As a continuation of my last article, on tax increases for the wealthy, I asked Brian Seifert, CPA to fill in some additional tax changes that would affect our clients as we approach the year end and look forward to 2011. Brian is a new Aegis Council member who is helping our clients prepare for the onslaught of new taxes by identifying tax planning opportunities, assist the clients taking advantage of their planning opportunities then preparing the tax returns as part of the Aegis Council Tax Planning Package. During his career Brian has become fully versed in U.S. Tax Codes and has a extensive resume.
Brian wrote:
In addition to the tax law changes related to health care reform legislation and employment legislation during the 1st quarter of this year, the are many more tax developments that may personally affect you, your family and your livelihood. These other key developments in just the second quarter of 2010 are summarized below. I strongly encourage you to carefully review these changes with your planning team to see how they may affect you personally.
Home buyer tax credit extended for qualified home purchases.
The federal government enacted an extension for taxpayers who could not meet a key closing date of June 30, 2010 to qualify for the homebuyer tax credit. Generally speaking, both the first time homebuyer credit of $8,000 and the long-term resident homebuyer credit of $6,500 expired for home purchases after April 30, 2010. However, if a written binding contract to purchase a principal residence was entered into before May 1, 2010, the credit could be claimed if the purchase closed before July 1, 2010. With this new extension, if a written binding contract that was entered into before May 1, 2010, then the credit can be claimed if the deal closes before October 1, 2010. Thus, this extension allows homebuyers who signed a contract no later than the April 30th deadline to complete their closing by the end of September.
Tax break for hiring new employees is addressed through guidance.
In 2010, employers are exempted from paying their 6.2% portion of Social Security (i.e., OASDI) employment taxes on wages paid to newly hired qualified individuals. These are workers who: (1) begin employment with the employer after Feb. 3, 2010 and before Jan. 1, 2011, (2) certify by signed affidavit, under penalties of perjury, that they haven’t been employed for more than 40 hours during the 60-day period ending on the date the individual begins employment with the qualified employer; (3) do not replace other employees of the employer (unless those employees left voluntarily or for cause), and (4) aren’t related to the employer under special definitions. The payroll tax relief is only for wages paid from March 19, 2010 until December 31, 2010.
Employers may qualify for an up-to-$1,000 tax credit for retaining qualified individuals. For qualification, the employee must be employed by said employer for a not less that 52 consecutive weeks and their wages for this employment during the last 26 weeks of the period must equal at least 80% of the wages for the first 26 weeks of the period.
The IRS has issued guidance on these tax breaks in the form of frequently asked questions. They carry valuable information on subjects such as the scope of the exemption, how it interacts with other tax breaks, and when an employer must receive the employee’s certification of former unemployment status. As an example, the IRS discusses how the exemption and credit can be used for a new employee replacing a downsized employee.
New detailed guidance has been produced on health care credit for new small businesses.
The IRS has issued detailed guidance on the small employer health insurance credit created by the recently-enacted health reform legislation. With this newly passed legislation, effective for tax years starting after December 31, 2009, an eligible small employers (ESE) may take a tax credit for non-elective contributions use to secure health care insurance for their employees. An ESE is defined as an employer with equal to or less than 25 full-time employees (FTE). Additional the average annual full time equivalent wages for these employees must not exceed $50,000. With that said, the full credit is only available to employers with ten or fewer FTEs and whose employees average annual full-time equivalent wages do not exceed $25,000. The IRS has guidance for the new legislation that takes a liberal approach that offers three methods to figuring total hours of service. This is important to employers as it shows them how do determine their number of FTEs. The guidance also explains how small business employers can claim any State provided credits or subsidies for employee health care coverage. The IRS has tables for each state showing average health care insurance costs in small group markets for 2010 tax year. The table is needed to calculate the credit for this year.
Guidance issued on new under-age-27 rule for health coverage of children.
The IRS has issued guidance on the tax treatment of health coverage for children under age 27 under the new health reform law. The new under-age-27 rule, which went into effect March 30, 2010, applies broadly to employer-provided coverage or reimbursements, cafeteria plans, flexible spending arrangements (FSAs), health reimbursement arrangements (HRAs), voluntary employees’ beneficiary associations (VEBAs), and the above-the-line deduction for a self-employed individual’s medical care insurance costs.
Medical residence access of FICA exception may be resolved.
The Supreme Court has agreed to review a 2009 decision of the Court of Appeals for the Eighth Circuit, which upheld the validity of regulations that generally prevent medical residents from qualifying for the FICA student exception. Under the current rules, an employee who works 40 hours or more for a school, college or university is not eligible for the student exception. This currently includes medical residents. The Supreme Court will now decide their validity. Obviously, the courts ruling will have significant effects on teaching hospitals and their residents.
States to look at the uncertainty surrounding estate planning.
As of now, there is no estate or generation-skipping transfer (GST) tax for individuals who die this year. There are issues as to how formula clauses in wills and trusts using estate or GST tax terms (e.g., “the applicable exclusion amount,:“ or “the marital deduction“) will be construed, if the decedent dies in 2010. Many state addressed this by enacting laws that provide a special rule of construction. Under this new rule formula clauses that refer to certain estate and GST tax terms generally will be construed as referring to the federal estate tax and GST tax laws which applied to estates of decedents dying on Dec. 31, 2009. This statues may effect the amount of money that can pass in one’s will to a spouse and/or children.
