e-YWM Alert #11 - Overview of the 2010 Tax Relief Act

The recently enacted "Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010" is a sweeping tax package that includes, among many other items, an extension of the Bush-era tax cuts for two years, estate tax relief, a two-year "patch" of the alternative minimum tax (AMT), a two-percentage-point cut in employee-paid payroll taxes and in self-employment tax for 2011, new incentives to invest in machinery and equipment, and a host of retroactively resuscitated and extended tax breaks for individuals and businesses. Here's a look at the key elements of the package:

•The current income tax rates will be retained for two years (2011 and 2012), with a top rate of 35% on ordinary income and 15% on qualified dividends and long-term capital gains.

•Employees and self-employed workers will receive a reduction of two percentage points in Social Security payroll tax in 2011, bringing the rate down from 6.2% to 4.2% for employees, and from 12.4% to 10.4% for the self-employed.

•A two-year AMT "patch" for 2010 and 2011 will keep the AMT exemption near current levels and allow personal credits to offset AMT. Without the patch, an estimated 21 million additional taxpayers would have owed AMT for 2010.

•Key tax credits for working families that were enacted or expanded in the American Recovery and Reinvestment Act of 2009 will be retained. Specifically, the new law extends the $1,000 child tax credit and maintains its expanded refundability for two years, extends rules expanding the earned income credit for larger families and married couples, and extends the higher education tax credit (the American Opportunity tax credit) and its partial refundability for two years.

•Businesses can write off 100% of their equipment and machinery purchases, effective for property placed in service after September 8, 2010 and through December 31, 2011. For property placed in service in 2012, the new law provides for 50% additional first-year depreciation.

•Many of the "traditional" tax extenders are extended for two years, retroactively to 2010 and through the end of 2011. Among many others, the extended provisions include the election to take an itemized deduction for state and local general sales taxes in lieu of the itemized deduction for state and local income taxes; the $250 above-the-line deduction for certain expenses of elementary and secondary school teachers; and the research credit.

•After a one-year hiatus, the estate tax will be reinstated for 2011 and 2012, with a top rate of 35%. The exemption amount will be $5 million per individual in 2011 and will be indexed to inflation in following years. Estates of people who died in 2010 can choose to follow either 2010's or 2011's rules.

•Omitted from the new law: Repeal of a controversial expansion of Form 1099 reporting requirements.

•Also not included: Extension of the Build America Bonds program, which permits state and localities to issue federally-subsidized municipal bonds.
We hope this information is helpful. If you would like more details about these provisions or any other aspect of the new law, please do not hesitate to call.


All information presented above is generic, if you would like to know how this may be applied to your specific situation please give us a call at 303-792-3020 or reply directly to this email. Additional resources are always available at our website, www.ywmcpa.com.

e-YWM Alert #10 - Holiday Party Deduction

As we get further into the holiday season, we'd like to inform you all of a little known exception to the 50% meals and entertainment limit that may help to brighten your holidays and lessen your tax burden. Expenses related to recreation, social, or similar activities incurred primarily for the benefit of employees (i.e. a company holiday party) are 100% tax deductible.

Additional deductions may be allowed for small gifts or tokens of appreciation given to employees during the holidays. The value of these gifts must be reasonable, but if they are kept to a nominal amount the business may give these gifts and claim deductions for non wage work business expenses. These gifts are deductible at 100% if they are nominal in value.

Finally, gifts given to clients and customers also have certain tax consequences. A $25 gift deduction is allowed for each client/customer each year. Gifts in excess of this amount can certainly be given, but the full cost cannot be deducted.

All information presented above is generic, if you would like to know how this may be applied to your specific situation please give us a call at 303-792-3020. Additional resources are always available at our website, www.ywmcpa.com.

e-YWM Alert #9 - Framework for Bipartisan Tax Agreement

e-YWM Alert #9 - Framework for Bipartisan Tax Agreement


Late on Dec. 6, President Obama announced that the Administration and the Republicans had arrived at a "framework for a bipartisan agreement" that would extend the Bush-era tax cuts and give workers a 2% reduction in Social Security tax for 2011. The President held a news conference yesterday to defend his decision to compromise with Republicans but it is uncertain at this time how the agreement will be received by Congressional Democrats. Although details of the agreement have yet to be released, its major components, as described in a Fact Sheet released by the White House, are as follows:
• The EGTRRA/JGTRRA income tax rates would be retained for two years for everyone. Presumably, current law's favorable tax treatment of long-term capital gains and qualified dividend income would be retained as well.
• A two year alternative minimum tax (AMT) "patch," which would prevent exemption amounts for individuals from dropping and allow personal credits to offset AMT.
• Retention of "key tax cuts" for working families (earned income tax credit, child tax credit, American Opportunity Tax Credit).
• Allowing businesses to write off 100% of their equipment and machinery purchases during 2011.
• A two-year extension of the R&D tax credit and other tax incentives to support business expansion. (It is not clear at this point whether the bipartisan agreement will extend all of the business and individual tax breaks that expired at the end of 2009.)
• Reducing the workers' share of Social Security tax for 2011 from 6.20% to 4.20%.
• Extending unemployment benefits for 13 months.
Reportedly, the bipartisan agreement also would reinstate the estate tax with a $5 million exemption amount and a 35% top tax rate.

The"Fact Sheet on the Framework Agreement on Middle Class Tax Cuts and Unemployment Insurance: A Win for Our Economy, Jobs, and Working Families," released by the White House on Dec. 7, 2010 can be viewed by clicking this at http://www.whitehouse.gov/the-press-office/2010/12/07/fact-sheet-framework-agreement-middle-class-tax-cuts-and-unemployment-in

All information presented above is generic, if you would like to know how this may be applied to your specific situation please give us a call at 303-792-3020 or reply directly to this email. Additional resources are always available at our website, www.ywmcpa.com.

e-YWMnews-December 2010 WEBSITE UPDATE

Newsletter Updates- The following articles can be found at our website at http://www.ywmcpa.com/newsletter . This month our articles include:

• Tax rates in turmoil as 2010 draws to a close
  
• Year-end planning: Last minute tips for individuals
  
• Deficit commission's tax proposals spark debate
  
• FAQ? Obtaining certification for energy-efficient home improvements for tax
• How Do I: Substantiate business gifts to clients?
  
• December 2010 tax compliance calendar

If any of these articles are of interest to you be sure to visit our site during the month of December as these articles change monthly.

YWM Office News- As the new tax season approaches we'd like to offer you some tips on ways you can increase the efficiency of your tax preparation:

• For our business clients, please answer every question on the PBC list sent this month. If a question is N/A please indicate as such. We will have to follow up on all non-responses which will increase the amount of time required to complete your return.
  
• For our individual clients, please fill out the provided organizer. The organizer is designed to correspond to our tax software, having all of the numbers summarized in one place greatly increases our efficiency in preparing your return.
  
• Submit all of your information at one time. Receiving piecemeal information greatly increases the amount of time required to prepare your return as we have to revisit and analyze where we're at with the return each time we work with it.
  
• Get your information in early. Getting us your information prior to mid-March will increase the turn around time to prepare your return.
  
• If you can't get your information in early consider having us extend your return prior to the deadline. You can then take your time to organize your data as we have suggested above.

These tips should help to increase the efficiency of your return. If you have any questions please let us know.

