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from IRS website:
Health Insurance Deduction Reduces Self Employment Tax In 2010, eligible self-employed individuals can use the self-employed health insurance deduction to reduce their social security self-employment tax liability in addition to their income tax liability. As in the past, eligible taxpayers claim this deduction on Form 1040 Line 29. But in 2010, eligible taxpayers can also enter this amount on Schedule SE Line 3, thus reducing net earnings from self-employment subject to the 15.3 percent social security self-employment tax.
Premiums paid for health insurance covering the taxpayer, spouse and dependents generally qualify for this deduction. Premiums paid for coverage of an adult child under age 27 at the end of the year, for the time period beginning on or after March 30, 2010, also qualify for this deduction, even if the child is not the taxpayer’s dependent.
As before, the insurance plan must be set up under the taxpayer’s business, and the taxpayer cannot be eligible to participate in an employer-sponsored health plan.
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Jan 11
26
2011 Standard Mileage Rates
Standard Mileage Rates
- Business travel rate for owned or leased autos (including vans, pickups or panel trucks): 51 cents/mile
- Medical care or in connection with a move that qualifies for the moving expense deduction: 19 cents/mile
- Charitable mileage: 14 cents/mile
Simplified deduction method. The mileage allowance deduction replaces separate deductions for lease payments (or depreciation if the car is purchased), maintenance, repairs, tires, gas, oil, insurance and license and registration fees. The taxpayer may, however, still claim separate deductions for parking fees and tolls connected to business driving.
The standard mileage rate may not be used for a purchased auto if:
- it was previously depreciated using a method other than straight-line for its estimated useful life;
- a IRC § 179 expensing deduction was claimed for the auto;
- the taxpayer has claimed the additional first-year depreciation allowance; or
- the taxpayer depreciated it using MACRS under IRC § 168.
Also, under current rules, the standard mileage rate can’t be used to compute the deductible expenses of five or more autos owned or leased by a taxpayer and used simultaneously (such as in fleet operations).
Rural mail carriers who receive qualified reimbursements also can’t use the standard mileage rate.
A taxpayer who uses the mileage allowance method for an auto he owns may switch in a later year to deducting the business connected portion of actual expenses, so long as he depreciates it from that point on using straight line depreciation over the auto’s remaining life. The depreciation deductions would still be subject to the dollar caps.
A taxpayer may use the mileage allowance method for a leased auto only if he uses that method (or a fixed and variable rate (FAVR) allowance method) for the entire lease period.
Other business mileage rate rules. For 2011, the depreciation component of the mileage rate is 22¢ per mile (was 23¢ per mile for 2010, 21¢ for 2009 and 2008, and 19¢ per mile for 2007). The depreciation component reduces the basis of the auto for gain or loss purposes.
Advantages of using standard mileage rate. For those taxpayers eligible to use it, the standard mileage rate offers the following advantages:
- Mileage rate users need not keep a record of actual expenses, or retain receipts where required. A record of the time, place, business purpose and number of miles traveled suffices.
- If an auto’s business expenses are deducted via the mileage rate, it is not subject to the IRC § 280F dollar caps or the special rules that apply if qualified business use does not exceed 50% of total use.
- The mileage rate method may yield bigger deductions than the actual expense method for a thrifty, high-mileage model.
Disadvantages of mileage rate method. The mileage rate method may produce a smaller deduction than would be obtained by claiming actual business-connected operating expenses plus depreciation (or lease payments). Also, use of the mileage rate method prevents the taxpayer from claiming regular MACRS deductions (subject to the luxury auto dollar caps) for the auto in later years.
Other applications of mileage allowance method. Employers that require employees to supply their own autos may reimburse them at a rate that doesn’t exceed 51¢ per mile for employment-connected business mileage during 2011 (50¢ per mile for 2010), whether the autos are owned or leased. The reimbursement is treated as a tax-free accountable-plan reimbursement if the employee substantiates the time, place, business purpose, and mileage of each trip.
