On January 25, Senate Finance Committee Chairman Max Baucus (D-MT) and Senate Majority Leader Harry Reid (D-NV) introduced a bipartisan bill that would repeal the new Form 1099 reporting requirements for businesses. The bipartisan legislation would repeal requirements for businesses to report payments made for goods and certain services to IRS using Form 1099. As businesses have become aware of the new paperwork requirements, they've raised concerns about the resources that would be required to complete the forms when they would need to begin doing so in January 2012.
In general, under current law, information returns must be made to IRS by every person engaged in a trade or business who makes payments for services, aggregating $600 or more, in any tax year to another person (other than corporations) in the course of the payor's trade or business. This includes passive rental activities just to be on the safe side. Effective for payments made after 2011, Sec. 9006 of the Patient Protection and Affordable Care Act would add payments of amounts in consideration for property and gross proceeds—i.e., it would add payments for goods—to the list of payments subject to reporting. In addition, it provides that starting in 2012, payments to corporations (that are not tax-exempt)—which had previously been exempt from the reporting requirement—would be subject to information reporting.
Baucus had previously introduced legislation to repeal the Form 1099 reporting requirements during the 111th Congress in November 2010. In last night’s State of the Union address, President Obama expressed his support for fixing this “flaw” in health care reform legislation which “placed an unnecessary booking burden on small businesses”.

Itemized deductions - Medical expenses

Deductible medical expenses can include not only the expenditures made on behalf of the taxpayer but also the spouse and all dependents listed on the return. When submitting your medical expenses to your tax preparer they should be organized as follows:

Medicine and drugs;
Fees paid to doctors, dentists, and medical professionals;
Hospital and laboratory fees;
Medical transportation and lodging;
Medical supplies;
Medical insurance premiums other than those described below;
Other, including medical equipment and maintenance of that equipment.
Number of miles used for medical-care-related purposes.
Reimbursements (e.g., from insurance

Throughout the years many court cases have determined whether an expense was deductible as a medical expense. The following is a list of expenses that have been approved but it is not intended to be all inclusive. I’m sure you will find some surprises in the list so make sure you read all the way through.
Abortion (legal)
Acupuncture
Air conditioner
- Allergy relief
- Cystic fibrosis relief
Alcoholism & drug addiction, treatment of
Ambulance
Attendant to accompany blind or deaf person
Birth control pills
Excess cost of Braille books and magazines
Service animals
Special education for the blind
Home modifications for handicapped including elevator
Extra equipment for auto to accommodate wheelchair
Childbirth prep classes
Chiropractors
Christian Science treatment
Clarinet and lessons to correct teeth malocclusion
Computer for the storage and retrieval of medical records
Contact Lenses and replacement ins.
Prescription contraceptives
Cosmetic surgery to fix a deformity, injury or disease
Crutches
Hearing aids
Dentists
Dentures
Diagnostic fees
Diapers used to treat severe neurological disease
Doctors
In home nurse
Dyslexia language training
Eye exam and glasses
Fertility enhancement
Halfway house (adjustment to mental hospital)
Health club dues if prescribed by a physician
HMO
Hospital services
Indian medicine man (yes Tonto)
Insulin
Medical insurance
Iron lung
Lab fees
Laser eye surgery
Legal expenses relating to mental illness
Prepaid lifetime medical care, retirement home
Artificial limbs
Lodging limited to $50 per night
Long term care
Nursing homes
Orthodontia
Osteopaths
Oxygen equipment
Special plumbing fixtures for handicapped
Prosthesis
Psychiatric care
Psychologists
Psychotherapist
Lazy Boy for cardiac patient
Reconstructive Breast surgery
Schools for the handicapped
Treatment for sexual dysfunction
Stop smoking programs
Legal sterilization
Swimming pool for the treatment of polio or arthritis
Taxicab to Dr.s office
Closed caption decoder
Mileage
Transplants
Certain weight loss programs
Wheelchairs
Wigs that alleviate mental discomfort from disease
X-rays

New tax law changes passed in the 4th qtr 2010

While the new law tax changes in the bipartisan legislation that was enacted in late 2010 were the most significant developments in the fourth quarter of 2010, many other tax developments may affect you, your family, and your livelihood. These other key developments in the fourth quarter of 2010 are summarized below. Please call us for more information about any of these developments and what steps you should implement to take advantage of favorable developments and to minimize the impact of those that are unfavorable.

Final regulations on stock reporting rules. The IRS has issued final regulations explaining the complex basis and character reporting requirements that apply for most stock acquired after 2010, for shares in a regulated investment company (i.e., a mutual fund) or stock acquired in connection with a dividend reinvestment plan after 2011, and for other specified securities acquired after 2012. In brief, brokers will have to report to the IRS the customer's adjusted basis (cost for tax purposes) in the security and whether any gain or loss is short- or long-term. When these rules are fully implemented, the IRS will be in a much better position to monitor whether taxpayers are properly reporting investment gains and losses.

More guidance on the small business health care credit. The IRS issued a second wave of detailed guidance on the small employer health insurance credit created by last year's health reform legislation. For tax years beginning after Dec. 31, 2009, an eligible small employer (ESE) may claim a tax credit for nonelective contributions to purchase health insurance for its employees. An ESE is an employer with no more than 25 full-time equivalent employees (FTEs) employed during its tax year, and whose employees have annual full-time equivalent wages that average no more than $50,000. However, the full credit is available only to an employer with 10 or fewer FTEs and whose employees have average annual full-time equivalent wages from the employer of not more than $25,000. And, in general, the ESE must pay not less than 50% of the premium cost of the employee health plan. The IRS also issued the final version of Form 8941 (Credit for Small Employer Health Insurance Premiums), which is used to claim the credit.

