Tax News

New IRS Regulations on Repair vs. Capitalization

On December 23, 2011, the IRS issued the long-awaited Repair vs. Capitalization regulations that will have significant impacts on a wide range of industries. These new rules, effective for the tax years beginning in 2012, are far-reaching and will probably affect all taxpayers who own businesses or real estate.

Beginning in 2012, taxpayers may write off structural components as they are replaced. Of course the value of the replaced structural components will need to be determined.

The rules for expensing costs relating to expenditures for the following structural components have become more complicated:

• HVAC, plumbing, and electrical systems
• Gas distribution and fire protection
• The building structure itself

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  Payroll Tax Cut Extended

• The Temporary Payroll Tax Cut Continuation Act of 2011 temporarily extends the payroll tax cut for employees, continuing the reduction of their social security tax withholding rate from 6.2 percent to 4.2 percent of wages paid through February 29, 2012.

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  The Act also includes a new “recapture” provision, which applies to those employees who receive more than $18,350 in wages during the two-month period (the social security wage base for 2012 is $110,100, and $18,350 represents two months of the full-year amount). This additional recapture tax is an add-on to income tax liability that the employee would otherwise pay for 2012 and is not subject to reduction by credits or deductions. The recapture tax would be payable in 2013 when the employee files his or her income tax return for the 2012 tax year.

Day Care Providers Allowed a Per Diem
New rates for 2011

Taxpayers who provide day care services in their home may find it difficult to track the cost of meals they provide to the children. Therefore, the IRS allows day care providers to deduct a standard meal allowance, per child, in lieu of actual expenses. Following are the standard rates for 2011:

Breakfast $ 1.19
Lunch & Dinner $ 2.22
Snack $ 0.66

*Rates for Alaska and Hawaii are different.

IRS Discontinues Mailing of Certain Packages
Technology eliminates the need for paper copies

With the advent of e-filing, the IRS will no longer send business taxpayers certain tax packages through snail mail. The IRS made this decision due to the continued growth or e-filing as well as to help reduce costs. Some forms that will no longer be mailed include:

Form 940, Employer's Annual Federal Tax Unemployment Tax Return

Form 941, Employer's Quarterly Federal Tax Return

Form 944, Employer's Annual Federal Tax Return

Form 2290, Heavy Highway Vehicle Use Tax Return

Form 5500, Annual Report/Report of Employee Benefit Plan

Social Security Taxable Wage Limit & Employee Rate Increased for Year 2012

October 19, 2011: the Social Security Administration announced an upward cost-of-living adjustment for the Social Security taxable wage limit. For year 2012, the amount of earnings taxable for Social Security (Old Age, Survivors and Disability Insurance, or "OASDI") will increase from $106,800 to $110,100. The tax rate for employees will increase from the 2011 rate of 4.2% to 6.2%. The employer rate will remain unchanged at 6.2%. With this increase in taxable wages, the maximum Social Security tax payable by an employee will be $6,826.20, an increase of $2,340.60 from the current maximum tax of $4,485.60.

Employers will match the employee's 2012 contribution of $6,826.20, an increase of $204.60 from the 2011 maximum of $6,621.60.
Regarding Medicare tax, in 1993 the Omnibus Budget Reconciliation Act removed the taxable wage limit for the Medicare tax, for 1994 and years thereafter. Thus, for year 2012 again there will be no maximum employee contribution amount for Medicare tax. All covered wages will be subject to Medicare tax at the same 1.45% rate as in 2011. Employers will continue to match employee Medicare contributions, using the same tax rate and taxable wage amounts as the employees.

These changes result in a combined rate for 2012 of 7.65% (6.20% for Social Security and 1.45% for Medicare) for both the employer and employee.

Relief for individual and business taxpayers impacted by Hurricane Irene

September 15, 2011: The IRS is providing tax relief to individual and business taxpayers impacted by Hurricane Irene.  There is also relief for people whose tax preparers are located in disaster areas.  While Maine has not officially been added to the list of states that have been granted relief, the president’s declaration of 3 Maine counties as disaster areas is expected to result in IRS relief.  READ MORE

IRS Increases Mileage Rate to 55.5 Cents per Mile

July 1, 2011: The Internal Revenue Service increased the optional standard mileage rates for the final six months of 2011. The rate will increase to 55.5 cents a mile for all business miles driven from July 1, 2011, through Dec. 31, 2011. This is an increase of 4.5 cents from the 51 cent rate in effect for the first six months of 2011.

