Tax Law Changes for 2011 Federal Tax Returns

Hate to say it . . . but taxes are a necessary evil this time of year.  So,when this info arrived in our inbox this morning we felt it only appropriate that we should share it with all of you.  Sorry!  Also thought it was a great opportunity to share this cartoon that Fred Kraft found years ago.  Just seems to convey our deep appreciation for our tax system and reminds Peggy how much she doesn't miss her tax practice. 

Before you file your 2011 federal income tax return in 2012, you should be aware of a few important tax changes that took effect in 2011. Check http://www.irs.gov/ before you file for updates on any new legislation that may affect your tax return.

Due date of return. File your federal tax return by April 17, 2012. The due date is April 17, instead of April 15, because April 15 is a Sunday and April 16 is the Emancipation Day holiday in the District of Columbia.

New forms. In most cases, you must report your capital gains and losses on the new Form 8949, Sales and Other Dispositions of Capital Assets. Then, you report certain totals from that form on Schedule D (Form 1040). If you had foreign financial assets in 2011, you may have to file the new Form 8938, Statement of Foreign Financial Assets, with your return.

Standard mileage rates. The 2011 rates for mileage are different for January 1 through June 30 than for July 1 through December 31. For business use of your car, you can deduct 51 cents a mile for miles driven the first half of the year and 55 ½ cents for the second half. Medical and moving mileage are both 19 cents per mile for the early half of the year and 23 ½ cents in the latter half.

Standard deduction and exemptions increased.
The standard deduction increased for some taxpayers who do not itemize deductions on IRS Schedule A (Form 1040). The amount depends on your filing status.

The amount you can deduct for each exemption has increased $50 to $3,700 for 2011.

Self-employed health insurance deduction. This deduction is no longer allowed on Schedule SE (Form 1040), but you can still take it on Form 1040, line 29.

Alternative minimum tax (AMT) exemption amount increased. The AMT exemption amount has increased to $48,450 ($74,450 if married filing jointly or a qualifying widow(er); $37,225 if married filing separately).

Health savings accounts (HSAs) and Archer MSAs. The additional tax on distributions from HSAs and Archer MSAs not used for qualified medical expenses increased to 20 percent. Beginning in 2011, only prescribed drugs or insulin are qualified medical expenses.

Roth IRAs. If you converted or rolled over an amount from a traditional IRA to a Roth IRA or designated Roth in 2010 and did not elect to report the taxable amount on your 2010 return, you generally must report half of it on your 2011 return and the rest on your 2012 return.

Alternative motor vehicle credit. You can claim the alternative motor vehicle credit for a 2011 purchase only if the vehicle is a new fuel cell motor vehicle.

First-time homebuyer credit. The credit expired for most taxpayers for 2011. Some military personnel and members of the intelligence community can still claim the credit in 2011 for qualified purchases.

Health coverage tax credit. Recent legislation changed the amount of this credit, which pays qualified health insurance premiums for eligible individuals and their families. Participants who received the 65 percent tax credit in any month from March to December 2011 may claim an additional 7.5 percent retroactive credit when they file their 2011 tax return.

Mailing a return. The IRS changed the filing location for several areas. If you're mailing a paper return, see the Form 1040 instructions for the correct address.
Detailed information on these changes can be found on the IRS website – http://www.irs.gov/.

Links:

Fact Sheet 2012-01 2011 Changes Offer Tax Benefits to Almost Everyone

Form 1040 instructions (PDF 941K)

1040 Central

Form 8949, Sales and Other Dispositions of Capital Assets

IRS Announces 2012 Standard Mileage Rates

IR-2011-116, Dec. 9, 2011
WASHINGTON — The Internal Revenue Service today issued the 2012 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2012, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

55.5 cents per mile for business miles driven

23 cents per mile driven for medical or moving purposes

14 cents per mile driven in service of charitable organizations

The rate for business miles driven is unchanged from the mid-year adjustment that became effective on July 1, 2011. The medical and moving rate has been reduced by 0.5 cents per mile.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical or charitable expense are in Rev. Proc. 2010-51.

