news archives: Tax & Business Updates
The articles below addressing current tax planning, tax services, tax news and business updates, have been archived for your reference. Please contact a Feeley and Driscoll accountant by email or call 888-875-9770 if you have any further questions.
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2006
As you may know, on Dec. 20, 2006, President Bush signed into law the Tax Relief and Health Care Act of 2006. In addition to extending certain tax provisions that had expired at the end of 2005 or that had been set to expire soon, the act introduces some new rules and important tax breaks we think you’ll want to know about.
The Delinquent Filer Voluntary Compliance (DFVC) Program is designed to encourage voluntary compliance with the annual reporting requirements under the Employee Retirement Income Security Act (ERISA). The DFVC Program gives delinquent plan administrators a way to avoid potentially higher civil penalty assessments by satisfying the program’s requirements and voluntarily paying a reduced penalty amount. To increase incentives for delinquent plan administrators to voluntarily comply with ERISA’s annual reporting requirements, the Department further reduced penalties under the DFVC program, and updated and simplified the rules governing participation in the program.
The IRS has issued guidelines on how employer-issued “smartcards” and debit cards can qualify as nontaxable transportation fringe benefits. Generally, employees are not required to substantiate their use of these cards. However, the IRS nixed an arrangement that provided and relied on employee certifications before the expenses were incurred.
The Legislature recently passed a "technical corrections bill" containing several clarifications and amendments to the Health Care Reform Law, passed in April 2006. The following article contains information about the changes that were made.
Following up on individual safe harbor amounts for telephone tax refunds, the IRS has released a formula that businesses and exempt organizations can use to estimate their telephone tax refunds. The IRS will start refunding in January the long-distance portion of the federal telephone excise tax billed after February 28, 2003 and before August 1, 2006.
In order to use EFTPS, taxpayers must set up an account by logging into www.eftps.gov and establishing an account with the IRS. It takes approximately 15 days to register and receive an ID and password to use. Payments must be made at least one day before the due date of the payment. Any previously scheduled payment can be cancelled; but must be done at least two days prior to the due date of the payment.
Beginning Jan. 1, 2007, the standard mileage rates for the use of a car (including vans, pickups or panel trucks) will be:
- 48.5 cents per mile for business miles driven;
- 20 cents per mile driven for medical or moving purposes; and
- 14 cents per mile driven in service to a charitable organization.
Included in the Pension Protection Act signed by President Bush in August was a provision to give permanent tax-exempt status to the 529 college savings plans. This is a significant development for plans intended to help pay for the ever-escalating cost of a college education.
The Internal Revenue Service reminds taxpayers to become familiar with the tax law before deducting car- and truck-related business expenses. Overstated adjustments, deductions, exemptions and credits of all types account for more than $30 billion in unpaid taxes annually, according to the IRS. In an effort to educate taxpayers regarding their obligation to file accurate tax returns, the IRS provided a fact sheet explaining the rules for deducting car and truck expenses.
U.S. citizens and resident aliens are generally taxed on their worldwide income regardless of where the income is earned or received. A U.S. citizen who earns income in a foreign country may also be taxed on that income by a foreign host country, thus leading to double taxation. However, a number of tax provisions provide relief from this inequity, including the foreign tax credit and deduction, the foreign earned income exclusion, and the foreign housing cost exclusion.
Recently, the IRS lost on an attempt to restrict the definition of "away from home" meals and incidental expenses to those business trips requiring more than 24 hours to complete or for which a full night's sleep or rest is needed. The Tax Court recently held that a demanding 17-hour work day that included a mid-trip four hour snooze was enough to qualify meals and incidentals at the away-from-home location for a deduction. The Tax Court also found that the day was long enough that the standard per diem rate need not be pro-rated.
As the House Ways and Means Committee prepares to hold a series of hearings on corporate tax reform and international competitiveness, they will be confronted by recent data that show a precipitous increase in corporate tax collections over the past two years. These increasing corporate tax receipts give lawmakers a window of opportunity to invest in tax code improvements for the long term: lowering the corporate income tax rate, broadening the tax base and integrating the corporate income tax with the individual income tax system.
Tax planning involves choices and a continuous reevaluation and fine-tuning of choices made. Some choices can be changed easily while others are more difficult and expensive to change. One of the most important choices involves the organizational structure in which a business will be operated. As a general rule, the initial adoption of a particular structure is relatively easy. Changing that structure is an entirely different matter, and can be very difficult and expensive to do. So, the adoption of the initial structure must be made with care.
In today's economy it is not uncommon for historically profitable businesses to generate losses in spite of hard work and dedication. Competition is fierce, margins are thin and the market is generally weak. Jobs are bid at razor-thin margins and one bad estimate could create sufficient fade that the entire year is a bust. The tax laws provide for some relief in allowing the business owner to offset losses against other income. In effect, Uncle Sam is partly subsidizing the loss by reducing the tax on other taxable income. This could be by way of offsetting other current taxable income such as interest, dividends and wages or offsetting taxable income and recovering taxes paid in prior years.
Investors eager to take part in the stock market's recent run-up should watch out when investing in a mutual fund that they aren't also buying into a tax liability now that 2006 has entered its final months.
The IRS announced revised dollar limitations for pension plans and related amounts for calendar-year 2007. Some amounts changed due to cost-of-living adjustments, while other changes were Code-required. Included in this article are the contribution limits of particular importance for 2007.
Section 409A was added by the American Jobs Creation Act of 2004. Section 409A provides rather harsh penalties for failure to comply with certain requirements in connection with nonqualified deferred compensation plans. The IRS provided guidance on December 20, 2004, under Notice 2005-1 and issued proposed regulations on October 4, 2005. The preamble to the proposed regulations extended certain transitional guidance provided in Notice 2005-1, generally through December 31, 2006. The proposed regulations set the effective date of the final regulations at January 1, 2007. Although Treasury and the IRS expect to issue final regulations in 2006, the Treasury and IRS felt that this was insufficient time for taxpayers and their representatives to analyze the final regulation and come into compliance by January 1, 2007. Accordingly, Notice 2006-79 was issued on October 4, 2006, extending the effective date for the final regulations to January 1, 2008.
By December 1 of each year you need to give notice to employees about your safe harbor plan. You should be getting information from your Third Party Administrator (TPA) about giving this notice. If you do not hear from your TPA by November 1, you should call them to review so that you do not miss the notification period. You should retain evidence in your files of how you gave all employees notice. The notice is required in case anyone wants to change their 401(k) elections based on the type of safe harbor plan you have.
For decades, the Massachusetts Abandoned Property Law has required all businesses to review their records each year to determine whether they are in possession of any unclaimed funds or any other property that belongs to someone else. If they are, that property must be turned over to the state; it does not become the property of the business. Any debt or obligation which has gone unpaid or security that has remained undelivered for three or more years, as of the preceding June 30, must be reported and paid to the Commonwealth of Massachusetts Treasury Department, Unclaimed Property Division. An annual report, Form AP-1, is required to be filed by November 1, even if no abandoned property is held.
The failure to afford salary-reduction opportunities to eligible employees when employers are required to do so under the tax code is the top issue facing IRS agents when dealing with public schools and nonprofit organizations, an IRS official told a group of practitioners on September 7, 2006. The concept of "universal availability" under Code Sec. 403(b) requires that, if institutions make salary-reduction contributions available to some employees, they must be made available to all employees who work at least 20 hours a week.
Occasionally the Tax Court reminds us of the importance of conducting a business in a business-like manner to protect a business from the hobby loss challenge. A recent example is the Mitchell case in which the Tax Court disallowed losses related to a farming activity. Read on to see what you can take away from the Mitchell case to help protect yourself from a hobby loss challenge, but first let’s go over the basic business loss rules.
For business owners, year end is the perfect time to review the past year, as well as to assess the coming one, so you can map out some tax-saving strategies. Three specific areas you may want to look into are assets, production and energy. All offer opportunities to lower your tax bill and put that money back to use building your bottom line. And all have been affected by recent tax law changes.
