Per Kiplinger don't expect much in the way of a decision on the expiring Bush tax cuts before November elections. The Democrats are wanting to use them as a political tool against the Republicans claiming they want to keep the tax cuts for preferential treatment to the rich as well as showing how the Republicans have opposed other measures that would help lower incomers. The Republicans look forward to the fight claiming that tax hikes on small business would take the wind out of the economy.

Hasn't Washington figured out yet that no one wins when two elephants fight? What kind of political gains can the Dems, who hold majorities in the House and Senate, hope to gain by delaying action? Doesn't that give the opposition even more ammo for the argument "Gov't is too big to do anything"? And so what if the Republicans throw a few rocks back, what in the end is accomplished?

Bottom line for you and me is we are still left out in the dark as to what to do between now and year end regarding certain capital decisions. As always we will keep you informed should anything change.

Small Business Audit - TIGTA

The Treasury Inspector General for Tax Administration (TIGTA) audit looks at the filing characteristics and examination outcomes for small business corporate returns during the period of 2005 through 2009. The number of small business corporate income tax returns processed annually by IRS declined 7%, from some 2.2 million to approximately two million, the Treasury Inspector said in an audit that was recently released. “One factor that may be contributing to the modest decline in corporate return filings is the popularity of organizing a business as a partnership or S corporation, which allows the partners and shareholders of these entities to avoid double taxation on business profits,” TIIGTA said. Citing an IRS estimate, the audit noted that the number of partnerships will increase by 49% and the number of S corporation filings will grow by 39% between 2006 and 2014. The audit found that examiners from the Small Business/Self-Employed Division closed one of every three corporate return examinations in fiscal year 2009 without recommending any adjustments. This suggests that a managerial review might be appropriate, TIGTA observed. “Examinations that result in no change to the tax reported can result in an inefficient use of limited examination resources and place an unnecessary burden on compliant taxpayers,” TIGTA said.

Gift Taxes explained

Seems I'm always being asked about gift taxes. Who pays them? How much, what rate? Is it income to the donee? Let's look at the basics. You can transfer substantial amounts free of gift taxes to children or other donees through the proper use of the annual federal gift tax exclusion. (You're probably aware that the estate tax has been repealed for 2010, but is scheduled to return in 2011. However, the gift tax has not been repealed, but continues to remain in effect in 2010 as well as in later years.)

The statutory exclusion amount ($10,000) is adjusted for inflation annually, using 1997 as the base year. The amount of the exclusion for 2010 is $13,000.

The exclusion covers gifts an individual makes to each donee each year. Thus, a taxpayer with three children can transfer a total of $39,000 to them every year free of federal gift taxes. If the only gifts made during a year are excluded in this fashion, there is no need to file a federal gift tax return. If annual gifts exceed $13,000, the exclusion covers the first $13,000 and only the excess is taxable. Further, even taxable gifts may result in no gift tax liability thanks to the unified credit (discussed below). (Note, this discussion is not relevant to gifts made by a donor to his spouse because these gifts are gift tax-free under separate marital deduction rules.)

Gift-splitting by married taxpayers is when each spouse makes a gift to each person and their respective spouse. If the donor of the gift is married, gifts to donees made during a year can be treated as split between the husband and wife, even if the cash or gift property is actually given to a donee by only one of them. By gift-splitting, therefore, up to $26,000 a year can be transferred to each donee by a married couple because their two annual exclusions are available. Thus, for example, a married couple with three married children can transfer a total of $156,000 each year to their children and the children's spouses ($26,000 for each of six donees).

Staying within these guidlines should not be difficult for most. No gift tax return even need be filed in these scenarios. If, however, you exceed these annual limits and have to file a gift tax return don't panic.

There is the “unified” credit for taxable gifts. Even gifts that are not covered by the exclusion, and that are thus taxable, may not result in a tax liability. This is so because a tax credit wipes out the federal gift tax liability on the first taxable gifts that you make in your lifetime, up to $1 million.

Sales Tax and Garage Sales

Found this interesting tidbit on the Texas Comptroller's site. Seems even garage sales are not totally immune from having to collect sales taxes. A new category of occasional sale, that affects the taxability of used items sold by individuals, became effective July 1, 2007, under House Bill 373.

Garage-type sales frequently fall under this new occasional sale provision. As a result of the enactment of 151.304(b)(5), sales tax is not due on the sale of items at a garage sale if:

1) the items being sold were originally acquired for personal use by the person or a family member of the person selling them; and
2) if the total receipts from sales of the individual's property in the calendar year the garage sale is made do not exceed $3,000.

