Who Must File Form 2106?

Employee Business Expenses

Employees can claim deduction for unreimbursed  expenses for their field of trade, business or profession, provided there are records to prove time,amount, place, business purpose and business relationship. Generally, it is required to have receipts for all lodging expenses (regardless of the amount) and any other expense of $75 or more.

Standard Mileage Rate for 2011

The 2011 rate for business use of the vehicle is 51 cents a mile.

Depreciation limits on vehicles for 2011

For most vehicles, first-year limit special depreciation allowance and section 179 deduction is $11,060.

For trucks and vans, first-year limit special depreciation allowance and section 179 deduction is $11,260.

Decide to find out if you can file:

Who Must File Form 2106

2012 Deadlines for Filing Tax Returns

Why April 17^th  2012?

The original slated deadline is April 15 of each year, but April 15 2012 is a Sunday and the next day i.e. April 16, 2012 is Emancipation Day in the District of Columbia. So April 17^th is the last tax day.

Deadlines for filing return on taxes paid/ income earned in Year 2011

Tax Day	Type of IT Return	Filing date details
April 17, 2012	2011 Federal Tax Return	Filing deadline and due date for Federal income tax return
State Deadlines	2011 State Tax Return	Due dates for State Income Tax Returns.
April 17, 2012	2011 Federal Tax Extension	Due date for Tax Extensions for 2011 Federal Income Tax Returns
State Deadlines	2011 State Tax Extension	Due dates for State Income Tax Extension
October 15, 2012	2011 Federal Tax Return	Last day to efile 2011 Income Tax Return for Tax Extension filers and late Tax Return filers
April 15, 2015	2011 Tax Amendment	To claim a refund on  Amended Return, file anytime within 3 years from the original due date
Anytime filing	Previous Year Tax Returns	File a Tax Return for previous tax year anytime within 3 years of the original tax deadline

State Deadlines

Are you eligible for Mortgage Debt Forgiveness?

You save tax on mortgage repayments. But if the debt is cancelled, do you pay taxes on the amount you have already received?

Normally, debt that is forgiven or cancelled by a lender must be included as income on your tax return and is taxable.

Example: You borrow $10,000 and default on the loan after paying back $2,000. If the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $8,000, which generally is taxable income to you.

Mortgage Debt Forgiveness Act of 2007 to the rescue!

Mortgage Forgiveness Debt Relief Act allows you to exclude certain cancelled debt (up to $2 million) on your principal residence from income. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief. It applies to debt forgiven in calendar years 2007 through 2012. 

Example:         

Isabella paid $200,000 for her home. She paid $15,000 down and borrowed the remaining $185,000 from a bank.
Isabella is personally liable for the loan and the house is pledged as security for the loan.
In 2011, the bank foreclosed on the loan because Isabella stopped making payments.
When the bank foreclosed the mortgage, the balance due was $180,000, the FMV of the house was $170.000, and Isabella’s adjusted basis was $175,000 due to a casualty loss she had deducted.
At the time of the foreclosure, the bank forgave $2,000 of the $10,000 debt in excess of the FMV ($180,000 minus $170,000).
Isabella remained personally liable for the $8,000 balance.

In this case, Isabella has ordinary income from the cancellation of debt in the amount of $2000.
The $2000 income from the cancellation of debt is figured by subtracting the $170,000 FMV of the house form the $172,000 difference between Isabella’s total outstanding debt immediately before the transfer of property reduced by the amount for which she remains personally liable immediately after the transfer ($180,000 minus $8000).
Isabella is able to exclude $2000 of cancelled debt from her income under qualified principal residence indebtedness rules.

Gain or Loss?

Isabella must determine her gain or loss from the foreclosure. In this case, the amount that Isabella realizes is $170,000. This is the smaller of

(a)    the $180,000 outstanding debt immediately before the transfer reduced by the $8000 for which she remains personal liable immediately after the transfer ($180,000-$8000 = $172,000) or

(b)    the $170,000 FMV of the house.

Isabella figures her gain or loss on the foreclosure by comparing $170,000 amount realized with her $175,000 adjusted basis. She has a $5000 nondeductible loss.

How to claim it?

Collect form 1099-C from your lender, showing the amount of debt and fair market value of any property foreclosed.

Fill form 982 attach to the federal income tax return for the tax year in which the qualified debt was forgiven.

Refer IRS Publication 4681 Canceled, Debts, Foreclosures, Repossessions and Abandonments (for Individuals)

Which is the tax form fits you?

 1040, 1040A or 1040EZ

You should use the simplest tax form for your needs. This will save you time in preparing your return, and the IRS will be able to process your tax return more quickly.

Form 1040EZ is the shortest and easiest federal tax form.

Form 1040A, or "short form" allows you to claim the most common adjustments to income.

