The Illinois Depatment of Revenue has announced a tax amnesty program that will be in effect from October 1, 2010 through November 8, 2010. The program will apply to taxes due to the State of Illinois for the taxable period occurring after June 30, 2002 and prior to July 1, 2009.

The Illinois Tax Delinquency Amnesty Act authorized the Department to provide taxpayers the opportunity to pay certain outstanding tax liabilities and to have penalties and interest waived for taxes paid in full during the amnesty period.

Liabilities eligible for amnesty are taxes due from periods ending after June 30, 2002 and prior to July 1, 2009. 

To qualify for amnesty, taxpayers must make full payment of eligible tax amnesty between October 1, 2010 and November 8, 2010. If a taxpayer owes penalties and interest, he or she does not qualify for the amnesty program. Penalties and interest charges will be doubled if a taxpayer fails to pay an eligible tax obligation during the amnesty period.

A taxpayer may: (1) pay electronically through the Department website; (2) pay individual income tax with a credit card; (3) mail a check or guaranteed remittance (such as a money order) to the Department; or (4) pay in person at an Illinois Department of Revenue office location.

For each applicable period, a taxpayer must: (1) complete an original return if the taxpayer failed to file a tax return, or complete an amended return if the taxpayer incorrectly reported liability due on a previously filed return; (2) attach any supporting documentation; and (3) pay the tax balance for each return in full.

Taxpayers are instructed to pay the eligible tax liability reported on each return with a separate check or guaranteed remittance. The return and full payment must be made between October 1, 2010 and November 8, 2010.

The return, any required supporting documentation and payment may be brought to any Illinois Department of Revenue office or mailed to the address on the return. Payments should be made payable to the “Illinois Department of Revenue.” If mailed, the postmark must reflect a date between October 1, 2010 and November 8, 2010.

The following taxes do not qualify for amnesty: (1) taxes not collected by the Department such as property, estate, franchise and insurance taxes, and local taxes paid directly to the local government; (2) any balance due on returns for periods ending on or before June 30, 2002, or on or after July 1, 2009; and (3) International Fuel Tax Agreement liabilities.

Please comment here if you have any questions.

Section 9006 of the health care reform bill mandates that beginning in 2012 all companies will have to issue 1099 tax forms not just to contract workers but to any individual or corporation from which they buy more than $600 in goods or services in a tax year.

Congress apparently wants to ensure that payments made by persons engaged in a trade or business to a corporation other than a tax-exempt corporation of $600 or more in the aggregate in one tax year will be reported to IRS if made in 2012 or thereafter. This will flag the payment for IRS to help determine if it was properly reported by the corporate payee.

This information-reporting provision will increase the paperwork burden on businesses that routinely make payments each year totaling $600 or more per corporation.

Presumably, businesses will be able to use Form 1099-MISC to report the payments discussed above.

Example 1
A, a calendar-year taxpayer, is engaged in the trade or business of being a photographer. In 2011, A pays B Corp., a calendar-year taxpayer, $12,000 to rent a storefront to conduct the photography business. A is not required to file an information reporting return with IRS for the $12,000 payment made to B.

Example 2
The facts are the same as in Example 1, except that A pays the $12,000 rent to B in 2012. A will be required to file an information reporting return with IRS for the $12,000 payment, setting forth the amount paid ($12,000) and B’s name and address.  A will also be required to provide B with a statement showing the $12,000 payment and include B’s contact information. IRS will thus be on notice that A paid B $12,000 in 2012, and can check B’s 2012 return to see if B properly reported the rent payment as income.

IRS says it intends to issue guidance that will implement these changes in a manner that minimizes burden and avoids duplicative reporting.

Somerset CPAs will continue to monitor this law change and keep you abreast of any changes, pitfalls or opportunities related to these new reporting requirements.

Here’s an ”IRS Summertime Tax Tip” with some great information on charitable deductions we wanted to pass along to you.

Did you make a donation to a charity this year? If so, you may be able to take a deduction for it on your 2010 tax return.

Here are the top 10 things the IRS wants every taxpayer to know before deducting charitable donations.

Charitable contributions must be made to qualified organizations to be deductible. You can ask any organization whether it is a qualified organization and most will be able to tell you. You can also check IRS Publication 78, Cumulative List of Organizations, which lists most qualified organizations. IRS Publication 78 is available at IRS.gov.

Charitable contributions are deductible only if you itemize deductions using Form 1040, Schedule A.

You generally can deduct your cash contributions and the fair market value of most property you donate to a qualified organization. Special rules apply to several types of donated property, including clothing or household items, cars and boats.

If your contribution entitles you to receive merchandise, goods, or services in return – such as admission to a charity banquet or sporting event – you can deduct only the amount that exceeds the fair market value of the benefit received.

Be sure to keep good records of any contribution you make, regardless of the amount. For any contribution made in cash, you must maintain a record of the contribution such as a bank record – including a cancelled check or a bank or credit card statement – a written record from the charity containing the date and amount of the contribution and the name of the organization, or a payroll deduction record.

