FAQ: What constitutes income from the cancellation of debt?
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Income Reporting | GBA March 1, 2010 | 
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Congress turns focus to economy; Senate readies jobs bill
Fresh from its Presidents’ Day recess, Congress has shifted its priority from passing healthcare reform to the economy and readying a jobs bill to jumpstart hiring. The bill is expected to be in the neighborhood of $100 billion. On February 11, the Senate Finance Committee (SFC) released a draft version of an $85 billion jobs and tax incentives package. However, the SFC’s bill was subsequently scaled back by Senate Majority Leader Harry Reid, D-Nev., who has instead offered a pared-down version of the measure. Reid’s bill would include four initiatives originally proposed in the SFC’s jobs package. Reid’s bill would provide an employer payroll tax exemption for new hires, Code Sec. 179 expensing, extension of the Highway Trust Fund, and an expansion of the Build America Bond program.
Hiring incentives
The centerpiece of Reid’s proposed bill is a $13 billion incentive for businesses to hire unemployed individuals. Private sector businesses that hire qualified workers after the date of enactment and before January 1, 2011 would be exempt from the 6.2 percent Social Security payroll tax (up to the maximum Social Security wage of $106,800) for qualified new hires. A qualified new hire is an individual who has not been employed for more than 40 hours during the 60-day period prior to employment. The incentive would not apply to new hires related to the employer or public sector employees.
Code Sec. 179 expensing
The Reid bill would also extend enhanced Code Sec. 179 expensing for qualified property placed in service in tax years beginning in 2010. As in 2008 and 2009, taxpayers would be able to expense up to $250,000 of qualified Code Sec. 179 expense property. This amount would be reduced is the property placed in service during the tax year exceeds $800,000.
Bonus depreciation/Extenders up in the air
Noticeably absent from Reid’s proposed bill is an extension of bonus deprecation as well as the extension of a host of popular individual, business, charitable, and energy tax incentives that expired after December 31, 2009. These include the state and local sales tax deduction, additional standard deduction for real property taxes, New Markets Tax Credit, and the research tax credit. However, it is anticipated that Congress may deal with tax incentives in subsequent legislation.
Estate tax
In December, the House voted to extend the 2009 estate tax regime through December 31, 2010. However, the Senate has not acted on the House’s bill, nor unveiled a version of its own estate tax bill. Congress will likely deal with the estate tax after it passes jobs legislation.
COBRA
Eligibility for COBRA premium assistance will expire after February 28, 2010. Although the SFC’s jobs bill would extend eligibility for COBRA premium assistance through May 31, 2010, Reid’s bill would not.
Our office will keep you posted on these significant legislative developments.
Taxes | GBA | Comments (0)
IRS survey reveals increased tolerance of “a little” cheating
The IRS Oversight Board has released its annual Taxpayer Attitude Survey. According to the survey, the percent of taxpayers who find it acceptable to cheat on their income taxes increased from 9 percent in 2008 to 13 percent in 2009. The 2009 survey was based on interviews of 500 men and 500 women during August 2009.
Tolerance for cheating rises
Approximately 9 percent of survey respondents believe “a little” cheating on an income tax return is tolerable, and 4 percent endorse “as much cheating as possible.” The percentage of respondents who said that cheating was “not at all” acceptable decreased from a high of 89 percent to 84 percent in 2009.
At the same time, 95 percent of respondents completely or mostly agreed that “it is every American’s civic duty to pay their fair share of taxes.” Moreover, 92 percent agreed that cheaters should be held accountable. Fear of an audit has the greatest influence over individuals’ honest reporting of their taxes.
IRS services
The percent of taxpayers viewing various IRS services as very important generally declined across-the-board. For example, 70 percent of respondents (down from 78 percent in 2008) found it very important for the IRS to have a toll-free helpline. Additionally, there was a drop from 69 to 64 percent of respondents who viewed it very important for a website to provide information, and a drop from 55 percent to 46 percent of respondents who viewed it as very important to have community tax clinics.
