President Bush recently signed a bill containing tax relief provisions for those affected by or volunteering to help with relief from Hurricane Katrina. While many of these provisions will have more effect in my old hometown in Mississippi, there are some provisions that will help us in Washington who help personally or financially.
The main provisions that affect us outside of the Katrina devastation involve new breaks for contributions. The limits on contributions as a percentage of income are lifted for the remainder of 2005.
Another nice break for anyone who has traveled to affected areas to give relief is the increased mileage deduction for hurricane relief. As I've written before, the oddity is that charitable miles are a 14 cent deduction, while business miles apparently cost 48.5 cents. This bill, however, increases the charitable mileage deduction for hurricane relief efforts to 70% of the business rate. That should come out to about 34 cents per mile - a nice bump from the regular rate.
Quite a few people have asked if my family and friends were affected by the hurricane. While everyone I know is safe, there was some pretty serious devastation in my old hometown of Hattiesburg, Mississippi. My old high school caught a good bit of the blow - here are some pictures if you're interested.
For more details on the tax bill, click here.
Friday, September 30, 2005
Friday, September 23, 2005
Your Estimate Payment May Be Lost!
Did you make an estimated tax payment in September? You might have to do it all over again!
September 11th is just not a good day for the federal government. On that date two weeks ago, there was apparently an accident on the San Mateo bridge involving an truck transporting estimated tax payments to the IRS lockbox. The payments were blown all over the bridge and into the bay. The IRS thinks it lost between 30,000 and 46,000 estimate payments in the accident.
These payments were those made from residents of western states, including Washington and Oregon. If you made a payment before September 11, watch your bank statement or online banking system to see if it clears. If you see nothing by September 30, the IRS would like you to call them at 800-829-1040 for further instructions.
Any underpayment penalties will be waived for payments they receive late because of this accident. That's great, but another issue that strikes me is the opportunity for identity theft with all these payment checks blowing around. As always, keep a close eye on your bank account to make sure things look right.
https://www.wscpa.org/wscpa/ShortForm/050923/0923sf3.htm
September 11th is just not a good day for the federal government. On that date two weeks ago, there was apparently an accident on the San Mateo bridge involving an truck transporting estimated tax payments to the IRS lockbox. The payments were blown all over the bridge and into the bay. The IRS thinks it lost between 30,000 and 46,000 estimate payments in the accident.
These payments were those made from residents of western states, including Washington and Oregon. If you made a payment before September 11, watch your bank statement or online banking system to see if it clears. If you see nothing by September 30, the IRS would like you to call them at 800-829-1040 for further instructions.
Any underpayment penalties will be waived for payments they receive late because of this accident. That's great, but another issue that strikes me is the opportunity for identity theft with all these payment checks blowing around. As always, keep a close eye on your bank account to make sure things look right.
https://www.wscpa.org/wscpa/ShortForm/050923/0923sf3.htm
Wednesday, September 21, 2005
IRS Realizes Gas Price Increasing
With the recent spike in fuel costs, the IRS has increased their standard mileage rate for the last four months of the year. The new rate as of September 1 will be 48.5¢, up from the 40.5¢ rate set for January 1.The standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.
But the really big news? Charitable mileage can still only be deducted at 14¢ per mile. What's up with that? The rate hasn't increased for years. If any one can point me to the charitable gas station where I can fuel up that cheaply, please drop me an email.
Monday, August 22, 2005
The New Cost of Dying
If you didn't already fear dying, the Washington state legislature has given you a new reason: estate taxes.
The legislature passed a bill that creates a new state-level tax on folks with more than $1.5 million in their estate. Beginning in 2006, the threshhold increases to $2.0 million. Rates will range from 10-19% of the estate.
The tax took effect May 17, 2005, and replaces a state-level estate tax that was declared invalid by the Washington Supreme court earlier this year. I guess the pot of dead peoples' cash was so attractive to legislators, they couldn't help but try to grab a piece. The estate tax has always seemed patently unfair to me, as estates are composed of assets purchased with money that has already been taxed once. The logic behind death being a taxable event escapes me.
Anyway, here's a link to the bill.
The legislature passed a bill that creates a new state-level tax on folks with more than $1.5 million in their estate. Beginning in 2006, the threshhold increases to $2.0 million. Rates will range from 10-19% of the estate.
The tax took effect May 17, 2005, and replaces a state-level estate tax that was declared invalid by the Washington Supreme court earlier this year. I guess the pot of dead peoples' cash was so attractive to legislators, they couldn't help but try to grab a piece. The estate tax has always seemed patently unfair to me, as estates are composed of assets purchased with money that has already been taxed once. The logic behind death being a taxable event escapes me.
Anyway, here's a link to the bill.
Wednesday, August 17, 2005
A Hybrid Credit, Courtesy of the Energy Bill
I've written previously about tax advantages of purchasing a hybrid vehicle. The attractive tax aspects of these vehicles were enhanced by the energy bill signed by President Bush on my birthday, August 8.
The energy bill replaces the old deduction with two new credits for the purchase of a hybrid under 8500 lbs GVW. The credits vary based on the efficiency of the hybrid vehicle. For the first credit, fuel efficiency is compared to the 2002 average fuel efficiency for a vehicle type (car or light truck) and weight class. This credit ranges from $400 for a vehicle that gets at least 125% of the 2002 average, all the way up to $2,400 for one with average mileage 250% of 2002.
