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The IRS has issued a Whistleblower Alert highlighting concerns about the misuse, diversion or fraudulent use of federal funds by tax-exempt organizations, individuals and businesses. The IRS encoura...
For flights taken during the period from January 1, 2026, through June 30, 2026, the terminal charge is $54.48, and the SIFL rates are: $.2980 per mile for the first 500 miles, $.2272 per mile for 501...
The IRS has provided the foreign housing expense exclusion/deduction amounts for tax year 2026. Generally, a qualified individual whose entire tax year is within the applicable period is limited to ma...
The IRS has announced that more than 4 million children were enrolled in tax-favoured Trump Accounts, with over 1 million qualifying for a $1,000 federal contribution under a pilot program. The enrolm...
The IRS expanded access to its Business Tax Account platform to partnerships, government entities and tax-exempt organizations. The expansion improved digital service and reduced administrative burden...
The IRS delivered timely refund processing during the tax year at issue. Most refunds were issued within 21 days, and returns were processed without delay. The IRS reported that a majority of individu...
Arizona has adopted mandatory "Swedish rounding" for certain cash transactions in Arizona. The new rule applies when one-cent coins are not available or are not used by a seller at the point of sale a...
Owners of commercial property damaged by a storm were entitled to nonrecognition of gain from the sale of the property, the proceeds of which were used to acquire qualified replacement property. The F...
Nevada's Department of Taxation has revised the criteria for nonprofit organizations to qualify for sales and use tax exemptions, requiring compliance with enhanced standards. In determining whether a...
The White House is looking to lower the Internal Revenue Service budget by $1.4 billion in fiscal year 2027.
The White House is looking to lower the Internal Revenue Service budget by $1.4 billion in fiscal year 2027.
The budget request, released April 6, 2026, says the overall budget request for the agency will “streamline IRS operations utilizing technology improvements to help focus the IRS on providing high-quality customer service while ensuring the tax laws are fairly administered.”
The request highlighted two areas where it is currently saving money – ending the Direct File program and reducing staffing by 27 percent total – since January 2025.
The decrease accounts for most of the White House’s overall decreased budget request for the Department of the Treasury. The Trump Administration is an $11.5 billion budget for fiscal year 2027, a 12-percent decrease ($1.5 billion) from the budget enacted for fiscal year 2026.
The Office of the Inspector General would see a $4 million decrease to $44 million from the $48 million level in 2026, while the Treasury Inspector General for Tax Administration would see a decrease from $220 million to $206 million.
The IRS has issued final regulations for the "no tax on tips" deduction under Code Sec. 224, which was enacted as part of the the One Big Beautiful Bill Act (OBBBA) (P.L. 119-21). The final regulations adopt proposed regulations that were issued in September 2025 ( NPRM REG-110032-25), with modifications and clarifications in response to comments received.
The IRS has issued final regulations for the "no tax on tips" deduction under Code Sec. 224, which was enacted as part of the the One Big Beautiful Bill Act (OBBBA) (P.L. 119-21). The final regulations adopt proposed regulations that were issued in September 2025 ( NPRM REG-110032-25), with modifications and clarifications in response to comments received.
Background
Under Code Sec. 224, an eligible individual can claim an income tax deduction for qualified tips received in tax years 2025 through 2028. The deduction is limited to $25,000 per tax year, and starts to phase out when modified adjusted gross income is above $150,000 ($300,000 for joint filers). An employer must report qualified tips on an employee‘s Form W-2, or the employee must report the tips on Form 4137. A service recipient must report qualified tips on an information return furnished to a nonemployee payee (Form 1099-NEC, Form 1099-MISC, Form 1099-K).
A "qualified tip" is a cash tip received in an occupation that customarily and regularly received tips on or before December 31, 2024. An amount is not a qualified tip unless (1) the amount received is paid voluntarily without any consequence for nonpayment, is not the subject of negotiation, and is determined by the payor; (2) the trade or business in which the individual receives the amount is not a specified service trade or business under Code Sec. 199A(d)(2); and (3) other requirements established in regulations or other guidance are satisfied.