As we approach year end, many of our business clients may be assessing their current payroll and HR service providers. If your payroll or HR (insurance and workman's compensation) needs are not being met please let us know as we may be able to assist you in resolving your problems or in choosing a new provider. For help, please contact Troy Coon in our office at troy@ywmcpa.com or at the number listed below.

During the month of November Manager Troy Coon and his wife took a trip to Ethiopia with The Cunningham Foundation. The Cunningham Foundation is a non-profit organization headquartered here in Denver and was founded by Noel and Tammy Cunningham. The trip focused on visiting various sites The Cunningham Foundation has financially supported in the past. The trip focused on three main areas close to the capital Addis Ababa. They visited an HIV orphanage that is cared for by the Sisters of Mother Theresa, though the group spent the majority of their time during the trip at a site called Project Mercy. Project Mercy is a community based organization that focuses on education, healthcare and community around an area called Yetabon. During the last part of the trip the group visited a school and library in the Awasa. The library was funded by the Colorado DECA organization. "This was a trip of a lifetime. Although people of Ethiopia do not have much in terms of opportunity or material belongings they are a truly generous and enjoyable people. I cannot say enough about the adventure," says Troy of the experience. If anyone would like to learn more about the Cunningham Foundation or Troy's adventures in Ethiopia feel free to give him a call.



A group picture taken at the Project Mercy site. Troy is in the back in red.

As always, if you have any questions or comments to make our site even better, please don't hesitate to contact us. All information on our website is generic, to determine how this affects your specific situation please give us a call at 303-792-3020.

e-YWM ALERT #8- Congressional Lame Duck Session Begins

Congress convened this past week as time is running out on the current Congress and as many tax issues were left hanging earlier in the year. This session takes place in the wake of the historic Congressional elections that recently took place but the newly elected members will not be sworn in until January 3, 2011 as a part of the 112th Congress. That means the members of the 111th Congress remain in control and will be the ones called on to make some of these difficult decisions.

In the meantime, Congress will adjourn for the Thanksgiving holiday and is expected to begin consideration of many of these proposals upon its return on November 29th.The difficult issues include:

Extension of the Expiring Bush Tax Cuts
If Congress fails to act by January 1, 2011, many Internal Revenue Code provisions expire, and return to what they were in 2001. A few of the affected items include:
1. Increasing all income tax rates, dividend tax rates, capital gains tax rates,
eliminating marriage penalty relief in all brackets
2. Increased Federal withholding taxes-Should Congress fail to extend the
Bush tax cuts the
higher tax rates would normally require the IRS to issue
new withholding tables for employers.
3. Reinstatement of itemized deduction limits
4. Reinstatement of personal exemption phase-out
5. Reduction in child tax credits
6. Reductions in IRA contribution limits

Reinstating the Estate Tax
If Congress does not act the estate tax is automatically reinstated but at the rates and exemption levels that were in the law in 2001. The rates that existed in 2001 included a top estate tax rate of 55%, and a personal exemption level of $1 million, significantly lower than the $3.5 million exemption that was in effect in 2009 and the maximum rate of 45%.

Expiring Provisions and Extenders
Expect that votes in the House and Senate will take place but also expect the early votes to be more for politics than substance. Success on extending these issues and enacting a bill the President will sign is uncertain as of this date. Following is a partial list of expiring provisions and extenders that either expired at the end of last year or will expire at the end of this year. In some cases the credit or deduction is reduced.
1. Alternative Minimum Tax Indexing- currently not indexed for 2010
2. Education Tax Credits
3. Employment Tax Credits
4. Deduction for State and local Sales taxes in lieu of property taxes
5. Energy tax credits
6. Bonus depreciation rules

Extension of Unemployment Benefits
Congress must act to extend unemployment benefits for the long term unemployed, meaning those who have been unemployed for 99 weeks. Congress must act on this by December 1, 2010 as that is the date that benefits begin to run out under current law.

Enacting a Federal Budget
Congress has yet to enact any of the appropriations legislation necessary to allow for the continued funding of the federal government. The usual deadline for this is September 30 of the year, but Congress was unable to act and so deferred this deadline until December 3, 2010. Failure to either enact the appropriations bills or extend the continuing resolution would have a severe impact on every activity of the federal government.

1099 Burdens
In the past year Congress enacted legislation that requires the IRS to impose a significant expansion of the rules to determine when a business owner must provide a 1099 to a business, incorporated or not, when providing goods and or services to a business. This included requiring providing 1099s to corporations for the first time, and for owners of rental property to provide a 1099 for each service provider or repair service. Recently legislation has been introduced to repeal this requirement but it is unclear whether the revenue would have to be raised somewhere else.

Extending the Medicare Reimbursement Rates
The Health Care act enacted by Congress earlier in the year was unable to agree on a way to extend the medicare reimbursement rates for seniors and it was extended through November 30. A permanent solution for this may not take place until next year.

All information presented above is generic, if you would like to know how this may be applied to your specific situation please give us a call at 303-792-3020 or reply directly to this email. Additional resources are always available at our website, www.ywmcpa.com.

e-YWM ALERT #7- Energy Credits Expiring on 12/31/10

You can weatherize your home and be rewarded for your efforts. But time is running out.

Last year's Recovery Act expanded two home energy tax credits: the nonbusiness energy property credit and the residential energy efficient property credit.

Nonbusiness Energy Property Credit - This credit ends December 31, 2010

This credit equals 30 percent of what a homeowner spends on eligible energy-saving improvements, up to a maximum tax credit of $1,500 for the combined 2009 and 2010 tax years. The cost of certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass all qualify, along with labor costs for installing these items. In addition, the cost of energy-efficient windows and skylights, energy-efficient doors, qualifying insulation and certain roofs also qualify for the credit, though the cost of installing these items does not count.

By spending as little as $5,000 before the end of the year on eligible energy-saving improvements, a homeowner can save as much as $1,500 on his or her 2010 federal income tax return. Due to limits based on tax liability, amounts spent on eligible energy-saving improvements in 2009, other credits claimed by a particular taxpayer and other factors, actual tax savings will vary. These tax savings are on top of any energy savings that may result.

Residential Energy Efficient Property Credit - this credit ends in 2016

Homeowners going green should also check out a second tax credit designed to spur investment in alternative energy equipment. The residential energy efficient property credit equals 30 percent of the amount spent on solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines, and fuel cell property. Generally, labor costs are included when figuring this credit. Also, except for fuel cell property, no cap exists on the amount of credit available.

Not all energy-efficient improvements qualify for these tax credits. For that reason, homeowners should check the manufacturer's tax credit certification statement before purchasing or installing any of these improvements. The certification statement can usually be found on the manufacturer's website or with the product packaging. Normally, a homeowner can rely on this certification.
The IRS cautions that the manufacturer's certification is different from the Department of Energy's Energy Star label, and not all Energy Star labeled products qualify for the tax credits.

Currently neither of theses credits are allowed to the extent it puts you into or increases your alternative minimum tax, but Congress may change this before year end.

Subject to the above limitations, eligible homeowners can claim both of these credits when they file their 2010 federal income tax return. Because these are credits, not deductions, they increase a taxpayer's refund or reduce the tax owed. An eligible taxpayer can claim these credits, regardless of whether he or she itemizes deductions on Schedule A. Use Form 5695, Residential Energy Credits, to figure and claim these credits.