FAVR allowance method. Employers may use a FAVR allowance method to reimburse employees who supply their own cars for business (whether the cars are leased or owned). For 2011, the standard auto cost used to compute the FAVR allowance cannot exceed $26,900 (down from $27,300 for 2010). For trucks or vans, the 2011 standard auto cost used to compute the FAVR allowance cannot exceed $28,200.
Jan 11
26
Dividend Income – 2010
Dividends
When a corporation distributes its earnings to its shareholders, the distribution is usually a dividend. If the dividend is “qualified” it is taxable at rates that apply to net capital gain; otherwise it is taxable as ordinary income. But not all corporate distributions are dividends. And some transactions that don’t appear to be dividends may be taxed as constructive dividends.
Dividends received before 2011 are taxed to shareholders at the rates that apply to net capital gain (i.e., 15% or 0%) if they constitute “qualified dividend income.” Otherwise they are taxed as ordinary income (at your tax bracket rate). Different rules apply if the shareholder is a corporation.
The net capital gain rate is determined by your tax bracket; you are taxed at the rate below your tax bracket. So if you are in the 15% tax bracket, your net capital gain rate will be 0%. And if you are in the 25% or higher tax bracket, your net capital gains will be taxed at 15%.
Qualified dividend income defined
For dividends received before 2011, qualified dividend income is dividend income received from domestic corporations and qualified foreign corporations. Dividends paid by other foreign corporations also are qualified if paid on stock or ADRs readily tradable on an established U.S. securities market.
Qualified dividend income does not include: (1) dividends paid on stock unless the stock has been held for more than 60 days during the 121 day period beginning 60 days before the ex-dividend date (more than 90 days during the 181 day period beginning 90 days before the ex-dividend date for preferred stock dividends attributable to a period of more than 366 days); (2) dividends on stock to the extent that the taxpayer is under an obligation to make related payments with respect to positions in substantially similar or related property; (3) any amount that the taxpayer elects to treat as investment income to support an investment interest deduction; (4) dividends from corporations that for the distribution year or the preceding year are exempt from tax under Code Sec. 501 (tax exempt organization) or Code Sec. 521 (exempt farmers’ cooperatives); (5) dividends deductible under Code Sec. 591 by mutual savings banks; and (6) dividends paid on employer securities owned by an employee stock ownership plan (ESOP), which are deductible under Code Sec. 404(k).
Qualified dividend income does not include payments in lieu of dividends (typically made to owners of stock that has been lent in connection with a short sale). However, if a payment in lieu of dividends is reported as dividend income on a Form 1099-DIV , the recipient may treat the payment for tax purposes as a dividend, and not as a payment in lieu of dividends, unless he knows, or has reason to know, of the actual character of the payment.
2010 Tax Relief Act retroactively reinstates and extends for two years a host of business tax breaks, including:
- the research credit
- Indian employment credit
- the new markets tax credit
- employer wage credit for activated reservists
- 15-year writeoff for qualifying leasehold improvements, restaurant buildings and improvements, and retail improvements
- enhanced charitable deductions for contributions of food inventory and book inventories and computer equipment
- enhanced charitable deductions for corporate contributions of computer equipment
- the work opportunity tax credit
- and empowerment zone tax incentives
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IRS Tax Tip 2011-36
Get Credit for Your Retirement Savings Contributions
You may be eligible for a tax credit if you make eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement. Here are six things the IRS wants you to know about the Savers Credit:
- Income Limits The Savers Credit, formally known as the Retirement Savings Contributions Credit, applies to individuals with a filing status and income of:
- Single, married filing separately, or qualifying widow(er), with income up to $27,750
- Head of Household with income up to $41,625
- Married Filing Jointly, with incomes up to $55,500
- Eligibility requirements To be eligible for the credit you must have been born before January 2, 1992, you cannot have been a full-time student during the calendar year and cannot be claimed as a dependent on another person’s return.