The proposed regulations provided eight broad categories of occupations that customarily and regularly received tips on or before December 31, 2024. For each occupation, the list provided a numeric Treasury Tipped Occupation Code (TTOC), an occupation title, a description of the types of services performed in the occupation, illustrative examples of specific occupations, and the related Standard Occupation Classification (SOC) system code(s) published by the Office of Management and Budget (OMB).
List of Occupations that Receive Tips
The final regulations made several modifications to the list of the occupations set forth in the proposed regulations. Three new occupations were added:
- "Visual Artists" and "Floral Designers" were added to the Personal Services category; and
- "Gas Pump Attendants" was added to the Transportation and Delivery category.
The final regulations also made changes and clarifications under several of the occupation categories, including:
- Beverage & Food Service – For the "Wait Staff" occupation, "banquet staff" has been added as an illustrative example, and the occupation's description has been modified to include catered events. The "Food Servers, Non-restaurant" occupation has been changed to "Food and Beverage Servers, Non-restaurant," to clarify that winery tasting room servers are covered by this category.
- Entertainment and Events – The preamble to the final regulations states that "table game supervisors" are covered by the "Gambling Dealers" occupation. The IRS also clarified that individuals dressed up as Santa Claus, as well as other characters or celebrities, are covered by the "Entertainers and Performers" occupation.
- Hospitality and Guest Services – "Doorman" has been added to the list of illustrative examples for the "Baggage Porters and Bellhops" occupation.
- Personal Services – To clarify that resident care is included in the "Personal Care and Service Workers" occupation, the description in the list provides that "work is performed in various settings depending on the needs of the care recipient and may include locations such as their home, place of work, out in the community, at a daytime nonresidential facility or a residential facility." The "Pet Caretakers" occupation has been renamed as the "Pet and Show Animal Caretakers" occupation, and "horse groomer" has been added to the list of illustrative examples.
- Personal Appearance and Wellness – The "Eyebrow Threading and Waxing Technicians" occupation has been renamed as the "Eyebrow and Eyelash Technicians" occupation, and additions were made to the description in the list to include eyelash technicians.
- Recreation and Instruction – The "Travel Guides" occupation now includes a parenthetical noting that both indoor and outdoor locations are covered.
- Transportation and Delivery - "App/platform based delivery person" has been added to the illustrative list in both the "Goods Delivery People" occupation and the "Taxi and Rideshare Drivers and Chauffeurs" occupation. Also, the phrase "over established routes or within an established territory" has been removed from the description of the "Goods Delivery People" occupation.
The final regulations clarify that apprentices and assistants qualify under the applicable TTOC occupation category if they perform the same services as those listed in the TTOC occupation description.
Chiropractors, accountants, tax preparers, concert merchandise sellers, and "low bono" legal service providers were not added to the occupations list, despite requests in the comments to add these to the list.
No occupations included on the occupations list in the proposed regulations were removed from the list in the final regulations.
Voluntary Tips
Regarding the requirement that qualified tips must be voluntary, it is clarified that the customer must have the option to reduce the tip amount to zero. Tip selection methods such as Point-of-Sale (POS) systems with a tip slider that goes to zero or an option for the customer to select "other" and input zero are voluntary. Examples in the final regulations have been modified to clarify that these methods are considered voluntary tipping practices.
Further, the final regulations state that situations where nonpayment of a tip is "without consequence" include situations where nonpayment of the tip does not have any impact on the scope or cost of the service. The final regulations also contain a new example where the tip is part of a contract that is entered into before the services are provided. The example concludes that the tip is a qualified tip because it is paid without consequence. If the customer had chosen to not pay the tip, then the scope or cost of the service would not have been affected.
The final regulations include two new examples to help clarify when payments to digital content creators are tips and when they are compensation. It is also clarified that tipping digital content creators through audience engagement mechanisms that result in superficial digital rewards, such as highlighted messages or other digital tokens of appreciation from the tip recipient that are negligible in value, do not disqualify an otherwise qualified tip.
