100 Percent Write-Off for Heavy SUVs Used Entirely for Business

The 2010 Tax Relief Act provides a limited-time 100% bonus depreciation allowance for qualified property which allows taxpayers that buy a new heavy SUV and use it entirely for business to write-off the entire purchase price in the placed-in-service year.

Heavy SUVs are vehicles with a gross vehicle weight (GVW) rating of more than 6,000 pounds which are exempt from the luxury auto dollar caps because they fall outside of the definition of a passenger auto. To deal with this “SUV tax loophole,” several years ago, Congress imposed a limit on the Sec. 179 expensing of heavy SUVs. Thus, not more than $25,000 of the cost of a heavy SUV placed in service after Oct. 22, 2004 may be expensed under Sec. 179. These rules apply, with some exceptions, to SUVs rated at 14,000 pounds GVW or less.

Under the 2010 Tax Relief Act, the bonus first-year depreciation percentage is 100% for eligible property that is generally:

1. Placed in service after Sept. 8, 2010 and before Jan. 1, 2012, and
2. Acquired by the taxpayer after Sept. 8, 2010 and before Jan. 1, 2012.

Eligible property includes heavy SUVs. Thus, a taxpayer that buys and places in service a new heavy SUV after Sept. 8, 2010 and before Jan. 1, 2012, and uses it 100% for business, may write-off its entire cost in the placed-in-service year. There is no specific rule barring this result for heavy SUVs.

Let’s say a taxpayer purchased a heavy SUV in October of 2010 for $50,000 and used the vehicle 100% for business for the rest of 2010. This taxpayer can write-off the full $50,000 cost of the vehicle on his 2010 return. If the vehicle is used less than 100% for business, the deduction is prorated. 

If you have questions related to buying a heavy SUV and how this deduction will apply to your specific tax circumstances, please give this office a call.

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Is the Income Taxable or Non-Taxable?

A question that comes up frequently is whether income you received is taxable or not. Generally, most income you will receive is considered taxable, but there are situations when certain types of income are partially taxed or not taxed at all.

To help taxpayers understand the differences between taxable and non-taxable income, the Internal Revenue Service offers these common examples of items not included as taxable income:

• Adoption expense reimbursements for qualifying expenses
• Child support payments – Child support payments are reimbursements for the support of a child paid by the non-custodial parent to the custodial parent. Thus, it is not income to the recipient parent, nor is it deductible by the parent making the payments.
• Gifts, bequests and inheritances – Gift taxes are paid by the giver and inheritance taxes are paid by the estate of the deceased. Thus, the recipient is not subject to taxation on those items. There are some exceptions to that rule for income that would have been taxable to the deceased if he had received it while living, such as income from installment sale notes, earned but unpaid wages, or annuities. The most prevalent exception is when a traditional IRA is inherited. Distributions from the IRA are taxable to the beneficiary, although part of the distribution will be non-taxable if the deceased IRA owner had made contributions to the IRA that were not deductible on his or her tax returns.
• Workers' compensation benefits
• Meals and lodging for the convenience of your employer
• Compensatory damages awarded for physical injury or physical sickness
• Welfare benefits
• Cash rebates from a dealer or manufacturer – Cash rebates are considered to be a reduction in purchase price and therefore are not treated as income. If the item is used in business, be sure to reduce the depreciable basis by the rebate amount.

Some income may be taxable under certain circumstances, but not taxable in other situations. Examples of items that may or may not be included in your taxable income are:

• Life Insurance – If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds, which were paid to you because of the insured person’s death, are not taxable unless the policy was turned over to you for a price.
• Municipal Bond Interest – Generally, interest from municipal bonds is tax-free for federal purposes. However, some states only treat municipal bonds issued in their state as tax-free for state purposes.
• Social Security Income – Depending upon your total income for the year, Social Security benefits can be tax-free or partially taxable. However, no more than 85% of Social Security income is ever taxable.
• Scholarship or Fellowship Grant – If you are a candidate for a degree, you can exclude amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify.
• Non-Cash Income – Taxable income may be in a form other than cash. One example of this is bartering, which is an exchange of property or services. The fair market value of goods and services exchanged is fully taxable and must be included as income by both parties.

