Congress Votes to Repeal New 1099 Requirement

The Senate and House have approved a measure that would repeal the expanded Form 1099 reporting requirements that were part of last year’s health care law. The move has broad support because the Form 1099 rules, which are set to require businesses to report any purchases of more than $600 of goods and services from vendors in a year to the Internal Revenue Service, are expected to increase accounting costs for small businesses. The AICPA supports repeal of the expanded Form 1099 reporting requirements; however, it has asked the Treasury Department for guidance on several pressing issues if the rules are not repealed.

From CPA Lettter Daily

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Section 199 Manufacturing Deduction

If your business didn’t meet the requirements in the past to claim a manufacturing deduction or you determined that it wasn’t worth the time, maybe you should reconsider it.  One of the most compelling reasons is because the 9% deduction is now three time the original rate of 3%.

That percentage is applied to Qualified Production Activity Income or taxable income, whichever is less and limited to 50% of related W-2 wages The qualifying production activities, in general, must also be performed in the U.S.

The following lines of business may qualify:

  • Construction services, including related engineering and architectural services
  • Manufacture, production, growth or extraction of tangible personal property, computer software or sound recordings or qualified films
  • Production of electricity, natural gas or potable water

The calculation requires allocation of gross receipts between qualified and non-qualified production activities.  Then an allocation of expenses must be made.  In some circumstances, the taxpayer may qualify for the Simplified Deduction Method or the Small Business Simplified Method.

If you think you may qualify, please contact us for an in depth analysis.

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QuickBooks 2008 and Payroll Tax Expiration

After May 31, 2011, QuickBooks (QB) will stop providing payroll tax table updates for any users on QuickBooks 2008.  This means that tax withholding and match computations with go to zero on 06/01/11 if you don’t upgrade to QB 2011.

In general, QB only supports the 3 most current versions of QB (2011, 2010 & 2009).  2008 is currently in the grace period that began in October 2010 when 2011 was officially released.

If you are not using the payroll function, then you are not required to upgrade to 2011 and you can continue to use versions prior to 2009.  However, it is generally a good idea to upgrade every few years to take advantage of improvements to the programs functionality and new features the may enhance productivity.

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Medicare Part B Now Deductible as SE Health Ins.

According to page 29 of the 2010 Form 1040 Instructions, “Medicare Part B premiums can be used to figure the [Self-Employed Health Insurance] deduction”

That’s a change from 2009 Form 1040 instruction where on page 39, it stated “Medicare premiums cannot be used to figure the deduction.”

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IRS Agents Requesting QuickBooks Data File

IRS agents are being instructed to obtain a copy of the taxpayer’s QuickBooks data file for examinations. This will not be done in all examinations.  If the taxpayer refuses to provide the file, thier suspicion level would be raised and a summons to obtain the information may be issued. The agents are instructed to review only the information for the year under audit unless they decide to expand the examination to prior years.  

During a recent examination in December, the revenue agent requested a copy of the QB file and password. He told me that one of the things they will be specifically reviewing is the QB audit trail. He said they want to see if there were any significant changes to the transaction coding in the days leading up to the audit appointment (maybe beginning with the time period around the date of examination notification). Luckily for my client they had nothing to hide.  

The IRS has purchased 1,500 to 2,000 licenses from Intuit and will have one agent trained and licensed per group to assist others in the examination of taxpayers who use QuickBooks

So be reminded that beginning with QB 2006, the “audit trail is always on”. If you keep everything on the up and up, you shouldn’t have anything to worry about.

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Excel Quick Tip: =sum() Short Cut

If you ever work in Excel, you might occasionally need to use the =sum() formula to sum a column or row of numbers-without your 10-Key 😉  If so, you’ll love adding this shortcut to your repertoire.

  1. Highlight a cell where you need an =sum() formula (that’s translated @sum() for you Lotus veterans)
  2. Press and hold [Alt] then press [+] to start the =sum() formula
  3. Excel will try to guess the range you are trying to sum.  If it is right, then simply hit enter.  Excel is a better “guesser” when the cell is directly adjacent to the cells to be summed.
  4. If Excel doesn’t get it right, then use your mouse to paint the correct range and hit [Enter] OR use your arrow keys to navigate to the beginning of the range and then press and hold down the [Shift] key to paint the range, then release shift and hit [Enter].

I use this shortcut all the time and once you get used to the idiosyncrasies of making it work for you quickly, it can be very efficient.

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IRS Delay in Processing Tax Returns Until Feb 14th

The IRS announced a delay in its ability to process some tax returns affected by late-year changes to the tax law, which involve:

  • State and local sales tax deductions
  • The higher education tuition and fees
  • The educator expenses deductions
  • Schedule A itemized deductions

Expect to wait until February 14th before the IRS will accept tax returns from itemizers.

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One Year Payroll Tax Reduction

The biggest new tax break for individuals in the recently enacted “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010” is the one-year payroll tax reduction.  Under this new provision the payroll tax will be cut by two percentage points during 2011.

This newly enacted legislation will affect payroll checks issued beginning January 1, 2011 and ending December 31, 2011. If you have not already contacted your payroll provider regarding this change for 2011, we recommend you do so immediately.  

Important details to note:

  • The Social Security payroll tax withholding on individual wages will be lowered to 4.2% in 2011, from the usual 6.2% rate.
  • The employer’s share of Social Security tax is not affected; it stays at 6.2%.

Additional information to note:

  • Self-employed workers will also get the tax break. Their self-employment taxes will be cut from 12.4% to 10.4%.
  • There is no phase-out (i.e., gradual reduction) of the payroll tax reduction for higher income workers. It goes to everyone who works, regardless of income. However, since Social Security taxes apply only to the first $106,800 in earnings in 2011, the benefit for high earners tops out at $2,136.
  • The tax break only applies for one year, 2011—for now anyway. There will almost certainly be efforts to extend it beyond 2011, and we will keep you apprised of any developments in that regard.
  • The payroll tax reduction will not affect the worker’s future Social Security benefit, because benefits are based on lifetime earnings, not the amount of tax paid by the worker into the Social Security System.

If you would like more details about the payroll tax reduction or any other aspect of the new law, please do not hesitate to call.

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Tax Deal Details

Note: The following was passed by congress and signed by the President in December.

Income Tax
-All the Bush tax cuts remain at all levels for two years.

-The child credit
-Adoption credit
-Dependent care credit
-Education credits
-Child tax credit (more refundable)
-Earned income tax credit.

-AMT is patched for 2010 and 2011.

Capital Gains and Dividends
-Retain 15% rate for two years (as well as the rate structure for lower income).

Continue reading

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