IRS Provides I-Phone App

Source: IRS

The Economics of the Dependent Exemption

Source: Urban Institute

Who Benefits From the Dependent Exemption?

Elaine Maag

Abstract

The dependent exemption reduces taxable income by a fixed amount ($3,650 in 2010) for each qualifying child in the family. Benefits depend on a family's marginal tax rate. Low-income families receive a tax reduction of up to $365 per exemption compared to high income families that receive a tax reduction of $1,278 per exemption. Benefits flow mostly to families with relatively high incomes. In 2010, TPC estimates 1.5 percent of benefits will accrue to families in the lowest income quintile while 57.1 percent of benefits will accrue to families in the top 40 percent of the income distribution.

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IRS Announces 2011 Standard Mileage Rates

Source: IRS

IR-2010-119, Dec. 3, 2010

WASHINGTON — The Internal Revenue Service today issued the 2011 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on Jan. 1, 2011, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 51 cents per mile for business miles driven
• 19 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for any vehicle used for hire or for more than four vehicles used simultaneously.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

Revenue Procedure 2010-51 contains additional details regarding the standard mileage rates.

Estimate Your 2011 Tax Burden

Source: The Tax Foundation

Tax Foundation Projects 2011 Tax Parameters Using New Inflation Numbers

Interactive 2011 Tax Calculator at www.mytaxburden.org Updated to Reflect Inflation Figures, Republican Plan for Expiring Bush-Era Tax Cuts

Washington, DC, September 17, 2010 - The Tax Foundation has updated its 2011 income tax calculator atwww.mytaxburden.org to reflect new inflation figures released by the Bureau of Labor Statistics today, which are used by the IRS to determine tax parameters such as brackets and amounts for the standard deduction and personal exemption.

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Your Guide to an IRS Audit

Source: IRS

The IRS has posted a series of lessons with video and audio that explain describe an IRS audit.

Your Guide to an IRS Audit

IRS Issues Guidance Explaining 2011 Changes to Flexible Spending Arrangements

Source: IRS Press Release

IR-2010-95, Sept. 3, 2010

WASHINGTON — The Internal Revenue Service today issued guidance reflecting statutory changes regarding the use of certain tax-favored arrangements, such as flexible spending arrangements (FSAs), to pay for over-the-counter medicines and drugs.
The Affordable Care Act, enacted in March, established a new uniform standard that, effective Jan. 1, 2011, applies to FSAs and health reimbursement arrangements (HRAs). Under the new standard, the cost of an over-the-counter medicine or drug cannot be reimbursed from the account unless a prescription is obtained. The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles. The new standard applies only to purchases made on or after Jan. 1, 2011, so claims for medicines or drugs purchased without a prescription in 2010 can still be reimbursed in 2011, if allowed by the employer’s plan.

A similar rule goes into effect on Jan. 1, 2011 for Health Savings Accounts (HSAs), and Archer Medical Savings Accounts (Archer MSAs).

Employers and employees should take these changes into account as they make health benefit decisions for 2011.

For details on current rules, see Publication 969 , Health Savings Accounts and Other Tax-Favored Health Plans.

Updates on this and other health care reform provisions can be found on the Affordable Care Act page on IRS.gov. Notice 2010-59 andRevenue Ruling 2010-23, posted today, further explains this change.

Related Item: Questions and Answers on Over-the-Counter Medicines and Drugs

Prepare for Hurricane Season by Reviewing Tax Rules on Casualty Losses

Source: IRS

Topic 515 - Casualty, Disaster, and Theft Losses

A casualty loss can result from the damage, destruction or loss of your property from any sudden, unexpected, or unusual event such as a flood, hurricane, tornado, fire, earthquake or even volcanic eruption.

A theft is the taking and removing of money or property with the intent to deprive the owner of it. The taking must be illegal under the law of the state where it occurred and it must have been done with criminal intent.

If your property is not completely destroyed, or if it is personal-use property, the amount of your casualty or theft loss is the lesser of the adjusted basis of your property or the decrease in fair market value of your property as a result of the casualty or theft. The adjusted basis of your property is usually your cost, increased or decreased by certain events such as improvements or depreciation. For more information about the basis of property, refer to Topic 703, or Publication 547, Casualties, Disasters, and Thefts. You may determine the decrease in fair market value by appraisal or, if certain conditions are met, by the cost of repairing the property. For more information, refer to Publication 547. Keep in mind the general definition of fair market value is the price at which property would change hands between a buyer and seller, neither having to buy or sell, and both having reasonable knowledge of all necessary facts.

If the property was held by you for personal-use, you must further reduce your loss by $100. This $100 reduction for losses of personal-use property applies to each casualty or theft event that occurred during the year. The total of all your casualty and theft losses of personal-use property must be further reduced by 10% of your adjusted gross income. In addition, individuals are required to claim their casualty and theft losses as an itemized deduction.