Only contributions actually made during the tax year are deductible. For example, if you pledged $500 in September but paid the charity only $200 by Dec. 31, your deduction would be $200.

Include credit card charges and payments by check in the year they are given to the charity, even though you may not pay the credit card bill or have your bank account debited until the next year.

For any contribution of $250 or more, you must have written acknowledgment from the organization to substantiate your donation. This written proof must include the amount of cash and a description and good faith estimate of value of any property you contributed, and whether the organization provided any goods or services in exchange for the gift.

To deduct charitable contributions of items valued at $500 or more you must complete a Form 8283, Noncash Charitable Contributions, and attached the form to your return.

An appraisal generally must be obtained if you claim a deduction for a contribution of noncash property worth more than $5,000. In that case, you must also fill out Section B of Form 8283 and attach the form to your return.

For more information see IRS Publication 526, Charitable Contributions, and for information on determining value, refer to Publication 561, Determining the Value of Donated Property. These publications are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Links:
Publication 78, Cumulative List of Organizations
Publication 526, Charitable Contributions ( PDF)
Publication 561, Determining the Value of Donated Property ( PDF)

If you have any questions regarding charitable contributions, please post a comment here or contact us direct.

The following comes from a recent IRS e-newsletter we received. It is a topic that can be confusing, so we wanted to pass this information along to you:

As a small business owner you may hire people as independent contractors or as employees. There are rules that will help you determine how to classify the people you hire. This will affect how much you pay in taxes, whether you need to withhold from your workers’ paychecks and what tax documents you need to file.

Here are seven things every business owner should know about hiring people as independent contractors versus hiring them as employees.

The IRS uses three characteristics to determine the relationship between businesses and workers:
Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.
Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job.
Type of Relationship factor relates to how the workers and the business owner perceive their relationship. 

If you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees. 

If you can direct or control only the result of the work done — and not the means and methods of accomplishing the result — then your workers are probably independent contractors. 

Employers who misclassify workers as independent contractors can end up with substantial tax bills. Additionally, they can face penalties for failing to pay employment taxes and for failing to file required tax forms. 

Workers can avoid higher tax bills and lost benefits if they know their proper status.

Both employers and workers can ask the IRS to make a determination on whether a specific individual is an independent contractor or an employee by filing a Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS.

You can learn more about the critical determination of a worker’s status as an Independent Contractor or Employee at IRS.gov by selecting the Small Business link.  Additional resources include IRS Publication 15-A, Employer’s Supplemental Tax Guide, Publication 1779, Independent Contractor or Employee, and Publication 1976, Do You Qualify for Relief under Section 530? These publications and Form SS-8 are available on the IRS website or by calling the IRS at 800-829-3676 (800-TAX-FORM).

Links:
Publication 15-A, Employer’s Supplemental Tax Guide (PDF)
Publication 1779, Independent Contractor or Employee (PDF)
Publication 1976, Do You Qualify for Relief under Section 530? (PDF)
Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding (PDF)

We welcome your questions or comments.

The Social Security Administration’s Office of the Chief Actuary (OCA) has projected that the Social Security wage base will remain at $106,800 for 2011.

The 2011 projections were included as part of the annual report to Congress by the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Fund programs (The 2010 OASDI Trustees Report). Actual annual increases to the wage base are announced in October of the preceding year. The SSA provides three kinds of forecasts for Social Security wage bases (intermediate, low cost, and high cost). The SSA intermediate forecasts through 2019 are as follows:

2011 — $106,800
2012 — $113,700
2013 — $118,200
2014 — $123,600
2015 — $129,300
2016 — $135,300
2017 — $141,000
2018 — $147,300
2019 — $153,600

A Republican attempt to permanently repeal the estate tax was defeated by the Senate today. John D. McKinnon’s post on the WSJ Blogs discusses the Senate vote yesterday and what that means for the future of the Estate Tax. Read more…

The IRS recently released IRS Summertime Tax Tip 2010-01: Summertime Child Care Expenses May Qualify for a Tax Credit 

Did you know that your summer day care expenses may qualify for an income tax credit? Many parents who work or are looking for work must arrange for care of their children under 13 years of age during the school vacation. Those expenses may help you get a credit on next year’s tax return.

Here are five facts the IRS wants you to know about a tax credit available for child care expenses. The Child and Dependent Care Credit is available for expenses incurred during the lazy hazy days of summer and throughout the rest of the year.

The cost of day camp may count as an expense towards the child and dependent care credit.

Expenses for overnight camps do not qualify.

If your childcare provider is a sitter at your home or a daycare facility outside the home, you’ll get some tax benefit if you qualify for the credit.

The actual credit can be up to 35 percent of your qualifying expenses, depending upon your income.

You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.

For more information check out IRS Publication 503, Child and Dependent Care Expenses.