Other Matters
The final regulations state that amounts received as a tip that are not separately reported to an individual on a statement furnished to the individual pursuant to Code Secs. 6041(d)(3), 6041A(e)(3), 6050W(f)(2), or 6051(a)(18), or reported by the taxpayer on Form 4137 (or successor) are not eligible for the tips deduction. (The preamble recognizes, however, that Notice 2025-69 provides transition rules for this for 2025.)
It is also clarified that "cash tips" include amounts paid in foreign currency. Rules are also provided for tips received by digital tipping systems.
Regarding abuse of the tips deduction, the final regulations replace the provision prohibiting ownership in or employment by a payor with a provision stating that an amount is not a qualified tip, and thus not eligible for the deduction if, based on all relevant facts and circumstances, the amount represents a recharacterization of wages or payments for goods or services for purposes of claiming the deduction.
Effective Date
The final regulations are effective on June 12, 2026, the date that is 60 days after publication in the Federal Register.
The IRS issued updated frequently asked questions (FAQs) addressing educational assistance programs under Code Sec. 127. The FAQs provide general guidance on eligibility, tax treatment of benefits, and recent legislative updates.
The IRS issued updated frequently asked questions (FAQs) addressing educational assistance programs under Code Sec. 127. The FAQs provide general guidance on eligibility, tax treatment of benefits, and recent legislative updates.
General Background
The FAQs explained that a Code Sec. 127 educational assistance program is a written employer plan that provides benefits exclusively to employees. The program must satisfy nondiscrimination requirements that prevent preferential treatment for highly compensated employees, shareholders or owners.
Exclusion Limits and Tax Treatment
The FAQs clarified that employees could exclude up to $5,250 per year in educational assistance benefits for the tax years at issue. The limit applied to combined benefits, including tuition and qualified education loan repayments. Amounts exceeding this limit were taxable and unused amounts could not be carried forward. Expenses covered under Code Sec. 127 could not be used for other credits or deductions.
Eligible and Non-Eligible Benefits
Eligible benefits included tuition, fees, books, supplies, equipment and payments of principal or interest on qualified education loans. These benefits could be provided for undergraduate or graduate courses and did not need to be job-related. However, meals, lodging, transportation and equipment that employees could retain were not eligible. Courses involving hobbies or sports were not eligible unless required for a degree or related to the employer’s business.
Eligibility and Other Provisions
The FAQs emphasized that benefits were limited to employees and included restrictions on owners and shareholders to ensure compliance with nondiscrimination rules. Other provisions, such as working condition fringe benefits, could allow additional exclusions depending on the facts.
The IRS has issued procedures for nominating population census tracts that would be designated as qualified opportunity zones (QOZs). The tracts would designated as QOZs effective on January 1, 2027. The guidance was directed at Chief Executive Officers (CEO) of States, territories of the United States and the District of Columbia. The procedures fell under Reg. §§1400Z-1 and Code Sec. 1400Z-2, as amended by the One, Big, Beautiful Bill Act (OBBBA) (P.L. 119-21).
The IRS has issued procedures for nominating population census tracts that would be designated as qualified opportunity zones (QOZs). The tracts would designated as QOZs effective on January 1, 2027. The guidance was directed at Chief Executive Officers (CEO) of States, territories of the United States and the District of Columbia. The procedures fell under Reg. §§1400Z-1 and Code Sec. 1400Z-2, as amended by the One, Big, Beautiful Bill Act (OBBBA) (P.L. 119-21).
Background
A QOZ is an economically distressed area in which select new investments could be eligible for preferential tax treatment. The OBBBA makes the QOZ tax incentive permanent. The first round of QOZ designations following the enactment of the OBBBA will take effect on January 1, 2027. New rounds would follow every 10 years. Additionally, the OBBBA added tax benefits specific to investments made into QOZs that are comprised entirely of a rural area.
