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IRS Increases Mileage Rate | Tax Tip of the Week | No. 99 June 29, 2011

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Special Tax Alert

Effective July 1, 2011, the IRS has made two significant tax law changes.  The first is an increase in the mileage rate.  The second is a reduction in the Federal Unemployment rate (FUTA). The IRS has announced an increase in the 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.

Mileage Rate Changes

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.

“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.”

The new 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 will remain at 14 cents a mile.

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

As always, you need to maintain contemporaneous records to substantiate your deductions.

Reduction of the Federal Unemployment Rate

Congress has announced that the 0.2% FUTA surcharge will not be extended.  The IRS will begin implementing this reduction of payroll taxes July 1, 2011.

Employers have been required to pay a flat rate of 6.2% on the first $7,000 of each employee’s annual wages for FUTA.  The 6.2% FUTA rate included a temporary 0.2% surcharge that was first added in the 1970’s.  Effective immediately, the rate will be reduced to 6.0%.  Employers will still receive the 5.4% credit for paying state unemployment on time, reducing the FUTA rate to .6% on wages paid up to the annual FUTA limit of $7,000.00.

The IRS is currently revising Form 940 to accommodate the two different FUTA rates for calendar year 2011.

Let us know if you have any questions.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

Divorce and the Tax Consequences of Payments | Tax Tip of the Week | No. 98 June 22, 2011

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Understanding Applicable Tax Laws

Determining the tax consequences that can arise during a divorce or marital separation can be vital for the financial protection and well being of you and your family. That’s why it’s important to understand applicable tax laws before making any major decisions.

Often most confusing during the divorce process is determining whether a payment should be considered alimony or child support. Generally, alimony is the amount paid to a spouse for his or her living expenses, education, health or life insurance, property taxes, or mortgage payment. Alimony is not for providing child support. The person receiving alimony must pay taxes on the alimony in the year it is received, and the paying spouse may deduct the amount in the year it is paid, provided the alimony meets all of the following conditions:

• The payment is made in a cash form, which includes checks, bank deposits, etc. Payments in the form of such things as bonds, stocks, money market shares, or actual objects are not considered alimony for tax purposes.

• The payment is made as the result of a legal separation agreement or divorce decree.

• The spouses do not live in the same household at the time the payment is made.

• The divorce decree does not designate the payment as nontaxable to either party.

• There can be no liability for payments after the death of the receiving spouse.

Child support, unlike alimony, is not taxable to the spouse who received the payment, nor is it tax deductible by the spouse who makes the payment. A divorce decree may specifically call the payment “alimony,” but the payment may have the “characteristics” of child support. One characteristic of a child support payment might be the designation in the divorce document that the payment be terminated if the child’s situation changes.

Tax challenges during and following a divorce are common, but they can be minimized with some knowledge about tax laws and IRS procedures. Financial planning is an important part of the divorce process. This tax tip contains general tax information only.  Each tax situation may be different, do not rely upon this information as your sole source of authority.

As always……give us a call BEFORE you do something-not after!

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

 


Preparing for Disasters | Tax Tip of the Week | No. 97 June 15, 2011

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Update Your Emergency Plans

The IRS recently issued a press release targeted for those located in areas prone to hurricanes.  While those of us in the Dayton area don’t normally need to worry about hurricanes, the disaster planning advice is still something each of us should consider.

Create a Backup Set of Records Electronically

Taxpayers should keep a set of backup records in a safe place.  These backups should be stored away from the original set.  Your backups should at least include: bank statements, brokerage statements, tax returns, insurance policies and any will and trust documents.

Many financial institutions offer access to these records via the internet, making your job easier.  Any paper-only documents can be scanned and burned onto a CD or DVD.

Document Valuables

Another step to consider is to photograph or videotape the contents of your home, especially items of higher value.  The IRS has a disaster loss workbook, Publication 584, which can help you compile a room-by-room inventory of belongings.

These photos or tapes should be stored with a friend or family member living outside your area.

Update Emergency Plans

Emergency plans should be reviewed annually.  Both personal and business situations change over time as do preparedness needs.

Check on Fiduciary Bonds

Employers who use payroll service providers should ask the provider if it has a fiduciary bond in place.  The bond could protect the employer in the event of default by the payroll service provider.

These are just a few steps to get you started.  You now have something to do as we approach the hazy days of summer when it is too hot to do anything outdoors.

Let us know if you have any questions.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

Change of Address | Tax Tip of the Week | No. 96 June 8, 2011

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Remember to Change Your Address With the IRS

In our constantly mobile society, many of us change our address several times during our lifetime.  While you may remember to file a change of address with the post office to forward your regular mail, you may not think about changing your mailing address with the IRS.

Why should you notify the IRS of an address change?  The IRS has up to three years after a tax return has been filed (or is due) to notify a taxpayer of any discrepancy, tax due or failure to file.  Any notices are sent to the address that the particular return was filed under.  They then have seven additional years to collect .  Even though you have not physically received the notice, you are still responsible for the payment or correcting any errors and you will be located for the payment.

If your address has changed, you need to notify the IRS to ensure you receive any IRS refund or correspondence. If you change your address before filing your return, simply update your address on the tax return.  The update will occur when the IRS processes your return.

If you change your address after filing your return, you should notify the post office that services your old address. Because not all post offices forward government checks, notifying the post office that services your old address ensures that your mail will be forwarded, but not necessarily your refund check. To change your address with the IRS, you may complete a Form 8822 (PDF), Change of Address, and send it to the address shown on the form. You may download Form 8822 from the IRS website (www.irs.gov) or order it by calling 800–TAX–FORM (800–829–3676).

You may also write to inform the IRS of your address change. If you write, you will need your full name, old and new addresses, and your Social Security Number or Employer Identification Number and your signature. If you filed a joint return, you should provide the same information and signatures for both spouses. Send your written address change information to the campus where you filed your last return. The campus addresses are listed in the instructions to the tax forms.

If you filed a joint return and you and/or your spouse have since established separate residences, you both should notify the IRS of your new addresses.

As always, give us a call if you have any questions.

This week’s author is Linda Johannes, CPA

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

 

“Hummer Rules” Have Changed | Tax Tip of the Week | No. 95 June 1, 2011

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“Hummer Rules” Have Changed

New Bonus Depreciation Rules

New SUVs with a gross weight of over 6,000 pounds, placed in service in 2011, can now be a 100% write-off if used 100% for business.

This is due to the new bonus depreciation rules.  (See TTW #79 for a closer look at depreciation options).  Previously, SUVs were limited to a maximum first year deduction of $25,000.  Several years ago this limitation was put into the tax code to prevent large deductions for such vehicles—many called it the “Hummer Rule”.

New pickup trucks with loaded weights over 6,000 can also use this rule.  Depreciation rules for work related automobiles remain unchanged for 2011.

If you use a vehicle for business, be sure to closely document your mileage even if deducting actual expenses.  A 100% business use argument is sometimes hard to substantiate in an audit.  If you can’t prove 100% business use, you can still use the limited deduction as long as the business use exceeds 50% of the total yearly mileage.

Also, the SUV must be new—used vehicles do not qualify.

Give us a call if you want more details.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.