News for Individuals

US TREASURY CIRCULAR 230 NOTICE

ANY US FEDERAL TAX ADVICE INCLUDED IN THIS COMMUNICATION (INCLUDING ANY ATTACHMENTS) WAS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, FOR THE PURPOSE OF (i) AVOIDING ANY US FEDERAL TAX-RELATED PENALTIES THAT MAY BE IMPOSED OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY TRANSACTION OR MATTER ADDRESSED HEREIN. IF YOU WOULD LIKE SUCH ADVICE, PLEASE CONTACT US.

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Energy Tax Breaks for Homeowners

The IRS reminds homeowners that they still have time this year to make energy-saving and green-energy home improvements and qualify for either of two home energy credits.

The Nonbusiness Energy Property Credit is aimed at homeowners installing energy efficient improvements such as insulation, new windows and furnaces. The credit is more limited than in the past years, but can still provide substantial tax savings.

• The 2011 credit rate is 10 percent of the cost of qualified energy efficiency improvements. Energy efficiency improvements include adding insulation, energy-efficient exterior windows and doors and certain roofs. The cost of installing these items does not count.

• The credit can also be claimed for the cost of residential energy property, including labor costs for installation. Residential energy property includes certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass fuel.

• The credit has a lifetime limit of $500, of which only $200 may be used for windows. If the total of nonbusiness energy property credits taken in prior years since 2005 is more than $500, the credit may not be claimed in 2011.

• Qualifying improvements must be placed into service to the taxpayer’s principal residence located in the United States before January 1, 2012.

Homeowners going green should also check out the Residential Energy Efficient Property Credit, designed to spur investment in alternative energy equipment.

• The credit equals 30 percent of what a homeowner spends on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines, and fuel cell property.

• No cap exists on the amount of credit available except for fuel cell property.

• Generally, labor costs are included when figuring this credit.

Not all energy-efficient improvements qualify for these tax credits, so homeowners should check the manufacturer’s tax credit certification statement before they purchase. Taxpayers can normally rely on this certification statement which can usually be found on the manufacturer’s website or with the product packaging.

Eligible homeowners can claim both of these credits on Form 5695, Residential Energy Credits when they file their 2011 federal income tax return. Because these are credits and not deductions, they reduce the amount of tax owed dollar for dollar. An eligible taxpayer can claim these credits regardless of whether he or she itemizes deductions on Schedule A.

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Likely fallout from deficit-reduction panel failure

Nov 20 (Reuters) - The failure of a congressional deficit-cutting "super committee" means the tough work of putting the United States' finances on a stable path will likely have to wait until 2013 at the earliest. Barring some unforeseen development, the Republican and Democratic co-chairs of the committee are due to issue a joint statement on Monday conceding defeat in their three-month search for a debt deal, aides told Reuters on Sunday.

With the intensifying 2012 election campaign stoking already bitter partisanship in Washington, the U.S. Congress will be hard-pressed to reform expensive government benefit programs and an archaic tax code that are seen as the keys to improving the country's fiscal health. Given the complexity of passing such legislation through Congress, it could even be 2014 before real progress is made. That timetable could test the patience of global financial markets that so far have been willing to continue investing heavily in the United States as Europe grapples with a spiraling debt crisis.

The super committee has squandered a rare opportunity to take major action against the United States' fiscal problems because it had extraordinary powers to quickly move legislation through a gridlocked Congress. The likely fallout from the committee's inability to agree on at least $1.2 trillion in deficit-reduction over 10 years also includes:

Added difficulties extending payroll tax cuts, unemployment benefits and other expiring tax breaks, which are seen as important economic stimulants. The hope had been to include them in any super committee deal that would have been spirited through Congress by Dec. 23 under rules prohibiting amendments and procedural roadblocks. Now they will have to find another way through the legislative maze. Analysts says failure to extend the payroll tax cuts and enhanced jobless benefits could shave more than a percentage point off U.S. economic growth.

Increased investor uncertainty: Investors already have little confidence Republicans and Democrats can bridge a yawning ideological divide over tax policy and who should shoulder the burden for reducing deficits. The U.S. Congress has had trouble passing even routine legislation this year, leading to repeated disruptions of government services.

The committee's failure is unlikely to trigger another downgrade of the U.S. credit rating. Rating agencies have said they will look at a range of factors in making any decision but that the committee's washout will not be decisive.

Republicans are already making noises about altering the $1.2 trillion in automatic spending cuts, or sequesters, that are due to kick in in 2013 as a result of the super committee's failure. They want to soften the planned $600 billion defense cuts. If Congress starts tinkering with the sequesters, however, financial markets could become unnerved by the unraveling of savings seen as already "in the bank." Again, the 2012 elections could determine the fate of these cuts.

Democrats and Republicans will try to use the super committee's dead end for political gain. Democrats will say the outcome is further evidence Republicans just want to protect the rich from sharing the burden of deficit reduction. Republicans will argue that, once again, Democrats fail to grasp the gravity of escalating costs of healthcare benefits.

The White House had been bracing for days for the committee's failure and believes President Barack Obama can weather it without major political fallout and may even be able to score points against Republicans as he seeks re-election. Aides believe Obama will be able to seize the chance to further paint Republicans as obstructionist, a strategy they hope will be more potent because of polls showing most voters back his proposal to increase taxes on wealthier Americans.