Notice 2012-01 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

Related Item: IR-2011-104, In 2012, Many Tax Benefits Increase Due to Inflation Adjustments

New IRS Mileage Rates for July through December = 55.5 cents per mile

IRS Increases Mileage Rate to 55.5 Cents per Mile

IR-2011-69, June 23, 2011

WASHINGTON — The Internal Revenue Service today announced an increase in the optional standard mileage rates for the final six months of 2011. Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business and other purposes.


The rate will increase to 55.5 cents a mile for all business miles driven from July 1, 2011, through Dec. 31, 2011. This is an increase of 4.5 cents from the 51 cent rate in effect for the first six months of 2011, as set forth in Revenue Procedure 2010-51.


In recognition of recent gasoline price increases, the IRS made this special adjustment for the final months of 2011. The IRS normally updates the mileage rates once a year in the fall for the next calendar year.


"This year's increased gas prices are having a major impact on individual Americans. The IRS is adjusting the standard mileage rates to better reflect the recent increase in gas prices," said IRS Commissioner Doug Shulman. "We are taking this step so the reimbursement rate will be fair to taxpayers."


While gasoline is a significant factor in the mileage figure, other items enter into the calculation of mileage rates, such as depreciation and insurance and other fixed and variable costs.


The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.


The new six-month rate for computing deductible medical or moving expenses will also increase by 4.5 cents to 23.5 cents a mile, up from 19 cents for the first six months of 2011. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.


The new rates are contained in Announcement 2011-40 on the optional standard mileage rates.


Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

Here is the link for the changes per type over the last several years.

http://www.irs.gov/taxpros/article/0,,id=156624,00.html

It's definitely time to start thinking taxes.  So, take this info and start planning for year end issues.  Tax time will be here before we know it.

Oops . . . made a mistake on last entry

In the prior blog entry there is reference to the most recent tax law regarding bonus depreciation.  It was stated that the 50% bonus depreciation was extended through 2010.  That was an error . . . here is the corrected info:

A 100% writeoff in the placed-in-service year of the cost of property eligible for bonus depreciation under Code Sec. 168(k) . This will apply for property acquired and placed in service after Sept. 8, 2010, and before Jan. 1, 2012.

A 50% bonus first-year depreciation allowance under Code Sec. 168(k) for property placed in service after Dec. 31, 2011, and before Jan. 1, 2013.

So bottom line, Bonus Depreciation is going to be around through the end of 2012.  Now that is a planning opportunity.  And remember . . . there are no offset limitations to bonus depreciation . . . it can offset earned income, interest, dividends, pensions, rental income, capital gains . . . any kind of income.  The only stipulations . . . the assets must be NEW and placed in service by the end of the year to be eligible as a deduction for that year.  A new alpaca is a male or female of breeding age who has not yet produced a cria.
 
Sorry for the error . . . but what great news!

Expanded Tax Deductions + Great Sales Prices = Exceptional Year End Opportunity

Just the basics for this entry. The IRS has expanded the Section 179 Deduction available for 2010 and 2011 to $500,000 with a purchase ceiling of $2,000,000. They have also extended the 50% bonus depreciation through 2010. Both of those deductions make year end buying a great tax strategy.

When you couple those deductions with our year end sale, you have an opportunity to maximize your tax deductions while getting exceptional values. Select any alpaca on our sales list and get the second one for free (of equal or lesser value). For example, if you were to select Bella (list price $7,750) and Chloe ($6,750) you would get them both for $7,750.

So start pondering your tax situation and pick out the alpacas that will enhance and or diversify your breeding program.  Just make your decision by midnight on December 31st for it to apply to 2010. 

President scheduled to sign legislation to extend increased Section 179 limits through 2010

President Obama is scheduled to sign the Hiring Incentives to Restore Employment (HIRE) Act tomorrow.  It contains a variety of provisions to encourage employers to add employees to their payrolls and to invest in equipment.  The provision we are noting today relates to Section 179.

