The new PPACA act will require businesses to issue Forms 1099 for goods purchased after 2011, even if it is from a corporation…otherwise, penalties will be assessed.

Your business will now have to keep records of all purchases sorted by Taxpayer Identification Number (TIN).

Christine Reiner, CPA, studies tax law changes and trends very closely. Contact our office for expert advice.

Source: June 30, 2010 Taxpayer Advocate Service Report to Congress for the fiscal year 2011.

While most income you receive is generally considered taxable, there are some situations when certain types of income are partially taxed or not taxed at all.

To ensure taxpayers are familiar with the difference between taxable and non-taxable income, the Internal Revenue Service offers these common examples of items that are not included in your income:

• Adoption Expense Reimbursements for qualifying expenses
• Child support payments
• Gifts, bequests and inheritances
• Workers’ compensation benefits
• Meals and Lodging for the convenience of your employer
• Compensatory Damages awarded for physical injury or physical sickness
• Welfare Benefits
• Cash Rebates from a dealer or manufacturer

Some income may be taxable under certain circumstances, but not taxable in other situations. Examples of items that may or may not be included in your income are:

• Life Insurance: If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds, which were paid to you because of the insured person’s death, are not taxable unless the policy was turned over to you for a price.
• Scholarship or Fellowship Grant: If you are a candidate for a degree, you can exclude amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify.
• Non-cash income: Taxable income may be in a form other than cash. One example of this is bartering, which is an exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included as income on Form 1040 of both parties.

All other items – including income such as wages, salaries and tips – must be included in your income unless it is specifically excluded by law.

Halt Social Security While Working (from The Wall Street Journal Online)

Amid the economic crisis, many retirees are returning to the work force.  And for some people already receiving Social Security benefits, a little-known provision in the federal retirement program can provide some much-needed assistance in shoring up retirement finances.

The key is to put your Social Security benefits on hold.  As unpalatable as that may sound, the strategy — officially known as “claim and suspend” — will enable you to pocket a higher monthly Social Security check later, when you retire — again.  Some might argue that it makes more sense for those earning a regular paycheck from an employer to save their Social Security — by investing their benefits or stashing the money in a bank account.

But by asking Social Security to suspend your payments altogether, you can ultimately lock in a substantial monthly raise.  For every year those entitled to Social Security defer tapping their benefits between the so-called full retirement age — which is 66 for those born between 1943 and 1954 — and age 70, the Social Security Administration increases their monthly benefit by 8%.

On top of that, Social Security recipients typically receive an annual cost-of-living adjustment.  (That said, with consumer prices this year either flat or declining, beneficiaries in 2010 might not see an adjustment.)

Moreover, this strategy might produce a larger “survivor” benefit for your spouse if you die first.

The claim-and-suspend approach doesn’t make sense for everyone, however.  Those 70 or older have nothing to gain by suspending benefits since they don’t qualify for the annual 8% adjustments, according to Andrew Eschtruth, a spokesman for the Center for Retirement Research at Boston College.

Also, only Social Security recipients who are at or beyond the full retirement age can use the claim-and-suspend strategy. (Learn more about full retirement ages at www.ssa.gov/retire2/agereduction.htm).

People who suspect they and their spouses may have relatively short life expectancies should think twice about putting Social Security on hold since they may never recoup their suspended benefits.

And what if you are retired but younger than full retirement age — and are now considering a return to work? Here, you might run into Social Security’s “earnings test.”

For every $2 above $14,160 a recipient younger than 66 earns in 2009, his or her Social Security benefits are reduced by $1.  The penalty changes in the year you will reach your full retirement age — $1 in benefits will be deducted for each $3 earned above a different limit. Then it ends once you hit full retirement age.

The silver lining?  For those who are penalized, the Social Security Administration increases their benefits at full retirement age by an amount designed to compensate them — over their life expectancies — for the benefits withheld earlier.

Answer:  As a condition of your agreement, any refund due you in a future year will be applied against the amount you owe.

·         Continue making your installment agreement payments as scheduled because your refund is not considered as a substitute for your regular payment due.

·         You may not get all of your refund if you owe certain past-due amounts, such as federal tax, state tax, a student loan, or child support.

·         IRS will automatically apply the refund to the taxes owed.

Closing the Benefits Loophole (excerpts from The Wall Street Journal)

A bipartisan group of legislators is pressing the Treasury Department to close a loophole that has allowed banks to seize Social Security and disability benefits from customers’ accounts despite federal rules intended to protect these benefits from creditors.

