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By Stacie Clifford Kitts, CPA
Heads up for all taxpayers eager to file your 2010 tax return. The IRS has announced that last weeks changes in the tax law ie the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, extended three provisions that will need to be reprogrammed in the IRS’s processing system. This means that the IRS will not be ready to process some individual returns Form 1040 until mid to late February 2011.
Who is affected:
- People who itemize deductions on Schedule A
- People who claim sales tax deduction, higher education deduction, educator expense deduction
Read on for more detailed information regarding your 2011 tax return filing:
WASHINGTON — Following last week’s tax law changes, the Internal Revenue Service announced today the upcoming tax season will start on time for most people, but taxpayers affected by three recently reinstated deductions need to wait until mid- to late February to file their individual tax returns. In addition, taxpayers who itemize deductions on Form 1040 Schedule A will need to wait until mid- to late February to file as well.
The start of the 2011 filing season will begin in January for the majority of taxpayers. However, last week’s changes in the law mean that the IRS will need to reprogram its processing systems for three provisions that were extended in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 that became law on Dec. 17.
People claiming any of these three items — involving the state and local sales tax deduction, higher education tuition and fees deduction and educator expenses deduction as well as those taxpayers who itemize deductions on Form 1040 Schedule A — will need to wait to file their tax returns until tax processing systems are ready, which the IRS estimates will be in mid- to late February.
“The majority of taxpayers will be able to fill out their tax returns and file them as they normally do,” said IRS Commissioner Doug Shulman. “We will do everything we can to minimize the impact of recent tax law changes on other taxpayers. The IRS will work through the holidays and into the New Year to get our systems reprogrammed and ensure taxpayers have a smooth tax season.”
The IRS will announce a specific date in the near future when it can start processing tax returns impacted by the late tax law changes. In the interim, people in the affected categories can start working on their tax returns, but they should not submit their returns until IRS systems are ready to process the new tax law changes.
The IRS urged taxpayers to use e-file instead of paper tax forms to minimize confusion over the recent tax changes and ensure accurate tax returns.
Taxpayers will need to wait to file if they are within any of the following three categories:
- Taxpayers claiming itemized deductions on Schedule A. Itemized deductions include mortgage interest, charitable deductions, medical and dental expenses as well as state and local taxes. In addition, itemized deductions include the state and local general sales tax deduction extended in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 enacted Dec. 17, which primarily benefits people living in areas without state and local income taxes and is claimed on Schedule A, Line 5. Because of late Congressional action to enact tax law changes, anyone who itemizes and files a Schedule A will need to wait to file until mid- to late February.
- Taxpayers claiming the Higher Education Tuition and Fees Deduction. This deduction for parents and students — covering up to $4,000 of tuition and fees paid to a post-secondary institution — is claimed on Form 8917. However, the IRS emphasized that there will be no delays for millions of parents and students who claim other education credits, including the American Opportunity Tax Credit and Lifetime Learning Credit.
- Taxpayers claiming the Educator Expense Deduction. This deduction is for kindergarten through grade 12 educators with out-of-pocket classroom expenses of up to $250. The educator expense deduction is claimed on Form 1040, Line 23, and Form 1040A, Line 16.
For those falling into any of these three categories, the delay affects both paper filers and electronic filers.
The IRS emphasized that e-file is the fastest, best way for those affected by the delay to get their refunds. Those who use tax-preparation software can easily download updates from their software provider. The IRS Free File program also will be updated.
As part of this effort, the IRS will be working closely with the tax software industry and tax professional community to minimize delays and ensure a smooth tax season.
Updated information will be posted on IRS.gov. This will include an updated copy of Schedule A as well as updated state and local sales tax tables. Several other forms used by relatively few taxpayers are also affected by the recent changes, and more details are available on IRS.gov.
In addition, the IRS reminds employers about the new withholding tables released Friday for 2011. Employers should implement the 2011 withholding tables as soon as possible, but not later than Jan. 31, 2011. The IRS also reminds employers that Publication 15, (Circular E), Employer’s Tax Guide, containing the extensive wage bracket tables that some employers use, will be available on IRS.gov before year’s end.