Bush-era tax cuts are back in the firing line. They face extinction at the end of 2012 after super committee Republicans tried and failed to win permanent extension. That might please some Democrats, who see trillions of dollars in additional revenues in 2013 to reduce budget deficits. Obama is likely to engage Republicans to at least extend the across-the-board tax cuts for the middle class. The presidential and congressional election results in November could decide if the wealthy see their taxes rise.

One thing is certain: The super committee will disband having not agreed on one penny of deficit-reduction. Instead, it will have actually contributed to the government's $1 trillion-a-year budget deficits, having spent government funds paying for staff and other expenses.

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Signs are surfacing on Capitol Hill that Republican members of the Joint Select Committee on Deficit Reduction may be willing to compromise on the inclusion of revenue measures in their final report. The panel, which remains in intense negotiations, must issue its report by Nov. 23. The key may be getting an agreement to simply state an amount of revenues and pass the final decision making regarding specifics to the House Ways and Means Committee and the Senate Finance Committee. Rep. Jeb Hensarling (R-TX), the Republican co-chair of the committee, on Nov. 13 hinted at a two-step process that he thinks could result in “pro-growth tax reform.”

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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 would file IRS Schedule C, Profit or Loss From Business or Schedule C-EZ, Net Profit From Business with your Form 1040.

Here are six things the IRS wants you to know about self-employment:

Self-employment can include work in addition to your regular full-time business activities, such as part-time work you do at home or in addition to your regular job.
If you are self-employed you generally have to pay Self-employment Tax. Self-employment 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. You figure SE tax yourself using a Form 1040 Schedule SE. Also, you can deduct half of your self-employment tax in figuring your adjusted gross income.
If you are self-employed you generally have to make estimated tax payments. This applies even if you also have a full-time or part-time job and your employer withholds taxes from your wages. Estimated tax is the method used to pay tax on income that is not subject to withholding. If you don’t make quarterly payments you may be penalized for underpayment at the end of the tax year.
You can deduct the costs of running your business. These costs are known as business expenses. These are costs you do not have to capitalize or include in the cost of goods sold but can deduct in the current year.
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.
For more information see IRS Publication 334, Tax Guide for Small Business, IRS Publication 535, Business Expenses and Publication 505, Tax Withholding and Estimated Tax, available at http://www.irs.gov or by calling the IRS forms and publications order line at 800-TAX-FORM (800-829-3676).
For assistance in meeting your tax obligations for income tax, sales tax, payroll tax or a host of other compliance issues related to your business, please give us a call @ 770-725-1433.

Links:

Publication 334, Tax Guide for Small Business (PDF)
Publication 535, Business Expenses (PDF)
Publication 505, Tax Withholding and Estimated Tax (PDF)

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Top 10 Things Every Taxpayer Should Know about Identity Theft

Taxpayers need to be careful to protect their personal information. Identity thieves use many methods to steal personal information and then they use the information to file a tax return and get a refund. Here are 10 things the IRS wants you to know about identity theft so you can avoid becoming the victim of an identity thief.

1. The IRS does not initiate contact with a taxpayer by e-mail.

2. If you receive a scam e-mail claiming to be from the IRS, forward it to the IRS at phishing@irs.gov.

3. Identity thieves get your personal information by many different means, including:

Stealing your wallet or purse
Posing as someone who needs information about you through a phone call or e-mail
Looking through your trash for personal information
Accessing information you provide to an unsecured Internet site.

4. If you discover a website that claims to be the IRS but does not begin with ‘www.irs.gov’, forward that link to the IRS at phishing@irs.gov.

5. To learn how to identify a secure website, visit the Federal Trade Commission at www.onguardonline.gov/tools/recognize-secure-site-using-ssl.aspx

6. If your Social Security number is stolen, another individual may use it to get a job. That person’s employer may report income earned by them to the IRS using your Social Security number, thus making it appear that you did not report all of your income on your tax return.

7. Your identity may have been stolen if a letter from the IRS indicates more than one tax return was filed for you or the letter states you received wages from an employer you don’t know. If you receive such a letter from the IRS, leading you to believe your identity has been stolen, respond immediately to the name, address or phone number on the IRS notice.

8. If your tax records are not currently affected by identity theft, but you believe you may be at risk due to a lost wallet, questionable credit card activity, or credit report, you need to provide the IRS with proof of your identity. You should submit a copy of your valid government-issued identification – such as a Social Security card, driver’s license, or passport – along with a copy of a police report and/or a completed Form 14039, Identity Theft Affidavit. As an option, you can also contact the IRS Identity Protection Specialized Unit, toll-free at 800-908-4490. You should also follow FTC guidance for reporting identity theft at www.ftc.gov/idtheft.

9. Show your Social Security card to your employer when you start a job or to your financial institution for tax reporting purposes. Do not routinely carry your card or other documents that display your Social Security number.

10. For more information about identity theft – including information about how to report identity theft, phishing and related fraudulent activity – visit the IRS Identity Theft and Your Tax Records Page, which you can find by searching “Identity Theft” on the IRS.gov home page.
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