Deadline extended for retirement plans in federally declared disaster areas in eight States.
The IRS has administratively extended to July 30, 2010, the April 30, 2010, deadline for restating affected pre-approved defined contribution plans and, if applicable, for submitting determination letters to the IRS, and the Code Sec. 401(b) remedial amendment period for these retirement plans. The relief applies to sponsors of defined contribution plans that were affected by the storms and other severe weather in counties in Alabama, Connecticut, Massachusetts, Mississippi, New Jersey, Rhode Island, Tennessee and West Virginia that were federally declared disaster areas in the period from March 1 through May 31, 2010.
Therapeutic Discovery Project Program implemented.
The IRS has established the guidelines for applying for the new Therapeutic Discovery Project Program created by the recently enacted health reform legislation. The program will provide tax credits and grants to small firms that show significant potential to produce new and cost-saving therapies, support good jobs and increase U.S. competitiveness. Form 8942 will allow small firms to apply for tax credits or grants as they relate to this new program. These must be postmarked no later that July 21, 2010.
Indoor tanning tax temporary regulations.
The IRS has issued temporary regulations on the health reform’s legislation’s new 10% excise tax on indoor tanning services provided on or after July 1, 2010. These regulations address issues that were not covered in the laws original draft. Some examples include tanning services provided as part a gym membership package or pre-payment on tanning services.
And T.J. has a critical addition so let’s not forget:
Required Minimum Distributions “RMDs”
In 2008, amidst the harrowing days of the economic meltdown, President Bush signed into law the Worker, Retiree and Employer Recovery Act which, amongst its many designated stimulus provisions, allowed retirees over 701/2 to forgo taking required minimum distributions “RMDs” from 401(k), IRAs and other retirement plans for 2009. The idea was to allow the retirement accounts time to recover losses suffered as the global financial market collapsed. Times have changed and Congress feels you are able to start taking RMDs in 2010. A failure to start or resume taking RMDs carries significant penalties so this a critically important rule to not violate.
However, and there is always a however in the tax code, you can avoid RMDs permanently by converting you retirement accounts into a Roth IRA. And, remember that if you do your conversion in 2010 you can spread the tax liability of the conversion over 2011 and 2012. The conversion to a Roth IRA can be done in the form of a self directed account so that you can take control of your investments and invest directly in stocks, bonds, annuities, mutual funds or real estate of your choice.
Another option is if you do not need to use the money from your retirement account maybe you would like to consider a charity. If so, then you have until December 31, 2010 to make this happen. After this date, Congress has decided that no more money from IRAs should be given to charities. A gift of an IRA to charity can be accomplished using a Donor Advised Fund (“DAF”) which will allow you to retain advisory control over when and how the funds are distributed. And the DAF allows the funds to be reinvested so the may grow over time thus increasing the benefit of your charity. DAFs are like having your own public charity without all of the cost or administration associated with running a charity. See AegisWorldFund.org for more information.
Final Note:
With a $1.4 trillion national debt when unemployment hovers around 16.5% resulting in lower tax revenue, the U.S. tax policy and our response is an ever changing monster. At the same time government expenditures continue to rise and are predicted to continue to rise. Make sure to plan for the changes that are coming, maybe we can help Contact Aegis Council now and be smart about your preparation for the coming onslaught of tax changes and take action while still can.
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More information on Thomas Agresti can be found here:http://aegiscompanies.com
Thomas (T.J.) Agresti, J.D., LL.M, CEO Founder and Chairman of the Board, Aegis Holdings, Denver, Colorado
Thomas Agresti (JD LLM) from Denver, Colorado began a successful career as a tax attorney after finishing an extensive and well-planned education that included the University of Maryland, Seton Hall University School of Law, University of Parma School of Law in Italy, and University of Denver School of Law. He is currently registered with the Bar of Colorado.
While in law school, T.J. primarily focused on taxation and transactional law. Additionally he went to Italy to learn the intricacies of international law and finance, also with a focus on taxation and transactional law. He then took his taxation skills to the ultimate level receiving a Masters in Taxation from the University of Denver School of Law. Because of his rare professional and education experience, he quickly became a highly sought after attorney. He chose to work with a large multinational public accounting firm allowing him to gain significant tax and transactional law experience in a short time frame.
As a specialist in taxation for a “Big Six international accounting firm, T.J. specialized in domestic and international strategic tax planning. Simply put, he reduced his clients tax burdens. His responsibilities also included financial and estate planning; income, gift, and estate tax reduction; compliance for individuals, trusts, and estates, partnerships, corporations, and tax-exempt entities. After leaving public accounting he practiced tax law with a boutique law firm before forming his own firm. He has worked around the world with a variety of clients. He has practical experience planning and implementing multi-national transactions, sophisticated wealth transfer planning, sophisticated life insurance structures, captive insurance, private equity and structured debt instruments.