Related Item: Forms Affected By the Extender Provisions
IRS Patrol: IRS Releases Draft W-2 Form for 2011; Announces Relief for Employers (Optional Reporting of the Cost of Health Coverage in 2011)
Stacie says: Doesn’t good news come in three’s? Well here is good news number two for the day – the IRS announced that it will defer the new requirement for employers to report the cost of coverage under an employer-sponsored group health plan. The reporting is now optional in 2011.
WASHINGTON — The IRS today issued a draft Form W-2 for 2011, which employers use to report wages and employee tax withholding. The IRS also announced 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 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.
IRS Patrol:IRS to Hold Special Open House Saturday, Sept. 25 for Veterans and Persons with Disabilities
WASHINGTON — The Internal Revenue Service will host a special nationwide open house on Saturday, Sept. 25 to help taxpayers –– especially veterans and people with disabilities –– solve tax problems and respond to IRS notices.
One hundred offices, at least one in every state, will be open from 9 a.m. to 2 p.m. local time. IRS staff will be available on site or by telephone to help taxpayers work through issues and leave with solutions.
In many locations, the IRS will partner with organizations that serve veterans and the disabled to offer additional help and information to people in these communities. Partner organizations include the National Disability Institute (NDI), Vets First, Department of Veterans Affairs, National Council on Independent Living and the American Legion.
“Taxpayers have tremendous success solving their tax issues at our open houses,” IRS Commissioner Doug Shulman said. “I want to encourage veterans and people with disabilities to come in on Sept. 25. Just like we reached out earlier this year to small businesses and victims of the Gulf Oil Spill, we want to help other taxpayers put their toughest problems behind them.”
IRS locations will be equipped to handle issues involving notices and payments, return preparation, audits and a variety of other issues. At a previous IRS open house on June 5, over 6,700 taxpayers sought and received assistance and 96 percent had their issues resolved the same day.
At the Sept. 25 open house, anyone who has a tax question or has received a notice can speak with an IRS employee to get an answer to their question or a clear explanation of what is necessary to satisfy the request. A taxpayer who cannot pay a balance due can find out whether an installment agreement is appropriate and, if so, fill out the paperwork then and there. Assistance with offers-in-compromise — an agreement between a taxpayer and the IRS that settles the taxpayer’s debt for less than the full amount owed — will also be available. Likewise, a taxpayer struggling to complete a certain IRS form or schedule can work directly with IRS staff to get the job done.
Taxpayers requiring special services, such as interpretation for the deaf or hard of hearing, should check local listings and call the local IRS Office/Taxpayer Assistance Center ahead of time to schedule an appointment.
The open house on Sept. 25 is the third of three events scheduled after this year’s tax season. Plans are underway for similar events next year. Details will be available at a later date.
Reminder for Small Tax-Exempt Organizations
The IRS also encourages representatives of small tax-exempt charitable community organizations, many of which serve people with disabilities and veterans, to file Form 990-N before the Oct. 15 deadline. Community organizations that fail to file a Form 990-N by this date risk losing their tax exempt status. As of June 30, more than 320,000 organizations were at risk of losing their exempt status.
- Tax-Exempt Status: Help the IRS Help You (thenon-profittoolbox.com)
- As a small nonprofit — did you file your Form 990? (chicagonow.com)
- IRS seeking tax returns from small nonprofits (knoxnews.com)
- Tell the IRS what you think about the new Form 1099 reporting requirement (dontmesswithtaxes.typepad.com)
- National Taxpayer Advocate Submits Mid-Year Report to Congress; Identifies Priority Challenges and Issues for Upcoming Year (prweb.com)
- IRS offers reprieve for charities missing deadline (seattletimes.nwsource.com)
- Tax Resolution Scams 101 (blogs.forbes.com)
- Charities Get Tax-Return Extension (online.wsj.com)
- National Society of Accountants Opposes Any Tax Preparer Exemptions from Proposed IRS Rules (eon.businesswire.com)
- Terry Jones, Dove Provided False Information in IRS Filing (seminal.firedoglake.com)
WASHINGTON — The Internal Revenue Service today issued guidance reflecting statutory changes regarding the use of certain tax-favored arrangements, such as flexible spending arrangements (FSAs), to pay for over-the-counter medicines and drugs.
