneficiary.)

The beneficiary will not owe tax on the distributions if they are less than a beneficiary's qualified education expenses at an eligible institution. This benefit applies to higher education expenses as well as to elementary and secondary education expenses.

Here are some things to remember about distributions from Coverdell accounts:

• Distributions are tax-free as long as they are used for qualified education expenses, such as tuition, books, and fees.
• There is no tax on distributions if they are for an eligible educational institution. This includes any public, private, or religious school that provides elementary or secondary education as determined under state law.
• The Hope and Lifetime Learning Credits can be claimed in the same year the beneficiary takes a tax-free distribution from a Coverdell ESA, as long as the same expenses are not used for both benefits.
• If the distribution exceeds education expenses, a portion will be taxable to the beneficiary and will be subject to an additional 10% tax. Exceptions to the additional 10% tax include the death or disability of the beneficiary or if the beneficiary receives a qualified scholarship.

Professional Guidance


Considering the wide differences among state plans, federal and state tax issues, and the dollar amounts at stake, please call us before getting started with any type of college savings plan.

Monday, July 11, 2011

How to Prepare Before a Disaster Strikes


A home disaster can be stressful enough without reconstructing important records and accounting for belongings. The Internal Revenue Service encourages taxpayers to safeguard their financial and tax records before disaster strikes. Listed below are four simple tips for individuals on preparing for a disaster.
  1. Recordkeeping Take advantage of paperless recordkeeping for financial and tax records. Many people receive bank statements and documents electronically and important documents like W-2s and tax returns can be scanned into an electronic format and stored on a flash drive or CD in a safe place. Keep it with other essential documents like home-closing statements, vehicle titles, insurance records and birth, death or marriage certificates and legal paperwork. Some online services can automatically back up computer files and store them offsite. Regardless of how you save your documents (whether it is electronically or on paper) ensure they are safe from the elements, but also encrypted and/or locked up to guard against disclosure or theft.
  2. Document Valuables The IRS has disaster loss workbooks for individuals that can help you compile a room-by-room list of your belongings. One option is to photograph or videotape the contents of your home, especially items of greater value. You should store the photos or video in a safe place away from the geographic area at risk. This will help you recall and prove the market value of items for insurance and casualty loss claims in the event of a disaster.
  3. Update Emergency Plans Make sure you have a means of receiving severe weather information; if you have a NOAA Weather Radio, put fresh batteries in it. Make sure you know what you should do if threatening weather approaches or if a fire occurs.  Review your emergency plans annually.
  4. Count on the IRS In the event of a disaster, the IRS stands ready to help. The IRS has valuable information you can request if your records are destroyed. If you have been affected by a federally declared disaster, you can receive copies or transcripts of previously filed tax returns free of charge by submitting Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return.  Clearly indicate the official name of the disaster in red at the top of the form, to expedite processing and waive the usual fee for tax return copies.
If you need any additional information, please do not hesitate to contact my office.

Wednesday, July 6, 2011

Summer Day Camp Expenses May Qualify for a Tax Credit

Along with the lazy, hazy days of summer come some extra expenses, including summer day camp. But, the IRS has some good news for parents: those added expenses may help you qualify for a tax credit.

Many parents who work or are looking for work must arrange for care of their children under 13 years of age during the school vacation.

Here are five facts the IRS wants you to know about a tax credit available for child care expenses. The Child and Dependent Care Credit is available for expenses incurred during the summer and throughout the rest of the year.
  1. The cost of day camp may count as an expense towards the child and dependent care credit.
  2. Expenses for overnight camps do not qualify.
  3. Whether your childcare provider is a sitter at your home or a daycare facility outside the home, you'll get some tax benefit if you qualify for the credit.
  4. The credit can be up to 35 percent of your qualifying expenses, depending on your income.
  5. You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.
For more information, please do not hesitate to contact our office at 800-560-4NFS.

Tuesday, July 5, 2011

'Temporary' FUTA Surtax Expires after 35 Years

The Federal Unemployment Tax Act surtax is set to expire Thursday after House Republicans refused to extend the 35-year-old “temporary” unemployment surtax.

“The death of any tax on jobs—no matter how big or small—is a historic moment and one to be celebrated,” Camp said in a statement. “The fact that it has taken 35 years for this ‘temporary’ tax to expire clearly illustrates the dangers of higher taxes—once in place, they are unlikely to ever go away.  We need employers paying more salaries, not paying higher taxes.  And when the surtax expires, job creators will get a little and long overdue relief.”

The original purpose of the “temporary” 0.2 percent surtax was to repay federal general revenues used to provide federal unemployment benefits paid in the wake of the 1973-75 recession. While the tax raised $27 billion (adjusted for inflation) and the general revenues were fully repaid by 1987, the 0.2 percent surtax remains on the books today. Since 1987, the tax has raised an additional $46 billion (adjusted for inflation) above and beyond what was needed at the inception of the tax in 1976. 

The expiration of the surtax will reduce federal unemployment taxes by $1.4 billion per year, or about $14 per employee per year. That relief slightly offsets the effect of much larger state unemployment tax hikes imposed in recent years to pay for record unemployment benefit spending. Since unemployment benefits are not directly linked to the “temporary” federal tax, its expiration will not affect current or future unemployment benefit receipts.

Without the 0.2 percent surtax, the 6.2 percent FUTA tax rate will fall to 6.0 percent, according to CCH. It was last extended in 2009 as part of the Worker, Homeownership and Business Assistance Act.

Camp's office provided a timeline of the successive extensions of the surtax.