CODE SEC. 179 EXPENSING

For 2009, the maximum Code Sec.179 deduction was $250,000 and the phase-out limit for qualifying property purchased during the year began at $800,000. First introduced in 2008, enhanced Code Sec. 179 expensing expired on December 31, 2009. Without legislation, Code Sec. 179 expensing for 2010 is limited to $125,000, with a $500,000 cap (both adjusted for inflation). The HIRE Act extends enhanced Code Sec. 179 expensing, at the $250,000/$800,000 threshold levels, through December 31, 2010.

Unlike bonus depreciation, Code Sec. 179 expensing is available on both new and used property. Also unlike bonus depreciation, the $800,000 qualifying property ceiling for Code Sec. 179 property effectively limits expensing to small businesses. Finally, Code Sec. 179 is keyed to the business’s tax year rather than the 2010 calendar. The extension under the bill applies to purchases made in tax years beginning after December 31, 2009 and before January 1, 2011.

The HIRE Act does not extend bonus depreciation. 

2010 IRS Tax Calendar

What a concept . . . the 2010 IRS Tax Calendar has been released and is quite a handy tool.   It is not only a traditional calendar with the various tax deadlines we all need to follow but the online version also has links for what is new, forms and publications, helpful tips on what to do when you receive a notice as well as a list of resources for most tax related issues. 

Many times the IRS website can appear quite overwhelming; however, the calendar has links to get you to the same place without the daunting official appearance.  The hard copy version is free but is currently out of stock--so check back in a few weeks.  The online version is a great link to add to your favorites.  Here is the link:

http://www.tax.gov/calendar/

IRS Announces 2010 Standard Mileage Rates

The IRS has released the standard mileage rates for 2010.  There is a 5 cent reduction in the standard mileage rate for business purposes.  The full report as issued today appears below:

WASHINGTON — The Internal Revenue Service today issued the 2010 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.



Beginning on Jan. 1, 2010, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:


• 50 cents per mile for business miles driven


• 16.5 cents per mile driven for medical or moving purposes


• 14 cents per mile driven in service of charitable organizations

The new rates for business, medical and moving purposes are slightly lower than last year’s. The mileage rates for 2010 reflect generally lower transportation costs compared to a year ago.


The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study.


A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for any vehicle used for hire or for more than four vehicles used simultaneously.


Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.


Revenue Procedure 2009-54 contains additional details regarding the standard mileage rates.

Year End Tax and Business Plan Seminar

Mark your calendars for Saturday, December 5th as Peggy & Fred Kraft from Northwest Alpacas will be presenting their tax and business plan seminar just in time for year end tax planning.

Ideally, people who are considering purchasing their first alpacas will take this class before they spend their money. Most successful businesses start with a plan and we will help you create one for the alpaca business. But this is also a great class for anyone wanting an update on alpaca tax issues.

This class is being presented at Northwest Alpacas in Hillsboro, OR. There is a special year end rate of $25.00 so be sure to call or email Peggy or Fred directly to take advantage of this offer. Here is our contact info.

Peggy Stevens
Alpacas at Tucker Creek
peggy@alpacadigest.com
www.alpacadigest.com
877-915-0522 Toll Free

Fred Kraft
Northwest Alpacas
fred@alpacas.com
www.alpacas.com
877-788-3627

Look forward to seeing you on the 5th and feel free to send us any of your tax or business plan questions before or after the seminar

Section 179 and Other Items Adjusted for Inflation for 2010

Here is the announcement we have been waiting for--the limitations for Section 179 for 2010. For taxable years beginning in 2010, under §179(b)(1) the aggregate cost of any §179 property a taxpayer may elect to treat as an expense cannot exceed $134,000. Under §179(b)(2), the $134,000 limitation is reduced (but not below zero) by the amount by which the cost of §179 property placed in service during the 2010 taxable year exceeds $530,000. This is a huge reduction from the 2009 limitation of $250,000 on purchases not exceeding $800,000. Clearly 2009 is the year to make the bulk of your business asset purchases (and this certainly includes alpacas) especially when you consider that this year also has the 50% bonus depreciation deduction available on NEW asset purchases.