- Credit amount If you make eligible contributions to a qualified IRA, 401(k) and certain other retirement plans, you may be able to take a credit of up to $1,000 or up to $2,000 if filing jointly. The credit is a percentage of the qualifying contribution amount, with the highest rate for taxpayers with the least income.
- Distributions When figuring this credit, you generally must subtract the amount of distributions you have received from your retirement plans from the contributions you have made. This rule applies to distributions received in the two years before the year the credit is claimed, the year the credit is claimed, and the period after the end of the credit year but before the due date – including extensions – for filing the return for the credit year.
- Other tax benefits The Retirement Savings Contributions Credit is in addition to other tax benefits which may result from the retirement contributions. For example, most workers at these income levels may deduct all or part of their contributions to a traditional IRA. Contributions to a regular 401(k) plan are not subject to income tax until withdrawn from the plan.
- Forms to use To claim the credit use Form 8880, Credit for Qualified Retirement Savings Contributions.
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All of the following tax breaks for individuals that expired at the end of 2009 will be retroactively reinstated and extended through 2011:
- the $250 above-the-line deduction for certain expenses of elementary and secondary school teachers;
- the election to take an itemized deduction for State and local general sales taxes in lieu of the itemized deduction permitted for State and local income taxes;
- increased contribution limits and carryforward period for contributions of appreciated real property (including partial interests in real property) for conservation purposes;
- the above-the-line deduction for qualified tuition and related expenses;
- the provision that permits taxpayers age 70 1/2 or older to make tax-free distributions to charity from an Individual Retirement Account (IRA) of up to $100,000 per taxpayer, per tax year (additionally, individuals will be allowed to treat IRA transfers to charities during January of 2011 and as if made during 2010);
- look-thru of certain RIC stock in determining gross estate of nonresidents; and
- disregard of refunds in the administration of federal or federally assisted benefit programs.
Other Individual Tax Breaks Extended Through 2011
The following tax breaks for individuals that were set to expire at the end of 2010 will be extended through 2011:
- the increase in the monthly exclusion for employer-provided transit and vanpool benefits equal to that of the exclusion for employer-provided parking benefits (i.e., $230 per moth);
- treatment of mortgage insurance premiums as deductible qualified residence interest; and
- exclusion of 100% of gain on certain small business stock.
Energy Related Tax Provisions Extended Through 2011
The list of energy-related provisions that will be extended through 2011 are:
- the $1.00 per gallon production tax credit for biodiesel, as well as the small agri-biodiesel producer credit of 10 cents per gallon;
- the $1.00 per gallon production tax credit for diesel fuel created from biomass;
- the placed-in-service deadline for qualifying refined coal facilities;
- the credit for manufacturers of energy-efficient residential homes;
- the $0.50 per gallon alternative fuel tax credit (but the credit will not be extended for any liquid fuel derived from a pulp or paper manufacturing process);
- deferral of gain on qualified electric utilities’ sales or dispositions of electric transmission property;
- the suspension on the taxable income limit for purposes of depleting a marginal oil or gas well;
- grants for specified energy property in lieu of tax credits;
- the income tax credit for alcohol used as fuel;
- the reduced credit for ethanol blenders;
- the excise tax credit for alcohol used as fuel;
- the payment for alcohol fuel mixture;
- additional duties on imported ethanol;
- the energy efficient appliance credits (in new amounts and with new requirements);
- the credit for energy-efficient improvements to existing homes (reinstating the credit as it existed before passage of the American Recovery and Reinvestment Act (standards for property eligible under Code Sec. 25C are updated to reflect improvements in energy efficiency));
- the 30% investment tax credit for alternative vehicle refueling property.
Disaster Relief Provisions Extended Through 2011
The following disaster relief provisions will also be extended through 2011:
- the time for issuing New York Liberty Zone bonds, effective for bonds issued after Dec. 31, 2009;
- the increased rehabilitation credit for qualified expenditures in the Gulf Opportunity Zone (GO Zone);
- the placed-in-service deadline to claim additional low-income housing credits for buildings in GO Zones;
- tax-exempt bond financing; and
- the additional depreciation deduction claimed by businesses equal to 50% of the cost of new property investments made in the GO Zone (expenditures in 2011 will be eligible if the property is placed in service by Dec. 31, 2011).
