Tax laws change all the time. Seven recent changes in the law are discussed below so that taxpayers are aware of the changes and have the opportunity to take full advantage of the law to maximize their deductions or to resolve outstanding issues with the IRS.
Bonus Depreciation
In an effort to assist business, the 2010 Tax Relief Act provides that certain property placed into service any time from September 8, 2010 through January 1, 2012 can receive immediate 100% depreciation. More recently, the IRS clarified this rule as it relates to restaurant equipment and retail improvement property. Under the new interpretation restaurant property and retail improvement property do not qualify on their face for bonus depreciation. If, however, the restaurant property or qualified retail improvement property complies with the requirements of qualified leasehold property they can still qualify for the 100% bonus depreciation or, at the taxpayer’s election, a 50% immediate bonus depreciation with the remainder depreciated over the life of the property.
New Foreign Bank Account Disclosure Program
The IRS has been aggressively collecting information regarding U.S. citizen’s foreign bank accounts to ensure that the taxpayer has been reporting foreign bank account information on his or her tax return. Last year the IRS had a voluntary program which allowed those who did not report their foreign bank accounts to voluntarily disclose the information to the IRS without threat of criminal prosecution. The IRS has now formed a similar program where taxpayers can voluntarily disclose foreign bank accounts without the fear of criminal prosecution. Penalties, however, are no longer waived. The program runs until August 31, 2011. Throughout that period, the taxpayer will make the necessary disclosures to the IRS and he or she will still be required to pay the tax in full. Generally, the penalty assessed is 25% of the amount in the foreign account, but it may be as low as 5% in some instances. It is imperative for individuals with foreign bank accounts which have not been reported to come forward at this time to voluntarily comply with the IRS. By doing so, the taxpayer can avoid criminal prosecution.
Estate Tax Deductions for 2010 Decedents
Representatives for an individual who passed away in 2010 have two options with regard to the individual’s estate and how it is taxed. The first option is to elect that the estate have no tax. That election, however, will result in the individual inheriting the property to have the same basis as the decedent. When the property is sold, it could cause a significant amount of gain to be recognized. The second option is to elect to treat the estate as taxable, but only for any amount over Five Million Dollars ($5,000,000.00) and then the individual who is receiving the property will obtain a step-up in basis in the property based upon the value as of the date of the decedent’s death. Making the decision is one that needs great thought and analysis as to which election will best benefit the beneficiaries of the estate.
Business SUV Deduction
If a business purchased or purchases an SUV during the period between September 8 2010 and January 1, 2012 and the SUV is used only for the business then the business can deduct the entire cost of the vehicle in the year that it was purchased and will not need to depreciate the cost over time. This provides for a large immediate deduction to businesses that need and use SUVs on a regular basis. This deduction is also part of the 2010 Tax Relief Act.
Tax Liens
The IRS has recently eased the rules regarding tax liens issued for debts due to the IRS. The IRS has made it easier to have a tax lien removed in the following circumstance: (1) Full payment of the tax liability; (2) the taxpayer has entered into a direct debit installment agreement; (3) the IRS has expanded its programs to assist small business and individuals in obtaining relief from tax debt; and (4) the IRS has increased the threshold for filing a tax lien. If money is due to the IRS now is a great time to work with the IRS in an attempt to resolve the outstanding debt. Contacting the IRS prior to it filing a tax lien can help preserve options and negotiating leverage for the taxpayer. If the tax lien has already been filed, the IRS has several procedures in place to assist taxpayers in its removal.
Health Insurance Reporting
Once again, the IRS has made the requirement of reporting health insurance coverage optional for small businesses for tax year 2011. Although this assists small businesses, they still need to prepare for when reporting will become mandatory.
Gambling Expenses
Now that gambling is legal in Maryland, it is important to remember that gambling winnings are taxable. While winnings are taxable, the losses are deductible but only up to the amount of the winnings. In addition, in order to claim the losses you must keep detailed records. The burden is on the taxpayer to keep an account of what they are betting, the date and the amount lost. If you are playing the slots, become a member of the casino’s club, if possible, so that you can obtain a print out of what you have invested into the machines. It only takes one large win to recognize the income, but it takes time and good record keeping to obtain an offsetting deduction.