Identities of LICs
The Treasury and IRS identified 25,332 population census tracts that are low-income communities (LIC) eligible for nomination as a 2027 QOZ. Out of said tracts, 8,334 tracts are comprised entirely of a rural area. Beginning July 1, 2026, and lasting a period of 90 days, subject to a single 30-day extension, State CEOs would begin nominating eligible census tracts to be designated as QOZs.
The number of population census tracts in a State that may be designated as QOZs may not exceed 25 percent of the number of LICs in the State. This limitation is determined based on the 2020-2024 American Community Survey (ACS) 5-Year and the 2020 Decennial Census of Island Areas (DECIA) data sets. The tracts were identified using said data sets.
Further, boundaries established for the 2020 decennial census are controlling. They would not be subject to change during the 2027 QOZ designation period.
Nomination Tool
The Treasury has been developing a nomination tool. This would be accessible online and available for the benefit of State CEOs that nominate census tracts for designation as 2027 QOZs.
The QOZ designation period will begin on January 1, 2027, and end on December 31, 2036. Any request to modify such a nomination after October 28, 2026, would be denied. Finally, nominations of tracts not mentioned in this document would be considered, provided they satisfy Code Sec. 1400Z-1(c)(1).
Effective Date
This revenue procedure is effective on April 6, 2026.
The IRS has provided a waiver of the addition to tax under Code Sec. 6654 for the underpayment of estimated income tax by qualifying farmers and fishermen.
The IRS has provided a waiver of the addition to tax under Code Sec. 6654 for the underpayment of estimated income tax by qualifying farmers and fishermen. Under Code Sec. 6654(i)(1), a qualifying farmer or fisherman has only one required installment payment (instead of four quarterly payments) due on January 15 of the year following the taxable year if at least two-thirds of the taxpayer’s total gross income was from farming or fishing in either the tax year or the preceding tax year. For a qualifying farmer or fisherman who does not make the required estimated tax installment payment by January 15 of the year following the tax year, Code Sec. 6654(i)(1)(D) provides that the taxpayer is not subject to an addition to tax for failing to pay estimated income tax if the taxpayer files the return for the tax year and pays the full amount of tax reported on the return by March 1 of the year following the tax year.
Difficulty in Electronic Filing of Form 8995
The IRS has noted that some qualifying farmers and fishermen were unable to electronically file Form 8995, Qualified Business Income Deduction Simplified Computation, which was required to be included in their 2025 tax returns. Due to this inability, farmers and fishermen may have had difficulty filing their 2025 tax returns electronically by the March 2, 2026 due date. Accordingly, the IRS has determined to waive certain penalties for qualifying farmers and fishermen due to these unusual circumstances.
Waiver of Underpayment of Estimated Income Tax
The IRS has waived the addition to tax under Code Sec. 6654 for failure to make an estimated tax payment for the 2025 tax year for any qualifying farmer or fisherman who files a 2025 tax return and pays in full any tax due on the return by April 15, 2026. The waiver will apply to any taxpayer who is a qualifying farmer or fisherman for the 2025 tax year and fulfills the conditions stated in the previous sentence. Further, the waiver will apply automatically to any taxpayer who qualifies for the waiver and does not report an addition to tax under Code Sec. 6654 on the 2025 tax return.
In addition, taxpayers who otherwise satisfy the criteria for relief under the IRS’ notice, but have already filed a return and reported an addition to tax, may request an abatement of the addition to tax by filing Form 843, Claim for Refund and Request for Abatement, in accordance with the prescribed instructions.
State and local housing credit agencies that allocate low-income housing tax credits and states and other issuers of tax-exempt private activity bonds have been provided with a listing of the proper population figures.
State and local housing credit agencies that allocate low-income housing tax credits and states and other issuers of tax-exempt private activity bonds have been provided with a listing of the proper population figures to be used when calculating the 2026:
- calendar-year population-based component of the state housing credit ceiling under Code Sec. 42(h)(3)(C)(ii);
- calendar-year private activity bond volume cap under Code Sec. 146; and
- exempt facility bond volume limit under Code Sec. 142(k)(5).