Form 1040 can be used by anyone. Even though it takes longer to fill out, it can handle any tax situation no matter how complex.

	1040	1040A	1040EZ
Filing Status	All	All	Single or married filing jointly
Dependents	All	All	None
Income	Total can be any amount	Total must be under $100,000 after deductions	Total must be under #100,000 after deductions and exemptions
Sources must be only	Same as 1040A and all other sources of taxable income including ·         Lottery and gambling winnings. ·         Self employment ·         Rental ·         Alimony received ·         Sale of property/stock	Same as 1040EZ and the following sources: ·         Interest (any amount) ·         Ordinary dividends ·         Capital gain distributions ·         IRA distributions ·         Pension income ·         Social Security	·         Wages ·         Taxable scholarships ·         Interest income (totaling $1,500 or less) ·         Unemployment compensaton ·         Alaska Permanent Fund dividend
Adjustments	All	·         Educator Expenses ·         IRA deduction ·         Student loan interest deduction ·         Tuition and Fees	None
Deductions and Exemptions	Itemized deductions or standard deductions and exemptions	Standard deductions and exemptions	Standard deductions and exemptions
Credits	All	·         Earned income ·         Child and dependent care ·         Child tax ·         Elderly/Disabled ·         Education ·         Retirement savings contributions	Earned income

2011 Earned Income Tax Credit EITC..Do you qualify?

Good news for people working hard to make ends meet!

EITC is a refundable tax credit for people earning wages $49,078 or less from self employment or farming in 2011. You may get money back even if you have no tax withheld.

How to get the credit?

Use EITC assistant on  http://apps.irs.gov/app/eitc2011/SetLanguage.do?lang=en to check if you qualify. To get the credit, file a return and specifically claim the EITC, even if your aren’t required to file.

Many special rules apply to EITC, and can be found at http://www.irs.gov/pub/irs-pdf/p596.pdf

The instructions contain a worksheet and the earned income credit table to help you determine the amount of your credit.

General Rules:

·         Must have earned wages, tips or income from running a business, farm or investment income limited to $3150.

·         Have a valid SSN for self, spouse and qualifying children

·         Filing status must be single, head of household, married filing jointly, widow/widower

(Note: Married filing separately do not get the credit)

·         Must be a US citizen or resident alien

Income thresholds for (Both earned and adjusted gross income):

Annual Income must be less than:

$13,660 ($18,740 married filing jointly) with no qualifying children

$36,052 ($41,132 married filing jointly) with 1 qualifying child

$40,964 ($46,044 married filing jointly) with 2 children

$43,998 ($49,078 married filing jointly) with 3  or more children

Employers can help their low to moderate income employees boost their incomes at no cost!

Hang posters on your bulletin board or have EITC flyers or brochures placed in their wage statements.

Link your employees to important EITC information.

Network with other employers, government agencies, social service organizations etc. in your community who have vested interest in reaching and educating low income workers about EITC.

Employers Guide to Payroll Taxes

Employers report payroll by calculating gross pay and various payroll deductions to arrive at net pay. Payroll taxes must be withheld from an employee’s paycheck and handed over to various tax agencies.

Payroll taxes include:

1.       Federal income tax withholding  (Publication 15)

2.       Social Security tax withholding

3.       Medicare tax withholding

4.       State income tax withholding

5.       Various local tax withholdings (such as city, county, school district taxes, state disability or unemployment insurance)

Voluntary Payroll Deductions:

These deductions are withheld from an employee’s paycheck only if the employee has agreed to the deduction. They include:

1.       Health insurance premiums (medical, dental and eyecare)

2.       Life insurance premiums

3.       Retirement plan contributions (401K plan)

4.       Employee stock purchase plans (ESPP and ESOP plans)

5.       Meals, uniforms, union dues and other job-related expenses.

Employer Payroll Tax Responsibilities:

Even after paychecks have been issued to employees, the employer or the company is responsible for paying employer’s share of payroll taxes, depositing tax dollars withheld from the employers’ paychecks, preparing reconciliation reports, accounting for the payroll expense and filing payroll tax returns.

What are Employer Payroll Taxes:

The employer portion of payroll taxes are an added expense over the expense of an employee’s gross pay. They include:

1.       Social Security taxes

2.       Medicare taxes

3.       Federal Unemployment taxes (FUTA)

4.       State Unemployement taxes  (SUTA)

FICA Taxes

The Federal Insurance Contributions Act (FICA) tax consists of both Social Security and Medicare taxes. The employer and employees pay half of these taxes. Together both halves of the FICA taxes add up to 15.3%. The FICA tax is broken down into:

1.       Social Security (Employee pays 6.2% and Employer pays 6.2%)

2.       Medicare (Employee pays 1.45% and Employer pays 1.45%)

Payroll Tax Holiday: For 2011, the employee portion of Social Security was reduced to 4.2% instead of 6.2% as a part of Tax Releif Act of 2010. The employee-portion of Social Security will revert back to full 6.2% starting tax year 2012.