All information presented above is generic, if you would like to know how this may be applied to your specific situation please give us a call at 303-792-3020 or reply directly to this email. Additional resources are always available at our website, www.ywmcpa.com.

e-YWM ALERT #6- New Electronic Tax Deposit Regulations

The IRS has issued proposed new regulations designed to expand the making of electronic tax deposits. The regs would eliminate the use of paper-based federal tax deposit (FTD) coupons after 2010. The existing rules for making electronic deposits would otherwise generally remain unchanged.

Current rules. Taxpayers whose aggregate annual deposits of certain taxes exceed $200,000 are generally required to use electronic funds transfer (EFT) to make FTDs. Taxes taken into account in determining whether the $200,000 threshold has been met include withheld income and FICA taxes, corporate income and estimated taxes, certain taxes imposed on tax-exempt organizations, taxes withheld on nonresident aliens and foreign corporations, estimated taxes of certain trusts, FUTA taxes, and excise taxes, as well as others. Once taxpayers exceed the $200,000 threshold, they have a one-year grace period before being required to use EFT, and then they are required to use EFT in all later years even if their deposits fall below the threshold. The Electronic Federal Tax Payment System (EFTPS) is the EFT system currently used by IRS to collect FTDs.

Depositors not currently required to use EFTPS for deposits may instead use the paper-based FTD coupon system to make a deposit by presenting a check and an FTD coupon to a bank teller at one of the financial institutions authorized to be a government depository or financial agent.

Proposed regs knock out use of paper coupons. The proposed regs would eliminate the rules for making federal tax deposits by paper coupon after 2010 because the paper coupon system will no longer be maintained by the Treasury Department after Dec. 31, 2010.

The proposed regs would require all of the following to be deposited via EFT:

• Corporate income and corporate estimated taxes;
• Unrelated business income taxes of tax-exempt organizations;
• Private foundation excise taxes;
• Taxes withheld on nonresident aliens and foreign corporations;
• Estimated taxes on certain trusts;
• FICA taxes and withheld income taxes;
• Railroad retirement taxes;
• Nonpayroll taxes, including backup withholding;
• Federal Unemployment Tax Act (FUTA) taxes; and
• Excise taxes reported on Form 720, Quarterly Federal Excise Tax Return.

Some businesses paying a minimal amount of tax could, however, continue to make their payments with the related tax return, instead of using EFTPS.

Other deposit rules would generally remain unchanged. The proposed regs would, however, remove references to "banking" days and provide that, if the day an FTD would otherwise be due is a Saturday, Sunday, or legal holiday under Code Sec. 7503, the taxes will be treated as timely deposited if deposited on the next succeeding day which is not a Saturday, Sunday, or legal holiday.IRS says that using EFTPS to make federal tax deposits provides substantial benefits to taxpayers. EFTPS users can make tax payments 24 hours a day, seven days a week from home or office. Deposits can be made on-line with a computer or by telephone. EFTPS also significantly reduces payment-related errors that could result in a penalty.

Effective date. The rules in the proposed regs would be effective for remittances made after the date that final regs are published, but in no case earlier than Jan. 1, 2011. The proposed regs are expected to be finalized by the end of this year.

All information presented above is generic, if you would like to know how this may be applied to your specific situation please give us a call at 303-792-3020. Additional resources are always available at our website, www.ywmcpa.com.

This service is being provided exclusively to YWM clients and firm friends. This alert is one of a series that are distributed to both individuals and businesses.

e-YWM ALERT #5- IRA-to-Roth IRA Conversion Rules

This year is the first in which taxpayers may convert funds in regular IRAs (as well as qualified plan funds) to Roth IRAs regardless of their income level. What's more, taxpayers have the choice of paying the tax on the conversion when they file their 2010 returns, or deferring the tax hit on the conversion to the 2011 and 2012 tax years. As this article explains, these rules favor taxpayers who want to convert to a Roth IRA before year-end but are hesitant to do so because of the current uncertainty over post-2010 tax rates. They can convert before year-end and wait until Apr. 18, 2011, the due date of their 2010 return, to see how the conversion should be handled for best tax results.

Conversions to Roth IRAs. This year, for the first time ever, all taxpayers, regardless of their modified adjusted gross income (AGI), may convert amounts in a traditional IRA to amounts in a Roth IRA. Marrieds filing separately also are eligible. Before 2010, only taxpayers with modified AGI of $100,000 or less could make such conversion, and marrieds filing separately were not eligible regardless of modified AGI. (Code Sec. 408A(c)(3))

Amounts from a SEP-IRA or a SIMPLE IRA also may be converted to a Roth IRA, but a conversion from a SIMPLE IRA may be made only after the 2-year period beginning on the date on which the taxpayer first participated in any SIMPLE IRA maintained by the taxpayer's employer. (Reg. § 1.408A-4) Distributions from a Code Sec. 401(a) qualified plan also may be rolled over to a Roth IRA. (Code Sec. 408A(d)(3))
A conversion from a regular IRA to a Roth IRA generally is subject to tax as if it were distributed from the traditional IRA and not recontributed to another IRA (Code Sec. 408A(d)(3)(A)(i)), but isn't subject to the 10% premature distribution tax. (Code Sec. 408A(d)(3)(A)(ii); Reg. § 1.408A-4, Q&A 7)

Why make a IRA-to-Roth IRA conversion? Roth IRAs have two major advantages over regular IRAs:

(1) Distributions from regular IRAs are taxed as ordinary income (except to the extent they represent nondeductible contributions). By contrast, Roth IRA distributions are tax-free if they are "qualified distributions," that is, if they are made (1) after the 5-tax-year period that begins with the first tax year for which the taxpayer made a contribution to a Roth IRA, and (2) when the account owner is 59 1/2 years of age or older, or on account of death, disability, or the purchase of a home by a qualified first-time homebuyer (limited to $10,000). (Code Sec. 408A(d)(2))

(2) Regular IRAs are subject to the lifetime required minimum distribution (RMD) rules that generally require minimum annual distributions to be made commencing in the year following the year in which the IRA owner attains age 70 1/2. By contrast, Roth IRAs aren't subject to the lifetime RMD rules that apply to regular IRAs (as well as individual account qualified plans). (Code Sec. 408A(c)(5))

A similar comparison could be made between distributions from qualified retirement plans and Roth IRAs.

There are other tax advantages: Because distributions from Roth IRAs are tax-free (if they are qualified distributions), they (a) may keep a taxpayer from being taxed in a higher tax bracket that would otherwise apply if he were withdrawing taxable distributions, (b) don't enter into the calculation of tax owed on Social Security payments, and (c) have no effect on AGI-based deductions. What is more, the benefits flow through to beneficiaries of Roth IRA accounts, who also can make tax-free withdrawals from such accounts (they are, however, subject to the same annual post-death minimum distribution rules that apply to beneficiaries of regular IRAs).

Who should make IRA-to-Roth IRA conversions? The consensus view is that the conversion route should be considered by taxpayers who:

• have a number of years to go before retirement (and are therefore able to recoup the dollars that are lost to taxes on account of the conversion);
• anticipate being taxed in a higher bracket in the future than they are now; and
• can pay the tax on the conversion from non-retirement-account assets (otherwise, there will be a smaller buildup of tax-free earnings in the depleted retirement account).

