With the passage of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act, the IRS released the withholding tables for employers to use in 2011. The IRS was unable to issue the tables earlier because of uncertainty over whether the current tax rates would be extended or would expire in 2011. Employers are instructed to implement the new withholding tables as soon as possible and no later than Jan. 31, 2011.

The 2011 withholding tables reflect not only the continuation of the lower tax rates first enacted by the Economic Growth and Tax Relief Reconciliation Act in 2001, but also the lower Social Security tax rate for employees (4.2%), instituted for 2011 by the Tax Relief act. Employers are instructed to implement the new lower 4.2% Social Security tax rate as soon as possible, and not later than Jan. 31, 2011. They are also instructed to make an offsetting adjustment in a later pay period—but not later than March 31—to correct for any overwithholding of Social Security tax that may result from a failure to adjust for the 4.2% rate at the start of the year.

The notice also reminds employers of two expired tax items that were not extended by the Tax Relief bill. The making work pay credit expires at the end of 2010, so there is no adjustment for the credit in the 2011 tables and no longer an additional withholding adjustment for pensions. The option of receiving advance earned income credit payments also expires at the end of 2010.

The President is expected to sign the Tax Relief/Job Creation Act of 2010 today at 3 p.m. Eastern Time. The bill extends Bush-era tax cuts, provides payroll tax relief, and reinstates the estate tax.

Extended provisions

The bill extends these provisions, which had expired on December 31, 2009:

• State and local sales tax deduction;
• Higher education tuition deduction;
• $250 above-the-line teacher’s classroom expense deduction;
• Charitable contributions of IRA; and
• Charitable contributions of appreciated property for conservation purposes.

(Note: the additional standard deduction for property tax was not extended.) Read the rest of this entry »

The Internal Revenue Service issued the 2011 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, 2011, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

*51 cents per mile for business miles driven
*19 cents per mile driven for medical or moving purposes
*14 cents per mile driven in service of charitable organizations

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.

The Internal Revenue Service today announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2011. In general, these limits will either remain unchanged, or the inflation adjustments for 2011 will be small. Highlights include:

• The elective deferral (contribution) limit for employees who participate in section 401(k), 403(b), or 457(b) plans, and the federal government’s Thrift
  Savings Plan remains unchanged at $16,500.
• The catch-up contribution limit under those plans for those aged 50 and over remains unchanged at $5,500.

Read the rest of this entry »

The Internal Revenue Service today issued final regulations under a law change that will require reporting of basis and other information by stock brokers and mutual fund companies for most stock purchased in 2011 and all stock purchased in 2012 and later years. The reporting will be to investors and the IRS. This additional reporting will be optional for stock purchased prior to these dates. Read the rest of this entry »

The Internal Revenue Service today issued guidance on the expanded adoption credit included in the Affordable Care Act. The IRS also released a draft version of the form that eligible taxpayers will use to claim the newly-expanded adoption credit on 2010 tax returns filed next year.

The Affordable Care Act raises the maximum adoption credit to $13,170 per child, up from $12,150 in 2009. It also makes the credit refundable, meaning that eligible taxpayers can get it even if they owe no tax for that year. In general, the credit is based on the reasonable and necessary expenses related to a legal adoption, including adoption fees, court costs, attorney’s fees and travel expenses. Income limits and other special rules apply. Read the rest of this entry »

Today, September 23, the House passed the Small Business Jobs Act of 2010 (H.R. 5297). It is expected to be signed by the President.

Among its provisions:

*§179 expanded: For tax years beginning in 2010 and 2011, expense limit is increased to $500,000 and phaseout threshold increased to $2 million;

*§179 for (some) real estate: For tax years beginning in 2010 and 2011, taxpayers can elect to treat certain real estate as §179-eligible. Qualifying real estate includes:
-Qualified leasehold improvements;
-Qualified restaurant property; and
-Qualified retail improvement property. Read the rest of this entry »

Thinking about making some energy saving improvements to your home this summer? Taking some energy saving steps now may lead to tax savings. The Nonbusiness Energy Property Credit, a tax credit for making energy efficient improvements to homes was increased as part of the American Recovery and Reinvestment Act of 2009. Read the rest of this entry »

The Internal Revenue Service may have money for you. Was your income below the limit that requires you to file a tax return? If so, you may still be due a refund.

If you have not filed a prior year tax return and are due a refund, you should consider filing the return to claim that refund. If you are missing a refund for a previously filed tax return, you should contact the IRS to check the status of your refund and confirm your current address. Read the rest of this entry »

Have you heard or seen ads urging Californians to incorporate in Nevada to avoid paying California taxes? Here are some tips to help you recognize questionable tax avoidance strategies. Read the rest of this entry »