st paul tax lawyer

Expanded Tax Credit for Hiring Unemployed Veterans

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On November 21, 2011, the VOW to Hire Heroes Act of 2011 was signed into law.    The new law provides an expanded work opportunity tax credit to businesses that hire eligible unemployed veterans and for the first time also makes part of the credit available to tax-exempt organizations. Businesses can claim the credit as part of the general business credit and tax-exempt organizations can claim it against their payroll tax liability. The credit is available for eligible unemployed veterans who begin work on or after November 22, 2011, and before January 1, 2013.

Also included in this new law is the Veterans Retraining Assistance Program (VRAP) for unemployed Veterans. The Department of Veteran Affairs (VA) and the Department of Labor (DoL) are working together to roll out this new program on July 1, 2012.  Specific eligibility requirements apply.  Moreover, the program is only limited to 45,000 participants for the 2012 fiscal year (and to 54,000 participants between October 1, 2012 and March 31, 2014).

IRS Proposed Regulations Require Tax Preparers to File Form 8867 with 2012 EITC Claims

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On October 6, 2011, The Internal Revenue Service announced that it is issuing proposed regulations that would require paid tax return preparers, beginning in 2012, to file a due diligence checklist, Form 8867, with any federal return claiming the Earned Income Tax Credit (EITC). It is the same form that is currently required to be completed and retained in a preparer’s records.

The due diligence requirement, enacted by Congress over a decade ago, was designed to reduce errors on returns claiming the EITC, most of which are prepared by tax professionals.

The EITC benefits low-and moderate-income workers and working families and the tax benefit varies by income, family size and filing status. The EITC is a refundable tax credit – taxpayers can get it even if they owe no tax. For 2011 tax returns, the maximum credit will be $5,751.

IRS Announces 2011 Standard Mileage Rates

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On December 3, 2010, Internal Revenue Service 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 January 1, 2011, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

a) 51 cents per mile for business miles driven
b) 19 cents per mile driven for medical or moving purposes
c) 14 cents per mile driven in service of charitable organizations

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

Depreciation Deductions: Passenger Cars & Light Trucks, Vans and SUVs

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Assuming that a taxpayer does not use the IRS standard mileage deduction, for qualifying vehicles used for business purposes and placed in service in 2009 or 2010, taxpayers may deduct various costs including depreciation, registration fees, insurance, and many others under the actual expense method. This article will examine depreciation deductions for certain categories of vehicles.

Passenger Cars

For purposes of calculating depreciation, a car is defined to be any four-wheeled vehicle for use on public roadways, with a gross vehicle weight of 6,000 pounds or less (subject to certain exceptions). Under the American Recovery and Reinvestment Act of 2009, taxpayers may generally take bonus depreciation of $8,000 for newly purchased cars placed in service for business use in 2009 (Congress has extended the bonus depreciation for 2010, as well). Taxpayers may take an additional $2,960 maximum depreciation deduction for 2009 ($3,060 for cars purchased and placed in service in 2010). The 2009 depreciation rates for subsequent years are as follows: $4,800 for the second year; $2,850 for the third year; and $1,775 for each tax year thereafter. Depreciation limits are periodically adjusted for inflation.

Note that the above depreciation amounts assume 100% business use. Depreciation amounts must be reduced proportionately by any personal use percentage that is less than 100% business use and more than 50%. If business use is less than 50%, straight-line depreciation must be used (also reduced proportionately by personal use percentages) and the bonus depreciation amount is not available. Bonus depreciation is also not available for purchases of used cars.

Light Trucks, Vans and SUVs

A light truck, van or SUV that has a gross vehicle weight of 6,000 pounds or less may also qualify for certain depreciation deductions. As with passenger cars, an $8,000 bonus depreciation allowance is available for newly purchased vehicles in this category placed in service in 2009 or 2010. For 100% business use, taxpayers may generally take an additional $3,060 maximum depreciation deduction for 2009 ($3,160 for 2010). 2009 Depreciation rates for vehicles in this category for subsequent years are as follows: $4,900 for the second tax year; $2,950 for the third tax year; and $1,775 for each tax year thereafter.