Unique choice for 2010 conversions. A unique income inclusion rule applies for IRA-to-Roth-IRA conversions occurring in 2010. Unless a taxpayer elects otherwise, none of the gross income from the conversion is included in income in 2010; half of the income resulting from the conversion will be includible in gross income in 2011 and the other half in 2012. Taxpayers who elect to include all of the 2010 rollover income on their 2010 return cannot change the election after the due date of that return. (Code Sec. 408A(d)(3)(A))

A major wild card in making this choice is the tax-rate picture after 2010. In the "worst-case scenario"-Congress doesn't act and the EGTRRA sunset rule is allowed to go into effect-after 2010 the tax brackets above the 15% bracket will revert to their pre-2001 levels. That means the top four brackets will be 39.6%, 36%, 31%, and 28%, instead of the current top four brackets of 35%, 33%, 28%, and 25%. Other possible scenarios include Congress's allowing the current tax rate structure to stay in effect for everyone, possibly for a year or two, or increasing taxes rates for high income individuals only. One way or the other, the tax rate picture for at least 2011 and hopefully 2012, ought to be clear by the time tax return seasons rolls around next spring.

Observation:Much of year-end tax planning this year is a chancy proposition because of the currently uncertainty over tax rates. Not so with a conversion to Roth IRA. IRS FAQs ("Employee Plans News-October 8, 2010-2010 Rollovers and Conversions to a Roth IRA") confirm that taxpayers can elect to not have the two-year spread apply by simply including in gross income on their 2010 tax return the entire amount of the taxable income from a 2010 distribution rolled over to a Roth IRA. Thus, taxpayers who believe converting to a Roth IRA is a good long-term move will have the luxury of doing so before year-end and then waiting until Apr. 18, 2011, the due date of their 2010 return, to see how they should handle the conversion (i.e., to elect or not elect out of deferral).

•Those taxpayers who find that their rates won't go up in the near future can defer the tax hit on their 2010 conversion to Roth IRA, and pay the bill ratably when they file their 2011 return in 2012, and when they file their 2012 return in 2013.

• High income taxpayers who find that their tax rates will go up after this year can elect out of the deferral option and pay the tax on their Roth IRA conversion when they file their 2010 returns. Of course before doing so, such taxpayers will need to consider the overall impact of the election-out on their tax bills, and the time value of money.

Caution:Under Code Sec. 408A(d)(3)(E)(i)(I), an individual who rolls over a 2010 eligible retirement plan distribution to a Roth IRA cannot retain the benefit of the two-year spread for inclusion of the income from the distribution to the extent that he receives distributions from the Roth IRA in 2010 or 2011. Where the 2010 distribution income is being included in gross income over two years: the income inclusion from the 2010 distribution is accelerated, and the 10% early withdrawal tax under Code Sec. 72(t) applies to the distributed amounts.

All information presented above is generic, if you would like to know how this may be applied to your specific situation please give us a call at 303-792-3020. Additional resources are always available at our website, www.ywmcpa.com.

This service is being provided exclusively to YWM clients and firm friends. This alert is one of a series that are distributed to both individuals and businesses.

e-YWMnews-November 2010 WEBSITE UPDATE

e-YWMnews-November 2010 WEBSITE UPDATE

Newsletter Updates- The following articles can be found at our website at http://www.ywmcpa.com/newsletter . This month our articles include:

1. 2010 year-end tax planning for individuals presents unique challenges
2. How do I? Compute bonus depreciation.
3. 2010 year-end tax planning for businesses
4. Third quarter federal tax developments
5. FAQ: What should I do with my 401(k) when changing jobs?
6. November 2010 tax compliance calendar.

If any of these articles are of interest to you be sure to visit our site during the month of November as these articles change monthly.

YWM Office News- In an effort to keep you abreast of the many events and opportunities we are made aware of through our clients and firm friends we will be providing brief updates on items we believe may be of interest to you.

We currently have two beautiful mountain-view offices available in a suite-share arrangement within our office. Conference room, network, tax software, fax, scanner, copier, free parking, receptionist phone answering. Secretarial services available. Contact Becki or Carol at 303-792-3020 for additional information.

We would also like to formally thank all of you who donated and participated in our 2010 Relay For Life event benefiting the American Cancer Society. As a team we raised over $3,100 for the event. We had nearly 20 people attend the event as a part of our team, with 3 members making it over night walking over 10 miles each. We truly appreciate the support.




Relay for Life Team 2010


As always, if you have any questions or comments to make our site even better, please don't hesitate to contact us at. All information on our website is generic, to determine how this affects your specific situation please give us a call at 303-792-3020.

Yanari Watson McGaughey P.C.

e-YWM ALERT #4-How to Reduce your 2010 or 2011 Income

Numerous tax breaks (tax credits, deductions, and other tax benefits) are reduced or eliminated if a taxpayer's adjusted gross income (AGI), or modified AGI (MAGI), exceeds specified thresholds. As year-end nears, taxpayers whodo not anticipate being subject to higher rates next year should consider reducing their 2010 AGI by deferring taxable income into 2011, or by accelerating deductions, if doing so will keep their income level for the current tax year below the relevant phase-out thresholds (or will mitigate the effect of the phaseouts).

Not all steps listed below will be available or desirable for every individual, but many whose income without any planning would be in the range of a threshold may be able to use one or more of the following strategies to keep AGI below the applicable level:

• Convert taxable interest to tax-exempt interest.This will be especially practical where an individual will recognize little or no gain on the disposition of a taxable investment, such as when shifting funds in a taxable money market account to a tax-exempt fund. The tax-exempt interest will not be included in AGI (except in determining the taxability of Social Security benefits), and for some individuals, the after-tax amount received from tax-exempt interest will be at least as much as the after-tax amount received from taxable interest. That's especially true if the tax-exempt interest is exempt from state or local income taxes as well as from Federal income tax.

Caution:Taxpayers who might be subject to the alternative minimum tax should usually avoid investing in tax exempt private activity bonds since the interest on those is included in determining alternative minimum taxable income even though it's not included in AGI.

• Convert taxable interest to tax-deferred interest or income.Instead of leaving funds in a savings or money market account generating taxable interest, some individuals may want to shift some funds to U.S. Series EE bonds or inflation-indexed U.S. Series I savings bonds. Unless the individual elects otherwise, "interest" on Series EE or I bonds isn't taxed until the bonds mature or are redeemed. Another possibility would be to buy Treasury Bills with a term of one-year or less that mature in 2011 so that the income from the Bills won't be included in gross income until that year. Alternatively, individuals may shift funds from investments that produce currently taxable income to beaten-down growth stocks, which pay little or no dividends and give the individual the ability to control when any gain on the stocks will eventually be realized by timing their sale to suit his tax goals.

• Pay off debts.If an individual has both income-generating investments and debts on which he is paying interest, he should consider selling part of his investments and using the proceeds to pay off debt. In addition to reducing AGI, this may increase the individual's net income because the reduction in interest payments often is greater than the reduction in the income received on the investment.

Recommendation:If an individual in this situation is reluctant to repay current debt for fear that he may need the capital in the near future, then, if eligible, he should consider taking out a home equity credit line to draw on in case of need instead of keeping both income earning investments and debt.

•Increase contributions to retirement plans.Some individuals may be able to reduce AGI by increasing contributions to retirement plans such as 401(k) plans, SIMPLE pension plans, and Keogh plans.

Illustration : Sharon has compensation income above $100,000 and usually makes elective deferrals of $5,000 a year to the 401(k) plan maintained by her employer. For 2010, Sharon doubles her elective deferral amount to $10,000, effectively making her 2010 and 2011 contributions in 2010. This will reduce her 2010 AGI by $5,000 more than her normal 401(k) contribution would.