The new six-month rate for computing deductible medical or moving expenses will also increase by 4.5 cents to 23.5 cents a mile, up from 19 cents for the first six months of 2011. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.

New Federal Regulations for Employers with Tipped Employees

The U.S. Department of Labor recently amended its tip credit notice regulations, effective May 5, 2011, to require employers to inform tipped employees of certain tip credit information. The National Restaurant Association recommends that the notice be in writing and obtain a signed acknowledgement of notification from each effected employee..

Click Here to Download the May 4, 2011 NRA update and visit www.restaurant.org/tips for the latest information.

If you have questions, please contact your accountant.
Auburn (207) 783-9111       Norway (207) 743-7777

House Passes 1099 Repeal

March 3, 2011

On Thursday, the House of Representatives passed the Small Business Paperwork Mandate Elimination Act of 2011 (HR 4) by a 314–112 vote. The bill would repeal the expanded Form 1099 information reporting requirements mandated by last year’s health care legislation. It would also repeal the new 1099 reporting requirements imposed on taxpayers who receive rental income.

Read the full article from the Journal of Accountancy

1099 Reform Taking a Step in the Right Direction

With the passing of HR 705 we have "corrected both components in The Patient Protection and Affordable Care Act (PL 111-148) and The Small Business Jobs Act (PL 111-240) that expanded the 1099 requirements." AICPA

The Senate has passed these repeals, as have the House Ways and Means Committee, but we are still waiting for the House to pass them. We are watching this very closely and will share with you the progress as it unfolds.

The expanded 1099 requirements raise the urgency of having accurate vendor information on file. Whether HR 705 passes the House or not, it is advisable to acquire accurate information for all business vendors and maintain that information in your bookkeeping software.

February 28, 2011

Social security and Medicare tax for 2011

For 2011, the employee tax rate for social security is 4.2%.The employer tax rate for social security remains unchanged at 6.2%.
Employers should implement the 4.2% employee social security tax rate as soon as possible, but not later than January 31, 2011. After implementing the new 4.2% rate, employers should make an offsetting adjustment in a subsequent pay period to correct any overwithholding of social security tax as soon as possible, but not later than March 31, 2011

Bonus Depreciation

Qualified property purchased for original use by the taxpayer after 2007 is allowed a 50 percent bonus depreciation if it is placed in service before September 9, 2010, and a 100 percent bonus depreciation if it is placed in service after September 9, 2010, and before January 1, 2012, (before January 1, 2013, for certain aircraft and certain long-term production period property).

Qualified property includes tangible property depreciated under MACRS with a recovery period of 20 years or less, water utility property, off-the-shelf computer software, and qualified leasehold improvement property.

Qualified property does not include:
• Property placed in service and disposed of in the same year.
• Property converted from business use to personal use in the same tax year.
• Property required to be depreciated under ADS.
• Property for which the taxpayer elects not to claim the special bonus depreciation allowance.

(2011 Tax Filing Season Quick Reference Guide. Corbisier, Liza and Huff, Sherri, EA. NATP.)

Small Business Health Care Tax Credit for Small Employers

Click Here to visit a resource page on the IRS website dedicated to this Credit, including: Eligibility Rules, Amount of Credit, Three Steps to Qualify, Examples, Claiming the Credit, Q&A and more.

2011 Income Tax Withholding Tables
Early Release Copies

Click Here to download IRS Notice 1036, including the 2011 Percentage Method Tables for Income Tax Withholding that were developed as a result of the recently passed Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. Employers should implement the 2011 withholding tables as soon as possible, but not later than January 31, 2011.

Requiring all Federal Tax Deposits to be Made Using the Electronic Federal Tax Deposit System (EFTPS) Beginning January 1, 2011

The regulations note that the Treasury Department will no longer maintain the paper deposit coupon system after 2010. Read More

S-Corporations
Health Insurance Add back: IRS wants Health Insurance Added back to your w-2

Shareholders of S-corporations owning greater than 2%, receiving health insurance
Benefits’ for themselves and their family (individual coverage or family coverage) are required to add back the premiums to their W-2.

Click Here to Read More and download a PDF form to complete and mail to your payroll provider.

Tax Relief / Job Creation Act of 2010

"The 2010 Tax Relief Act extends the Bush-era individual and capital gains/dividend tax cuts for all taxpayers for two years. The bill also provides for an AMT “patch,� a one-year payroll tax cut, 100 percent bonus depreciation through 2011 and 50 percent bonus depreciation for 2012, a top federal estate tax rate of 35 percent with a $5 million exclusion, and more."