The loophole also has enabled some banks to seize from customers their recent $250 Economic Recovery Payments, payments to disabled veterans, and supplemental benefits to impoverished individual from the Social Security Administration.

Federal law says creditors can’t take Social Security, disability, veterans’ and children’s survivor benefits to pay a debt.  But the federal law doesn’t say how money deposited directly into bank accounts is to be protected –a gap that has given banks the ability to seize such funds.

A U.S. Bancorp spokeswoman says the bank is legally required to honor garnishment orders; it’s up to the customer to work it out with the creditor and the court.

Under the proposed Treasury regulations, banks would be forbidden from freezing accounts that contain direct deposits of exempt funds, and couldn’t take fees from exempt funds if the fees are a result of a garnishment.  If the funds are commingled with nonexempt funds, the banks would have to apply a formula to exclude the protected amounts.  The rules would protect banks from lawsuits from debt collectors and account holders.

But the Treasury hasn’t released the proposals.  Now, legal-aid lawyers say Social Security recipients are bailing out of the direct-deposit program to protect their benefits from the banks.

Steps to protect your Social Security, disability, veteran’s or pension benefits:

·         Don’t commingle Social Security and exempt benefits with nonexempt funds.

·         Don’t get a loan or credit card from the bank where your Social Security or pension is deposited.

·         If sued, go to court and demand proof of the debt.

·         If your bank account is frozen, file an exemption claim within 10 days.

Seven Things to Know About the Taxpayer Advocate Service (from IRS website)

If you’re experiencing problems with the Internal Revenue Service, you may be able to get help from the Taxpayer Advocate Service.  Here’s what every taxpayer should know about this independent organization within the IRS.

1.  The Taxpayer Advocate Service is your voice at the IRS.

2.  You may be eligible for TAS help if you’ve tried to resolve your tax problem through normal IRS channels and have gotten nowhere, or you think an IRS procedure just isn’t working as it should.

3.  TAS helps taxpayers whose problems are causing financial difficulty or significant cost, including the cost of professional representation.

4.  TAS employees know the IRS and how to navigate it.

5.  TAS will listen to your problem, help you understand what needs to be done to resolve it, and stay with you every step of the way until your problem is resolved.

6.  TAS has at least one local taxpayer advocate in each state, the District of Columbia, and Puerto Rico.

7.  To contact TAS you can call your local advocate, whose number is in your phone book, or call the toll-free case intake line at 1-877-ASK-TAS1.  You can also visit TAS online at www.IRS.gov/advocate.

Personal Expenses or Business Expenses (from IRS website)

Most taxpayers with home-based businesses accurately report their income and expenses, while still enjoying the benefits that a home-based business can offer.

However, some unscrupulous promoters advise taxpayers incorrectly that they can operate any type of unprofitable “business” out of their home and claim personal expenses as business expenses.  Taxpayers cannot transform nondeductible personal living expenses into deductible business expenses, regardless of how convincing the information in the promoter’s marketing materials may seem.

These are generally not deductible as business expenses:

·     Deducting all or most of the cost and operation of a personal residence.  For example, placing a calendar, desk, file cabinet, telephone or other business item in each room does not increase the amount that can be deducted.

·     Paying children a salary for answering telephones or washing cars.

·     Deducting education expenses from salaries paid to children wrongfully claimed as employees.

·     Deducting excessive car and truck expenses when the vehicle was used for both personal and business use.

·     Deducting personal furniture, home entertainment equipment or children’s toys.

·     Deducting personal travel, meals and entertainment under the guise that everyone you encounter is a potential client.

Taxpayers should also be aware of depreciation recapture rules when assets are later sold.

Seven Facts about the New Sales Tax Deduction for Vehicle Purchases (from IRS Website)

Taxpayers who buy a new car or several other types of motor vehicles this year may be entitled to a special tax deduction when they file their 2009 federal tax returns next year. The tax break is part of the American Recovery and Reinvestment Act of 2009.

Here are seven things you should know about this new deduction:

1. State and local sales taxes paid on up to $49,500 of the purchase price of qualifying vehicles are deductible.
2. Qualified motor vehicles generally include new (not used) cars, light trucks, motor homes and motorcycles.
3. Purchases must occur after Feb. 16, 2009, and before Jan. 1, 2010.
4. This deduction can be taken regardless of whether or not you itemize other deductions on your tax return.
5. Taxpayers will claim this deduction when filing their 2009 federal income tax return next year.
6. The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.
7. The deduction may not be taken on 2008 tax returns.

Consumers who are considering buying a new car may find that this tax incentive means there may have never been a better time to buy.