Medical residents do not qualify for FICA student exception. Under the so-called student exception, FICA doesn't apply to students' work for a college if they are regularly enrolled in and attending classes at the college. The Supreme Court has upheld the validity of IRS regulations that generally prevent medical residents from qualifying for the FICA student exception. Under these regulations, an employee for FICA purposes includes a medical resident who works 40 hours or more per week for a school, college or university. This decision has important ramifications for the many teaching hospitals and their residents.

Electronic funds transfer (EFT) rules now in place. Beginning Jan. 1, 2011, employers must use EFT to make all federal tax deposits (such as deposits of employment tax, excise tax, and corporate income tax). Forms 8109 and 8109-B, Federal Tax Deposit Coupon, cannot be used after Dec. 31, 2010.

Standard mileage rates up. The optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) is 51¢ per each business mile traveled after 2010. That's 1¢ more than the 50¢ allowance for business mileage during 2010. Further, the 2011 rate for using a car to get medical care or in connection with a move that qualifies for the moving expense deduction is 19¢ per mile, 2.5¢ more per mile than the 16.5¢ for 2010.

More interest deductions for debt on the purchase of an expensive home. A taxpayer can deduct interest on up to $1.1 million of the debt securing the purchase of his principal residence.

Withholding on government payments delayed. For payments made after Dec. 31, 2011, governments at the federal, state and local levels will have to deduct and withhold tax in an amount equal to 3% of any payments they make to a person providing property or services. However, the IRS has announced that withholding and reporting requirements will not apply to any payment made by payment card, including credit cards, debit cards, and stored value cards, for any calendar year beginning earlier than at least 18 months from the date further guidance on this subject is finalized. Thus, the new requirements will not apply to payment card payments for the 2012 calendar year.

New law delays start of filing season for some taxpayers. Some taxpayers planning to file their 2010 tax returns early have been advised by the IRS to wait until mid- to late-February, 2011. Affected taxpayers are those planning to file Schedule A or claim above-the-line deductions for higher-education tuition and fees or educator expenses. The culprit is Congress's late passage of the 2010 Tax Relief Act. The IRS needs time to reprogram its computers to reflect the changes.

Extended due date this year. Because of the Emancipation Day holiday in the District of Columbia, the due date of Form 1040 for 2010 is Apr. 18, 2011, instead of Apr. 15, 2011. The Apr. 18 due date applies even for taxpayers who do not live in the District of Columbia.

Itemized Deductions

Most people want to make more money without necessarily paying more taxes. We will leave the making more money part up to you but we can help with the paying less taxes part. Usually this means finding more deductions.

As the first installment in this series we need to set things up. A little history and a few definitions can go a long way in understanding how to decrease your tax burden when the filing deadline arrives. Probably the first item to mention is “adjusted gross income”. This is the last number on the first page of your Form 1040. It is the net result of subtracting from all your items of income (wages, interest, dividends, capital gains etc…) adjustments such as retirement contributions, moving expenses and HSA deposits. Your adjusted gross income is used in several different areas of your itemized deductions to determine how much of a deduction you are entitled to under the law. For instance, you can not begin deducting medical expenses from your income until your expenses exceed 7.5% of your adjusted gross income. If you are self-employed medical insurance premiums you pay a re considered an adjustment to income and not an itemized deduction.

The next item we should mention is your standard deduction. When completing your return before you figure your tax you can reduce your taxable income by the larger of your standard deduction or your itemized deductions. Your standard deduction is a set dollar amount based on your filing status (married, single head of household etc…) For instance this year the standard deductions are:

Married filing Jointly $11,400
Surviving Spouse $11,400
Head of Household $ 8,400
Unmarried $ 5,700
Married filing Separate $ 5,700

Additional amounts are allowed if you are blind or over the age of 65 ($1,100 each instance).

Several years ago the IRS decided they wanted to reduce the number of taxpayers who itemize. They did this by excluding medical expenses up to 7.5% of adjusted gross income as mentioned above, excluding the first $100 plus the next 10% of adjusted gross income for casualty losses such as fire or storm damage and also by excluding the first 2% of adjusted gross income from any miscellaneous deductions such as tax preparation costs, union dues, uniforms and investment management expenses just to name a few. Thus for most taxpayers unless you were buying a home (mortgage interest, taxes) or incurred high charitable giving amounts, taking the standard deduction was the best alternative for you.

For most people you can determine whether it is advantageous to itemize or take the standard deduction by simply adding your property taxes, mortgage interest and charitable contributions together and compare that amount to your standard deduction. Some people come very close to having more itemized deductions than the standard deduction. What we suggest is to get the best of both worlds i.e. use the standard one year and itemize the next. You can do this by delaying the payment of your property taxes to January in alternating years. This will double up your property taxes in the year you itemize and then you take the standard in the other years. You end up getting more deductions across both years than you would have otherwise.

Stay tuned as we detail each category of itemized deductions. We may mention an item that you did not know was deductible. As always if you have any questions please give us a call.