The National Disaster Relief Act of 2008 changed some of the tax rules pertaining to losses resulting from federally declared disasters. The new law, which is effective for losses attributable to disasters federally declared in taxable years beginning after December 31, 2007, and before January 1, 2010, provides the following:

• Allows all taxpayers, not just those who itemize, to claim the net disaster loss deduction regardless of the taxpayer's adjusted gross income
• Removes the 10 percent of adjusted gross income limitation for net disaster losses
• Provides a 5-year net operating loss (NOL) carryback for qualified disaster losses
• Changes the amount by which all individual taxpayers must reduce their personal casualty or theft losses for each casualty or theft event from $100 to $500. This applies to deductions claimed in 2009. The reduction amount returns to $100 for taxable years beginning after December 31, 2009

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IRS Posts Draft Tax Forms

The IRS posts drafts of the current year tax forms before they are finalized. If you would like a peek at what your next tax return might look like, you can inspect the likely forms at the IRS website. 

Draft Federal Tax Forms

Draft Form 1040

State Cigarette Excise Taxes: 2010

Source: National Conference of State Legislatures

See map.

At Least for Now, the Sun is Still Free

Source: IRS

IRS Issues Regulations on 10-Percent Tax on Tanning Services Effective July 1

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The Internal Revenue Service has issued regulations outlining the administration of a 10-percent excise tax on indoor tanning services that goes into effect on July 1. The regulations have been published today in the Federal Register.

In general, providers of indoor tanning services will collect the tax at the time the purchaser pays for the tanning services. The provider then pays over these amounts to the government, quarterly, along with IRS Form 720, Quarterly Federal Excise Tax Return.

The IRS announced that the tax does not apply to phototherapy services performed by a licensed medical professional on his or her premises. The regulations also provide an exception for certain physical fitness facilities that offer tanning as an incidental service to members without a separately identifiable fee.

IRS on Employer Provided Coverage for Children Under Age 27

Source: Internal Revenue Service

Tax-Free Employer-Provided Health Coverage Now Available for Children under Age 27

IR-2010-53, April 27, 2010
WASHINGTON — As a result of changes made by the recently enacted Affordable Care Act, health coverage provided for an employee's children under 27 years of age is now generally tax-free to the employee, effective March 30, 2010.

The Internal Revenue Service announced today that these changes immediately allow employers with cafeteria plans –– plans that allow employees to choose from a menu of tax-free benefit options and cash or taxable benefits –– to permit employees to begin making pre-tax contributions to pay for this expanded benefit.

IRS Notice 2010-38 explains these changes and provides further guidance to employers, employees, health insurers and other interested taxpayers.

“These changes give employers a unique opportunity to offer a worthwhile benefit to their employees,” IRS Commissioner Doug Shulman said. “We want to make it as easy as possible for employers to quickly implement this change and extend health coverage on a tax-favored basis to older children of their employees.”

This expanded health care tax benefit applies to various workplace and retiree health plans. It also applies to self-employed individuals who qualify for the self-employed health insurance deduction on their federal income tax return.

Employees who have children who will not have reached age 27 by the end of the year are eligible for the new tax benefit from March 30, 2010, forward, if the children are already covered under the employer’s plan or are added to the employer’s plan at any time. For this purpose, a child includes a son, daughter, stepchild, adopted child or eligible foster child. This new age 27 standard replaces the lower age limits that applied under prior tax law, as well as the requirement that a child generally qualify as a dependent for tax purposes.

The notice says that employers with cafeteria plans may permit employees to immediately make pre-tax salary reduction contributions to provide coverage for children under age 27, even if the cafeteria plan has not yet been amended to cover these individuals. Plan sponsors then have until the end of 2010 to amend their cafeteria plan language to incorporate this change.

In addition to changing the tax rules as described above, the Affordable Care Act also requires plans that provide dependent coverage of children to continue to make the coverage available for an adult child until the child turns age 26. The extended coverage must be provided not later than plan years beginning on or after Sept. 23, 2010. The favorable tax treatment described in the notice applies to that extended coverage.

Information on other health care provisions can be found on this website, IRS.gov.

COBRA Subsidy Eligibility Period Extended to May 31

Source: Internal Revenue Service

Workers who lose their jobs during April and May may qualify for a 65-percent subsidy on their COBRA health insurance premiums, according to the Internal Revenue Service. The American Recovery and Reinvestment Act established this subsidy to help workers who lost their jobs as a result of the recession maintain their employer sponsored health insurance. The Continuing Extension Act of 2010, enacted April 15, reinstated the COBRA subsidy, which had expired on March 31. As a result, workers who are involuntarily terminated from employment between Sept. 1, 2008 and May 31, 2010, may be eligible for a 65-percent subsidy of their COBRA premiums for a period of up to 15 months. In some cases, workers who had their hours reduced and later lose their jobs may also be eligible for the subsidy.