Caution:Assume an employer makes matching contributions to a 401(k) plan at one rate for elective deferrals up to a certain percentage of compensation and at a lower rate for elective deferrals of greater percentages of compensation (as frequently is the case to induce non-highly compensated employees to participate). The strategy described above will cause the employee to lose some employer matching contributions, unless the employee also makes his usual contribution for 2011 in addition to doubling up for 2010.

• Increase contributions to Health savings account (HSA).Individuals who are covered by a qualifying high deductible health plan (and are generally not covered by any other health plan that is not a qualifying high deductible health plan) may make deductible contributions to an HSA, subject to certain limits. For calendar year 2010, assuming a full year of coverage, the maximum contribution for self-only coverage is $3,050, and for family coverage it's $6,150. In addition, an individual who has reached age 55 before the close of 2010, can make a catch-up contribution of $1,000. Distributions from an HSA to pay qualified medical expenses are not taxable. Distributions used for nonmedical purposes are taxable, and if made before age 65, are subject to a 10% penalty tax. An individual's HSA contribution level may be based on expected out-of-pocket medical expenses, but there is nothing to prevent an individual from making deductible contributions up to the maximum allowable amount, regardless of expected expenses. These contributions in excess of medical needs can be withdrawn from the HSA and used for any purpose without penalty (but subject to tax) once the individual reaches age 65.

• Defer receipt of year-end bonuses.An employee who believes a bonus may be coming his way may request that his or her employer delay payment of any bonus until early in the following year. For example, if a bonus would normally be paid on Dec. 15, 2010, an employee may ask the employer before Dec. 15 to defer any bonus coming his way until January 2, 2011. By deferring the bonus, the employee will avoid having it included in 2010 income.

Caution:If an employee waits until a bonus is due and payable to request a deferral, the doctrine of constructive receipt will be triggered and the inclusion of the bonus in AGI will not be deferred. Also, if the deferral extends beyond two-and-one-half months after the close of the tax year, the bonus will be treated as nonqualified deferred compensation. Bonuses treated as deferred compensation are currently includible in income to the extent not subject to a "substantial risk of forfeiture" if the arrangement fails to meet certain distribution, acceleration of benefit, and election requirements. The impact of the 6.2% Social Security portion of the FICA tax may also affect the timing of a bonus. For example, if an employee is retiring in 2011, the employee's salary alone may exceed the Social Security wage base in 2010 ($106,800) but not in 2011. As a result, postponing a bonus payment from 2010 to 2011 could convert a bonus exempt from the 6.2% Social Security tax into a bonus subject to that tax.

• Pay up to $2,500 of student loan interest.Up to $2,500 of student loan interest paid during a tax year is deductible in computing AGI. A taxpayer should consider deducting up to this amount in a tax year even if less than that amount is required to be paid in that tax year.

Observation:The deduction for payments of interest on a student loan applies to voluntary interest payments such as payments made on a qualified student loan during a period when interest payments aren't required, because, for example, the loan hasn't yet entered repayment status or is in a period of deferment or forbearance. Thus, such voluntary payments will reduce AGI to the extent the total amount paid in any tax year does not exceed $2,500.

Observation:Under EGTRRA sunset rules, after 2010 (unless Congress acts) the above-the-line student loan interest deduction under Code Sec. 221 (1) phases out over lower modified AGI ranges and (2) applies only to interest paid during the first 60 months in which interest payments are required. The possibility of more stringent rules next year makes accelerating student loan interest deductions into this year more worthwhile.

• Pay back alimony in 2010.An individual required to pay alimony to a former spouse is entitled to deduct that alimony in the year paid. Accordingly, to the extent possible, such an individual should consider deducting any alimony owed for prior years in 2010, since the full amount paid in 2010 will be a deduction from AGI.

• Pay moving expenses in 2010 even if move isn't made until 2011.Residential moving expenses are deductible (including from AGI) by the taxpayer in the year paid or incurred. Thus, where a taxpayer paid professional movers in December of 2010 1, but the actual move wasn't made until January of 2011, the taxpayer is entitled to the deduction on his 2010 return.

Illustration: In 2010, taxpayer changed job locations, causing her to incur deductible moving expenses. Among these were the expenses of moving furniture, which she paid in 2010, and expenses of travel to the new job location, which she paid in Year 2011. Taxpayer may deduct the furniture-moving expenses in 2010, and the travel expenses in 2011.

All information presented above is generic, if you would like to know how this may be applied to your specific situation please give us a call at 303-792-3020. Additional resources are always available at our website, www.ywmcpa.com.

e-YWM ALERT #3-Small Business Act-Depreciation Provisions

The recently enacted Small Business Jobs Act of 2010 includes a wide-ranging assortment of tax changes generally affecting business. Two of the most significant changes allow for faster cost recovery of business property. Here are the details.

Enhanced small business expensing (Section 179 expensing). In order to help small businesses quickly recover the cost of certain capital expenses, small business taxpayers can elect to write off the cost of these expenses in the year of acquisition in lieu of recovering these costs over time through depreciation. Under pre-2010 Small Business Act law, taxpayers could expense up to $250,000 for qualifying property-generally, machinery, equipment and certain software-placed in service in tax years beginning in 2010. This annual expensing limit was reduced (but not below zero) by the amount by which the cost of qualifying property placed in service in tax years beginning in 2010 exceeded $800,000 (the investment ceiling). Under the new law, for tax years beginning in 2010 and 2011, the $250,000 limit is increased to $500,000 and the investment ceiling to $2,000,000.
The new law also makes certain real property eligible for expensing. For property placed in service in any tax year beginning in 2010 or 2011, the up-to-$500,000 of property that can be expensed can include up to $250,000 of qualified real property (qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property).

Extension of 50% bonus first-year depreciation. Businesses are allowed to deduct the cost of capital expenditures over time according to depreciation schedules. In previous legislation, Congress allowed businesses to more rapidly deduct capital expenditures of most new tangible personal property, and certain other new property, placed in service in 2008 or 2009 (2010 for certain property), by permitting the first-year write-off of 50% of the cost. The new law extends the first-year 50% write-off to apply to qualifying property placed in service in 2010 (2011 for certain property).

All information presented above is generic, if you would like to know how this affects your specific situation please give us a call at 303-792-3020. Additional resources are always available at our website, www.ywmcpa.com.

This service is being provided exclusively to YWM clients and firm friends.

e-YWM ALERT #2-2012 Form 1099 Reporting Requirement

e-YWM ALERT #2-2012 Form 1099 Reporting Requirement

What the new 1099 reporting requirement will mean for businesses

Businesses of all sizes are preparing for a possible avalanche of information reporting after 2011. To help pay for health care reform, lawmakers tacked on expanded information reporting to the Patient Protection and Affordable Care Act (PPACA). The health care reform law generally requires all businesses, charities and state and local governments to file an information return for all payments aggregating $600 or more in a calendar year to a single provider of goods or services. The PPACA also repeals the longstanding reporting exception for payments to a corporation. The magnitude of the reporting requirement has opponents working feverishly to persuade Congress to either repeal it or scale it back.

Pre-PPACA law

Pre-PPACA law generally requires businesses to file an information return with the IRS reporting payments to non-corporate service providers that exceed $600 in a given year. Payments to providers of goods are excluded from reporting. Payments to a corporation for goods or services are excluded from reporting with some limited exceptions.