On August 17, the President signed the Pension Protection Act of 2006. The new law contains numerous changes to the tax law provisions affecting tax-exempt organizations. Key provisions include the following...
The Internal Revenue Service announced the standard amounts that most long-distance customers can use to figure their telephone tax refund. These amounts, which range from $30 to $60, will enable millions of individual taxpayers to request the telephone tax refund without having to dig through old phone bills.
A family limited partnership (FLP) can be a powerful tool for managing and transferring family wealth. In recent years, however, the IRS has taken a tough stance on FLPs in audits, questioning whether partnerships were set up for legitimate business reasons and, in many cases, denying claimed tax benefits. This article discusses the dos and don’ts of FLPs, focusing on how to prevent troubles with the IRS.
In regulation 830 CMR 64H.6.7, UCC title rules are used to determine when the sale occurs in situations involving out of state sales and deliveries and explains the sales tax treatment of such transactions.
On August 17, 2006, the President signed the Pension Protection Act of 2006, the most comprehensive reform of traditional private pension plans since 1974. The primary purpose of this legislation is to tighten funding requirements for traditional defined benefit pension plans. The Act also includes requirements that affect defined contribution plans, including 401(k)s. Employees will need advice and employer plans and payroll systems will need adjustments.
The Rhode Island Division of Taxation will be offering a Tax Amnesty Program beginning on July 15, 2006 and ending on September 30, 2006. Tax amnesty is an opportunity to clear up any unpaid tax obligations relative to taxes payable to the State of Rhode Island and collected by the Tax Administrator.
Signed into law August 3, H.R. 4019 prohibits states from taxing the retirement income of partners who are not residents of that state. The AICPA Tax Division supported this legislation in comments to Congress.
Effective July 8, 2006, medical device companies can claim a tax credit against their Massachusetts' tax liability for 100 percent of the user fees that they pay to the U.S. Food and Drug administration during the taxable year for pre-market approval to market new technologies developed or manufactured in the Commonwealth.
Before recessing, Congress failed to pass permanent estate tax reforms or to extend important expiring provisions. With the estate tax scheduled to be fully phased out in 2010 and then fully restored in 2011, estate planners and their clients need clarification. Read full article for more information on expiring individual and business related provisions and the estate tax.
Massachusetts Governor Mitt Romney has signed legislation that increases property tax exemptions for disabled veterans and provides financial relief for the families of servicemen and women killed or missing in action. Current property tax exemptions for veterans that range, depending on the extent of the disability, from $250 to $950 per year are increased to between $400 and $1,500. In addition, the legislation increases the reimbursement for those exemptions that the Commonwealth provides to the home communities of the veterans and their families. The lowest reimbursement of $75 is increased to $400, and the highest is increased from $775 to $1,325.
A recently enacted statute provides for a Massachusetts “sales tax holiday weekend,” i.e., two consecutive days during which most purchases made by individuals for personal use will not be subject to Massachusetts sales or use taxes. The Act provides that the sales tax holiday will occur on August 12 and 13, 2006 and on those days, non-business sales at retail of single items of tangible personal property costing $2,500 or less are exempt from sales and use taxes, subject to certain exclusions. The following do not qualify for the sales tax holiday exemption and remain subject to tax: all motor vehicles, motorboats, meals, telecommunications services, gas, steam, electricity, tobacco products and any single item whose price is in excess of $2,500. The Act charges the Commissioner of Revenue with issuing instructions or forms and rules and regulations necessary to carry out the purposes of the Act.
On December 16, 2004, the FASB issued Statement 123(R) Share Based Payments. The statement requires that all equity based awards to employees be recognized in the income statement based upon their fair value. The effective date for non public entities is the first annual period that begins after December 15, 2005 (e.g. fiscal years ending December 31, 2006). The following is a brief summary of the changes that will affect your business and financial statements.
You may want to consider buying that new Ford Escape Hybrid or Toyota Prius sooner rather than later. There is a federal tax credit available for the purchase of a new, qualifying vehicle beginning in 2006.
Massachusetts Governor Mitt Romney has signed into law a $25.249 billion state budget for fiscal year 2007 that authorizes a commuter tax deduction applicable to the state's personal income tax.
You take advantage of every break you can to save for college. But what do you do when tax-rule changes suddenly throw you a curve ball? For families concerned about the tab of higher education, the curve-ball question is now more than hypothetical.
Massachusetts Governor Mitt Romney has signed into law the state budget for fiscal year 2007 authorizing a property tax reduction of up to 5% of the average assessed value of all Class 1 parcels within the city or town for the principal residence of qualified taxpayers.
The Internal Revenue Service is warning taxpayers to be on the lookout for a new e-mail scam that uses the Treasury Department's Electronic Federal Tax Payment System (EFTPS) as a hook to lure individuals into disclosing their personal information.
When it comes to taxes, 2006 is already off to a fast start—we have already seen one Tax Act and it looks likely that there will be more before the year’s end. All this is right on the heels of 2005, where we saw four major Tax Acts. What does all this mean to you? Despite the tax rules being in a seemingly endless state of flux, the current tax environment is about as good as it is going to get. If you wait until the tax laws settle down before doing any serious planning, you may miss out on some great opportunities to reduce your overall tax burden. Use the following ideas as a starting point to identify specific actions you can take while there is still time to take action.
On July 1, 2006, the interest rates on existing federal Stafford and PLUS Loans will increase nearly 2% to 7.14% and 7.94% respectively. (The Department of Education sets the rates based on the last three-month Treasury bill auction held in May). This means that borrowers currently in repayment will see their monthly payments jump considerably unless they opt for loan consolidation.
The charge on your phone bill doesn’t say "luxury tax" or “war tax”, but that is what the federal telephone excise tax was enacted as in 1898 to fund the Spanish-American War. Only the wealthy had telephones, the U.S. had no income tax at that time, so the government relied on excise taxes to fund the war. This tax is now repealed and over the prior three years can be refunded.
Sales in Massachusetts of computer equipment, pre-written computer software, regardless of the method of delivery, and report of standard information in tangible form are generally subject to the Massachusetts sales and use tax. Taxable transfers of rewritten software include sales affected in any of following ways, regardless of the delivery method, electronic or load and leave. In the instances of licenses, leases, upgrades, and transfers of rights to use software installed on a remote server, the vendor collects sales tax from the purchaser and pays the sales tax to the Commissioner. Sales of custom software, personal and professional services, and reports of individual information are generally exempt from MA sales and use tax.
The Internal Revenue Service announced special tax relief for Massachusetts taxpayers in the Presidential Disaster Area that was struck by severe storms and flooding beginning May 12, 2006. The disaster area consists of three counties: Essex, Middlesex and Suffolk. Deadlines for affected taxpayers to file returns, pay taxes and perform other time-sensitive acts falling on or after May 12, 2006, and on or before July 25, 2006, have been postponed to July 25, 2006.
President George W. Bush signed H.R. 4297, the Tax Increase Prevention and Reconciliation Act of 2005, into law. The new Act will generally help taxpayers, but some will be hurt. Here's a summarized description from the AICPA of some of the provisions signed by President Bush on May 17, 2006.
The IRS is frequently asked, “Why can’t I get a blank Federal Tax Deposit (FTD) Coupon, Form 8109-B?” The answer is, under certain circumstances, blank coupons are available. However, blank coupons should be used only when absolutely necessary.
Any corporation that experiences any of the events listed below must reapply for manufacturing status by December 31 of the tax year in which the change occurred. Changes include: changes in its name, undergoes of a merger or consolidation, revival as a corporation after dissolving, re-registration with the Secretary of State after withdrawing from Massachusetts under G.L. c. 181, § 16, or undergo of a material change in its activities.
A corporation can claim a deduction for costs associated with energy-efficient commercial building property, placed in service after December 31, 2005, and before January 1, 2008. The Act provides a deduction equal to energy-efficient commercial building property expenditures made by the taxpayer. The deduction is limited to an amount equal to $1.80 per square foot of the property for which such expenditures are made. The deduction is allowed in the year in which the property is placed in service. Read more for in order to determine your qualification for the deduction.