As shared in previous blog entries, this deduction is scheduled to be reduced again in 2011 to $25,000 on purchases not exceeding $200,000. So if you don't make your purchases in 2009 don't miss your opportunity in 2010.

The same publication also includes other deductions and limitations adjusted annually for inflation. Here is the link to the publication:

http://www.irs.gov/pub/irs-drop/rp-09-50.pdf

So start sharpening your pencils and figure out how these deductions can do you the most good while the limitations are at their maximum.

Employee vs. Independent Contractor – Ten Tips for Business Owners

Many times when we are looking for help around the farm we run into this nagging problem--is the worker an employee or an independent contractor? Here is a great summary just released by the IRS. If you know this info up front you can structure your working relationship in such a way that you will stay in compliance with the requirements of the IRS.

Released August 21, 2009
If you are a small business owner, whether you hire people as independent contractors or as employees will impact how much taxes you pay and the amount of taxes you withhold from their paychecks. Additionally, it will affect how much additional cost your business must bear, what documents and information they must provide to you, and what tax documents you must give to them. Here are the top ten things every business owner should know about hiring people as independent contractors versus hiring them as employees.

1. Three characteristics are used by the IRS to determine the relationship between businesses and workers: Behavioral Control, Financial Control, and the Type of Relationship.
2. Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.
3. Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker's job.
4. The Type of Relationship factor relates to how the workers and the business owner perceive their relationship.
5. If you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees.
6. If you can direct or control only the result of the work done -- and not the means and methods of accomplishing the result -- then your workers are probably independent contractors.
7. Employers who misclassify workers as independent contractors can end up with substantial tax bills. Additionally, they can face penalties for failing to pay employment taxes and for failing to file required tax forms.
8. Workers can avoid higher tax bills and lost benefits if they know their proper status.
9. Both employers and workers can ask the IRS to make a determination on whether a specific individual is an independent contractor or an employee by filing a Form SS-8 – Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding – with the IRS.
10. You can learn more about the critical determination of a worker’s status as an Independent Contractor or Employee at IRS.gov by selecting the Small Business link. Additional resources include IRS Publication 15-A, Employer's Supplemental Tax Guide, Publication 1779, Independent Contractor or Employee, and Publication 1976, Do You Qualify for Relief under Section 530? These publications and Form SS-8 are available on the IRS Web site or by calling the IRS at 800-829-3676 (800-TAX-FORM).

Links:
Contractor vs. Employee
Publication 1779
Publication 15-A

The American Recovery and Reinvestment Act of 2009

August is here; soon school will be back in session and before we know it the holidays will be upon us. This is just a reminder that during 2009 many new tax provisions were introduced. Follow this link to the IRS published summary of the provisions of the American Recovery and Reinvestment Act of 2009.

The ones which tend to have the greatest impact on us relate to net operating losses and depreciation related deductions. The new law allows any small business the opportunity to carry a net operating loss back for five years as opposed to the prior law of two years. Farming operations were already allowed a five year carryback--this is just a reminder to not forget this provision when you are considering your alternatives.

The tax planning opportunity here is that depending on your particicular situation any of the following could be to your benefit:

to take bonus depreciation in order to create a net operating loss which could be carried back;
to take a current year Section 179 and bonus depreciation deductions which could be carried forward to a year when you anticipate sufficient income;
any combination of the above which maximizes your tax benefits.

When you consider the limitations on this year's deductions you can easily see the impact they could have on your potential tax liability. The bonus depreciation is only available on NEW assets with a life of 20 years or less. It can be used this year to offset current year revenue; can be carried back five years to offset prior income or can be carried forward to future years. There is no limit on the amount of property which can qualify for this deduction. Section 179 is available on new or used property, is limited to $250,000; is reduced dollar for dollar if your eligible purchases exceed $800,000; can be used currently or can be carried forward--but is NOT eligible for carry back.