These figures are derived from the estimates of the resident populations of the 50 states, the District of Columbia and Puerto Rico, which were released by the Bureau of the Census on January 27, 2026. The figures for the insular areas of American Samoa, Guam, the Northern Mariana Islands and the U.S. Virgin Islands are the 2025 midyear population figures in the U.S. Census Bureau’s International Database.
Internal Revenue Service CEO Frank Bisignano promoted some of the highlights of the 2026 tax filing season before a congressional committee while deflecting questions about data leaks and other issues.
Internal Revenue Service CEO Frank Bisignano promoted some of the highlights of the 2026 tax filing season before a congressional committee while deflecting questions about data leaks and other issues.
Testifying April 15, 2026, during a Senate Finance Committee hearing, Bisignano used his opening statement to promote the highlights of the tax filing season, including:
- 134 million individual returns filed, with 98 percent filed electronically;
- 80 million refunds issued with 98 percent of funds sent electronically; and
- An average refund of more than $3,400 (up 11 percent from last year), with more than 90 percent received by taxpayers in less than 21 days.
He also stated that 53 million American have taken advantage of new tax breaks found in the One Big Beautiful Bill Act, including the No Tax On Tips (6 million filers), No Tax On Overtime (25 million filers), and No Tax On Car Loan Interest provision (1 million filers), as well as the deduction for seniors (30 million filers).
“When you look at all this, it’s the reason we talk about the historic refunds,” Bisignano testified.
These, along with the increase to the standard deduction and the child tax credit, along with the full expensing for capital investments being made permanent “prevented a tax increase of over $5 trillion on American families and small businesses,” Bisignano testified.
Bisignano defended the decision to end the Direct File program, noting that 2 million Americans have used a free file option, adding that “Direct File was a costly, unnecessary, and less popular duplicate of programs that already are in place.”
He continued: “Despite heavy promotion by the Biden Administration, Direct File was the by far the least used free filing option.”
When faced with questions regarding data breeches, including information given to ICE by Treasury and other data breeches, Bisignano refused to answer, stating that ongoing litigation was preventing him from commenting in the case of the information given to ICE, and that ongoing investigations in other data breeches precluded him from discussing them.
He also refused to express even a general opinion on the lawsuit filed by President Trump on the leaking of his tax information.
When challenged on the tax gap, Bisignano challenged assertions that it more than $1 trillion. Bisignano said the last published number was $650 billion and added that it was “big enough so we don’t have to debate the trillion.” He said the agency was working on a plan to address it but did not offer any specifics as to what the IRS had planned to close the tax gap. He did say the agency has increased the dollar amount of money recovered from compliance activities.
“Collections and enforcement is up 12 percent, and this is year to date,” he testified, adding that more than $2 billion has been collected in the top five audits.
By Gregory Twachtman, Washington News Editor
The Taxpayer Advocacy Panel (TAP) has released its 2025 Annual Report. The report highlighted accomplishments and ongoing efforts to (1) strengthen IRS delivery; (2) improve communications with taxpayers; (3) reduce taxpayer burden; and (4) support continued modernization of tax administration. The TAP project committees submitted 20 project referrals to the IRS, including 188 recommendations for improving IRS operations and enhancing taxpayer experience.
The Taxpayer Advocacy Panel (TAP) has released its 2025 Annual Report. The report highlighted accomplishments and ongoing efforts to (1) strengthen IRS delivery; (2) improve communications with taxpayers; (3) reduce taxpayer burden; and (4) support continued modernization of tax administration. The TAP project committees submitted 20 project referrals to the IRS, including 188 recommendations for improving IRS operations and enhancing taxpayer experience.
“In 2025, TAP members dedicated hundreds of volunteer hours to grassroots outreach, listening directly to taxpayers across the country and abroad and elevating the real-world challenges they face,” said National Taxpayer Advocate Erin M. Collins. “Their efforts resulted in nearly 200 recommendations to improve IRS service and tax administration,” she added.