The Alternative Minimum Tax (AMT) is designed to apply to taxpayers with substantial economic income who use tax credits and other tax incentives to reduce their tax liabilities. Although Congress originally intended only the highest income taxpayers to be subject to AMT, many middle-income taxpayers are finding themselves subject to it.
During 2006, individuals can make energy-conscious purchases that will provide tax benefits when filling out their tax returns next year. The new law provides tax credits for making your principal residence (which must be in the U.S.) more energy efficient and for buying certain energy efficient items. The law also provides credits for certain alternative motor vehicles, such as hybrids.
Attached is a Technical Information Release reviewing the statutory amendments contained in St. 2005, c. 163 affecting the taxation of corporations exempt from taxation under Internal Revenue Code (IRC) section 501. Pursuant to amendments to G.L. c. 63, corporations exempt from taxation under IRC § 501 will be subject to tax on their unrelated business taxable income as defined under IRC § 512. The amendments are effective for tax years beginning on or after January 1, 2006.
To find out if the IRS received your return and whether your refund was processed and sent to you visit the “Where’s My Refund” section of the Internal Revenue Service web site. To inquire about the status of your Massachusetts personal income tax refund, visit the Massachusetts Department of Revenue Refund Status Web Site. For more information regarding how to site access and the information you will need to provide, please refer to the Full Article.
Electronic fraud relating to the Internal Revenue Service (IRS) has been escalating in number and sophistication since December 2005. Phishing, as it is called, is the act of sending an e-mail to a user falsely claiming to be an established legitimate enterprise in an attempt to scam the user into surrendering private information that will be used for identity theft. The current phishing scheme attempts to convince the users that they are receiving an email from the Internal Revenue Service (IRS).
As you know, starting January 1, 2006, the new Medicare prescription drug plan went into effect. People with Medicare can enroll in one of the Medicare prescription drug plans through May 15, 2006. If you have existing prescription drug coverage, you can choose to join a Medicare prescription drug plan at a later date, enrollment dates will occur between November 15 and December 31of each calendar year.
Effective April 1, 2006 , rewritten software sold to a customer in Massachusetts or purchased for use in Massachusetts shall be deemed a transfer of tangible personal property subject to the sales or use tax regardless of the method of delivery, including transfers by electronic means such as the Internet or “load and leave.”
Taxpayers served by the Andover, Massachusetts Processing Center will have an additional day to file and pay because April 17 is a state holiday (Patriot's Day) in Massachusetts . The April 18 deadline will apply to individuals in Maine, Maryland, Massachusetts, New Hampshire, New York, Vermont, and the District of Columbia.
Many business taxpayers fail to deduct otherwise eligible business expenses or fail to fully deduct qualifying business expenses. As a result, millions of dollars are overpaid to the Internal Revenue Service every year. Below is a listing of commonly missed deductions or deductions that you may not be fully utilizing. You may wish to carefully examine your records to determine if you may be missing any of these deductions.
Property Tax Exemption Forms 3-ABC are due by March 1, 2006 for all Massachusetts tax exempt organizations that hold real or personal property. The forms are to be filed with the assessor's office for the city or town in which the property is located. The form must be accompanied by the organization's most recently filed Attorney General Form PC (which also includes the IRS 990 and audited financial statements).
If you or your business has been affected in any way as a result of Hurricanes Rita, Wilma or Katrina, you may be eligible for a number of tax benefits through the Gulf Opportunity Zone Act of 2005 and the Katrina Emergency Tax Relief Act of 2005. The so-called “Go Zones” are in five states: Alabama, Florida, Louisiana, Mississippi, and Texas. The Hurricane Relief Acts are very extensive, so we have decided to highlight some of the more common examples of these acts to provide you with information we feel will benefit you, the first being personal casualty and theft loss.
Taxpayers can deduct gambling losses only to the extent of gambling gains. The courts have ruled that this limitation applies even if the taxpayer is in the trade or business of gambling. There is no distinction between professional gamblers and occasional, amateur gamblers when it comes to the deductibility of gambling losses. The losses need not be from the same type of gambling to offset winnings.
A corporation elects to operate as an S corporation by filing Form 2553 (Election by a Small Business Corporation). Once made, the S election remains in effect until it is voluntarily or involuntarily terminated [IRC Sec. 1362(c)]. Changes in ownership of S corporation stock have no effect on the S election, so long as all of the stock is owned by individuals or other entities eligible to be S shareholders. The deadline for filing the Form 2553 differs depending on whether the corporation is already in existence (i.e., operating as a C corporation) or newly formed.
The Internal Revenue Service is providing a new online tool, the AMT Assistant, to help individual taxpayers determine whether they are potentially subject to the alternative minimum tax (AMT). The AMT Assistant automates the AMT Worksheet of the 1040 Instructions. Access the Worksheet to see if you should fill in Form 6251-Line 45. Taxpayers who file paper returns will benefit the most from the AMT Assistant because e-file software generally computes AMT liability automatically.
Bush administration leaders vow to fight on for comprehensive tax reform two months after the President's Advisory Panel on Federal Tax Reform issued its final report. However, delays and Hurricane Katrina killed any momentum for legislation, according to Washington lobbyists, while the collapse of Social Security reform left the administration risk-adverse to another failed policy effort.
Please keep Massachusetts and IRS requirements in mind as you file 2005 Corporate, Partnership and Trust income tax returns. It is important that these requirements are followed as there will be penalties imposed for failing to file electronically. For 2005 State and Federal requirements that apply to filing and paying most 2005 business tax returns refer to the Full Article.
The IRS recently ruled on an employee leave donation program. The ruling dealt with a plan where an employee can chose to donate leave to charity under the program. The value of any leave surrendered will be gross income for the employee and treated as wages for purposes of income tax withholding and employment taxes. Employees who do not participate in the PTO Donation Policy will not have gross income merely because they have the ability to participate in it.
The Internal Revenue Service issued guidance that provides heavy equipment dealers with a safe harbor that allows them to approximate the cost of the equipment parts inventory using the replacement cost method of accounting. The guidance was developed as part of the Industry Issue Resolution (IIR) program. The IIR program, launched by the IRS in 2001, tackles issues submitted by taxpayers, associations and other groups representing businesses. The objective is to work cooperatively to resolve frequently disputed or burdensome tax issues.
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2005
The Internal Revenue Service recently issued the 2006 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. Congress this year also approved special rates in connection with miles driven in service of charities providing Hurricane Katrina relief.
As we have previously written, businesses can claim substantial tax deductions for heavy (over 6,000 pounds gross vehicle weight) SUVs and other vehicles used in business. For heavy SUVs, businesses can deduct up to $25,000 of the SUV’s cost in the year it is purchased resulting in a substantial first year tax deduction. Also, the rules that limit the amount of annual depreciation allowed on passenger automobiles do not apply to heavy SUVs. The remaining cost of the vehicle can be written off over five years.
Whether medical plans are subject to any nondiscrimination rules under the Internal Revenue Code depends on how they are funded. Fully insured plans generally can discriminate as to eligibility, contributions, benefits, and so on without triggering adverse tax consequences to the participants or employer. However, to receive special tax treatment, self-insured medical expense reimbursement plans must comply with the nondiscrimination rules in Regulation 1.105-11. In addition to the nondiscrimination rules for self-insured plans, read the full article for nondiscrimination rules that may apply to any medical plan.
The Federal Energy Tax Incentive Act of 2005 (Energy Act) and similar new Massachusetts provisions provide several new energy credits for individuals. The credit for non business energy property and the residential energy efficient property credit apply to purchases of energy property installed at a taxpayer’s principal residence. These federal provisions are effective for tax years 2006 and 2007.
Under FASB Interpretation 46(R) also known as FIN46, most clients effective for years ending after 12/15/2005 are going to be required to consolidate a number of entities that have not been consolidated in the past. This will include outside real estate, equipment leasing, management companies, and other entities that owners of companies are used to seeing as separate entities. The statements that you will be getting from CPA firms on 12/31/2005 will show consolidated financial information that includes these entities for the first time. These new consolidated financial statements will look significantly different than the financial statements you received last year.