How Do Employers Report Payroll Taxes:

Employers are required to report their payroll tax obligations and deposit payroll taxes in a timely manner. The reporting requirements are:

1.       Making federal tax deposits

2.       Annual federal unemployment tax return (Form 940 or 940EZ)

3.       Employer’s quarterly payroll tax return (F0rm 941)

4.       Annual Return of Withheld Federal Income Tax (Form 945)

5.       Wage and Tax statements (Form W-2)

Student Taxes

Won a scholarship or fellowship?

All or part of a scholarship or fellowship may be taxable, even if you did not receive Form W-2.

A scholarship is an amount paid for the benefit of student at an educational institution in a graduate or undergraduate program.

A fellowship grant is an amount paid for the benefit of an individual to aid in the pursuit of study or research.

What is excluded:

1.       Tuition and fees required for enrollment or attendance.

2.       Fees, books, supplies and equipment required for the courses.

What is taxable:

Any part of the grant used for other purposes, like room and board.

Payment for services: Sometimes there are conditions to provide a service, in return of a grant. All payments that are received for past, present or future such services are taxable. It also includes Fulbright students and researchers.

For more information on Taxable Scholarships and Fellowships visit
http://www.irs.gov/pub/irs-pdf/p970.pdf

Student Loan Interest Deduction:

This deduction can be claimed in addition to itemized deductions. Student loan interest on loans issued for self or spouse (if filed jointly) and for any dependants can be deducted from taxable income. The maximum amount of tax deduction that can be claimed is limited to $2500.

·         For income ranges between $60,000 and $75,000, the deduction for student loan interest will be prorated. ($120,000 to $150,000 for married people filing jointly)

·         For incomes > $75,000 (> $75,000 for married filing jointly) the student loan interest is not deductible at all.

Phase outs for Student loan interest deductions:

Starting with the year 2013, the deduction will revert to an older law in which student loan interest will be deductible only for the first 60 months of repayment.

How to claim the deduction:

No special forms are needed to claim the student loan interest deduction. The deductible amount is simply written on Line 33 of Form 1040, or line 18 of Form 1040A, and subtracted from the income.

Which Student Loans Qualify:

The loan must be taken to pay qualified higher education expenses which include cost of tuition, fees, room and board, books, equipment, and other necessary expenses such as transportation in any accredited post-secondary institution, including those conducting internship or residency programs in health care facilities.

These costs must be reduced by any employer-provided educational benefits received  by the student, any non taxable distributions from a Coverdell ESA, any savings bond interest that was non taxable because it was used for education expenses, any non taxable scholarships or veteran’s education benefits.

Refer IRS publication 970 for more information.

IRS Tax Tip 2012-31: IRS Offers Four Tips on Unemployment Benefits

IRS Offers Four Tips on Unemployment Benefits 

Unemployment can be stressful enough without having to figure out the tax treatment of the unemployment benefits you receive.
Unemployment compensation generally includes, among other forms, state unemployment compensation benefits, but the tax implications depend on the type of program paying the benefits. You must report unemployment compensation on line 19 of Form 1040, line 13 of Form 1040A, or line 3 of Form 1040EZ.
Here are four tips from the IRS about unemployment benefits.

1. You must include all unemployment compensation you receive in your total income for the year. You should receive a Form 1099-G, with the total unemployment compensation paid to you shown in box 1.

2. Other types of unemployment benefits include:

• Benefits paid by a state or the District of Columbia from the Federal Unemployment Trust Fund
• Railroad unemployment compensation benefits
• Disability payments from a government program paid as a substitute for unemployment compensation
• Trade readjustment allowances under the Trade Act of 1974
• Unemployment assistance under the Disaster Relief and Emergency Assistance Act

For complete information on each of the benefits listed, see chapter 12 in IRS Publication 17, Your Federal Income Tax, or Publication 525, Taxable and Nontaxable Income.

3. You must report benefits paid to you as an unemployed member of a union from regular union dues. However, if you contribute to a special union fund and your payments to the fund are not deductible, you only need to include in your income the unemployment benefits that exceed the amount of your contributions.

4. You can choose to have federal income tax withheld from your unemployment compensation. To make this choice, complete Form W-4V, Voluntary Withholding Request, and give it to the paying office. Tax will be withheld at 10 percent of your payment. If you choose not to have tax withheld, you may have to make estimated tax payments throughout the year.

For more information on unemployment compensation see IRS Publications 17 and 525.  Forms and publications can be downloaded from the IRS Website at www.irs.gov or can be ordered by calling 1-800-829-3676

For further explanation feel free to contact your Maxim Tax Representative.