The report’s key recommendations include:
- (1) Making taxpayer notices clear, accessible and easier to act on;
- (2) Expand secure self-service options for taxpayers;
- (3) Improve user experience within the IRS Online Account and tax transcript applications;
- (4) Strengthening Individual Taxpayer Identification Number (ITIN) online tools to reduce processing delays, minimize call volume and improve response times; and
- (5) Reinforcing the importance of in-person assistance.
TAP is a Federal Advisory Committee that provides individual taxpayers with a unique opportunity to take part in the federal tax administration system. TAP members comprise citizen volunteers from across the country, and an international member.
During the presidential campaign, then candidate Barack Obama promised to close international tax loopholes and crack down on offshore tax evasion. In May, President Obama unveiled sweeping measures to reform the nation's international tax rules. The president also proposed to overhaul the rules for holding funds in offshore accounts, repeal the last-in, first-out (LIFO) accounting rules, tax carried interest as ordinary income, and provide limited business tax relief. Details of the president's proposals were released by the Treasury Department in the "Green Book" (named for the color of its cover).
International taxation
A U.S. based company is generally allowed to defer U.S. taxation on its foreign source income until the earnings are repatriated. President Obama has proposed various measures to limit the ability of U.S. companies to take deductions for offshore expenses against U.S. income. According to the president, some companies abuse the deferral rules and his proposals will close loopholes. Opponents counter that the deferral rules are necessary to ensure American competitiveness in the global economy.
The president also proposed t
- Require corporation status under check-the-box election for certain overseas "disregarded entities" established by U.S. businesses;
- Curb income shifting through intangible property transfers;
- Curb earnings-stripping by expatriated entities through interest deductions;
- Repeal the 80/20 company rules that shelter dividends as foreign-source income;
- Prevent withholding avoidance by foreign portfolio investors through equity swaps; and
- Modify the foreign tax credit rules for dual capacity taxpayers.
Many of the details of these international proposals, especially about how to calculate the amount of deferred deductions to match foreign expenses with deferred income, need to be fleshed out. The president's proposals serve as a blueprint for Congress to use when drafting legislation. Congress may approve all or some of the proposals or make significant changes to them.
Offshore accounts
The IRS is aware that some Americans fail to report all or part of their assets in foreign bank accounts. Estimates of unreported income reach as high as $100 billion. President Obama would strengthen the rules for reporting by Americans and disclosure by foreign banks. Individuals and banks that fail to follow the heightened rules would be subject to enhanced sanctions.
LIFO
Many businesses use LIFO to account for inventory. The last units of inventory purchased are generally treated as the first units sold. The president has proposed to repeal LIFO, which would raise more than $65 billion in revenue.
Carried interest
Under current law, carried interest (partnership profits interests allocable to the performance of services) is taxed as capital gains. President Obama is asking Congress to tax carried interest as ordinary income subject to self-employment tax. Similar measures have failed in Congress before but the need to raise revenue may convince lawmakers to change the tax treatment of carried interest this time.
Business incentives
President Obama has proposed about $70 billion in tax cuts for businesses. One of the most significant incentives would be a permanent research tax credit. A temporary tax break for qualified small business stock would also be extended and expanded.
The president also called on Congress to extend the carryback period for net operating losses (NOLs). Current law allows an extended period for NOLs but is limited to small businesses. President Obama did not specify to what extent he would extend the NOL carryback but is recommending that Congress set aside significant budget resources of over $60 billion between 2009 and 2010 to carry this off.
Additionally, the president has proposed extending a number of temporary business tax incentives. These include tax breaks for restaurants, incentives to produce biodiesel and renewable diesel fuels, and tax credits for investing in economically-challenged neighborhoods. Congress could tack-on more temporary incentives.
All of the president's proposals will be debated at length in Congress over the next several months. The White House is asking Congress to move quickly on international reform and other measures to boost federal revenues. Our office will keep you posted of developments. Please contact us if you have any questions.