Governor Mitt Romney has signed legislation canceling retroactive tax hikes on capital gains realized between January and May of 2002 and has authorized rebates of higher capital gains taxes paid between May and December of 2002. The Department of Revenue stopped issuing preliminary tax bills for 2002 capital gains as of December 2, 2005 in response to the state's Supreme Judicial Court decision that declared the effective date of the statute unconstitutional.
Non qualified deferred compensation plans offer flexibility and tax savings for employer and employee—but they also pose the possibility of income acceleration and stiff penalties and interest.
Employers sponsoring welfare benefit plans (“insurance plans" i.e. health etc.) may be failing to comply with Form 5500 filing requirements. Failure to file penalties is generally assessed on a per day basis and can grow quite large quite rapidly.
The Internal Revenue Service recently announced cost-of-living adjustments applicable to dollar limitations for pension plans and other items for tax year 2006. Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified retirement plans. It also requires that the IRS commissioner annually adjust these limits for cost of living increases. Many of the pension plan limitations will change for 2006. For most of the limitations, the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. Please reference the Full Article to view 2006 Pension Plan Limits for Individuals.
Amnesty is available in all states participating as full members or associate members of the Streamlined Sales and Use Tax Agreement (see States offering amnesty). Full and associate member states will provide amnesty for uncollected or unpaid sales or use taxes to a seller who registers to pay or collect and remit applicable sales or use taxes on sales made to purchasers in the state.
The IRS issued a consumer alert about an internet scam in which consumers receive an e-mail informing them of a tax refund. The scheme is an attempt to trick email recipients into disclosing their personal and financial data.
Deadlines are rapidly approaching for employers and employees in connection with nonqualified deferred compensation. Code Sec. 409A was enacted in the American Jobs Creation of 2004 to tighten the limits on nonqualified deferred compensation plans. The regulations address key provisions of Code Sec. 409A: the scope of Code Sec. 409A, possible accelerated taxable income, the timing of initial deferral elections, the timing of benefits, and subsequent elections to defer benefits.
Six new letter rulings help explain when the IRS will waive the 60 day time period for eligible rollover distributions from individual retirement accounts (IRAs). IRAs rolled over into new IRAs in 60 days will not be included in income as distribution. In three cases, the IRS refused to waive the deadline, because it considered the taxpayers’ reasons for failing to make a timely transfers within their control.
The Massachusetts DOR has proposed amending the regulation that provides the requirements for employers and others to withhold tax on behalf of individuals to include payers of performers or performing entities. Effective for tax years beginning on or after January 1, 2006, a performing entity would have to determine how much of the aggregate income and MA income tax withholding reported by the withholding agent on federal Form 1099-MISC or federal form 1042-S is attributable to each member.
If you have ever disputed an erroneous charge on your credit card statement, make sure you put your correspondence in writing and retain the records of your communication. In a recent tax case, the taxpayer learned the hard way about the tax implications of failing to do so.
As you probably know, Congress recently passed the Katrina Emergency Tax Relief Act of 2005 (KETRA). Besides providing tax breaks for individuals and businesses adversely affected by this devastating storm, KETRA contains a number of provisions that are more broadly applicable, specifically with respect to charitable giving. The following is a summary of the Act’s key provisions. Feeley & Driscoll offers this information to help you understand how KETRA may affect you or someone you know, and how you might take advantage of it to reduce your tax liability.
Motorists and Commercial motor carriers who use the Massachusetts Turnpike for more than 100 miles weekly are eligible to receive a reimbursement on fuel excise tax paid that corresponds to turnpike use. Thousands of turnpike travelers are eligible for this refund on part of the state gas tax they pay, but the rebate program is so obscure and cumbersome that only 357 drivers applied for it last fiscal year.
Many people assume that you need to be very wealthy before you start worrying about estate taxes. But if you own a life insurance policy with a large death benefit, your estate may be subject to considerable estate taxes. Using an irrevocable life insurance trust, you can move life insurance benefits out of your estate and reduce your estate tax exposure. This means your heirs can inherit more.
Roth 401(K) will be available in 2006, allowing individual to designate all or a portion of their 401(k) contribution into a Roth. This option will also be available to 403(b) participants. Prior to this law change, contributions to a 401(k) were tax deductible when made and taxable when withdrawn.
The IRS has increased the mileage rate for the business use of a car, to 48.5 cents per mile, effective September 1, from the 40.5 cents per mile set back on November 17, 2004 (Rev. Proc. 2004-64). This 20% increase pales in comparison to the 60% increase in the retail price of a gallon of gasoline (regular grade) from $1.91 to today's $2.89.
Congress recently passed the Energy Tax Incentives Act of 2005. This legislation provides more than $14 billion in tax breaks, primarily for businesses in the energy sector. The Act also provides some incentives for individuals and businesses to make certain energy conservation or alternative energy expenditures.
In order to secure payment of Massachusetts sales and use tax on any tangible personal property used in carrying out a construction contract, nonresident contractors that undertake a construction contract in the state must provide the Department of Revenue with a deposit or surety bond in an amount equal to 5% of the total amount to be paid under the contract.
On July 25th, the Internal Revenue Service officials announced the launch of a study to assess the reporting compliance of S corporations. The results of the NRP study will be used to more accurately gauge the extent to which the income, deductions and credits from S corporations are properly reported on returns filed by the flow through corporations and their shareholders.
The IRS has issued guidance concerning the new rules for the deductibility and substantiation requirements relating to charitable contributions of vehicles. Beginning January 1, 2005, the deduction for the contribution of a vehicle in excess of $500 is limited to the actual sales price of the vehicle when it is sold by the charity.
F&D would like to bring to your attention the legal ramifications of new IRS Circular 230, effective on June 21, 2005. The Circular was issued by the United States Government and sets forth new rules that all tax practitioners, including certified public accountants, must follow in providing written statements about certain federal tax issues.
The Federal Trade Commission (FTC) estimates that nearly one in ten Americans have experienced identity theft. To help stem the tide of the growing identity theft crisis, the FTC has issued the “Disposal Rule.” Effective June 1, 2005, employees’ personal information and other consumer information must now be destroyed prior to disposal to prevent identity theft.
The Internal Revenue Service has certified certain model year 2006 Hybrid Vehicles as being eligible for the clean-burning fuel deduction. This certification means that taxpayers who purchase new hybrid vehicles during calendar year 2005 may claim a tax deduction of up to $2000 on Form 1040.
The Massachusetts Senate has approved legislation that would establish a Massachusetts "sales tax holiday," for two days on August 13 and 14th, 2005. This would allow certain purchases made by individuals for personal use to be free of Massachusetts sales or use taxes. If approved by the Governor, all non-business sales at retail of single items of tangible personal property costing $2,500 or less will be exempt from sales and use taxes.
As you probably know, two major tax laws were enacted at the end of 2004. You may be familiar with some of the new tax rules, but now is a good time to see if there were any goodies for you, and, if so, what you need to be doing to take advantage of them. In addition to changes made by the new laws, other planning actions may be beneficial. While the end of 2005 seems a long way off, it’s always a good idea to take a look at your tax situation while there is still time to take action. Some planning ideas need to be implemented before year-end to be effective for this year.
Previously, a cafeteria plan could not provide for deferred compensation, by permitting participants to use contributions for one plan year to purchase a benefit that will be provided in the next plan year. This rule, commonly referred to as the "use-it-or-lose-it" rule, required that unused contributions or benefits remaining at the end of the plan year be "forfeited." The IRS has modified this rule to allow a cafeteria plan to be amended to provide a grace period immediately following the end of each plan year.
Charitable giving provides you with an opportunity to make a donation to benefit the mission of organizations that are important to you. The growth in national charitable giving is on the increase, which has created many different strategies for charitable giving. Because charitable giving is not a tax- motivated transaction, it is important to combine your charitable giving goals with the maximum tax savings. Depending on your goals, different vehicles will fit better. The following is a brief explanation of when different vehicles should be used.
Individual taxpayers who will be age 50 or older as of December 31, 2005 should not overlook the benefit of making "catch-up" contributions to employer sponsored plans or traditional and Roth IRAs. The additional amount of retirement funds which you can accumulate may surprise you.