Generally, most other items of income—including income such as wages, salaries, tips, unemployment compensation, investment earnings and gains from the sale of assets — are fully taxable and must be included in your income unless specifically excluded by law.

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Name Changes Can Complicate Filing

If you changed your name as a result of a recent marriage or divorce, you should take the necessary steps to ensure the name on your tax return matches the name registered with the Social Security Administration (SSA). A mismatch between the name shown on your tax return and the SSA records can cause problems in the processing of your return and may even delay your refund.

Here are some tips for recently married or divorced taxpayers who have a name change.

1. If you took your spouse’s last name or if both spouses hyphenate their last names, you may run into complications if you don’t notify the SSA. When newlyweds file a tax return using their new last names, IRS computers can’t match the new name with their Social Security Number (SSN).

2. If you were recently divorced and changed back to your previous last name, you’ll also need to notify the SSA of this name change.

3. Informing the SSA of a name change is easy; you will need to file a Form SS-5, Application for a Social Security Card, at your local SSA office and provide a recently-issued document as proof of your legal name change.

4. If you adopted your spouse’s children after getting married, make sure that the children have an SSN. Taxpayers must provide an SSN for each dependent claimed on a tax return. For adopted children without SSNs, the parents can apply for an Adoption Taxpayer Identification Number – or ATIN – by filing Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions, with the IRS. The ATIN is a temporary number used in place of an SSN on the tax return.

Please notify this office of any name change prior to finalizing your tax return.

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Tax Tips for Self-Employed Individuals

If you are in business for yourself, or carry on a trade or business as a sole proprietor or an independent contractor, you generally would consider yourself self-employed, and you will need to include on your tax return your income and allowable business expenses to determine your net profit. Your net profit is subject to both income tax and self-employment tax.

Here are some things you should know about self-employment: 

• If you provide services as an independent contractor, each business that engages you will ask you to complete and provide them with a copy of IRS Form W-9. This is the way you provide and certify your contact information and Social Security number to the business that hired you. The hiring company will issue you an IRS Form 1099-MISC and provide a copy to the IRS for the amounts paid to you during the year.
• If you are self-employed and have a net profit of $400 or more, you have to pay self-employment (SE) tax. SE tax is a social security and Medicare tax primarily for individuals who work for themselves. It is similar to the social security and Medicare taxes withheld from the pay of most wage earners. However, since you have no employer, you are required to pay both the employer’s and the employee’s share of the social security and Medicare taxes, thus making the SE tax double what an employee would pay. However, you are allowed to deduct half of your self-employment tax in figuring your adjusted gross income.
• Since you do not have an employer to withhold taxes from your pay, you generally will be required to make estimated tax payments to cover your income and SE tax liabilities from your self-employment. Estimated tax is the method used to pay tax on income that is not subject to withholding. If you end up owing taxes when you file your tax return after the end of the tax year, you may be penalized for underpayment. If your taxes from self-employment are small and you have other income from employment on which tax is withheld, it may be possible to adjust the withholding to cover the taxes from the self-employment.
• You can deduct the costs of operating your business including expenses, cost of goods sold, and depreciation on capital assets used in business. Temporary liberal expensing and depreciation rules mean that most small business owners can fully deduct the purchase costs of nearly all capital assets placed in service during 2010 and 2011. However, careful tax planning is needed to maximize the benefits of the write-offs.
• To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your field of business. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be indispensable to be considered necessary.
• If you also resale products, you probably will be required to obtain a resale permit from your state, and collect and remit sales tax to the state on a periodic basis.
• Depending upon the location of your business, you may also be required to obtain a business tax permit, which is really a way for the local government entity to collect tax on your sales. In addition, if you have fixed assets that you use in your business, the local government entity will probably assess a personal property tax based on the value of the assets.

Setting up a self-employment business can be complicated and you are urged to contact this office for assistance.

 

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Time to Call For Your Tax Appointment

It is only one month until the April due date for your tax returns. If you have not made an appointment to have your taxes prepared, we encourage you do so before it becomes too late.

Do not be concerned about having all your information available before making the appointment. If you do not have all your information, we will simply make a list of the missing items. When you receive those items, just forward them to us.

Even if you think you might need to go on extension, it is best to prepare the return and estimate the result so you can pay the tax and minimize interest and penalties. We can then file the extension for you.

