TAX UPDATE - ENERGY CREDITS

Some Energy Credits still available:
Special Edition Tax Tip 2011-08, November 21, 2011

The IRS reminds homeowners that they still have time this year to make energy-saving and green-energy home improvements and qualify for either of two home energy credits.

The Nonbusiness Energy Property Credit is aimed at homeowners installing energy efficient improvements such as insulation, new windows and furnaces. The credit is more limited than in the past years, but can still provide substantial tax savings.

• The 2011 credit rate is 10 percent of the cost of qualified energy efficiency improvements. Energy efficiency improvements include adding insulation, energy-efficient exterior windows and doors and certain roofs. The cost of installing these items does not count.
  
  
• The credit can also be claimed for the cost of residential energy property, including labor costs for installation. Residential energy property includes certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass fuel.
  
  
• The credit has a lifetime limit of $500, of which only $200 may be used for windows. If the total of nonbusiness energy property credits taken in prior years since 2005 is more than $500, the credit may not be claimed in 2011.
  
  
• Qualifying improvements must be placed into service to the taxpayer’s principal residence located in the United States before January 1, 2012.

IRS Delays More Forms for Filing This Season

WASHINGTON, D.C. (JANUARY 10, 2011)


BY MICHAEL COHN

The Internal Revenue Service said a series of forms will be disabled until mid- to late February with error codes.

In an e-mail alert to software developers, tax return transmitters, and authorized IRS e-file providers and electronic return originators, the IRS said Friday that the following forms would be disabled until mid- to late February with a new error reject code, 0248.

The following forms cannot be electronically filed at this time, according to the IRS:

Schedule A, Itemized Deductions

Form 3800, General Business Credit

Form 4684, Casualties and Thefts

Form 5405, First-Time Homebuyer Credit and Repayment of the Credit (Page 2)

Form 6478, Alcohol and Cellulosic Biofuel Fuels Credit

Form 8834, Qualified Plug-in Electric and Electric Vehicle Credit

Form 8859, District of Columbia First-Time Homebuyer Credit

Form 8910, Alternative Motor Vehicle Credit

Form 8917, Tuition and Fees Deduction

Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit

In addition, Error Reject Code 0014 does not allow entries for educator expenses (Form 1040, line 23 and Form 1040A, line 16) or tuition and fees (Form 1040, line 34 and Form 1040A, line 19). In mid- to late February, the record layout for Form 1040 and Form 1040A will be updated to allow entries for educator expenses (SEQ 0623) and tuition and fees deduction (SEQ 0705), according to the IRS.

The IRS said last month after the late passage by Congress of an extension of the Bush-era tax cuts that some of these same forms, especially Schedule A for itemized deductions and other forms for educators and tuition expenses, would not be available until mid- to late February, but it did not list many of the other forms enumerated on Friday at the time (see IRS Says Tax Season Will Be Delayed for Some).

Separately, the IRS also announced a delay in its Modernized e-File system for accepting some types of business tax returns. The IRS said that due to the extensive amount of infrastructure work being done on the MeF system to enhance performance, and the impact of additional work in support of the recently passed extender legislation, the annual Business Master File cutover window has been extended, and BMF startup has been delayed. Instead of opening at 9:00 am, Eastern on Saturday, January 8th, the MeF system will open for BMF returns and extensions at 9:00 am, Eastern on Wednesday, January 12.

Once BMF startup begins, and until changes caused by extender legislation are implemented, the IRS said it would reject any BMF e-filed tax returns that have the following forms or schedules attached: Form 1120-PC (Tax Year 2010), Form 6478 (Tax Year 2010) and Form 8849, Schedule 3 (Tax Year 2011). The IRS said it is working as quickly as possible to implement the necessary programming changes so these forms/returns can be processed.

The IRS noted that the due date for any tax return or extension originally due on January 15th has been extended to Tuesday, January 18th due to the 15th falling on a Saturday and the Martin Luther King Day holiday on Monday

House Passes Extension of Bush Tax Cuts and Unemployment Benefits

WASHINGTON, D.C. (DECEMBER 17, 2010)


BY MICHAEL COHN

The House approved an $858 billion extension of the Bush-era tax rates and unemployment benefits late Thursday night, a day after the Senate approved the bill, sending the bill to President Obama’s desk.