Massachusetts Insurance Commissioner Julianne M. Bowler on May 19, 2005 approved a 3% overall average rate reduction in the 2005 Workers' compensation rate case. The new rate takes effect September 2005. Access the Full Article for a link to the press release.
As a result of the outcome of the Bloomingdale case, various direct mail advertising materials sent to customers are exempt from sales and use tax effective August 9, 2004. However, the legislature clarified specifically to exclude the following: "mail order catalogs, department store catalogs, telephone directories, or similarly printed advertising books, booklets or circulars greater than 6 pages in total length" from the exemption.
Does your company own the building in which it's based, or does it own other real property? One way to increase cash flow from property is to depreciate it over a shorter life than the IRS's prescribed term. Property can be classified as either five or seven- year personal property, 15-year land improvements, or 39-year real property under the Modified Accelerated Cost Recovery System (MACRS).
The State Legislature has introduced a bill to make August 13, 2005 a sales tax holiday. If passed, this law is likely to work similar to last year's sales tax holiday. We will keep you informed of this legislation. In the mean time, you might consider holding off on some large purchases that don't exceed $2,500.
On April 20, 2005 President Bush signed into law the Bankruptcy Abuse, Prevention and Consumer Protection Act of 2005. This act was originally introduced in the Clinton administration and has died many times and now has been enacted and contains sweeping bankruptcy reform. Only a few provisions of the new act will impact ordinary estate or assets protection planning. However, where it does affect planning, the effect is quite dramatic.
Temporary and proposed regulations, issued by the Treasury Department, eliminate the requirement that employers send copies of potentially questionable Forms W-4, Employee's Withholding Allowance Certificate, to the IRS. The new regulations take effect on April 14, 2005.
In general, our gift and estate tax laws allow unlimited tax-free transfers between spouses. The catch is that the transferee spouse (the one receiving the property) must be a U.S. citizen. This so called "Marital Deduction" views the married couple as one economic unit applying the theory that only transfers outside the unit (i.e., to children) should be subject to a transfer tax. Transfers involving a non-citizen spouse (even permanent residents) require special planning to preserve family wealth.
The American Jobs Creation Act provides for an 85% dividends received deduction for certain dividends from controlled foreign corporations (CFC's). This provision of the new tax law was enacted in order to create an incentive for U.S. based multinationals to distribute the earnings accumulated by their CFC's back to the U.S. parent, so that the earnings may be invested in the U.S.
As part of a highway bill the Senate recently passed by a vote of 89 to 11, CEO's of both public and private companies would be required to sign under penalties of perjury a declaration that the company has in place procedures to ensure that the annual federal tax return complies with the provisions of the Internal Revenue Code and that the CEO has received reasonable assurances of the accuracy of all material items in the tax return. This provision would apply to federal income tax returns for tax years ending after the date of the bill's enactment.
Any individual or business that enters into an agreement with a Non-Massachusetts Contractor to perform construction services in Massachusetts has a potential liability for any unpaid sales/use tax on that project. In the event that the Non-Massachusetts Contractor does not comply with the state's requirement, the enforcement passes to the person entering into the contract. The "person who let the contract" becomes personally liable unless they follow the procedures outlined in the statute.
Massachusetts Technical Information Release 04-34 increases the personal exemption amounts for Massachusetts taxpayers for taxable years beginning on or after January 1, 2005. Read the Full Article for the new personal exemption amounts, effective for the 2005 taxable year.
The tax law does not specifically mention legal fees as deductible items. Therefore, the deductibility of such expenditures depends on the context in which they are incurred. The absence of specific provisions for legal fees in the Code has resulted in many interesting and important developments concerning their deductibility.
Roth contributions will allow employees to designate part or all of their 401(k) employee deferrals on an after-tax basis, in which case the later distribution of those amounts plus earnings thereon will be tax-free. Although Roth contributions are not effective until tax years beginning after 12/31/05, many plan sponsors may want to amend their plans and establish procedures for administering these accounts. Refer to the Full Article for proposed revisions issued to Reg. 1.401(k)-1(f) (see REG-152354-04) that define designated Roth contributions and provide special rules for such contributions.
"As some of you may recall, the Massachusetts Legislature increased the capital gains tax in 2002. The effective date of this increase was May 1, 2002, such that many sales prior to that date were taxed at much lower rates and, in many cases, not taxed at all. However, a lawsuit ensued where a group of investors argued that the effective date of the new law was unconstitutional because it resulted in a change in tax rates during the year. The Supreme Judicial Court recently ruled that the effective date of the statute was unconstitutional leaving a choice to the legislature to make the new law retroactive to January 1, 2002, or delaying its effective date to January 1, 2003. It is estimated that making the change retroactive will increase revenue by $160 million while delaying the effective date will result in tax refunds of approximately $275 million."
Governor Romney’s FY2006 Budget proposes to close a loophole and charge a sales tax on ''canned" software that is downloaded from the internet, or software that is installed by an outside consultant who retains the CDROM or Disk.
Effective with any and all reports filed on or after April 2, 2005 for the 2005 annual reports, late fees will be assessed (previously, the assessment date was after April 15). The late fee will be $25.00 per month and will be increased on the 1st of each month thereafter until the annual report is filed and the late fee is paid.
The Employment Eligibility Verification Form (also known as I-9) was signed by President Bush on October 30, 2004. The I-9 form is used by all employers to verify employment eligibility of employees. The implementation of the electronic format will facilitate the completion and storage of I- 9 employment verification forms as well as the use of electronic signatures. The change will go into effect April 28, 2005.
Supplemental wages can include items such as bonuses and commissions, but may also include option income and other forms of ordinary income arising from equity compensation or nonqualified deferred compensation. Effective January 1, 2005, employers making "large" payments must use a supplemental withholding rate of 35%. Please refer to the full article for more information.
On July 19, 2004, a change in the Massachusetts definition of "independent contractor" was enacted. This law change is part of "An Act Further Regulating Public Construction in the Commonwealth" that was signed by Governor Romney on that date. The law sets forth the presumption that a worker is an employee unless each of the following factors are present: the individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact; and the service is performed outside the usual course of business of the employer; and, the individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.
The IRS will require certain large corporations and tax-exempt organizations to electronically file their income tax or annual information returns beginning in 2006.
On January 19th, the IRS issued guidance on the phased-in deduction for qualified domestic production income that was enacted last October as part of the American Jobs Creation Act of 2004. The deduction is effective for taxable years beginning after December 31, 2004. The new guidance is meant to assist taxpayer-employers in implementing the new provision until regulations are issued. The new deduction is equal to 9% (3% in the case of taxable years beginning in 2005 and 2006, and 6% for taxable years beginning in 2007, 2008, or 2009) of the lesser of (a) the qualified production activities income (QPAI) or (b) taxable income determined without regard to the new deduction.
A Declaration of Homestead is an easy, inexpensive way to protect your home in the case you are sued. Once filed, unsecured creditors cannot take your home to satisfy debts up to the equity amount set in the law-$500,000 per residence, per family and $500,000 for those 62 and over or disabled, per person.
For 2004 individual returns, Massachusetts allows an individual to deduct certain commuting costs paid in excess of $150 for:
- tolls paid through the Massachusetts FastLane account; or
- weekly or monthly transit commuter passes for MBTA transit or commuter rail.
Unanimously passed by Congress on January 6th, and signed by President Bush on January 7th, the new law permits accelerated tax deductions for charitable cash donations made to assist victims of the recent tsunami. Specifically, the law allows taxpayers to claim a tax deduction in tax year 2004 for donations made for tsunami disaster relief until January 31, 2005.
One of the most frequently asked questions during tax season is "Do I have to fill out my organizer?" The process of preparing your return can be more expeditious, efficient and accurate by completing your organizer. We would like to review what should be done at a minimum.
If you are a U.S. manufacturer, ship some of your products to foreign countries, and you would like to take advantage of permanent U.S income tax savings, consider establishing an Interest Charge Domestic International Sales Corporation (IC-DISC).