Just over 100 days into his administration, President Barack Obama is releasing more details about his tax policies. The Treasury Department's recently published "Green Book" (which is called green for the color of its cover) describes the president's tax proposals. As expected, many of the proposals build on the president's campaign promises to cut taxes for middle-income individuals. Congress has already begun drafting legislation and debating the president's proposals, which could be enacted into law later this year.
Making Work Pay credit
The centerpiece of President Obama's individual tax incentives is the Making Work Pay credit. Many individuals are already receiving the benefit of this credit in their paychecks. The credit reaches $400 for single taxpayers and $800 for married couples filing joint returns if they fall below certain income limits. The credit, however, is temporary and will expire after 2010. President Obama is asking Congress to make the credit permanent but many in Congress worry that a permanent credit would be too expensive.
More middle-income Incentives
Several other incentives are also targeted to middle-income taxpayers. These include marriage penalty relief, a permanent American opportunity education tax credit and permanent extension of lower individual marginal income tax rates (except for the 36 and 39.6 percent rates). The president has also proposed extending the state and local sales tax deduction, the higher education tuition deduction, the teacher's classroom expense deduction, the saver's credit, and the deduction for charitable contributions of IRA funds. These proposals enjoy significant support in Congress and are expected to pass.
President Obama did not propose extending several new tax breaks. These include the first-time homebuyer credit, which sunsets after December 1, 2009, and the deduction for state and local taxes paid on motor vehicles, which expires after December 31, 2009. The first-time homebuyer is popular in Congress and lawmakers may extend it one or two more years, especially if home sales remain slow.
Higher-income taxpayers
More controversial are the president's proposals for higher income individuals. As mentioned, the top two individual marginal income tax rates would revert to 36 and 39.6 percent after 2010. President Obama has also proposed reinstating and expanding limitations on itemized deductions for higher-income individuals along with reinstating the personal exemption phaseout for higher-income individuals.
The White House generally defines higher-income taxpayers as individuals with incomes above $200,000 and families with incomes above $250,000. It is unclear if these amounts refer to taxable income or adjusted gross income. More details are expected to be released when legislation is introduced in Congress.
Children
One of the most popular federal tax incentives is the child tax credit. The 2009 Recovery Act expanded the credit. President Obama has proposed making the enhanced child tax credit permanent.
The president has also recommended a permanent enhanced earned income tax credit (EITC). Under current law, more families are eligible for the EITC. However, the president has proposed eliminating the advanced EITC, which provides the credit in advance through payroll.
Capital gains
Under current law, the maximum tax rate on qualified capital gains and dividends is 15 percent. Some taxpayers may be eligible for a zero percent rate. These rates are temporary and will expire after 2010. President Obama has asked Congress to extend the lower rates for middle-income taxpayers. However, higher income individuals would be taxed at 20 percent on qualified dividends and capital gains under the president's plan.
Health care
Congress has just started debating comprehensive health care reform. Lawmakers are looking for ways to fund health care reform. Under current law, the amount that an employer contributes to an employee's health coverage is generally excluded from the employee's taxable income. One idea being floated in Congress is to cap the tax exclusion for employment-based health care coverage. Administration officials have generally indicated their support for continuing the exclusion.
Retirement savings
During the campaign, then-candidate Obama often spoke about strengthening retirement savings, especially 401(k)s and similar defined contribution arrangements. The president has made one official proposal: mandatory automatic enrollment in IRAs. Generally, employers without a retirement plan would be required to offer automatic enrollment in an IRA to all employees on a payroll-deduction basis. White House officials have also discussed some "unofficial" proposals, such as the partial annuitization of 401(k)s, to strengthen retirement savings.
Estate tax
Eight years ago, Congress voted to repeal the federal estate tax for 2010. At that time, many observers predicted that repeal would be permanent. The recession has brought about different thinking. Instead of repealing the estate tax, the president has proposed extending the current rate of estate tax and exemption amount into 2010.