The Affordable Care Act, enacted in March, established a new uniform standard that, effective Jan. 1, 2011, applies to FSAs and health reimbursement arrangements (HRAs). Under the new standard, the cost of an over-the-counter medicine or drug cannot be reimbursed from the account unless a prescription is obtained. The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles. The new standard applies only to purchases made on or after Jan. 1, 2011, so claims for medicines or drugs purchased without a prescription in 2010 can still be reimbursed in 2011, if allowed by the employer’s plan.
A similar rule goes into effect on Jan. 1, 2011 for Health Savings Accounts (HSAs), and Archer Medical Savings Accounts (Archer MSAs).
Employers and employees should take these changes into account as they make health benefit decisions for 2011.
For details on current rules, see Publication 969 , Health Savings Accounts and Other Tax-Favored Health Plans.
- IRS Health Savings Accounts (HSAs) – Eligibility and Rules (personal-tax-planning.suite101.com)
- The California Endowment Launches Statewide Effort to Educate Californians About the Benefits of the Health Care Law (eon.businesswire.com)
- Sebelius Announces 1 Million Medicare Beneficiaries Have Received Prescription Drug Cost Relief Under The Affordable Care Act (medicalnewstoday.com)
- Patient Money: High-Deductible Plans Grow, but Not Everyone Should Get on Board (nytimes.com)
- 16.6 million small business employees could benefit from ACA provisions starting this year (eurekalert.org)
- An Unexpected Answer on the Affordable Care Act & the Deficit (whitehouse.gov)
- Podcast interview: Impact of health reform on Flexible Spending Accounts (healthbusinessblog.com)
- Nearly 2,000 Employers and Unions Approved into New Affordable Care Act Program (nlm.nih.gov)
- Koch Industries Slaps Health Care Law With One Hand While Holding the Other Hand Out (crooksandliars.com)
Are you opening a new business this summer? The IRS has many resources available for individuals that are opening a new business. Here are six tax tips the IRS wants new business owners to know.
- First, you must decide what type of business entity you are going to establish. The type of business entity will determine which tax form you have to file. The most common types of business are the sole proprietorship, partnership, corporation and S corporation.
- The type of business you operate determines what taxes you must pay and how you pay them. The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.
- An Employer Identification Number is used to identify a business entity. Generally, businesses need an EIN. Visit IRS.gov for more information about whether you will need an EIN. You can also apply for an EIN online at IRS.gov.
- Good records will help you ensure successful operation of your new business. You may choose any recordkeeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any special kind of records. However, the business you are in affects the type of records you need to keep for federal tax purposes.
- Every business taxpayer must figure taxable income on an annual accounting period called a tax year. The calendar year and the fiscal year are the most common tax years used.
- Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to report income and expenses. The most commonly used accounting methods are the cash method and an accrual method. Under the cash method, you generally report income in the tax year you receive it and deduct expenses in the tax year you pay them. Under an accrual method, you generally report income in the tax year you earn it and deduct expenses in the tax year you incur them.
IRS Publication 583, Starting a Business and Keeping Records, provides basic federal tax information for people who are starting a business. This publication is available on IRS.gov or by calling 800-TAX-FORM (800-829-3676). Visit the Business section of IRS.gov for resources to assist entrepreneurs with starting and operating a new business.
1. This credit – still available for 2010 – equals 6.2 percent of a taxpayer’s earned income. The maximum credit for a married couple filing a joint return is $800 and $400 for other taxpayers.
2. Eligible self-employed taxpayers can benefit from the credit by evaluating their expected income tax liability and, if they are eligible, by making the appropriate adjustments to the amounts of their estimated tax payments.