Withdrawals from retirement savings: Tough rules may change
| In response to the economic downturn that has affected the retirement portfolios of millions of individuals across the country, Congress has been considering a variety of alternatives to offer relief to those who face financial emergencies and need immediate access to their funds. Two of the most significant proposals that have been recommended include: (1) significant broadening of the suspension of the 10 percent penalty tax on early withdrawals from IRAs and defined contribution plans, and (2) extending the temporary suspension of the penalty tax imposed on individuals age 70 1/2 or older who do not take required minimum distributions (RMDs) from certain retirement plans.
Early withdrawal penalty To discourage individuals from using money set aside in retirement accounts for expenses incurred outside of retirement, a 10 percent tax is imposed on the amount that is withdrawn, in addition to this amount being included in the individual’s gross income and subject to federal (and often, state) income tax. The 10 percent penalty will not apply to distributions made in the following circumstances:
Caution: The extent to which withdrawal may be made from an employer-sponsored qualified retirement plan, even with respect to amounts that you contributed, depends upon what is allowed under the written plan itself. Some plans don’t allow you to withdraw only after retire. Others allow withdrawals for “hardships,” which may include medical expenses or other financial crisis. Still other withdrawals, however, such as withdrawals for higher education or a first home purchase, are never allowed under IRS rules from an employer-run. The 10 percent penalty and, for that matter, the underlying taxable income generated from a withdrawal, do not apply if the funds are properly rolled over within a 60-day period from an employer-sponsored plan to an IRA or from one qualified plan or IRA to another. Hardship withdrawals. Individuals who take hardship withdrawal from their defined contribution plan must also pay the 10 percent penalty tax. A hardship is defined as an immediate and heavy financial need. Certain expenses are deemed to meet this definition, but even so, the penalty still applies. Proposals to suspend the 10 percent penalty Several proposals have been advanced by policymakers to eliminate or suspend the 10 percent early withdrawal penalty in certain situations. The proposals would generally add a paragraph to Internal Revenue Code Sec. 72(t) to eliminate the penalty in specific circumstances. Proposals include eliminating or suspending the 10 percent early withdrawal penalty for:
RMDs Individuals with certain qualified retirement plans, as well as traditional IRAs and 403(b) plans, are required to withdraw a certain amount ( a “required minimum distribution” or RMD) from the account each year after reaching age 70 1/2 (Roth IRAs are not subject to the RMD rules). The annual RMD is based on the account balance as of December 31 of the prior year and the account holder’s life expectancy. Generally, RMDs must begin no later than April 1 of the year after you reach age 70 1/2. Proposals to suspend RMDs RMDs were suspended for 2009 only. RMDs must be taken for 2010 and beyond, unless Congress acts to suspend the RMD rules again. However policymakers have put forth various proposals to eliminate or suspend altogether the RMD requirements. The proposals include:
When contemplating whether to implement any of these proposals, Congress and Treasury officials must balance a number of considerations, including the immediate financial needs of individuals with the policies behind the penalty taxes; namely, providing funds for retirement and not allowing the money to be used for pre-retirement expenses. Our office will keep you posted on any legislative proposals that may affect your retirement planning. We also can help you navigate the current rules that would apply should you need to make a withdrawal soon from your retirement savings. |
March 2010 tax compliance calendar
| As an individual or business, it is your responsibility to be aware of and to meet your tax filing/reporting deadlines. This calendar summarizes important tax reporting and filing data for individuals, businesses and other taxpayers for the month of March 2010.March 3
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 24-26. March 5 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 27-March 2. March 10 Employees who work for tips. Employees who received $20 or more in tips during February must report them to their employer using Form 4070. Employers. Semi-weekly depositors must deposit employment taxes for payroll dates March 3-5. March 12 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates March 6-9. March 15 Monthly depositors. Monthly depositors must deposit employment taxes for payments in February. March 17 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates March 10-12. March 19 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates March 13-16. March 24 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates March 17-19. March 26 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates March 20-23. March 31 Employers. Semi-weekly depositors must deposit employment taxes for payroll dates March 24-30.
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