This exemption applies only to the first $3,000 in total receipts that an individual earns from the sale of items that were originally acquired for personal use by the person, or a family member of the person, selling them. Once the $3,000 threshold is reached, the individual must obtain a sales tax permit and begin collecting state and local sales and use taxes beginning with the first sale after the $3,000 threshold was exceeded, and must continue to collect tax on all sales of taxable items for the remainder of the calendar year.

As with all exemptions, the seller is required to maintain records to document that the exemption applies.

This last sentence should make you stop and think. Who keeps those kinds of records of garage sales for a whole year anyway? My suggestion, don't have a garage sale. Donate instead and keep a receipt. Usually you can end up with a better income tax deduction anyway.

Deductible Job-Search expenses

As the published jobless rate continues to hover near 10% nationwide, many individuals are engaged in a search to find employment. These job-hunters should know whether job-hunting expenses are deductible, and what kinds of expenses qualify.
When are job-hunting expenses are deductible? An individual's expenses in looking for a job in his or her line of work can be claimed as miscellaneous itemized deductions (subject to the 2%-of-AGI floor). However, if an individual is looking for work in a new field (or has not worked before), then there's no deduction for job-hunting expenses.

When determining whether an individual is seeking work in his field, the focus is on the nature of the employment rather than the status of employment. For example, an engineer who worked for an engineering firm could deduct expenses in seeking new employment as an engineer whether or not he eventually found employment as a self-employed engineer or in some other engineering capacity.
Types of job-hunting expenses that are deductible. The following are examples of deductible job-hunting expenses:
• Employment and outplacement agency fees
• Cost of preparing a resume.
• Job counselling and referral services.
• Legal expenses to get reinstated on a civil service list of eligibles.
• “Professional career consultants.”
• Travel expenses if undertaken primarily to look for a new job. If a person travels out of town for a job interview he may deduct the round-trip travel cost, plus lodging and 50% of meals.
• Individuals who use their cars in 2010 to look for a job can deduct 50¢ cents per job-hunting mile if they own their cars and haven't (a) depreciated them in prior years using MACRS, (b) expensed any of the cost of the auto under Code Sec. 179, or (c) or claimed additional first year depreciation for the auto. 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 (including renewals). They must keep records of the time, place, mileage and purpose of each trip. ( Rev Proc 2009-54, 2009-51 IRB 930 ) Alternatively, individuals who keep records of all expenses in addition to the mileage record can deduct actual expenses plus depreciation (or lease payments), in the ratio of total annual business miles to total miles traveled during the year. Job-hunting mileage qualifies as business mileage. (See, e.g., Campana, TC Memo 1990-35)

Expenses incurred by a taxpayer in seeking employment are deductible regardless of whether he actually obtains a new job. When a job-hunter must travel out of town for a job interview, a prospective employer may reimburse the applicant's out-of-pocket costs (travel, meals and lodging). As long as the reimbursement doesn't exceed actual expenses, the applicant doesn't wind up with compensation income. That's true whether or not the applicant actually gets an offer or if an offer is made, accepts the job.

What's not deductible as job-related expenses? A recently released Information Letter points out that under Code Sec. 262(a), an individual cannot deduct personal, living, or family expenses unless the deduction is specifically provided for by another Code section. Examples of expenses related to looking for a new job that are nondeductible personal or living expenses are: (1) the cost of a new suit, shoes, and a tie for interviewing; (2) the cost of a phone, a fax machine, a computer, and phone and internet service; and (3) the cost of newspapers and magazines.

Estimated Tax Payments

One question many small business owners ask me relates to their estimated tax payments. There are two ways to figure the amount of tax to pay. One type of taxpayer wants to satisfy the tax law to the bare minimum. If this is you simply divide the amount on line 60 of your previous year's tax return by four (four quarterly payments). This way you will not have to pay underpayment penalties if you have underestimated your total tax bill. Payment dates are April 15, June 15, September 15 and January 15.

The other type of taxpayer wants to estimate his tax payments so that he doesn't owe any more by the April 15 filing deadline. If this is you get your pencil sharpener out because this requires a bit more effort. First, your business records should be up to date and reconciled. Once your records are current then create a report that shows your net income to date, annualize the results, and this becomes your estimated income. Flow this through as if you were preparing your tax return to estimate the tax amount. Divide this by four for your first estimate. To do your second, third and fourth estimates calculate the same as above subtracting previous estimates to determine each quarters individual amount.

Regardless which type of taxpayer you are estimated payments are a good idea so you don't get behind with the IRS. Most people become business consultants (owners) without adequate knowledge about tax requirements or the mechanics of estimating tax payments.