3. Taxpayers who fall into any of the following groups during 2010 should review their tax withholding to ensure enough tax is being withheld. Those who should pay particular attention to their withholding include:
- Married couples with two incomes
- Individuals with multiple jobs
- Workers without valid Social Security numbers
Having too little tax withheld could result in potentially smaller refunds or – in limited instances –small balance due rather than an expected refund.
4. The Making Work Pay tax credit is reduced or unavailable for higher-income taxpayers. The reduction in the credit begins at $75,000 of income for single taxpayers and $150,000 for couples filing a joint return.
5. A quick withholding check using the IRS Withholding Calculator on IRS.gov may be helpful for anyone who believes their current withholding may not be right. Taxpayers can also check their withholding by using the worksheets in IRS Publication 919, How Do I Adjust My Tax Withholding?. Adjustments can be made by filing a revised Form W-4, Employee’s Withholding Allowance Certificate. Pensioners can adjust their withholding by filing Form W-4P, Withholding Certificate for Pension or Annuity Payments.
For more information about this and other key tax provisions of the Recovery Act, visit IRS.gov/recovery.
- The American Recovery and Reinvestment Act of 2009: Information Center
- The Making Work Pay Tax Credit
- IRS Withholding Calculator
- Publication 919, How Do I Adjust My Tax Withholding?
- Form W-4, Employee’s Withholding Allowance Certificate
- W-4P, Withholding Certificate for Pension or Annuity Payments
WASHINGTON –– The Internal Revenue Service [recently] provided guidance to individuals and businesses affected by the oil spill in the Gulf of Mexico and announced a number of new efforts to help affected taxpayers, including a special Gulf Coast Assistance Day on July 17.
“This is a very difficult time for many people affected by the oil spill in the Gulf of Mexico. As residents of the region cope with the evolving situation, I want to assure them that the IRS will be doing everything it can to provide tax help to those who need it,” IRS Commissioner Doug Shulman said. “We encourage anyone who has an issue with the IRS to contact us and explain their hardship, and we will work with them to find a solution. We’ll do everything we can under current law to help taxpayers.”
The guidance released today is based on current law, and it explains how recipients of payments from BP should treat the payments for tax purposes. According to the current law, BP payments for lost income are taxable in the same way that the wages or business income these payments are replacing would have been. The law treats compensation for lost wages or income differently for tax purposes than compensation for physical injuries or property loss, which generally are nontaxable.
Every person can have unique financial circumstances, so the IRS encourages taxpayers to review their tax situation or talk with their tax preparers about the implications of payments or compensation from the oil spill.
The new information is available in a question-and-answer format on a special section of the IRS website, IRS.gov. The IRS is closely monitoring the situation in the Gulf, and additional information will be added to IRS.gov as it becomes available.
To help people in the Gulf Coast area dealing with tax issues, the IRS also announced a special assistance day on July 17 in seven cities. Taxpayers and tax preparers will be able to work directly with IRS employees to resolve tax issues, including specific topics related to the oil spill. The IRS will hold the Gulf Coast Assistance Day in four states:
- Alabama: Mobile.
- Florida: Panama City and Pensacola.
- Louisiana: New Orleans, Houma and Baton Rouge.
- Mississippi: Gulfport.
Times and specific locations will soon be announced and will be available on IRS.gov.
In addition, taxpayers with problems related to the Gulf spill will soon be able to reach IRS personnel through an IRS toll-free telephone line. Specially trained IRS personnel will be available to help people with tax questions related to the oil spill. More information will be available soon about this telephone line.
The IRS encourages taxpayers in the Gulf struggling with payment or collection issues to contact the agency. The IRS continues to have a number of ways to help taxpayers dealing with oil spill issues or other economic hardship issues, including:
- Assistance of the Taxpayer Advocate Service for those taxpayers experiencing particular hardship navigating the IRS.
- Postponement of collection actions in certain hardship cases.
- Added flexibility for missed payments on installment agreements and offers in compromise for previously compliant individuals having difficulty paying.
- IRS employees will be permitted to consider a taxpayer’s current income and potential for future income when negotiating an offer in compromise.
- Accelerated levy releases for taxpayers facing economic hardship.