See change ahead

Effective for purchases made after December 31, 2011 the PPACA requires all businesses purchasing $600 or more in goods or services from another entity (including corporations but not tax-exempt corporations), to provide the vendor and the IRS with an information return. Presumably, Form 1099-MISC will be used for purposes of the new reporting rule, or the IRS will develop a new form. We will keep you posted on developments.

Example. In February 2012, your business buys computers, printers, and fax machines from an office supply company, doing business as a corporation, for $4,000. Your business also spends $1,000 at a local caterer, doing business as a partnership, for office breakfasts and lunches throughout the year. Additionally, the company spends $600 for business travel on Amtrak. Your business must provide each of these vendors with a Form 1099 for 2012, as well as the IRS.

Day-to-day transactions

Here are some more examples of purchases after 2011 that appear to fall under the PPACA's reporting requirements:

-- You make small, incremental purchases from the same vendor; for example, your business purchases more than $600 of office supplies, such as staples, toner, pens, paper, and calendars from the same vendor.
-- You pay more than $600 throughout the year in mail and shipping costs to the same vendor; however each individual charge costs no more than $10 or $12.
-- You purchase floral arrangements for the office throughout the year, although each purchase may be no more than $40 to $70, your cumulative purchases are more than $600;
-- You purchase an $800 computer for your new employee;
-- You hold a summer picnic for your employees and purchase more than $600 in food from a local grocery store;
-- Every Friday you buy breakfast pastries from the local bakery for your employees, and even though each purchase is no more than $40, you spend more than $600 in the year.

Backup withholding

The PPACA requires sellers to provide, and purchasers to collect, Taxpayer Identification Numbers (TINs). If a seller fails to furnish a correct TIN, you must impose backup withholding at the rate of 28 percent of the purchase price.

Moreover, if your business fails to issue an accurately completed Form 1099 to a vendor, the IRS can assess a penalty.

Preparing now

There are some proactive steps your business can take now to prepare for the new reporting requirement and its heavy administrative and paperwork burden. The way you collect and manage vendor information will be more important than ever. Basic information you will need to track includes every vendor's name and TIN, the amounts spent at each vendor and the total annual amount spent at each vendor. You should also begin requesting that each of your vendors, particularly your regular vendors, complete IRS Form W-9 for your records. Form W-9 will provide you with the vendor's legal name, address, and TIN.

Pending legislation

Opponents of the expanded information requirement are hoping that Congress will repeal it before 2012. Outright repeal is a long-shot. As written now, the PPACA reporting requirement is estimated to raise $17 billion over 10 years. Congress will need to find another source of revenue if it repeals the reporting requirement. More likely, Congress will modify the requirement.

Senate Democrats have introduced legislation to raise the reporting threshold from $600 to $5,000 and exclude some routine payments, such as office supplies, from reporting. All purchases made with a credit card would also be exempt from the reporting requirement. Additionally, small businesses employing not more than 25 employees would be completely exempt from the reporting requirement.

Congress may scale back the PPACA's reporting requirements in the autumn of 2010. Our office will keep you posted on developments.




All information presented above is generic, if you would like to know how this affects your specific situation please give us a call. Additional resources are always available at our website, www.ywmcpa.com.

e-YWMnews-OCTOBER 2010 WEBSITE UPDATE

We would like to welcome you to the Yanari Watson McGaughey P.C. e-YWMnews and e-YWMalert mailing lists, the newest additions in our ongoing effort to provide you the highest quality professional service and guidance. These mailing lists will operate as follows:

• e-YWMnews-This email will be sent at least monthly to alert you to the new
articles available at our website.
• e-YWMalert-We will be sending this email to keep you abreast of cutting edge
tax news and legislation as it unfolds.

To ensure you receive these important announcements please add us as an approved sender.

This month we'd like to make sure you are aware of the many resources we have available on our website, www.ywmcpa.com, which is designed to provide helpful resources to aid you in making smart financial decisions throughout the year and to keep you abreast of important tax changes. We will notify you at least monthly when new tax and financial articles are posted to our site. Additionally, on an as needed basis we will be providing you with information on new tax legislation that may affect you and your business.

The website is comprised of multiple sections each created in an effort to provide you with relevant tools and resources to assist you in many types of financial decisions:

• Newsletter section-This is updated on a monthly basis with links to relevant
tax headlines. This month our articles include:

1. 2010 Health Care Reform Act

2. The Small Business Jobs Act of 2010

3. 2010 year-end tax planning

4. FAQ on what the income tax rate will be in 2011

5. How to use the new Roth rollover opportunity within a 401k plan

6. October 2010 tax compliance calendar

• Financial Tools section- In this section we have a number of interactive
financial calculators to assist you in making a wide variety of financial
decisions. For example there are calculators available to help you make
personal budget decision, evaluate whether refinancing makes sense in your
individual situation, to assess the best method of financing and paying for a
new car, and to determine the best retirement plan for you. This is just a
small sample of the many calculators available.

• Links-We have gathered many links to external financial Websites that may be of
interest to you. Here we have links to several financial, governmental, tax and
news websites that we hope you will find useful. Additionally we have a link to
the "Gross Prophet", YWM's blog, which will contain an archive of all e-YWMnews
and e-YWMalerts for future reference.

As always, if you have any questions or comments to make our site even better, please don't hesitate to contact us. All information on our website is generic, to determine how this affects your specific situation please give us a call.

Yanari Watson McGaughey P.C.

e-YWM Alert #1-2010 Small Business Jobs Act

e-YWM ALERT #1-2010 Small Business Jobs Act



We would like to welcome you to the Yanari Watson McGaughey P.C. e-YWM News and e-YWM Alert mailing lists, the newest additions in our ongoing effort to provide you the highest quality professional service and guidance. These mailing lists will operate as follows:

·e-YWM News-This email will be sent at least monthly to alert you to the new articles available at our website.

·e-YWM Alert-We will be sending this email to keep you abreast of cutting edge tax news and legislation as it unfolds.

To ensure you receive these important announcements please add us as an approved sender.

In our continuing effort to keep you informed on new legislation that may affect you and your business, we want to provide this summary of the 2010 Small Business Jobs Act which was signed into law on September 27, 2010.

The recently enacted 2010 Small Business Jobs Act includes a wide-ranging assortment of tax breaks and incentives for small business, paid for with various revenue raisers. Here's a brief overview of the tax changes in the new law.

Tax breaks and incentives

Enhanced small business expensing (Section 179 expensing). In order to help small businesses quickly recover the cost of certain capital expenses, small business taxpayers can elect to write off the cost of these expenses in the year of acquisition in lieu of recovering these costs over time through depreciation. Under pre-2010 Small Business Jobs Act law, taxpayers could expense up to $250,000 of qualifying property-generally, machinery, equipment and certain software-placed in service in tax years beginning in 2010. This annual expensing limit was reduced (but not below zero) by the amount by which the cost of qualifying property placed in service in tax years beginning in 2010 exceeded $800,000 (the investment ceiling). Under the new law, for tax years beginning in 2010 and 2011, the $250,000 limit is increased to $500,000 and the investment ceiling to $2,000,000.

The new law also makes certain real property eligible for expensing. For property placed in service in any tax year beginning in 2010 or 2011, the up-to-$500,000 of property expensed can include up to $250,000 of qualified real property (qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property).