As with passenger cars, depreciation amounts must be reduced proportionately by any personal use percentage that is less than 100% business use and more than 50%. If business use is less than 50%, straight-line depreciation must be used (also reduced proportionately by personal use percentages) and the bonus depreciation amount is not available. Bonus depreciation is also not available for purchases of used vehicles in this category.

Do you have questions about maximizing your tax savings on newly purchased business vehicles or equipment? Sherayzen Law Office can assist you with your tax needs.

Call NOW  to discuss your case with an experienced tax attorney!

Capital Gains and Losses: Tax Implications for Individuals and C-Corporations

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Capital gains and losses defined

Capital gains and losses result from the taxable realized sale or exchange of capital assets. In general, capital assets include investments (such as stocks and real estate) and fixed assets, as opposed to personal-use property.

Capital gains result when the sale or exchange price is greater than the adjusted basis of the capital asset. Conversely, capital losses occur when the adjusted basis is higher than the sale or exchange price, and certain expenses associated with the sale may be added to the loss. The holding period of the capital asset being sold or exchanged will determine whether the capital gain or loss is long-term (held for more than a year) or short-term (held for less than a year).

Netting Capital Gains and Losses (Individual taxpayers)

Each taxable year, capital gains and losses are aggregated or “netted” on Schedule D. First, long-term capital gains and losses are netted. Second, short-term capital gains and losses are netted. Four possible scenarios will result from this two-step process:

Scenario A: A long-term gain and short-term gain
Scenario B: A long-term gain and short-term loss
Scenario C: A long-term loss and short-term gain
Scenario D: A long-term loss and short-term loss

In scenario A, the short-term gain will be taxed with the taxpayer’s ordinary income at his or her marginal rate. For the long-term capital gain, the favorable long-term capital gains tax rate will apply, depending upon the taxpayer’s tax bracket.

In scenario B, there are two possible outcomes depending upon which result is larger, the loss or the gain. If the short-term loss is greater than the long-term gain, a net short-term loss will result, and up to $3,000 can be used to offset other income, with additional amounts can be carried forward to subsequent tax years. Alternatively, if the long-term gain is larger than the short-term loss, then a net long-term gain will result, and the favorable long-term capital gains tax rates will apply.

In scenario C, there are two possible outcomes depending upon which result is larger, the loss or the gain. If the long-term loss is larger than the short-term gain, then a net long-term loss will result, and (as with scenario B) up to $3,000 can be used to offset ordinary income. Any unused amount above $3,000 can be carried forward to subsequent years as long-term loss. Alternatively, if the short-term gain is larger than the long-term loss, then a net short-term gain will result, and it will be taxed at the taxpayer’s marginal rate.

In scenario D, there are several possible outcomes. First, if the total long-term and short-term losses combined total $3,000 or less, then the amount may be used to offset ordinary income. However, if the total amount of short-term losses exceed $3,000, then the first $3,000 of short-term loss will be applied to offset other income, and any remainder will be carried forward to subsequent years as a long-term loss. If the short-term loss is less than $3,000, then that amount will be applied to offset ordinary income, and any amount of available long-term loss making up the difference between the short-term loss applied and $3,000 will also be used to offset ordinary income (with the additional, unused amounts carried forward).

Capital Gains and Losses (C Corporations)
C corporations, unlike individuals, do not receive favorable tax rate on capital gains. Capital gains must be included as part of ordinary income, in their entirety.

Further, capital losses must be used only to offset capital gains, and are non-deductible against ordinary income for C corporations. Net capital losses can be carried back to the three preceding years (and are applied in chronological order, beginning with the earliest tax year) provided the corporation has capital gains to offset. Additionally, corporate taxpayers may carry forward the capital loss five years from the year of loss, again provided that there are capital gains to offset. Carryforwards expire after the fifth year. Importantly, all losses carried back or forward are considered to be short-term.

Offsetting Capital Gains and Losses
Are you a taxpayer interested in benefiting from the capital gains and losses tax rules? Do you have questions about selling capital assets such as stocks or real estate for tax purposes, and how to best time your transactions in order to pay less taxes? Are you concerned about how new capital gains and loss tax changes may affect your situation?

Sherayzen Law Office can guide you with all of your capital gains and losses questions, and help you plan ahead so that you pay less taxes.

Call NOW to discuss your case with an experienced tax attorney!