Corporations classified as a manufacturing corporation in Massachusetts are entitled to tax benefits. A corporation requesting manufacturing classification must file an application (Form 355Q) with the Department of Revenue’s Determinations Bureau postmarked by January 31 of the taxable year for which the classification is sought. Feeley & Driscoll can help you determine if you qualify for these manufacturing benefits, as well as assist you with the preparation of this form. Please contact your engagement partner or email Info@fdcpa.com.
Massachusetts has a special provision for the treatment of installment sales. An installment sale is defined as a disposition of property, where at least one payment is to be received after the close of the taxable year in which the disposition occurs.
Effective January 1, 2005, the limitation on the annual contributions to different plans has increased. Below is an updated Pension and IRA Quick Reference Table (2003-2005).
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2004
Feeley & Driscoll, P.C. (F&D) is required to file your Massachusetts return electronically unless you decline and notify F&D. In 2002, the Massachusetts Legislature empowered the Commissioner of the Department of Revenue to adopt policies and procedures for the implementation of Electronic Filing of Tax Returns. Originally the DOR focused on withholding and sales tax but now have expanded that to other business returns as well as individual income tax returns.
The recently enacted American Jobs Creation Act of 2004 modified the treatment of organization costs and start-up costs. The start-up costs of a business and the organizational expenditures of a corporation or partnership are capital expenditures and, as such, generally are not immediately deductible. However, with respect to expenditures paid or incurred after October 22, 2004, a taxpayer may elect to deduct up to $5,000 of start-up expenditures and up to $5,000 of organizational expenses in the taxable year in which the business begins, and may amortize the remainder of the expenses over a 180 month (15 year) period.
The IRS has released the 2005 optional standard mileage rates that may be used by employees, self-employed individuals, and other taxpayers when computing the deductible costs of operating a passenger car for business, medical, moving or charitable purposes. For 2005, the standard rate for business mileage has been increased to 40.5 cents per mile from 37.5 cents per mile. The standard mileage rate for medical or moving expenses has been increased to 15 cents per mile from 14 cents per mile. The mileage rate for charitable purposes remains at 14 cents per mile. When the 2005 business standard mileage rate of 40.5 cents is used, depreciation will be considered to have been allowed at a rate of 17 cents per mile. This depreciation rate will reduce the taxpayer's basis in the passenger car.
The $2,000 clean-burning fuel deduction has been extended through the end of 2005 by the Working Families Tax Relief Act of 2004. The deduction will be limited to $500 for vehicles placed in service in 2006 and no deduction will be allowed thereafter.
The following is a list of vehicles that qualify for the deduction:
- Toyota Prius – 2001 through 2005
- Honda Insight – 2000 through 2004
- Honda Civic Hybrid – 2003 through 2004
The IRS has amended the rules for Federal Unemployment Tax Act (FUTA) deposits, raising the minimum threshold for FUTA tax deposits from $100 to $500. Under the new amendments, employers will be required to make a quarterly deposit of FUTA taxes only when their accumulated tax liability exceeds $500. The regulation is effective January 1, 2005.
The Check Clearing for the 21st Century Act (Check 21) became effective on October 28, 2004. The bottom line on what this means for most consumers is that in time you won’t be seeing any of your checks ever again after you send them off as payment. Instead, Check 21 allows your bank to truncate each of your checks and create a new electronic negotiable instrument called a substitute check.
The IRS has released the 2005 optional standard mileage rates that may be used by employees, self-employed individuals, and other taxpayers when computing the deductible costs of operating a passenger car for business, medical, moving or charitable purposes.
Vehicles, Boats, and Planes: under the new law, deductions for charitable contributions of vehicles, boats, and airplanes for which the claimed value exceeds $500 will depend on how the donated asset is used by the recipient charity. Other Non-cash Donations: under the 2004 Jobs Act, stricter donor reporting is required for certain contributions of property other than cash, inventory, or publicly traded securities. Donations of Patents and Similar Intellectual Property: the law provides that if a taxpayer contributes a patent or other intellectual property(other than certain copyrights or inventory) to charity, the taxpayer's initial deduction is limited to the lesser of the property's tax basis or its fair market value.
- The SUV Deduction
- Small Business Expensing and Depreciation
- Depreciation
VERY IMPORTANT REMINDER: The 50% bonus depreciation provisions will expire for most assets that are purchased after December 31, 2004! Therefore, if you are considering to make a capital expenditure within the next 3-6 months, you should consider purchasing it (and placing it into service) prior to January 1, 2005.
The American Jobs Creation Act of 2004, which President Bush signed into law on October 22, 2004, contains provisions that could restrict the use of many types of deferred compensation. As a result of the law change, if certain operational or design failures occur in a nonqualified deferred compensation plan, the deferred amounts, including compensation deferred under the plan in prior years, could be subject to: Immediate regular income tax, a 20 % penalty, and an interest charge on the tax liability that would have been incurred if the deferred amounts had been taxed initially.
The American Jobs Creation Act of 2004 allows a deduction of up to nine percent of the lesser of taxable income or qualified production activities income. The deduction cannot exceed 50% of the company's W-2 wages, but is allowed for both regular and alternative minimum tax purposes. For more information, visit the full article.
Visit the full article for more detail regarding depreciation updates that pertain to the following:
- Qualified Leasehold Improvements Non-Qualified Leasehold Improvements Bonus depreciation expiration of December 31, 2004 Code Section 179: Expensing Limits Extended
- Depreciation for Sport Utility Vehicles (SUVs)
A business filing entity must register for the E-file program. There is a penalty for failure to file, report or pay electronically. Failure to use the electronic method will be deemed a failure to file. Read the full article to find out your Electronic Filing Requirements.
The American Jobs Creation Act of 2004 made changes to the treatment of nonqualified deferred compensation (NQDC) plans that may result in the inclusion of deferred compensation in gross income. It is important that you review all of your deferred compensation plans to determine whether any amendments or other action to your plans are necessary.
December is the month for our business clients to determine their employees' additional income for payroll purposes. These additions may be reported to the payroll service before year end.
Passed by Congress earlier this month and signed into law on 10/22/04 by President Bush, the American Jobs Creation Act of 2004 provides tax relief to manufacturers, small businesses and S corporations, among others. But it also contains many provisions that will increase tax liability for both businesses and individuals. While analysts are still determining exactly what impact they will have, here's a brief look at the provisions most likely to affect you.
As of July 1, 2004 the Massachusetts Business Corporation Act will be in effect. Effective July 1, 2004 every Massachusetts corporation including non-profit and professional corporations has to provide the Secretary of the Commonwealth of Massachusetts the name and address of a resident agent even if the corporation has an office in Massachusetts.
The Massachusetts Department of Revenue has rolled out an online program that enables taxpayers to obtain, in as little as three days, a Certificate of Good Standing indicating they owe no Massachusetts taxes. The new program should be invaluable for those with pending sales, refinancing, or other business reasons that necessitate quick proof that the taxpayer owes no taxes.
Also called the Circuit Breaker Credit, certain senior Massachusetts residents (age 65 or older) can claim a refundable credit for the real estate taxes paid during the tax year on their Massachusetts income tax return. This credit applies only to the residential property owned or rented and used as a principal residence.
In order to claim the deduction for incidental expenses, the employee must establish when, where and why he or she was away from home. An individual can choose to keep track of actual incidental expenses and deduct the actual amount spent. On the other hand, he or she may use an optional method, which allows a set amount per day and no receipts are required to be kept. Per Diem rates have changed effective October 1, 2004.
Keep abreast of changes to sales and use tax such as: drop shipment provisions, renewal period for charitable certificate of exemption, goods purchased out of state and significantly altered and brought in state, use tax reporting options.
Congress on Sept. 23 passed the Working Families Tax Relief Act of 2004. The act extends the life of several tax breaks for individuals and businesses created by earlier legislation but that expired or were scheduled to expire at the end of the year. The following link will provide you with a summary of the main provisions of the new tax law. The extensions of AMT relief may have the biggest impact on your tax liability.