Medicare Tax Hike on High Income Earners

Source: The Tax Foundation

Tax Foundation Report: Examples of Medicare Tax Hikes Faced by High-Income Taxpayers

Tax Foundation Outlines How Two New Medicare Taxes in Health Care Reform Bill Would Affect Various High-Income Taxpayers

Washington, DC, March 23, 2010 -- The health care reform legislation passed by the House Sunday contains several tax increases, including two new Medicare tax hikes on high-income taxpayers scheduled to go into effect in 2013. A new Tax Foundation report outlines eight examples of how the new tax would affect taxpayers of various income levels and sources as well as filing statuses.

The health care bill calls for an additional 0.9% Medicare Hospital Insurance Tax on earned income exceeding $200,000 for single taxpayers ($250,000 for married couples) and an "Unearned Income Medicare Contribution" of 3.8% on investment income for taxpayers with adjusted gross incomes (AGI) in excess of $200,000 for single filers ($250,000 for married filers).

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On the Bright Side, You are Already Past Tax Freedom

If you bear the average tax burden, on this April 15th you might rejoice. After all, you have already made it past Tax Freedom Day.

Source: The Tax Foundation

Tax Freedom Day will arrive on April 9 this year, the 99th day of 2010, according to our annual calculation using the latest government data on income and taxes. Americans will work well over three months of the year—from January 1 to April 9—before they have earned enough money to pay this year's tax obligations at the federal, state and local levels.

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Roth IRA conversion calculator

Thinking of converting a traditional IRA to a Roth IRA? Examine the tax implications with the Vanguard Roth IRA conversion calculator.

What States Already Have Taxes on Soft Drinks?

The Kaiser Family Foundation has posted excise taxes by state on  food, soft drinks and chips and pretzels. You can also find a page with cigarette taxes by state.

Reuters: Summary of Major Tax Provisions in Health Care Bill

Link: Reuters

Free Online Tax Filing for Eligible Military

Source: IRS.gov

Free Online Tax Filing Available to Many Military Members

IR-2007-46, Feb. 28, 2007

WASHINGTON — The Internal Revenue Service reminds members of the military to take advantage of Free File, which allows taxpayers to prepare and e-file their federal income tax return online for free. Taxpayers who have an adjusted gross income of $52,000 or less in 2006 are eligible.

Available only through this Web site, Free File is fast, easy and safe to use. It is available in English and Spanish. The program can be accessed from any computer that is connected to the Internet, making it especially convenient for those stationed abroad. It can be accessed 24 hours a day, seven days a week. Free File returns are transmitted using secure technologies.

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Excise Tax Deduction on New Vehicle Sales

IRS Issue Number:    IRS Tax Tip 2010-26

Eight Facts about the New Vehicle Sales and Excise Tax Deduction

If you bought a new vehicle in 2009, you may be entitled to a special tax deduction for the sales and excise taxes on your purchase.

Here are eight important facts the Internal Revenue Service wants you to know about this deduction:

1. State and local sales and excise taxes paid on up to $49,500 of the purchase price of each qualifying vehicle are deductible.

2. Qualified motor vehicles generally include new cars, light trucks, motor homes and motorcycles.

3. To qualify for the deduction, the new cars, light trucks and motorcycles must weigh 8,500 pounds or less. New motor homes are not subject to the weight limit.

4. Purchases must occur after Feb. 16, 2009, and before Jan. 1, 2010.

5. Purchases made in states without a sales tax — such as Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon — may also qualify for the deduction. Taxpayers in these states may be entitled to deduct other qualifying fees or taxes imposed by the state or local government. The fees or taxes that qualify must be assessed on the purchase of the vehicle and must be based on the vehicle’s sales price or as a per unit fee.

6. This deduction can be taken regardless of whether the buyers itemize their deductions or choose the standard deduction. Taxpayers who do not itemize will add this additional amount to the standard deduction on their 2009 tax return.

7. The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.

8. Taxpayers who do not itemize must complete Schedule L, Standard Deduction for Certain Filers to claim the deduction.

For more information about these rules and other eligibility requirements visit IRS.gov/recovery.

CBO Issue Brief on the Alternative Minimum Tax

The Congressional Budget Office has just published an issue brief on the ATM that discusses the current reach of the tax.

The most recent AMT patch expired at the end of calendar year 2009. Without further adjustments, the impact of the AMT will expand quickly this year and continue to expand in subsequent years, becoming a more significant source of future revenues. As the reach of the AMT grows under current law, many taxpayers will face a fundamentally altered tax structure. If nothing is changed this year, one in six taxpayers will be affected by the AMT, paying on average an additional $3,900 in tax and nearly every married taxpayer with income between $100,000 and $500,000 will owe some alternative tax. Because of the particular tax preferences and exemptions disallowed under the AMT, that tax structure is more likely to affect married couples, large families, and taxpayers in states with high state and local taxes.

Read more.