Tuesday, November 16, 2010
Future Legislation-Capital Gains
The Obama administration has proposed to increase the income and capital gains tax rates on single individuals with income of more than $200,000 and married couples with income exceeding $250,000. For S corporation shareholders, partners and sole proprietors who recognize income on their individual returns, following the traditional year-end planning maxim of deferring income into the next year may not be a positive tax strategy. Deferring too much income into 2011 could result in income taxed at a higher rate. These and other individual tax planning issues are discussed in, 2010 Year-End Tax Planning for Individuals.
Sole proprietors.
Sole proprietors have additional unique tax planning considerations. For a complete discussion on tax planning for the self-employed, see, Planning 2010: Tax Consequences for Self-Employed Individuals.
Health Insurance Deduction for purposes of self-employment tax. The 2010 Jobs Act amends Code Sec. 162(l)(4) to allow a deduction for self-employed health insurance costs in computing "net earnings from self-employment" for the 2010 tax year. Generally, the health insurance deduction does not reduce the income base for purposes of the Social Security Act. However, for purposes of calculating self-employment tax and the self-employment tax deduction, self-employed individuals may deduct health insurance costs incurred in 2010 for themselves, their spouses, their dependents, and (effective March 30, 2010) any of their children who as of the end of the tax year have not attained age 27.
Health Insurance Deduction for purposes of self-employment tax. The 2010 Jobs Act amends Code Sec. 162(l)(4) to allow a deduction for self-employed health insurance costs in computing "net earnings from self-employment" for the 2010 tax year. Generally, the health insurance deduction does not reduce the income base for purposes of the Social Security Act. However, for purposes of calculating self-employment tax and the self-employment tax deduction, self-employed individuals may deduct health insurance costs incurred in 2010 for themselves, their spouses, their dependents, and (effective March 30, 2010) any of their children who as of the end of the tax year have not attained age 27.
2010 Year End Tax Planning for Businesses:
Tax planning for year-end 2010 presents new challenges for business taxpayers to reduce or defer federal income tax liability. Although traditional planning techniques remain fundamentally important considerations this year, there are new opportunities with recent legislation and changes in the tax laws. In addition, tax planning is complicated when considering the effective dates for many popular tax incentives, and anticipating those tax laws that may be put to a vote in Congress before year's end.
Alternative Minimum Tax for Businesses
The alternative minimum tax (AMT) is not a challenge reserved solely for the individual taxpayer. A corporation (or LLC that is taxed as a corporation) that is not a "small business corporation" may be required to pay AMT if:
(1) the corporation's taxable income (before any net operating loss deduction) plus AMT adjustments and tax preference items is more than $40,000 (or the corporation's allowable exemption amount, whichever is lower), or
(2) the corporation claims a general business credit, the qualified electric vehicle credit, or the credit for a prior year minimum tax.
The AMT income tax rate for businesses is a flat 20 percent.
(1) the corporation's taxable income (before any net operating loss deduction) plus AMT adjustments and tax preference items is more than $40,000 (or the corporation's allowable exemption amount, whichever is lower), or
(2) the corporation claims a general business credit, the qualified electric vehicle credit, or the credit for a prior year minimum tax.
The AMT income tax rate for businesses is a flat 20 percent.
Wednesday, October 27, 2010
Primary Residence-Capital Gain Exclusion
Generally, the home one lives in most of the time is one’s principal residence; it can be a house, houseboat, mobile home, cooperative apartment, or condominium.
In order to exclude gain on the sale of a home, a taxpayer generally must have owned and lived in the property as his or her main home for at least two years during the
five-year period ending on the date of sale. The maximum gain that can be excluded is $250,000 for individuals and $500,000 for married couples filing jointly.
In order to exclude gain on the sale of a home, a taxpayer generally must have owned and lived in the property as his or her main home for at least two years during the
five-year period ending on the date of sale. The maximum gain that can be excluded is $250,000 for individuals and $500,000 for married couples filing jointly.
IRA to Roth Conversion
The $100,000 modified adjusted gross income limitation and the joint return limitation are repealed for tax years beginning after 2009. Code Sec. 408A(c)(3). Thus, a taxpayer can convert an eligible retirement plan to a Roth IRA as long as the amount contributed to the Roth IRA satisfies the definition of a qualified rollover contribution.
A taxpayer has a traditional IRA with a value of $100, consisting of deductible contributions and earnings. He does not have a Roth IRA. The taxpayer converts the traditional IRA to a Roth IRA in 2010. As a result, $100 is includable in gross income. Unless the taxpayer elects otherwise, $50 of the income is included in income in 2011 and $50 in 2012. Later in 2010, the taxpayer takes a $20 distribution, which is not a qualified distribution and all of which is attributable to amounts includable in gross income as a result of the conversion. Under the accelerated inclusion rule, $20 is included in income in 2010. The amount included in income in 2011 is the lesser of $50 (half the income resulting from the conversion) or (2) $70 (the remaining income from the conversion), or $50. The amount included in income in 2012 is the lesser of $50 (half the income resulting from the conversion) or (2) $30 (the remaining income from the conversion, or $30.
A taxpayer has a traditional IRA with a value of $100, consisting of deductible contributions and earnings. He does not have a Roth IRA. The taxpayer converts the traditional IRA to a Roth IRA in 2010. As a result, $100 is includable in gross income. Unless the taxpayer elects otherwise, $50 of the income is included in income in 2011 and $50 in 2012. Later in 2010, the taxpayer takes a $20 distribution, which is not a qualified distribution and all of which is attributable to amounts includable in gross income as a result of the conversion. Under the accelerated inclusion rule, $20 is included in income in 2010. The amount included in income in 2011 is the lesser of $50 (half the income resulting from the conversion) or (2) $70 (the remaining income from the conversion), or $50. The amount included in income in 2012 is the lesser of $50 (half the income resulting from the conversion) or (2) $30 (the remaining income from the conversion, or $30.
Friday, March 26, 2010
Donation: Clothing & Household Items
Any donations of clothing and household items that are made to a charitable organization are not deductible unless the donated items are in "good " or better condition. IRS may deny a deduction for any item that has minimal monetary value. Donor of such items should be prepared to prove both the condition and the value of the donated items. Only one exception to this rule: If a single donated item is not in at least good condition, but it is worth more than $500, it is deductible, so long as a qualified appraisal is obtained at the time of the donation.
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