Governor Mitt Romney recently signed a lengthy tax law that amends Massachusetts corporate excise (income) tax, personal income tax, sales and use tax, property tax, and other tax provisions to close tax loopholes and improve tax administration and collection. The following link will discuss the highlights of the law.
Massachusetts Governor Mitt Romney has signed a supplemental budget bill that contains corporate excise (income) tax, personal income tax, and property tax changes.
VERY IMPORTANT REMINDER: The 50% bonus depreciation provisions will expire for most assets that are purchased after December 31, 2004! Therefore, if you are considering to make a capital expenditure within the next 6-12 months, you should consider purchasing it (and placing it into service) prior to January 1, 2005.
An entity can qualify for sales tax exemption when purchasing tangible personal property or services are used in the conduct of such religious, charitable, educational or scientific enterprise. Tax exempt certificates are now good for 10 years.
We wanted to inform you of a new simplified method of covering your employee's out of pocket medical expenses (such as co-payments, prescription and non-prescription drug costs, etc.) by using what is referred to as a" Health Reimbursement Arrangement" (HRA).
All US employers need to comply with new wage rules established by the Department of Labor earlier this year. You are affected if you fall into one of the three following categories: employ people who make more than $100,000 annually, employ people who make less than $23,600 annually, or if you employ people who are registered workers of the US government.
A recently enacted administrative provision authorizes the Commissioner of Revenue to make job incentive payments to qualifying biotechnology and medical device manufacturing companies. This is a direct payment to a qualifying company that increases its level of Massachusetts's employment by at least 10 full-time equivalent jobs (in both overall jobs and biotechnology jobs) over the previous calendar year.
The Massachusetts Department of Revenue (DOR) rolled out a new Certificate of Good Standing Web application this week. Taxpayers and their authorized representatives can use this interactive program to apply for and obtain a Certificate of Good Standing in as little as 3 days.
On July 15, 2004, Governor Romney signed the legislation and the law will become effective on October 13, 2004. This will effect those charities with fiscal years ending after 10/13/04.
The much publicized examples of fiduciary failures by charity and foundation board members concerning abusive executive compensation and benefit packages resulted in the cry for more accountability by Congress. This, in turn, has fueled greater scrutiny by the IRS and much more dire consequences of inaccurate reporting.
A recently enacted statute provides for a Massachusetts "Sales Tax Holiday" on August 14, 2004. All non-business sales at retail of single items of tangible personal property costing $2,500 or less are exempt from sales and use taxes. When a retailer sells an item(s) and the total transaction is $1,000 or more, a retailer must document the transaction by obtaining and keeping a Massachusetts Sales Tax Holiday Purchaser’s Certification of Non-Business Use, signed by the purchaser of the exempt items(s). The following memo will provide you with further information on the Sales Tax Holiday.
Thanks to taxpayer-friendly legislation enacted during the last few years, the current tax environment is probably about as good as it’s going to get. While the end of 2004 still seems far over the horizon right now, it’s a good idea to begin planning sooner rather than later in order to reduce your taxes for this year and beyond. With that thought in mind, read on for a few strategies to consider.
The House approved the American Jobs Creation Bill of 2004 (HR 4520), which would repeal the IRC's foreign sales corporation/extraterritorial income tax (FSC/ETI) regime to comply with a European Union (EU) complaint that it illegally subsidizes exports. The Bill also contains several encouraging tax breaks for businesses.
Effective September 1, 2004, the Tax Commissioner will not assess sales tax on separately stated transportation charges provided that certain requirements are met. The following memo will discuss the criteria and provide you with several examples.
All Exempt Organizations (EO), can engage is some lobbying, or attempts to influence legislation. The extent of the allowed involvement differs for each category of EO. Effective lobbying provisions were expected to eliminate confusion about the consequence, the areas have been in flux and few organizations have made the election.
Many of us tend to change the subject or say I can do it later when the subject of planning one's estate arises. Estate Planning can be a very complex undertaking. One relatively painless and straightforward estate planning technique that should be considered annually is making gifts.
As of July 1, 2004 the Massachusetts Business Corporation Act will be in effect. This new Act was enacted by the Massachusetts legislature. Effective July 1, 2004 every Massachusetts corporation including non-profit and professional corporations has to provide the Secretary of the Commonwealth of Massachusetts the name and address of a resident agent even if the corporation has an office in Massachusetts.
The Housing and Urban Development (HUD) has enacted a community Renewal and New Market Initiative that provides tax-incentive packages to businesses that operate, open, expand or hire residents of designated areas. There are five communities in Massachusetts and New Hampshire that qualify: Boston, Lowell, Lawrence, Springfield and Manchester, NH, the following memo will discuss the varying tax credits available.
The Internal Revenue Service's (IRS) has announced nationwide implementation of the FAD-EFTPS penalty refund offer. This offer allows paper coupon users who were assessed a Form 941 deposit penalty the opportunity to receive a one-time penalty refund. The following memo will help you determine if you qualify.
Hiring a child or another family member in a family business can save taxes for both the business and for the family as a whole. The business saves taxes because it can deduct the compensation paid as a business expense, just as it could if the services were performed by an unrelated party. The family saves taxes because the income can be spread over more taxpayers.
Life insurance is usually purchased to accomplish several major objectives. The main reason people purchase insurance is to create an estate that will provide enough cash for their families to sustain an accustomed standard of living should the insured die unexpectedly. Secondly, wealthy people buy insurance to provide a fund to satisfy their estates' need for liquidity. Less commonly, people may buy life insurance to establish a wealth replacement fund to replace property transferred to a charitable remainder trust.
In 2004, Massachusetts adjusted their unemployment rates upward to compensate for the depletion of the Unemployment Fund over the past couple of years. Many employers have experienced dramatic increases that have amounted to over a 300% increase. The following will discuss the actual calculation allowing you to have an understanding of how to control your rate.
A tax credit for rehabilitating certain historic structures has been available at the federal level for a number of years. Now, such a credit is available at the state level. Specifically, Massachusetts allows for a tax credit in connection with rehabilitating certain historic structures for the five-year period beginning January 1, 2005 and ending December 31, 2009. There is an annual limitation of $10 million as to the credits that will be authorized. The following is a brief discussion of certain provisions contained in recently issued regulations.
A recent Massachusetts Supreme Judicial Court (SJC) ruling has put into question the tax rate at which capital gains should have been taxed by the Commonwealth in 2002. In its April 6, 2004 ruling in the Petersen case, the SJC found that the 2002 mid-year increase in the individual income tax rate for long-term capital gains was unconstitutional.
A donor advised fund can allow you to make donations in a way that will provide you with greater simplicity and flexibility in making charitable contributions. These funds allow you to contribute cash and various securities (including restricted stock), with the fund taking care of the transfer and record keeping for these securities in one location. Securities held for more than one year and contributed to the fund are deducted at their fair market value on the date of transfer, and no capital gains tax is imposed on the long-term appreciation of the securities.
The U.S. Department of the Treasury and the Internal Revenue Service today warned taxpayers of an e-mail-based scheme that attempts to trick taxpayers into revealing personal information such as social security numbers, driver's license information and bank and credit card numbers.
The luxury auto cap figures for 2004 are slightly lower than they were in 2003. The following memo breaks down the 2004 dollar caps over four separate deductions.
The Massachusetts Department of Revenue recently provided final guidance in connection with unwinding corporate structures designed to avoid entity level income taxes imposed on certain S corporations. This tax, otherwise known as the sting tax, is imposed on S corporations and their Qualified Subchapter S Subsidiaries ("Q Subs").
Beginning in 2003, new IRS regulations govern the distributions from individual retirement accounts (IRA's). Generally the rules are less confusing and provide for longer payout periods of required minimum distributions as a result of longer life expectancies.
Parents typically encourage their children to save for college, for a house or simply for a rainy day. Saving for a child’s retirement, however, is a much less common goal. Too many other expenses are at the forefront. Yet, helping to plan for a young person’s retirement is a move that many astute families are making.