Click Here to Read the December 16, 2010 CCH Tax Briefing, a Special Report.

2010 IRS e-file Refund Cycle Chart

Small Business Health Care Tax Credit

Eligibility Rules

• Providing health care coverage. A qualifying employer must cover at least 50 percent of the cost of health care coverage for some of its workers based on the single rate.
• Firm size. A qualifying employer must have less than the equivalent of 25 full-time workers (for example, an employer with fewer than 50 half-time workers may be eligible).
• Average annual wage. A qualifying employer must pay average annual wages below $50,000.
• Both taxable (for profit) and tax-exempt firms qualify.

Amount of Credit

• Maximum Amount. The credit is worth up to 35 percent of a small business' premium costs in 2010. On Jan. 1, 2014, this rate increases to 50 percent (35 percent for tax-exempt employers).

Phase-out. The credit phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers. 

IRS e-News for Tax Professionals 2010-15. April 2, 2010

Access information about Health Care Reform.

The Health Care and Education Reconciliation Act of 2010

"Passage of the Health Care and Education Reconciliation Act of 2010 (H.R. 4872) (Reconciliation Act) by Congress on March 25, 2010 completed a massive overhaul of the nation’s health insurance and health delivery systems. The Reconciliation Act amends the Patient Protection and Affordable Care Act of 2010(P.L. 111-148), which President Obama signed on March 23."

Click Here to Read the March 26, 2010 CCH Tax Briefing, a Special Report.

CCH Tax Briefing: Health Care Reform Act, Congress Completes Overhaul Of Health Care Law; Makes Many Tax Changes Special Report. (March 26, 2010).  CCH a Wolters Kluwer business. Retrieved on March 27, 2010 from http://tax.cchgroup.com/Legislation/default

2010 HIRE Act

The $18 billion job creation package, the Hiring Incentives to Restore Employment (HIRE) Act (H.R. 2847), is now law. President Obama signed this first major tax bill of 2010 on March 18.

Click Here to Read the March 18, 2010 CCH Tax Briefing, a Special Report.

CCH Tax Briefing: 2010 Hiring Incentive to Restore Employment Act Special Report. (March 18, 2010).  CCH a Wolters Kluwer business. Retrieved on March 23, 2010 from http://tax.cchgroup.com/Legislation/default

Check your eligibility for the following credits and deductions on the IRS website. For more information, please give us a call at 1-800-605-9263.

• Homebuyer Credit
• Making Work Pay Credit
• Economic Recovery Payments
• Earned Income Tax Credit
• American Opportunity Tax Credit
• Sales and excise tax deduction for new car purchases
• Energy incentives for homeowners 

Changes in Maine State Tax Law

A large tax reform bill was signed by Governor Baldacci on June 12, 2009.  One of it's largest provisions is the broadening of the Sales Tax Base.

Many businesses whose goods/services were previously untaxed, will be faced with collecting and paying sales tax.  These changes are effective in January, 2010. For a complete list, Click Here.

June 2009 "Cash For Clunkers" Bill- $3,500 or $4,500 President Obama on June 24th signed legislation that contains a "Cash for Clunkers" program.  The law authorizes the issuance of an electronic voucher to offset the purchase price or lease price for a qualifying lease of a new fuel efficient vehicle upon the surrender of an eligible trade-in vehicle to a dealer participating in the program.

Read More
www.cars.gov

2009 Maximizing Deductions If you have claimed the standard deduction in the past, you may be surprised to discover that by accelerating certain deductions into the current year, you are able to itemize deductions and decrease your tax liability. Read More

2009 First Quarter Federal Tax Developments The first three months of 2009 have seen a flood of new federal tax developments. We'd like to highlight some of the more important federal tax developments for you. As always, please give our office a call or send us an e-mail if you have any questions about these developments. Read More

2009 Tax Planning for Self-Employed Individuals Owning your own business can be very rewarding, both personally and financially. Being the sole decision-maker for this important undertaking can also be overwhelming at times. There are many choices that have to be made with consequences that are not always foreseen. We can help you to minimize the tax burden on your hard-earned income by identifying and maximizing business deductions, providing guidance on substantiation of expenses, and pointing out tax planning alternatives that are uniquely available to the self-employed. Read More

2009 American Recovery and Reinvestment Act

2008 IRS e-file Refund Cycle Chart