The second credit is based on the 'Lifetime Fuel Savings' of the vehicle, which they calculate as the estimated number of gallons you'll save over a 120,000 mile life. This credit adds between $250 and $1,000 (available when a vehicle should save 3,000 gallons over a lifetime).
As you can see, the total credits here can be as much as $3,400, and they're a pain to calculate! I suspect that vehicles will eventually be prequalified for a certain credit amount, and you'll know that amount from the dealer when you purchase the vehicle. Still, these credits are a nice enhancement from the $2,000 deduction (not credit) that was previously the code.
The energy bill replaces the old deduction with two new credits for the purchase of a hybrid under 8500 lbs GVW. The credits vary based on the efficiency of the hybrid vehicle. For the first credit, fuel efficiency is compared to the 2002 average fuel efficiency for a vehicle type (car or light truck) and weight class. This credit ranges from $400 for a vehicle that gets at least 125% of the 2002 average, all the way up to $2,400 for one with average mileage 250% of 2002.
The second credit is based on the 'Lifetime Fuel Savings' of the vehicle, which they calculate as the estimated number of gallons you'll save over a 120,000 mile life. This credit adds between $250 and $1,000 (available when a vehicle should save 3,000 gallons over a lifetime).
As you can see, the total credits here can be as much as $3,400, and they're a pain to calculate! I suspect that vehicles will eventually be prequalified for a certain credit amount, and you'll know that amount from the dealer when you purchase the vehicle. Still, these credits are a nice enhancement from the $2,000 deduction (not credit) that was previously the code.
Monday, July 18, 2005
Offers In Compromise May Be Severely Curtailed
Pending legislation may well put a stop to offers that would be submitted under the IRS' offer in compromise (OIC) program. The OIC allows a taxpayer to offer an amount to the Service in full payment of their IRS debts. Last year, the Service added an application fee to reduce the number of offers they receive, but that must not have been enough for them.
The Service would like to require a 20% nonrefundable down payment be made with any offer. It's feared that this would be a disincentive to submissions, as there's no guarantee your offer will be accepted, and taxpayers would be out their down payment. I suppose the funds would be applied to the debt already owing, but this still stands to curtail a program that has been a lifesaver for many taxpayers.
The Service would like to require a 20% nonrefundable down payment be made with any offer. It's feared that this would be a disincentive to submissions, as there's no guarantee your offer will be accepted, and taxpayers would be out their down payment. I suppose the funds would be applied to the debt already owing, but this still stands to curtail a program that has been a lifesaver for many taxpayers.
Thursday, July 14, 2005
A New Deduction For Your Production
Beginning in 2005, companies engaged in 'domestic production' will be allowed a new deduction for their efforts. The deduction will be 3% of the income generated by qualified production activities (increasing to 6% in 2007 and 9% in 2010).
There are still a lot of details to be worked out regarding eligibility for the deduction, but some industries that qualify are construction (in the US), manufacturing, and farming. You don't have to be incorporated to benefit, either.
While this might not be a huge deduction for most companies until the rates increase, I'd put this one under 'Every little bit helps'!
There are still a lot of details to be worked out regarding eligibility for the deduction, but some industries that qualify are construction (in the US), manufacturing, and farming. You don't have to be incorporated to benefit, either.
While this might not be a huge deduction for most companies until the rates increase, I'd put this one under 'Every little bit helps'!
Tuesday, June 07, 2005
IRS Wants More From S-Corporations
A disturbing recommendation from the IRS suggests that the income of S corporations should be subject to self-employment tax, as is the case with unincorporated sole proprietorships.
Fortunately, the commissioner of the IRS branch dealing with small businesses and the self-employed disagrees with this recommendation. It is far too soon to tell whether this proposal has a chance in Congress, though with the current efforts needed to increase the solvency of Social Security, any proposal that increases Social Security taxes will likely receive serious consideration.
For years we have advised individuals that using S corporations instead of sole proprietorships can save significant taxes by allowing the gain remaining inside the business to be free of self-employment taxes. The owner is required to take a 'reasonable' salary, upon which payroll taxes are paid, but the remainder of the profits can be taken as a distribution, exempt of self-employment tax. This proposal would eliminate that exemption.
We will watch this issue carefully as it progresses. You may wish to contact our federal legislative representatives and express your feelings, though this has not yet come up as a bill in Congress.
Fortunately, the commissioner of the IRS branch dealing with small businesses and the self-employed disagrees with this recommendation. It is far too soon to tell whether this proposal has a chance in Congress, though with the current efforts needed to increase the solvency of Social Security, any proposal that increases Social Security taxes will likely receive serious consideration.
For years we have advised individuals that using S corporations instead of sole proprietorships can save significant taxes by allowing the gain remaining inside the business to be free of self-employment taxes. The owner is required to take a 'reasonable' salary, upon which payroll taxes are paid, but the remainder of the profits can be taken as a distribution, exempt of self-employment tax. This proposal would eliminate that exemption.
We will watch this issue carefully as it progresses. You may wish to contact our federal legislative representatives and express your feelings, though this has not yet come up as a bill in Congress.
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