Sorting out the tax implications of moving expenses can often rival unpacking as a point of confusion. One difficulty is separating personal, nonmoving expenditures from deductible moving expenses; another is figuring out what portion of any reimbursement of moving expenses from an employer is taxable; and still another is trying to separate the "old" rules from current law in place only relatively recently - since 1997.
The 1997 Taxpayer Relief Act permits most homeowners to exclude up to $250,000 of the gain realized on the sale of a principal residence (couples may exclude up to $500,000). Unfortunately, this is not a benefit to everyone since, under the new law, homeowners can no longer use the technique of purchasing a new residence at least equal in value to their old home.
Not too long ago, the IRS reclassified a number of the software giant’s independent contractors as employees, costing Microsoft millions in penalties as well as back employment taxes and benefits. This case shed a chilling light on the once-seemingly harmless practice of hiring independent contractors to cut employment costs. Here’s a closer look at how to keep your company safe from the dangers of misclassification of workers.
The biggest reason why you might consider opening a one-person 401k plan is that it may offer higher contribution limits than other retirement plans available for small businesses.
This is the time of year when employees revisit their withholdings and ask to revise their W-4 allowances. Are your employees in compliance with their changes?
The federal government has implemented a program to aid low income workers to speed up the process of receiving their earned income credits as opposed to receiving them after filing EIC on their tax return. The process for employees to follow is to have them fill out IRS Form W-5.
Over the past few years policyholders of insurance contracts underwritten by mutual insurance companies have received shares in these companies as a result of the "demutualization" of the companies. What has occurred from a tax standpoint is that these policyholders have exchanged their membership interests in the mutual company for the stock, taxpayers may wish to consider contributing the shares to a charitable organization.
Residents of assisted living communities should use the percentage method to calculate the portion of a retirement community fee allocable to medical expenses. It is the easiest way to determine the portion of the monthly service fees allocable to medical care.
To inquire about the status of your personal tax refund from the IRS and the Massachusetts Department of Revenue we have provided you with the information that is required of you and the web site resources.
The major reason for E-file returns being rejected is that your contact information on the return (based on your social security number) does not match the information recorded with the Social Security Administration (SSA). This article will tell you the steps to take to correct this situation.
The federal government increased the child tax credit from $600 to $1,000 per child (maximum 3 children). In most cases, this $400 increase was sent to taxpayers this summer and fall. You will need to know what was sent to you to prepare your 2003 federal income tax returns.
Federal tax law allows individuals to claim a deduction of $2,000 for the incremental cost of buying a motor vehicle that is propelled by a clean-burning fuel (i.e., hybrid vehicles).
Recently, the United States Court of Federal Claims issued its opinion in CSX Corp. case regarding Federal Insurance Contribution Act (FICA) and unemployment tax. It held that payments a company makes to involuntary terminated employees under a reduction-in-force plan are supplemental unemployment compensation benefits and thus not "wages" for purposes of Social Security, Medicare and unemployment taxes.
The IRS encourages everyone to get a head start on tax preparation. This will help you not only to avoid a last minute rush, but also to receive a faster refund.
The amount that can be passed to one’s heirs is increasing from $1,000,000 to $1,500,000. This means that, between them, a husband and wife with a properly constructed estate plan can pass $3,000,000 to their loved ones free of federal estate tax.
The new per diem rates allow a little more cash to cover those away-from-home costs. Plus, electronic receipts can smooth out the paperwork needed to account for reimbursable business expenditures.
Even if you move to another state, any income that originated from Massachusetts employment or business in prior years will be subject to tax in Massachusetts.
The major decision is whether to retain the existing structure, change to an alternative structure or unwind structural changes made since 1999.
There is an important change to the tax rules that could significantly lower your out-of-pocket costs for health care.
The IRS has updated the optional standard mileage rates for use by employees, self-employed individuals or other taxpayers in computing the deductible costs of operating an automobile for business, charitable, medical or moving expense purposes.
Massachusetts residents/businesses dealing with a non resident contractor are required to obtain a certificate of compliance.
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2003
The taxpayers who took advantage of this year's low interest rates to refinance their mortgages may be eligible to deduct some costs associated with their loans.
Procedures have been established to issue refunds for New Hampshire interest and dividends tax that was illegally collected on interest from out-of-state bank deposits and dividends from stock in out-of-state stock banks during the period 1991 through 1994.
This is the season when we're often asked to buy tickets for charity events. If you attend, what sort of tax write-off can you take? And what happens if you can't attend but buy a ticket anyway? See how the tax deduction works.
The adjusted items include the standard deduction amounts, the personal exemption amounts, the adoption credit, the Hope and Lifetime Learning Credits, the low-income housing credit, the earned income credit, as well as other miscellaneous items.
Under a municipal tax amnesty program, a city or town would waive its right to collect penalties, fees, charges, and accrued interest on a subject liability if the taxpayer voluntarily pays the full amount of the subject liability during the amnesty period.
The IRS has just come out with guidance as to how they will value donated cars. In general, the IRS recognizes that the fair market value is the price at which a property would change hands between a willing buyer and a willing seller, neither being under the compulsion to buy or sell.
A recent change in the IRS position as to what is considered medical expenses for particular medical plans will be beneficial for most of you.
The IRS is now sending out request for documentation backing this in order to pursue taking action against the bank that had destroyed the checks.
December is the month for businesses to determine their employees’ additional income for payroll purposes.
A Senate Finance Committee proposal includes a provision to reduce the limit for large SUV's to $25,000 and increase the weight limit to 14,000 pounds.
A boat or recreational vehicle can qualify for some of the tax breaks associated with a second home. Specifically, interest you pay on a loan to purchase a boat or RV could be deductible as mortgage interest.
In order to expedite processing of tax forms, the Commonwealth has made it mandatory for certain taxpayers to file and pay taxes electronically.
The IRS recently issued its final regulations on split dollar life insurance plans. The rules are complicated and dictate that all plans be reviewed to allow time to decide how to proceed given the new methods promulgated to tax these plan benefits.
The IRS recently released the optional standard mileage rates for 2004 for employees, self-employed individuals, or other taxpayers to use in computing the deductible costs of operating an automobile for business, charitable, medical, or moving expense purposes and expanded the business standard rate option so that more businesses may now be eligible to use the standard mileage rate.
With hard economic times, many states are reexamining their potential sources of revenue. One source is out of state businesses that may be conducting business in their state without paying taxes.
Response 401(k) letter explaining the significant, albeit subtle, modification to Form 5500.
Congress narrowly passed the third significant tax bill of the Bush presidency, which is nothing but good news for taxpayers (especially married couples with children under age 17, investors, high-income individuals, and small business owners).
Employers are exposed to significant penalties if they fail to deposit participant contributions to a pension plan as soon as practical after such amounts have been withheld from wages.
The supplemental budget legislation that was recently introduced would affect various Massachusetts corporate excise (income) tax provisions, closing what has been characterized as "loopholes."
President Bush unveiled his latest economic stimulus plan on January 7, 2003, which contains more than $670 billion in tax cuts for individuals and businesses over a 10-year period.
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2002
Year-end tax planning ideas that cover various federal tax changes affecting 2002 returns and tax planning.
Summary of the Massachusetts Tax Law legislation enacted on July, 25, 2002. Also passed was the Amnesty tax program.
Effective July 1, 2002, the maximum amount of a carryforward of net operating loss (NOL) deduction allowed against New Hampshire business profits (income) tax is increased from $250,00 to $1 million.
As most of you know, the extraterritorial income exclusion regime generally allows taxpayers to in essence reduce the net income on foreign sales by 5 to 10 percentage points. The countries that make up the European Union (EU) have claimed that this extraterritorial income regime is nothing more than an export subsidy and in violation of World Trade Organization (WTO) agreements.
The Massachusetts House of Representatives has passed, by a wide margin, a tax package that contains Massachusetts personal income tax provisions. The senate has passed a similar bill, a the new law is forthcoming effective 2002, please note that the long term capital gains tax rate could be increased from 0 to 5.3% effective 11/1/02.
The Job Creation and Worker Assistance Act of 2002, makes several changes to depreciation rules and net operating loss carry-back. Amended returns can be filed to generate potential tax refunds.
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