After procedural hurdles held up the vote for much of the day on Thursday, the House reconvened in the evening to settle the terms of the debate. Amid widespread dissatisfaction among House Democrats over the terms of the deal struck by President Obama and Republican congressional leaders, especially on setting the estate tax at a rate of 35 percent for estates over $5 million, they agreed to first hold a vote on an amendment by Rep. Earl Pomeroy, D-N.D., which would set the estate tax rate at 45 percent for inheritances over $3.5 million. That amendment was defeated by a vote of 233 to 194.

The bill includes a two-year extension of the Bush-era income tax rates, including those for dividends and capital gains. It also extends emergency unemployment insurance for another 13 months. The bill would also lower Social Security payroll taxes by 2 percentage points from 6.2 percent to 4.2 percent for a year. Several lawmakers, however, criticized that provision, saying it would weaken the Social Security trust fund and not be open to government employees.

The bill would also extend the Child Tax Credit, the Earned Income Tax Credit, and the American Opportunity Tax Credit for college tuition. It would also allow businesses to deduct 100 percent of investments in plant and equipment in the first year, and extend for two years the state and local sales tax deduction. In addition the bill would “patch” the AMT, extending Alternative Minimum Tax relief for two years to prevent the AMT from ensnaring millions more taxpayers. The bill also includes extensions of the Research and Experimentation Credit for businesses.

It also would extend a variety of popular tax breaks, including the ability of schoolteachers to expense purchases of school supplies. The bill also includes energy tax breaks for biodiesel fuel, ethanol and renewable energy sources.

Your Paycheck May be Shrinking! from CNN

NEW YORK (CNNMoney.com) -- Are you ready to give up $30 a month?

     That's what may come out of your paycheck if -- as expected -- the Making Work Pay tax credit expires at the end of the year.
     The credit was enacted last year as part of the Recovery Act to put more cash in people's pockets. For the past two years, it has boosted paychecks by up to $400 for single filers and $800 for joint filers by reducing the tax withheld and giving a credit for that amount. That's $33 or $67 a month
     Taxpayers who make $75,000 or less are eligible for the full credit, while higher earners can receive partial credit. More than 90% of working Americans have been helped by the tax break.
     Now they will feel the pain when the credit goes away.
     A Senate Finance Committee aide said panel chairman Max Baucus, a Montana Democrat, is working on a proposal to extend a number of expiring tax breaks when Congress returns next week.
     Obama proposed an extension months ago, but it's unclear if the administration will fight for it now.
     Tax cut stew for Christmas
     And with only weeks remaining in the lame-duck Congress, the credit is likely on its way out, said Clint Stretch, managing principal of tax policy at Deloitte Tax.
     "I haven't seen any serious effort to extend Making Work Pay," Stretch said. "For this to get passed, somebody in Congress would have to be saying this is a priority, and we just haven't seen that happening."
     Instead, most of the buzz is about the Bush tax cuts, which are also slated to expire at the end of the year.
     Republicans are fighting to extend the Bush cuts for everyone -- including higher income Americans. But Obama, who has promised not to raise taxes on the middle class, is pushing to preserve the cuts only for family income up to $250,000.
     "The most curious aspect of the tax debate is the obsession with taxes at the high end," said Chuck Marr, director of federal tax policy at the left-leaning Center on Budget and Policy Priorities. "But when almost every middle and lower class American is going to face higher taxes, nobody's talking about it."
     The big issue with keeping Making Work Pay around is its cost -- about $60 billion to extend it one year.
     "Stimulus is a bad word now, so anything labeled stimulus will not get traction," said Roberton Williams, a senior fellow at the Tax Policy Center.
     But if the extension isn't passed, the 110 million families that received higher paychecks in 2009 and 2010 will owe more taxes than they did during those two years.
     "Most people may have no idea they received it and no idea that it's going away," said Marr. "But what you can be certain of is that they'll have less money and they'll spend less -- and this is a terrible time for the economy to lose $60 billion of spending."

What's between Black Friday and Cyber Monday? AmEx promotes 'Small Business Saturday'

KAREN MATTHEWS Associated Press


NEW YORK (AP) — Hoping to drum up support for independent merchants, American Express' CEO said Monday that his company will promote "Small Business Saturday" on the weekend after Thanksgiving.
"This is the start of a movement," said Kenneth Chenault, who joined New York City Mayor Michael Bloomberg at a City Hall news conference to announce the effort.
Chenault said that large retailers have Black Friday and online retailers have Cyber Monday, "and now, starting on Nov. 27 of this year, small business owners will have Small Business Saturday."
Chenault said the first 10,000 small business owners who sign up to participate will get $100 worth of Facebook advertising. American Express will give a $25 credit to 100,000 of its cardholders who pledge to use their cards at independent businesses on Nov. 27.
Bloomberg said small businesses "are the backbone of our economy and the glue that holds communities together."
American Express will spread the word about Small Business Saturday on Facebook and Twitter, Chenault said.
Black Friday, the day after Thanksgiving, is the unofficial start of the holiday shopping season. The following Monday has in recent years been promoted as Cyber Monday for Internet shopping.
Chenault said Cyber Monday did not catch on immediately and Small Business Friday may not succeed overnight.
"This is not a flash in the pan," he said. "We are committed to this effort for years to come."

