Plain Writing Act

President Obama signed the Plain Writing Act of 2010 earlier this year.  Can you believe government agencies, including the IRS, will be required to communicate in plain english.  No more government speak.  I have received letters from IRS and after reading the letter 5 times I had to call because I could not understand the letter.  The following is a link to the IRS web site that talks in more detail about the changes. 
http://www.irs.gov/individuals/article/0,,id=96199,00.html

If you receive a letter or notice from the IRS, this website will explain the reason for the correspondence and provide detailed instructions of what to do.  It provides helpful forms and publications you may want to review, frequently asked questions, and tips for next year.   

The IRS is redesigning and revising its correspondence for clarity, effectiveness, and efficiency. The new format includes a plain language explanation of the nature of the correspondence, clearly stating actions the taxpayer must take and the letters must present a clear, clean design.

IRA Charity Deduction

In 2011 if you have an IRA and you are over age 70 1/2 you can do a direct charitable transfer up to $100,000 and exclude it from your income.  If you take a $100,000 distribution personally and then donate the money, the income makes your social security fully taxable and limits your ability to take your full Schedule A deductions.  Schedule A is where you deduct your charitable donations.  If you make the transfer in January 2011 you can treat it as made in 2010. 

Estate Tax Exemption

The estate tax exemption for 2011 and 2012 will be $5,000,000.  The tax rate on any amount over that is at 35%.  In 2010 there were no estate taxes.  The issues now is beneficiaries receive a step up in basis on assets they receive.  Another issue is the transfer of of the unused portion of one spouse's estate tax exemption to the other spouse.  This transfer is not automatic.  Most estate tax issues are too complex to go into in this blog.  Please call us if you have any questions at 796-1040.

E Filing Mandate

In 2011 the IRS has mandated that any tax preparer that prepares more than 100 tax returns is required to file all their tax returns electronically.  That will include tax returns that have a balance due.  If you owe on your taxes you will receive a 1040 V voucher to mail and pay by the tax due date, April 18, 2011 this year.  Only in rare cases will the IRS grant an exception. 

Landlord Reporting on 1099s

Landlords will be required to issue 1099s to all service providers in 2011.  We brought this up earlier in another blog.  Any service provider paid $600 or more for services such as plumbers, yard maintenance people and yes, even tax preparers must receive a 1099.  If you pay by credit card then you do not need to issue a 1099.  If you use a management company you as the landlord, still need to issue 1099s.  The management company can issue 1099s for you but the 1099s need to show you as the issuer.   If you hire an electrician to install a new A/C unit and the cost is $1,500 the bill needs to break down the equipment from the labor.  The 1099 is only for the labor portion of the bill.  If you think you may pay someone $600 or more you need to have them complete a W9.  If you don't have a 1099 you cannot write off the expense on your tax return.  If the service provider doesn't have a valid or fails to provide a social security number or employer identification number (EIN) then they are subject to 25% backup withholding tax.  The landlord can be required to pay the withholding even if they did not withhold the money.  If you have any questions please call us at 796-1040.

1099 K reporting by credit card companies

In 2011 all credit card companies and third party processors will report to the IRS any taxpayer receiving payments greater than $20,000 or more than 200 transactions per year.  This includes credit cards, debit cards, gift cards, prepaid phone cards and Paypal.  The form is issued annually in January and has boxes for the payments received each month.  No adjustments for credits, discounts, fees, chargebacks or refunded amounts are made on the form.  One of the biggest targets will be small businesses where the IRS will develop a formula for the cash to credit card ratio.  IRS will use that ratio for future tax audits to estimate gross income.

Filing Delayed and Deadline Extended

Due to the late passage of the tax bill the IRS is still working on their computer system to accept tax returns.  Three areas are causing delays in the acceptance of the returns.  First is returns with itemized deductions, second is the educator credit and third is the education credits.  The IRS hopes to have their issues corrected by the middle of February and will start accepting tax returns for processing.  KatTax will be able to complete the returns on our software but will not be able to file the return until the IRS gives us the go ahead.  This year April 15th is on a Friday, but because that Friday is a holiday in Washington DC the filing deadline has been extended until Monday April 18th. 

Payroll tax decrease

Effective January 1, 2011 the withholding for social security from employees checks decreased from 6.2% to 4.2%.  The employers portion of the social security tax stays the same at 6.2%.  If you get paid $1,000 per week your take home pay increases by $20.  Remember the Making Work Pay Credit of $400 if you are single and $800 if married?  That goes away in 2011 and is replaced by the 2% decrease in social security taxes.  No word yet on what this change will do to your social security retirement pay.