Congress signs Law Late: Some Taxpayers Must Wait to File until Mid- to Late February
IR-2010-126, Dec. 23, 2010
WASHINGTON — Following last week’s tax law changes, the Internal Revenue Service announced today the upcoming tax season will start on time for most people, but taxpayers affected by three recently reinstated deductions need to wait until mid- to late February to file their individual tax returns. In addition, taxpayers who itemize deductions on Form 1040 Schedule A will need to wait until mid- to late February to file as well.
The start of the 2011 filing season will begin in January for the majority of taxpayers. However, last week’s changes in the law mean that the IRS will need to reprogram its processing systems for three provisions that were extended in the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 that became law on Dec. 17.
People claiming any of these three items — involving the state and local sales tax deduction, higher education tuition and fees deduction and educator expenses deduction as well as those taxpayers who itemize deductions on Form 1040 Schedule A — will need to wait to file their tax returns until tax processing systems are ready, which the IRS estimates will be in mid- to late February.
“The majority of taxpayers will be able to fill out their tax returns and file them as they normally do,” said IRS Commissioner Doug Shulman. “We will do everything we can to minimize the impact of recent tax law changes on other taxpayers. The IRS will work through the holidays and into the New Year to get our systems reprogrammed and ensure taxpayers have a smooth tax season.”
The IRS will announce a specific date in the near future when it can start processing tax returns impacted by the late tax law changes. In the interim, people in the affected categories can start working on their tax returns, but they should not submit their returns until IRS systems are ready to process the new tax law changes.
The IRS urged taxpayers to use e-file instead of paper tax forms to minimize confusion over the recent tax changes and ensure accurate tax returns.
Taxpayers will need to wait to file if they are within any of the following three categories:
- Taxpayers claiming itemized deductions on Schedule A. Itemized deductions include mortgage interest, charitable deductions, medical and dental expenses as well as state and local taxes. In addition, itemized deductions include the state and local general sales tax deduction extended in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 enacted Dec. 17, which primarily benefits people living in areas without state and local income taxes and is claimed on Schedule A, Line 5. Because of late Congressional action to enact tax law changes, anyone who itemizes and files a Schedule A will need to wait to file until mid- to late February.
- Taxpayers claiming the Higher Education Tuition and Fees Deduction. This deduction for parents and students — covering up to $4,000 of tuition and fees paid to a post-secondary institution — is claimed on Form 8917. However, the IRS emphasized that there will be no delays for millions of parents and students who claim other education credits, including the American Opportunity Tax Credit and Lifetime Learning Credit.
- Taxpayers claiming the Educator Expense Deduction. This deduction is for kindergarten through grade 12 educators with out-of-pocket classroom expenses of up to $250. The educator expense deduction is claimed on Form 1040, Line 23, and Form 1040A, Line 16.
For those falling into any of these three categories, the delay affects both paper filers and electronic filers.
The IRS emphasized that e-file is the fastest, best way for those affected by the delay to get their refunds. Those who use tax-preparation software can easily download updates from their software provider. The IRS Free File program also will be updated.
As part of this effort, the IRS will be working closely with the tax software industry and tax professional community to minimize delays and ensure a smooth tax season.
Updated information will be posted on IRS.gov. This will include an updated copy of Schedule A as well as updated state and local sales tax tables. Several other forms used by relatively few taxpayers are also affected by the recent changes, and more details are available on IRS.gov.
In addition, the IRS reminds employers about the new withholding tables released Friday for 2011. Employers should implement the 2011 withholding tables as soon as possible, but not later than Jan. 31, 2011. The IRS also reminds employers that Publication 15, (Circular E), Employer’s Tax Guide, containing the extensive wage bracket tables that some employers use, will be available on IRS.gov before year’s end.
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