We recently received notice that Indiana will be requiring all employers who submit more than 25 withholding statements to submit the WH-3 and W-2s electronically. This is effective 7/1/10 and applies to all withholding statements filed after 12/31/10. We did call the Indiana Department of Revenue (IDR) to ask if this applies to withholding on non-resident shareholders and filings of WH-18s. They said that, yes, this applies for all entities that file more than 25 withholding forms, whether they be W-2s or WH-18s. If the entity files more than 25 withholding forms, they will be required to file those forms and the WH-3 electronically for all filings after 12/31/10. 

Here is the info per the IDR website: 

Effective July 1, 2010, any employer that files more than 25 withholding statements in a calendar year is required to file the annual WH-3 and its employees’ W-2s electronically. This new law (IC 6-3-4-16.5) applies to withholding statements filed after Dec. 31, 2010.

There are a couple ways you can electronically file your WH-3 and W-2s:

INtax - You can use INtax to manage your Indiana sales and withholding taxes online. It gives you 24/7 access to your business tax records and lets you file and pay online right up to the last minute. Many taxpayers currently using INtax are highly satisfied with it. In fact, 93 percent of INtax users recently surveyed said they would recommend INtax to others.

To register, please visit http://www.intax.in.gov/

Bulk File Upload - The bulk file upload is a system for uploading electronic files containing tax return data to the Department of Revenue’s systems. Bulk file upload submitters must be preregistered and certified to use the system. This is the Department’s preferred method of electronic filing if a company has 500 or more employees.

For more information, please visit www.in.gov/dor/4002.htm You may also contact the Department at (317) 233-5656 or IDORB2BSupport@dor.IN.gov

If you have young children, you should consider the cost of higher education well in advance. Two educational savings vehicles allow individuals to save for education on a tax-favored basis: a qualified tuition program and a Coverdell education savings account. Also, you may be able to exclude from income a limited amount of bond interest received from qualified U.S. savings bonds in the year you pay higher education expenses. Parents may also use funds from an individual retirement account or a traditional form of savings to pay tuition costs. Generally, the payment of higher education costs is supplemented with scholarships, loans and grants. However, having a viable plan as early as possible in a child’s life will make maximum use of a family’s financial resources and may provide some tax benefit.

Section 529 plans. The Tax Code allows states and some educational institutions to offer so-called “529″ plans (known for the section of the Tax Code that governs them). They are also sometimes called qualified tuition programs (QTPs). They allow you to either prepay or contribute to an account for paying a student’s post-secondary education expenses. An eligible educational institution generally includes colleges, universities, vocational schools or other post-secondary educational institutions. In addition, distributions from state programs, even to the extent of earnings, are now entirely tax-free to the extent used for qualified higher education expenses. This tax-free treatment also has been available for distributions from private college and university programs.

Coverdell education savings accounts. Coverdell education savings accounts (also sometimes called education IRAs) are similar to IRAs. You can save today for future educational expenses, not just higher educational expenses. Funds in a Coverdell ESA can also be used for K-12 and related expenses. The maximum annual Coverdell ESA contribution is $2,000 per beneficiary. Contributions are not deductible by the donor and distributions are not included in the beneficiary’s income as long as they are used to pay for qualified education expenses. Earnings accumulate tax-free. Contributions generally must stop when the beneficiary turns age 18, except for individuals with special needs. Parents can maximize benefits, however, by transferring older siblings’ accounts for use by a younger brother, sister or first cousin, thereby maximizing the tax-free growth period. Excess contributions are subject to an excise tax.

Although the amounts of adjusted gross income allowed for a contributor to a Coverdell ESA are subject to phase-out, the limits are generous. The annual contribution starts to phase out for married couples filing jointly with modified AGI at or above $190,000 and less than $220,000 and at or above $95,000 and less than $110,000 for single individuals.

Undoubtedly, some of these provisions will be more important to you than others, depending upon your personal circumstances. If you would like to explore how these opportunities can work for you and have us fully evaluate your situation, comment here or contact us direct.

In recent years, many options have become available to self-employed individuals to provide for their retirement. Tax planning for retirement can include deductible contributions to a Keogh plan, traditional or Roth IRA, SEP plan, SIMPLE plan or a one-person 401(k) plan. You may wish to consider implementing one of these plans for yourself and/or your employees to benefit from a current tax year deduction and accumulate tax-deferred retirement savings.

Each of these plans has advantages and disadvantages, and some may not be applicable to your situation. For example, a sole-owner 401(k) retirement plan allows a contribution for you as both an employer and as an employee. Therefore, a sole-owner 401(k) plan may provide for the largest deductible contribution. However, a sole-owner 401(k) is not available to the self-employed with employees other than a spouse or relative. As an alternative, a Keogh plan provides more flexibility, but is more complicated to maintain than a SEP or SIMPLE plan and may have additional administrative costs. Ultimately, the choice of savings vehicle will depend on factors related to your business and your retirement needs. Regardless of which plan you qualify for or what your retirement needs are, it is important to begin planning now for your retirement.

We would be happy to discuss the various retirement plan options and how they might apply to your business. Please contact us.