So start now to plan for your 2009 taxes. Consider the impact of buying new or used equipment or alpacas while the deductions are still available. Section 179 is scheduled to continue but next year it will be reduced to an amount probably in the range of $135,000 to $140,000 as it will be based on $125,000 adjusted for inflation from 2007. It is scheduled to be reduced to $25,000 in 2011. Currently there is no provision for the bonus depreciation deduction to continue beyond 2009. So you can see where these provisions alone make 2009 a great tax planning year.

Special Tax Break on New Car Purchases Available in States With No Sales Tax

Just released today from the IRS--this deduction is available for any and all taxpayers--you are not required to own a business to qualify--it is an itemized deduction:

WASHINGTON —The Internal Revenue Service and Treasury Department today announced that a tax break for the purchase of new motor vehicles is available in states that do not have a state sales tax. Under the American Recovery and Reinvestment Act of 2009, taxpayers who buy a new motor vehicle this year are entitled to deduct state or local sales or excise taxes paid on the purchase.

The IRS and Treasury have determined that purchases made in states without a sales tax – such as Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon – can also qualify for the deduction.

The IRS said today that taxpayers who purchase a new motor vehicle in states that do not have state sales taxes are entitled to deduct other fees or taxes imposed by the state or local government. The fees or taxes that qualify must be assessed on the purchase of the vehicle and must be based on the vehicle’s sales price or as a per unit fee. According to the IRS, Congress intended for these fees or taxes to qualify for this special tax deduction.

“This special tax break is available for people purchasing a new car this year, and that can include people in states without a sales tax,” said IRS Commissioner Doug Shulman. “This means that more people can take advantage of this deduction when they file their tax returns next year.”

To qualify for this deduction, the vehicle must be purchased after Feb. 16, 2009, and before Jan. 1, 2010. Taxpayers can claim this special deduction only on their 2009 tax returns to be filed next year.

The deduction is limited to the fees or taxes paid on up to $49,500 of the purchase price of a qualified new car, light truck, motor home or motorcycle.

The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.

The special deduction is available regardless of whether taxpayers itemize deductions on their returns. Taxpayers who do not itemize will add this additional amount to the standard deduction on their 2009 tax return. The IRS reminded taxpayers the deduction may not be taken on 2008 returns.

Willamette Alpaca Breeders Association

The Willamette Alpaca Breeders Association invited me to join them for their meeting on February 12th to discuss the current tax laws and the impact the economy has on the alpaca industry. As part of that invitation, Maren Anderson from Evergreen Terrace Farms interviewed me for their on-line series Paca Talk. The link to that interview is below.

http://www.pacatalk.com/2009/02/paca-talk-6-peggy-stevens-interview/

Between traveling and getting sick, this is the first chance I have had to share this interview with you. We would also like to thank Maren and WABA for their kind invitation.

More News from the IRS

The IRS has sent two more email blasts which contain items that are on point as all of us are feverishly trying to complete our 2008 tax returns. If you want to get a head start on preparing 2009 tax returns join us on April 13th at Northwest Alpacas for our Alpaca Taxes and Business Plan Seminar.

Issue Number: TT-2009-51

Inside This Issue

Seven Important Points about Penalties

Taxpayers who do not file their return and pay their tax by the due date may have to pay a penalty. Here are seven things you should know about failure-to-file and failure-to-pay penalties.

1. The failure-to-file penalty is generally more than the failure-to-pay penalty. So if you cannot pay all the taxes you owe, you should still file your tax return and explore other payment options in the meantime.
2. The penalty for filing late is usually 5 percent of the unpaid taxes for each month of part of a month that a return is late. This penalty will not exceed 25 percent of the taxpayer’s unpaid taxes.
3. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
4. You will not have to pay a failure-to-file penalty if you can show that you failed to file on time because of reasonable cause and not because of willful neglect.
5. You will have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid.
6. If you filed an extension and you paid at least 90 percent of your actual tax liability by the due date, you will not be faced with a failure-to-pay penalty.
7. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty. However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax.

