Monday, November 29, 2010

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,

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,

Thursday, November 18, 2010

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,

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.

Monday, November 15, 2010

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,

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.

Tuesday, November 2, 2010

e-YWMnews-November 2010 WEBSITE UPDATE

e-YWMnews-November 2010 WEBSITE UPDATE

Newsletter Updates- The following articles can be found at our website at . 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.


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