The Internal Revenue Service has  set up a dedicated line for people who are  experiencing  filing or payment hardships due to the Gulf oil spill. The phone number is 866-562-5227. It is open from 7 a.m. to 10 p.m. each weekday.

There has been much discussion about this due to the Gulf oil spill. Taxability of payments received are as follows(regardless of whether they are related to the Gulf oil spill or not)

Payments for Property Damage-nontaxable as long as the reimbursement does  not exceed the taxpayers basis in  the property

Payments for Personal Physical Injury-not taxable

Payments for Emotional Distress-taxable unless they are due to personal physical injuries or physical sickness

Payments for Loss of Income-taxable

The credit has now been extended to cover first-time homebuyers who contracted to purchase a home on or before May 1, 2010. They must close on the home by September 30 2000,

For military personnel on qualified extended  official duty outside the United States the  credit is extended to April 30, 2011

Congress has started a six-week recess and still has not resolved the following:

1. Bush tax cuts are still scheduled to expire on December 31. This will result in, among other things ,the reinstitution of the estate tax at 2001 levels and an  increase in the capital gains rate to 20%.  Currently there is consensus on extending at least temporarily all of the tax cuts with the exception of the increase in the top rate from 35% to 39%.

2. The American Jobs and Closing Tax Loopholes Act of 2010 is still one vote short of passing in the Senate.  It has already passed in the House. The biggest effect of this bill, if it passes, is that it will impose self-employment tax on any non-passive earnings from LLC’s, partnerships and subchapter S. corporations . Currently the self-employment tax is not paid on earnings as long as the owners takes a reasonable salary. You can find this bill at http://waysandmeans.house.gov/press/PRArticle.aspx?NewsID=11185

It appears there is movement towards retaining all the tax cuts set to expire on Decmber 31 with he exception of the hike of the top tax rate.

http://online.wsj.com/article/SB10001424052748703954804575381501862552246.html?mod=WSJ_hpp_MIDDLETopStories

Senators move to revive estate tax at reduced rate

http://news.yahoo.com/s/ap/us_estate_tax

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The House has already passed a bill returning the Estate Tax to 2009 levels (3.5 million exemption) Most observer believe that Congress will not allow the Estate tax to drop to 2001 levels ($650,000 exemption) as it is due to on January 1, 2o11. it is expected it will be set at somewhere around 2009 levels. As a reminder there is no Estate Tax in 2010

I will be in the Katy Office July 12th through July 23rd. Please call Sharon at 281-579-6081 if you would like to schedule and appointment

The Tax Cuts put in effect in 2001 are set to expire Decmeber 31, 2010. Here is a summary of the effect:

Tax Cuts Expiring in 2010

1. Tax Rates. The top tax rate will go from 35% to 39.6%. In addition, if nothing is done, it will mean higher taxes across the board. .
2. Capital Gains. The 0% long term capital gains rate will go away. Capital gains rates will go up to 10% for lower tax brackets and from 15% to 20% for higher tax brackets.
3. Dividends. Dividends will be taxed as ordinary income, with the new higher rates. Right now the dividend tax rates are 10% and 15%.
4. Child Tax Credit. The child tax credit  will return to $500 from the current $1,000 per child. In addition, it may not be refundable for some taxpayers.
5. 529 Plans. 529 plan  withdrawals will not be allowed tax free for computer or Internet access.
6. Business Taxes. In addition, various business taxes will change including the payroll tax credit and section 179 expense deduction.
7. Estate Taxes. Without any action, the estate tax exemption will go back to a $1 million exemption.
8. Other Tax Credits. The  tuition credits will be limited, as will the earned income credit.
9. Mortgage Premiums. You will no longer be able to deduct mortgage insurance premiums after December 31, 2010.

The most significant of these is the hike in the capital gains rate to 20% , the elimination of the 15% rate for qualified dividends and  reinstating the Estate Tax at 2001 levels.

Effective 3-31-10 the income exclusion for employer-provided coverage and reimbursements under accident or health plans applies to the employees children who are under the age of 27-regardless of whether they are a dependent or not. The same exclusion applies to insurance premiums paid by the self -employed .

Provisions that will impact Small Business are:

The Section 179 deduction remains at $250,000 for 2010 . It had been scheduled to drop to $134,000. Unless Congress acts the 179 deduction will be reduced to $25,000 in 2011

Payroll tax Holiday. Wages paid by a n  employer to a qualified new employee with respect to employment between 3-19-10 thru 12-31-10 are exempt for the 6.2% employers portion of the FICA tax. 

A qualifed new employee is one who:

Stars work between 2-3-10 and 12-21-10

Certifies on form W-11 that he was not employed for more than 40 hours during the 60 day period before the start period

Does not replace a worker unless they quit or were voluntarily discharged

Is not related to the Employer in any way

General Business Credit Increased. In addition to payroll tax holiday an employer can take up to a $1,00 credit for wages paid to each qualified employee subject to the following:

The worker must be kept on the payroll for 52 weeks

Wages paid to the employee in the second 26 weeks must equal at least 80% of the wages paid in the first 26 weeks.

The credit is equal to the lesser of 6.2% of the wages paid during the 52 week period or $1,000