Link: Avoiding Penalties and the Tax Gap

Is it Too Good To Be True? Home-Based Business Tax Avoidance Schemes

NOTE: This headliner is current through the publication date. Since changes may have occurred, no guarantees are made concerning the technical accuracy after the publication date.

Headliner Volume 263-March 1, 2009

If you use part of your home for business, you may be able to deduct expenses for the business use of your home. These expenses may include mortgage interest, insurance, utilities, repairs, and depreciation. The home office deduction is available for homeowners and renters, and applies to all types of homes, from apartments to mobile homes.However, the Internet may provide a new medium for promoters to sponsor illegal tax avoidance schemes. Many of these schemes involve the use of fictitious online businesses including online retail and services, online auction sales, and bartering. Some of these tax avoidance schemes suggest the conversion of a hobby or recreational activity into a “business” in order to claim personal expenses improperly as business expenses.

Taxpayers should regard as highly suspect any investment scheme or promotion that claims to allow a person to deduct what would normally be personal expenses and not ordinary and necessary business expenses. As always, a business must truly exist prior to claiming any business expenses. Read on . . .

New Law Extends Net Operating Loss Carryback for Small Businesses

This was released by the IRS today--one note for those of us who farm for a living--the tax code already allows for a five year carry back on farm related losses--this will allow any non-farm losses to also be carried back five years.

IRS To Ensure Refunds Paid Timely

Washington – The Internal Revenue Service announced today that small businesses with deductions exceeding their income in 2008 can use a new net operating loss tax provision to get a refund of taxes paid in prior years.

To accommodate the change in tax law, the IRS today updated the instructions for two key forms – Forms 1045 and 1139 -- that small businesses can use to make use of the special carryback provision for tax year 2008. These forms are used to accelerate the payment of refunds.

The new provision, enacted as part of the American Recovery and Reinvestment Act of 2009, enables small businesses with a net operating loss (NOL) in 2008 to elect to offset this loss against income earned in up to five prior years. Typically, an NOL can be carried back for only two years. The IRS released legal guidance today in Revenue Procedure 2009-19 outlining specific details. Some taxpayers must make the election to use this special carryback by April 17, 2009.

“The new net operating loss provisions could throw a lifeline to struggling businesses, providing them with a quick infusion of cash,” said IRS Commissioner Doug Shulman. “We want to make it as easy as possible for small businesses to take advantage of these key tax benefits.”

With the economic downturn and the new law, the IRS expects record numbers of small businesses to be eligible for the refunds. The IRS is putting in special steps to ensure timely processing of these refunds to help small businesses during this difficult period.

Small businesses with large losses in 2008 may be able to benefit fully from those losses now, rather than waiting until claiming them on future tax returns.

The normal two-year carryback remains available if the small business does not elect the special carryback provision. If the loss exceeds the income for the carryback period, the taxpayer can continue to carry forward the remaining balance of the NOL for up to 20 years.

For small businesses that use a fiscal year, this special carryback may be used for an NOL in either a tax year that ends in 2008 or a tax year that begins in 2008. Once a taxpayer makes this election, it may not be changed.

To qualify for the new five-year carryback provision, a small business must have no greater than an average of $15 million in gross receipts over a three-year period ending with the tax year of the NOL. Businesses with more than $15 million in gross receipts still qualify to carry back their 2008 NOL for two years.

There are several methods that a small business uses to elect the new provision as detailed in the Revenue Procedure.

If a small business previously elected to waive the carryback of 2008 NOL but now wants to elect this special carryback, the small business may revoke its previous election to waive the carryback. The election revocation must be made on or before April 17, 2009.