Good News for W2 Preparers

The IRS announced Tuesday that it will defer the new requirement for employers to report the cost of coverage under an employer-sponsored group health plan, making that reporting by employers optional in 2011.


The draft Form W-2 includes the codes that employers may use to report the cost of coverage under an employer-sponsored group health plan. The Treasury Department and the IRS have determined that this relief is necessary to provide employers the time they need to make changes to their payroll systems or procedures in preparation for compliance with the new reporting requirement. The IRS will be publishing guidance on the new requirement later this year.

Although reporting the cost of coverage will be optional with respect to 2011, the IRS said it continues to stress that the amounts reportable are not taxable. Included in the Affordable Care Act passed by Congress in March, the new reporting requirement is intended to be informational only, and to provide employees with greater transparency into overall health care costs.

How to Raise a Business Owner

By BARBARA TAYLOR

On Labor Day weekend my husband and I – the only small-business owners at a gathering of family and friends – were asked repeatedly how our business was doing. We were honest and said that it’s a very difficult environment for small business right now and that we feel fortunate to be hanging in there.


One nameless relation stopped clearing the dishes and piped up with the following statement: “If it doesn’t work out, you two can just go out and get jobs like the rest of us.”

There’s one in every crowd, isn’t there?

Yet another relative at a different holiday gathering said more or less the opposite: “At least you guys are out there trying to do something, rather than expecting someone to hand you a paycheck every two weeks.”

As a small-business owner, I’ve become accustomed to encountering both points of view. But it made me wonder how I instill the latter mindset – that you can make your own way in the world and don’t necessarily need to rely on someone else to provide you with an income – in my own children.

People love to argue about whether entrepreneurs are born or made, with many feeling that success in small business is somehow genetic. My husband has five siblings. An entrepreneur raised all six kids, yet only one became a small-business owner. I had no exposure to business growing up, yet here I am on my second venture. Rather than calling it genetics, I think it has more to do with children of entrepreneurs being the beneficiaries of an early education in business.

My 6-year-old is starting to figure out how the world works, and where we all fit in. He knows that his mom and dad run a business together, but I can see that it doesn’t always add up in his mind. Other parents have jobs. They work for somebody, or sometimes one parent works and the other stays home. He doesn’t meet many kids with parents like his. I guess we’re not the norm, which is something children pick up on at a young age.

As my children get older and begin their elementary school education, I keep an eye out for where business literacy emerges as part of the curriculum. So far, I don’t see much, although the basics of personal finance – bills and coinage, and how to count them – begins in kindergarten.

In fact, I’m not sure that we have a real grooming system for raising entrepreneurs and business owners in this country. The ethos is built into our culture – you can do anything with hard work – but it seems business education doesn’t begin in earnest until you choose a major in college. The “land of opportunity” and the “American dream” are synonymous with the entrepreneurial spirit. Yet if you were to stop people on the street and ask them how to start a business, I’ll bet the common response would be something like a) get a friend or relative to loan you some money, and b) try it, see what happens and hope for the best. It’s no wonder that entrepreneurs are perceived as risk-takers and failure rates for start-ups are so dismal.

Certainly a business degree is no guarantee of success. Which brings me back to early education at home. Here are a few qualities that I try to instill in my kids – for success in both life and entrepreneurship:

1. Ability to solve problems creatively.

2. Desire to learn and expand knowledge.

3. Ability to analyze a situation and make good decisions.

4. Self-motivation and belief in your own abilities.

5. Persistence, tenacity and resilience.

I’m always listening for potential opportunities to illustrate general business principles and create awareness of the business behind everyday things. For example, we drove by a construction site the other day. My youngest pointed out the window at an excavator and said, “I want to drive one of those some day.”

“Maybe some day you’ll own a business that helps people build things,” I replied. There was silence in the back seat. I figured what I said either made no sense whatsoever, or perhaps got him thinking about the world in a different way – if only for a moment.

Barbara Taylor is co-owner of a business brokerage, Synergy Business Services, in Bentonville, Ark.