100% exclusion of gain from the sale of small business stock for qualifying stock acquired after date of enactment and before Jan. 1, 2011. Before the 2009 Recovery Act, individuals could exclude 50% of their gain on the sale of qualified small business stock (QSBS) held for at least five years (60% for certain empowerment zone businesses). To qualify, QSBS must meet a number of conditions (e.g., it must be stock of a corporation that has gross assets that don't exceed $50 million, and the corporation must meet active business requirements). Under the 2009 Recovery Act, the percentage exclusion for gain on QSBS sold by an individual was increased to 75% for stock acquired after Feb. 17, 2009 and before Jan. 1, 2011. Under the new law, the amount of the exclusion is temporarily increased yet again, to 100% of the gain from the sale of qualifying small business stock that is acquired in 2010 after date of enactment and held for more than five years. In addition, the new law eliminates the alternative minimum tax (AMT) preference item attributable for that sale.

General business credits of eligible small businesses for 2010 allowed to be carried back five years. Generally, a business's unused general business credits can be carried back to offset taxes paid in the previous year, and the remaining amount can be carried forward for 20 years to offset future tax liabilities. Under the new law, for the first tax year of the taxpayer beginning in 2010, eligible small businesses can carry back unused general business credits for five years. Eligible small businesses consist of sole proprietorships, partnerships and non-publicly traded corporations with $50 million or less in average annual gross receipts for the prior three years.

General business credits of eligible small businesses in 2010 aren't subject to AMT. Under the AMT, taxpayers can generally only claim allowable general business credits against their regular tax liability, and only to the extent that their regular tax liability exceeds their AMT liability. A few credits, such as the credit for small business employee health insurance expenses, can be used to offset AMT liability. The new law allows eligible small businesses, as defined above, to use all types of general business credits to offset their AMT in tax years beginning in 2010.

S corporation holding period. Generally, a C corporation converting to an S corporation must hold onto any appreciated assets for 10 years following its conversion or face a business-level tax imposed on the built-in gain at the highest corporate rate of 35%. This holding period is reduced where the 7th tax year in the holding period preceded the tax year beginning in 2009 or 2010. The 2010 Small Business Jobs Act temporarily shortens the holding period of assets subject to the built-in gains tax to 5 years if the 5th tax year in the holding period precedes the tax year beginning in 2011.

Extension of 50% bonus first-year depreciation. Businesses are allowed to deduct the cost of capital expenditures over time according to depreciation schedules. In previous legislation, Congress allowed businesses to more rapidly deduct capital expenditures of most new tangible personal property, and certain other new property, placed in service in 2008 or 2009 (2010 for certain property), by permitting the first-year write-off of 50% of the cost. The new law extends the first-year 50% write-off to apply to qualifying property placed in service in 2010 (2011 for certain property).

Special rule for long-term contract accounting. The new law provides that in determining the percentage of completion under the percentage of completion method of accounting, bonus depreciation is not taken into account as a cost. This prevents the bonus depreciation from having the effect of accelerating income.

Boosted deduction for start-up expenditures. The new law allows taxpayers to deduct up to $10,000 in trade or business start-up expenditures for 2010. The amount that a business can deduct is reduced by the amount by which startup expenditures exceed $60,000. Previously, the limit of these deductions was capped at $5,000, subject to a $50,000 phase-out threshold.

Limitation on penalty for failure to disclose certain reportable transactions (including listed transactions) on a return. The new law limits the penalty to 75% of the decrease in tax resulting from the transaction. The minimum penalty is $10,000 for corporations and $5,000 for individuals (for failure to report a listed transaction, the maximum penalty is $200,000 and $100,000, respectively). These changes are retroactively effective to penalties assessed after Dec. 31, 2006.

Deductibility of health insurance for the purpose of calculating self-employment tax. The new law allows business owners to deduct the cost of health insurance incurred in 2010 for themselves and their family members in calculating their 2010 self-employment tax.

Cell phones removed from listed property category. This means that cell phones can be deducted or depreciated like other business property, without onerous recordkeeping requirements.

Offsets (revenue raisers)

Information reporting required for rental property expense payments. For payments made after Dec. 31, 2010, the new law requires persons receiving rental income from real property to file information returns with IRS and service providers reporting payments of $600 or more during the tax year for rental property expenses. Exceptions are provided for individuals renting their principal residences on a temporary basis (including active members of the military), taxpayers whose rental income doesn't exceed an IRS-determined minimal amount, and those for whom the reporting requirement would create a hardship (under IRS regs).

Increased information return penalties (effective for information returns required to be filed after Dec. 31, 2010).

Application of continuous levy to tax liabilities of certain federal contractors. For levies issued after date of enactment, the new law allows IRS to issue levies before a collection due process (CDP) hearing on Federal tax liabilities of Federal contractors (taxpayers would have an opportunity for a CDP hearing within a reasonable time after a levy is issued).

Allow participants in governmental 457 plans to treat elective deferrals as Roth contributions. For tax years beginning after Dec. 31, 2010, the new law will allow retirement savings plans sponsored by state and local governments (governmental 457(b) plans) to include designated Roth accounts. Contributions to Roth accounts are made on an after-tax basis, but distributions of both principal and earnings are generally tax-free.

Allow rollovers from elective deferral plans to designated Roth accounts. The new law allows 401(k), 403(b), and governmental 457(b) plans to permit participants to roll their pre-tax account balances into a designated Roth account. The amount of the rollover will be includible in taxable income except to the extent it is the return of after-tax contributions. If the rollover is made in 2010, the participant can elect to pay the tax in 2011 and 2012. Plans will be able to allow these rollovers immediately as of date of enactment.

Crude tall oil (a waste by-product of the paper manufacturing process) is excluded from eligibility for the cellulosic biofuel producer credit. The new law limits eligibility for the tax credit to fuels that are not highly corrosive (i.e., with an acid number of 25 or less), effective for fuels sold or used after Dec. 31, 2009.

Nonqualified annuity contracts. The new law permits holders of nonqualified annuities (annuity contracts held outside of a qualified retirement plan or IRA) to elect to receive part of the contract in the form of a stream of annuity payments, leaving the remainder of the contract to accumulate income on a tax-deferred basis.

Guarantee fees. Amounts received directly or indirectly for guarantees of indebtedness of a U.S. payor issued after date of enactment are sourced, like interest, in the U.S. As a result, amounts paid by U.S. taxpayers to foreign persons will generally be subject to U.S. withholding tax.


Please keep in mind that we've described only the highlights of the most important changes in the new law. In the coming weeks we will provide you with a more in depth look at the major provisions listed above. All information presented above is generic, if you would like to know how this affects your specific situation please give us a call. Additional resources are always available at our website, www.ywmcpa.com.

Home is where the deduction is

For many of us, the home office deduction is something we've heard plenty about, but may not be entirely comfortable with. In the current economy, many taxpayers may have begun business endeavors that are entirely home based. For these courageous individuals we present the following:

While this article is a few years old, it covers the basics of the deduction pretty well:

http://money.cnn.com/2006/02/07/pf/taxes/home_office_deductions/

The below link addressed a few of the misconceptions regarding the home office deduction as well as the more specific requirements related to claiming it:

http://turbotax.intuit.com/tax-tools/tax-tips/small-business/5663.html

Due to the perceived audit risk and the somewhat complex rules, many eligible taxpayers have passed on the deduction. The below discusses the decision to claim the deduction:

http://www.forbes.com/2007/02/06/business-irs-deduction-ent-law-cx_ng_0206smallbizresource.html

And lastly, one more article regarding the decision to claim the deduction. This one however provides a few examples of the types of records being kept by taxpayers that claim the deduction if an audit does become an issue:

http://online.wsj.com/article/SB120043915626692441.html

With many taxpayers looking for ways to save some money, the home office deduction may be a great place to look for those that qualify. If you have any questions regarding the qualifications we would be happy to help.