Generally small businesses that are not corporations (including sole proprietorships filing schedule C with their Form 1040) may accelerate a refund by using Form 1045, Application for Tentative Refund.

Corporations with NOLs may also accelerate a refund by using Form 1139, Corporation Application for Tentative Refund.

The IRS will be closely monitoring these filings and will provide additional staff as needed to process these forms. The IRS will work to issue refunds within 45 days or even earlier to the degree possible.

In addition, Frequently Asked Questions have been posted on the IRS.gov web site. Small businesses that file Form 1040 can also call 1-800-829-1040 with NOL questions. Corporations can contact 1-800-829-4933 with NOL questions.

Form 1045 or Form 1139, whichever the taxpayer uses, generally must be filed within one year after the end of the tax year of the NOL. In addition, the current year’s tax return must be filed by the date the Form 1045 or Form 1139 is filed. Form 1045 and Form 1139 are filed at the same place the taxpayer’s return is filed, as listed on the return instructions.

Accelerated refunds paid via Form 1045 or Form 1139 is described as “tentative” because the applications for refunds are potentially subject to review at a later date. Form 1045 Instructions and Form 1139 Instructions on http://www.irs.gov/ provide more information on the accelerated refund option.

Related Items:
Revenue Procedure 2009-19
Questions and Answers for ARRA - Section 1211 5-year Net Operating Loss Carryback Election for Small Businesses
Publication 536-Net Operating Losses for Individuals, Estates and Trusts

Five Tips to Avoid Tax Time Stress

Monday is the filing deadline for corporate returns--since the 15th falls on a weekend the deadline is moved to Monday, March 16th. For partnerships and individuals the deadline will be Wednesday, April 15th--no reprieves for the rest of us. So just in time to ease our tax frustration our friends at the IRS released the Tax Tips shown below.


Are you looking for ways to avoid the last-minute rush for doing your taxes? Here are some stress-relieving tips to help you.

1. Don’t Procrastinate – Resist the temptation to put off your taxes until the very last minute. Your haste to meet the filing deadline may cause you to overlook potential sources of tax savings and will likely increase your risk of making an error.

2. Visit the IRS Online – In 2008, there were more than 330 million visits to IRS.gov. Anyone with Internet access can find tax law information and answers to frequently asked tax questions.

3. File Your Return Electronically – Nearly 90 million taxpayers filed their returns electronically in 2008. Aside from ease of filing, IRS e-file is the fastest and most accurate way to file a tax return. If you’re due a refund, the waiting time for e-filers is half that of paper filers.

4. Don’t Panic if You Can’t Pay – If you cannot pay the full amount of taxes you owe by the April deadline, you should still file your return by the deadline and pay as much as you can to avoid penalties and interest. You also should contact the IRS to discuss your payment options at 1-800-829-1040. The agency may be able to provide some relief such as a short-term extension to pay, an installment agreement or an offer in compromise. More than 75 percent of taxpayers eligible for an Installment Agreement can apply using the Web-based Online Payment Agreement application available on IRS.gov. To find out more about this simple and convenient process type “Online Payment Agreement” in the search box on the IRS.gov homepage.

5. Request an Extension of Time to File – But Pay on Time If the clock runs out, you can get an automatic six month extension of time to file to October 15. However, this extension of time to file does not give you more time to pay any taxes due. You will owe interest on any amount not paid by the April deadline, plus a late payment penalty if you have not paid at least 90 percent of your total tax by that date. See IRS Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return for a variety of easy ways to apply for an extension. Form 4868 is available at IRS.gov or by calling 800-TAX-FORM (800-829-3676). Taxpayers needing Form 4868 should act soon to be sure they have the item in time to meet the April deadline.

