Sep 17th 2010
The 2010 tax season is full of opportunities for tax professionals. The challenge is to keep up with the record number of federal tax updates and make sure clients can take advantage of them.
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Do you have the answers for puzzled taxpayers?
The dog days of summer are ending and a hot 2010 tax season isn’t far behind. With Congress enacting six new tax laws in 2010, compared to only two in 2009, U.S. taxpayers have never needed more help from their tax professionals than they do this tax season.
Clients are understandably confused by the profusion of tax law changes designed to stimulate the economy, improve access to health care, and incentivize consumer and business behavior. For their part, tax professionals have never had a better year to demonstrate their value to clients if they can get up to speed now on the rush of updates coming out of Washington, D.C.
New Medicare tax
Interestingly, one of the hottest questions for the 2010 season is about the Medicare tax change that takes effect in 2013. According to tax expert Vern Hoven, by far the most common question CPAs ask him about is how the new 3.8 percent Medicare tax will affect their clients. The tax kicks in at an adjusted gross income of $250,000 and it applies to unearned income, which includes interest, dividends, royalties, annuities, rents, and most capital gains. Profit on the sale of a principal home above $250,000 for individuals or $500,000 for couples also is subject to the tax.
“When clients come in during the upcoming tax season, they will want to know how to minimize and maximize income sources to avoid the tax. It’s essential that CPAs and EAs be prepared to help with strategies,” said Hoven.
These strategies include maximizing income from tax-exempt municipal bonds, Roth IRA and retirement plan distributions, and the sale of business property, while minimizing passive income and non-business capital gains. Family limited partnerships (FLPs) will be part of the mix, Hoven added.
More tax breaks for families
Congress passed some tax relief measures especially for families in 2010. One change extended the adoption tax credit to more parents. Parents who adopt children this year may be entitled to the full adoption tax credit of $13,170. Those who owe less than $13,170 in federal tax won’t have to defer part of the credit to the following year.
“Those who owe no tax at all will also receive a check for the entire amount of the adoption credit,” Hoven said.
In another change that parents might not know about, Congress made deductible medical insurance premiums paid to qualified plans for adult children up to age 27. “The children do not have to be dependents – so that’s hot,” said Hoven.
Medical insurance for employees
Small businesses receive a break on medical insurance, too. The Patient Protection and Affordable Care Act (PPACA) signed into law in March gives a tax credit on a sliding scale to small businesses that provide health insurance to employees. Under certain circumstances, a company that pays half the cost of an employee health plan can get as much as 35 percent of it back. It is estimated that 4 million small businesses could qualify for a tax credit under PPACA.
“This credit is effective already. I can't imagine being a CPA and not taking advantage of it right now,” said Hoven.
Tax incentives to hire
The federal government will reward businesses that hire the unemployed. The Hiring Incentives to Restore Employment Act (HIRE) exempts employers from paying their 6.2 percent share of the Social Security payroll tax on new-hires that meet specific criteria. Businesses also may get up to a $1,000 tax credit for every qualified new-hire that they retain for 52 consecutive weeks.
“The savings to clients can be considerable if they recruit and hire carefully and report properly,” said Hoven.
Audits on the rise
With all the tax changes and a federal budget deficit estimated at $1.6 trillion, it should come as no surprise that the Internal Revenue Service is auditing more returns. The IRS is focusing especially on Schedule C audits that often target small businesses and the self-employed.
“All CPA firms are feeling the effect of this. IRS representation is becoming a major part of the tax preparer’s responsibility, so we cover that in my tax update programs,” Hoven said.
Your ‘update central’ on the Web
The 2010 tax season promises to be a hot one. Getting training is essential and Webcasts offer a convenient fast track to understanding the changes affecting businesses and individuals this year. Starting November 15, CPE Link is offering eight sessions of Vern Hoven’s four-part Federal Tax Update series. The series covers fast-breaking tax developments that affect individuals, estates, businesses, partnerships, and corporations and gives updates on every new legislative change effective starting in 2010 and 2011.
The format of this series is great for digesting complex tax material. You have the opportunity to ask questions during the live Webcast. Then you can review the information by watching the recorded Webcast again. Comprehensive and practical written materials also accompany the program for your future reference. In addition, Hoven is an awarding-winning instructor who delivers an entertaining webcast.
About CPE Link:
CPE Link is a provider of online continuing professional education (CPE) for CPAs, EAs, CFPs and other financial professionals. Practitioners can choose from a robust curriculum of over 30 live webcast topics every month. CPE Link is registered with the National Association of State Boards of Accountancy (NASBA), as a sponsor of continuing professional education on the National Registry of CPE Sponsors.