We look forward to hearing from you.

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What to Do if You Are Missing a W-2

Have you received your W-2? These documents are essential to filling out most individual tax returns. You should receive a Form W-2, Wage and Tax Statement, from all of your employers each year. Employers had until January 31st to provide or send you a 2010 W-2 earnings statement either electronically or in paper form. If you have not received your W-2, follow these steps:

1. Contact this office – And let us know you are missing a W-2. If your appointment is in the near future, we will advise you whether to keep the appointment or change it to another time. Generally, when a W-2 or 1099 is missing, it is best to keep the appointment. We can complete everything else for the return, except for the missing document, which you can mail or drop by the office at a later date. That way, we can finish your return as soon as the W-2 or 1099 is available. This will speed up your refund if you are receiving one.

2. Contact your employer - Contact your employer to inquire if and when the W-2 was mailed. If it was mailed, it may have been returned to the employer because of an incorrect or incomplete address. After contacting the employer, allow a reasonable amount of time for them to resend or to issue the W-2.

3. Contact the IRS - If you still have not received your W-2 by February 16, you can contact the IRS for assistance at 800-829-1040. However, we recommend that you hold off from contacting the IRS until you are certain that you will not be receiving a W-2 from the employer. If, and when, you do call the IRS, have the following information at hand:

• Employer's name, address, city, and state, including zip code;
• Your name, address, city and state, including zip code, and Social Security number; and
• An estimate of the wages you earned, the federal income tax withheld, and the period you worked for that employer. The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible. This office can assist you in making the estimate.

 4. File your return – Even if you don’t receive a W-2, you still must file your tax return or request an extension to file by April 15.

• If you anticipate that you will ultimately receive the missing W-2, this office can estimate your 2010 tax liability and file extensions for you. If you have a substantial refund coming, you may opt to have this office prepare a substitute W-2 and you can file without the W-2. Refunds for returns including substitute W-2s can significantly be delayed while the IRS verifies the W-2 information.
• If you don’t anticipate receiving the missing W-2, then this office can prepare a substitute W-2, allowing you to file your 2010 tax return.

If a substitute W-2 is used and it is later determined that the information used to prepare the substitute W-2 was in error, we may have to prepare an amended return for you to file.

 

Please call our office if you have any questions.

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Checking the Status of Your Federal Tax Refund is Easy

If you already filed your federal tax return and are due a refund, you can check the status of your refund online.

Where’s My Refund? is an interactive tool on the IRS web site at IRS.gov. Whether you split your refund among several accounts, opted for direct deposit into one account, or asked the IRS to mail you a check, Where’s My Refund? will give you online access to your refund information nearly 24 hours a day, 7 days a week.

If you e-file, you can get refund information 72 hours after the IRS acknowledges receipt of your return. If you file a paper return, refund information will be available within three to four weeks. When checking the status of your refund, have your federal tax return handy. To access your personalized refund information, you must enter:

• Your Social Security Number (or Individual Taxpayer Identification Number);
• Your Filing Status (Single, Married Filing Joint Return, Married Filing Separate Return, Head of Household, or Qualifying Widow(er)); and
• The exact refund amount shown on your tax return.

Once your personal information has been entered, one of several responses may come up, including the following:

• Acknowledgement that your return was received and is in processing.
• The mailing date or direct deposit date of your refund.
• Notice that the IRS could not deliver your refund due to an incorrect address. You can update your address online using the Where’s My Refund? feature.

Where’s My Refund? also includes links to customized information based on your specific situation. The links guide you through the steps to resolve any issues affecting your refund. For example, if you do not get the refund within 28 days from the original IRS mailing date shown on Where’s My Refund?, you can start a refund trace online.

Where’s My Refund? is also accessible to visually-impaired taxpayers who use the Job Access with Speech screen reader used with a Braille display and is compatible with different JAWS modes.

If you do not have Internet access, you can check the status of your refund by calling the IRS TeleTax System at 800-829-4477 or the IRS Refund Hotline at 800-829-1954. When calling, you must provide your Social Security Number (or your spouse’s), your filing status and the exact refund amount shown on your return.

Refunds are sent out weekly on Fridays. If you check the status of your refund and are not given the date it will be issued, please wait until the next week before checking back.

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