Links:

Official Payments Corporation
Link2Gov Corporation
Electronic filing
Free File
Electronic payment options
Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return (PDF)
Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns

Above courtesy of IRS Tax Tips Issue Number: TT-2009-50

Tax Planning and Business Plans @ Northwest Alpacas

Alpaca Business and Tax Planning

Create Your Own Personal Business and Tax Plan

Instructors: Fred Kraft , Peggy Stevens

Date: Friday, March 20, 2009 Rescheduled for Monday, April 13, 2009

Course Description: Ideally, people who are considering purchasing their first alpacas will take this class before they spend their money. Most successful businesses start with a plan and we will help you create one for the alpaca business. The instructors have many years of experience as successful, profitable alpaca ranchers. (Includes a 10 year personalized business plan.) Click here to enroll.

Fred and Peggy generally present this seminar a couple of times each year. If you are thinking about buying your first alpacas this is a wonderful next step as you plan your operation. If you have been in the business and maybe are not accomplishing what you had hoped come to get a new focus on your business.

Look forward to seeing you there.

3rd Annual Alpaca Woods Ranch Open House

Mark March 28th on your calendars as the 3rd Annual Open House at Alpaca Woods Ranch.

This event is our chance to share these wonderful animals with those of you who have been pondering your interest in this growing industry as well as those of you who have stopped by before. Plenty of changes have occurred in the last year—we have added more pastures, new shelters and, of course, the best part—new crias. Refreshments will be served. There is no charge but we would appreciate an RSVP just for planning purposes.

Again this year, Peggy Stevens from Alpacas at Tucker Creek (http://www.alpacadigest.com/) in Astoria, OR will be our featured speaker addressing the tax consequences of alpaca ownership. Peggy is a retired CPA with many years of small business experience. She and her husband, Dave, have been raising alpacas since 2003. She will be discussing the great opportunities this industry has to offer as well as some of the pitfalls to avoid. Time will also be allotted for your personal alpaca tax questions. Among her topics will be the criteria applied by the IRS to classify an operation as a business instead of a hobby; how to leverage the purchase price of alpacas by using funds which might otherwise pay current taxes; the importance of a business plan and other topics of interest at a time when tax code revision is again under serious consideration. She has been a featured speaker at the 2008 Alpaca Owners and Breeders Association National Conference; the Alpaca Institute at Northwest Alpacas as well as regional affiliate meetings.

The Open House will be from Noon to 5:00 p.m. The tax presentation will be held from 1:00 – 3:00 p.m. Please advise if you will be able to join us on March 28th by phoning Ronnie at (770) 972-1247 when we will also provide you with driving directions.

Year End 2008

Wow—how I hate this cliché—but it is so true! Where has the time gone? 2008 has been a wild year. The alpaca industry continues to provide us with a very good living despite the issues with the economy. Prices may be a tad softer than a year ago but they are holding strong and continue to prove that the industry is and will remain viable.

For those of you who have been to our farm--here is an unusual shot--and it also displays what the alpacas on the Oregon coast think of snow. If you look really close you can see a couple of heads--but when there is snow they only seem to venture out to the pastures when the sun does.

This blog update is mainly made up of tax issues—not a surprise this time of year. The provision that continues to be one of the largest tax benefits all small businesses enjoy is Section 179. You only have four more days to take advantage of the increased deductions available in 2008. The limit for this year is $250,000 on qualifying asset purchases not exceeding $800,000. That deduction will be reduced to $133,000 on qualifying asset purchases not exceeding $530,000 next year.

Also available in 2008 is the 50% bonus depreciation deduction. There is no similar provision for 2009. This deduction only applies to new asset purchases. A maiden female alpaca qualifies as new for this deduction.

So review your tax position and seize the opportunity to take full advantage of these deductions before the clock strikes midnight on the 31st. It is not too late. Should you make the decision that buying your first alpaca or adding to your existing herd is the correct move for your particular tax situation be assured that contracts can be finalized up until that time. Much of the work can be accomplished via email, phone and fax. You do not need to take possession of the animals by midnight on the 31st.

If you have questions about any of the topics in this update feel free to contact us—we don’t want you to miss out on a single deduction.

Enjoy the remainder of the holiday season. We wish you a rewarding and productive 2009.