What the IRS can do for you

For many, the IRS is not considered to be the friendliest of government agencies. However, the IRS does provide many helpful resources, calculators, and programs to help ease the burden and remedy some of the confusion associated with the filing of a tax return. The links below represent a small sampling of the information available on the www.irs.gov site:

For those of you who have an Adjusted Gross Income of $57,000 or less in 2009 and are looking for a little tax assistance in the preparation of a basic individual tax return the IRS provides a free federal income tax preparation and electronic filing program, developed through a partnership between the IRS and the Free File Alliance LLC, a group of private sector tax software companies. The program can be found below:

http://www.irs.gov/efile/article/0,,id=118986,00.html

In order to promote retirement savings, the IRS also provides a mechanism to use your tax refund money to buy US Series Savings Bonds. For those of us who are more likely to save money we never had available to spend it may be a good option:

http://www.irs.gov/individuals/article/0,,id=217762,00.html

Below is the hub for the individual tax payer, the site provides a multitude of links to items such as current year tax updates, refund tracking, and calculators to determine eligibility for a number of 2009 credits/deductions:

http://www.irs.gov/individuals/article/0,,id=118506,00.html

Below is the small business equivalent of the link above, the site included important information regarding required filings, acceptable expenses, as well as potential credits/deductions that may be available for the small business owner or self-employed:

http://www.irs.gov/businesses/small/article/0,,id=134947,00.html

It may not combat the public perception entirely, but it is a great resource to utilize during tax season.

To Roth or not to Roth

Most of us have probably heard some rumblings of the new tax laws in effect for Roth IRA’s in 2010, and for good reason. The new laws open up the Roth IRA option for many taxpayers who were previously excluded due to income. While many websites claim the Roth IRA is THE best retirement option around, the reality is a number of factors can play into the determination of whether a Roth IRA is right for you. Even if a Roth IRA is the better option overall, additional considerations should be taken into account for determining whether the cost of the conversion is significant enough to deter you from making the switch. There are many different factors that should be taken into account:


This is one of the many sites sold on the Roth IRA, but it does provide a simple calculator that will give you a basic idea of which type of IRA would be more beneficial for you (this does not address the costs of conversion):

http://www.smartmoney.com/personal-finance/retirement/which-ira-is-best-7968/

This is a similar concept, but it takes into account the cost of conversion. It also provides the estimated tax you would pay as a result of the conversion (note this is a very rough estimate, but at least provides a general idea of what a conversion may cost you in taxes):

http://www.schwab.com/public/schwab/planning/retirement/iras/roth_ira/roth_ira_conversion/considerations/roth_conversion_calculator

This article is also sold on the value of the conversion, but it does provide a great overview of the specific rules related to converting a Roth IRA to a Traditional IRA:

http://finance.yahoo.com/expert/article/moneymatters/16201

Below is a discussion of some of the reasons you may decide the conversion is not for you. It addresses some specific factors that may indicate that a Roth IRA would not be the best choice for an individual:

http://moneywatch.bnet.com/retirement-planning/blog/retirement-roadmap/dont-rush-into-roth-ira-conversions/2594/

While many sites tout the benefits of the conversion, there are a number of reasons a Roth IRA conversion would not be in your best interest. The article below details some of the issues that are often overlooked when deciding whether a conversion is in their best interest:

http://www.marketwatch.com/story/12-traps-to-avoid-when-converting-to-a-roth-2010-01-21

Lastly, the article below details how a Roth IRA can be converted back to a Traditional IRA and the benefits of this ability:

http://money.cnn.com/2009/01/08/pf/expert/Roth_recharacterization.moneymag/index.htm

For many taxpayers this move might make a lot of sense, for others it may be in your best interest to stay with a Traditional IRA and spare yourself the costs of conversion. If after reading the above you are still confused, there are a number of financial professionals more than willing to provide their opinion on the topic. At the very least, this is a concept worth reviewing as the tax implications can be large and long lasting.

Deductions for the down and out of work

The clichés surrounding the concept of remaining optimistic in the face of hardships are evidence of the number of ways truly difficult situations can befall any of us. I suppose they're overused because they work-but that might just be the optimistic view. Regardless, as difficult as losing a job can be, there are a few bright points on the tax front. While you may not rejoice at the ability to claim additional deductions as a result of a decline in income, there are ways to use the situation to lessen your tax burden:

We'll start with the bad news. Unemployment benefits are considered taxable income; however, a portion of benefits is excluded, this amount is detailed in the link below:

http://www.irs.gov/newsroom/article/0,,id=205633,00.html

And now for the good news (or at least the optimistic view). Many deductions are only available if they exceed a certain % of Adjusted Gross Income. For the taxpayer who experienced a significant decline in income during the current year this may open up a host of deductions that had previously been unavailable. The below article provides a host of deductions that may help the unemployed:

http://www.usatoday.com/money/perfi/columnist/block/2009-02-09-unemployed-tax-breaks_N.htm

When one job is lost another is gained, or that's the idea anyway. There is a deduction available for job hunting expenses and the article below does a great job of spelling out what qualifies:

http://online.wsj.com/article/SB10001424052970204731804574388880246070404.html

For those of you that moved for that new job, moving expenses may be deductible if certain conditions are met. This article details the qualifying tests that determine whether the expenses are deductible as well as which expenses qualify:

http://www.smartmoney.com/personal-finance/taxes/writing-off-moving-expenses-9565/

And finally, for those job hunters that either returned to or stayed in school, a number of education deductions are available for the qualified:

http://www.kiplinger.com/features/archives/2007/01/educationtaxopedia.html

The above probably isn't enough to convince the employed to run out and quit their jobs in hopes of obtaining access to these breaks, but it does provide a bit of relief for those that qualify. Maybe the clichés had something going for them after all.

Tis the season

The countdown has officially started, 97 days until all the local newstations trek down to the local post office to document the influx of last minute taxpayers getting their filings in at the latest acceptable moment. For those of us that chose this as a profession this is Tax Season, the time of year where our entire world consists of 1040's, 1120's, W-2's, 1099's and the like. With that said, the beginning of tax season always brings with it a host of articles to help the underinformed to take advantage of the multitude of credits, adjustments, and deductions that are available to those who qualify. The following is a selection of a few such articles that may be of assistance to those of you looking to avoid the last minute rush to the post office:

This article was designed to be read before year-end, but still may be helpful for those of you who may qualify for the listed tax breaks:

http://online.wsj.com/article/SB10001424052748704795604574519852193088202.html?mod=article-outset-box

This article is particularly helpful for the newly self-employed:

http://www.businessweek.com/magazine/content/10_03/b4163065985047.htm

Another basic overview, but this one comes with a printable card of commonly used deductions and the income limits in effect for the 2009 tax year:

http://www.journalofaccountancy.com/Issues/2010/Jan/20091930.htm#

And last but not least, some moves that can be made in January to help in the preparation of this years (or possibly next year's) taxes:

http://www.marketwatch.com/story/tax-moves-to-make-in-january-2010-01-08?pagenumber=1

Hopefully these are of some assistance. If you find yourself in over your head or have questions please do not hesitate to contact me. Happy Tax Season!