Congress has a lot of tax legislation on its agenda and is expected to enact much of it into law in late summer or early fall, maybe sooner. Our office will keep you posted of developments and please contact us if you have any questions.
Many businesses are foregoing salary increases this year because of the economic downturn. How does a business find and retain employees, as well as keep up morale, in the face of this reality? The combined use of fringe benefits and the tax law can help. Some attractive fringe benefits may be provided tax-free to employees and at little cost to employers.
De minimis fringe benefits
A de minimis fringe benefit is any property or service whose value is so small or minimal that accounting for it would be administratively impracticable. Such benefits are excluded from an employee's gross income. Examples of de minimis fringe benefits include:
Occasional overtime meals and meal money. To qualify as a tax-free de minimis fringe benefit, the meal or meal money must be provided to your employees so that they can extend their normal workday, thereby enabling them to work overtime. Such meals and meal money can only be provided occasionally. This means that they generally cannot be provided routinely, when overtime work is a common occurrence or are contractually mandated for overtime work. Occasional snacks may also qualify as a de minimis fringe benefit but if the snacks are provided daily, they would not qualify.
Occasional transportation. Transportation costs can also qualify as de minimis fringe benefits. Taxi-fare for an employee to return home after working late, for example, may be a de minimis fringe benefit. The transportation must be occasional.
Holiday gifts. Traditional holiday gifts, such as a Thanksgiving turkey, with a low fair market value can generally qualify as a de minimis fringe benefit. However, cash or a cash equivalent such as a gift certificate in lieu of the property, do not qualify. In fact, cash and cash equivalent fringe benefits, no matter how little, are never excludable as a de minimis fringe benefit, except for occasional meal money or transportation fare.
E-filing. Electronically filing an employee's tax return, but not paying for someone to prepare the return, may qualify as a de minimus fringe benefit.
Telephone calls. An employer may treat the cost of local telephone calls made by employees as a de minimis fringe benefit.
Working condition fringe benefits
A working condition fringe benefit is any type of property or service provided to your employees to the extent that the cost of such property or services would have been deductible by the employee as a trade or business expense, depreciation expenses, or as if the employee paid for the property/services himself or herself. Working condition fringe benefits have special tax rules for employers and employees.
Vehicles. If an employer-provided vehicle is used 100 percent for business and the use is substantiated, use of the vehicle is considered a working condition fringe benefit. The value of use of the vehicle is not included in the employee's wages. However, when an employer-provided vehicle is used by the employee for both personal and business purposes, an allocation between the two types must be made. The portion allocable to the employee's personal use is generally taxable to the employee as a fringe benefit. The portion allocable to business use is generally considered a working condition fringe benefit and is excludable from the employee's income.
If an employer-provided service does not cause the employer to incur any substantial additional costs, it may qualify as a "no additional cost service" and be excludible from the employee's income. The service must be offered to customers in the employer's ordinary course of business. Some of the most common examples are airline, rail and bus tickets and hotel and motel rooms provided at a reduced rate or at no cost to employees. This benefit can be offered to retired employees as well as active employees. There are special rules for highly-compensated employees.
If you are considering alternatives to salary compensation, and would like to know what your options are, please contact our office. We can discuss the tax benefits and drawbacks of providing your employees with various types of fringe benefits.
If you have completed your tax return and you owe more money than you can afford to pay in full, do not worry, you have many options. While it is in your best interest to pay off as much of your tax liability as you can, there are many payment options you can utilize to help pay off your outstanding debt to Uncle Sam. This article discusses a few of your payment options.
Pay Uncle Sam as much as you can
First and foremost, if you cannot pay the full amount of taxes due, you should nevertheless file your return by the April 15 deadline. Moreover, you should send in as much money as you can with your return. The IRS assesses failure-to-file penalties so you should file your return despite being unable to pay the full amount with the return. As such, it's to your benefit to file your return by its due date and pay off any outstanding balance as soon as you can in order to minimize interest and penalties.
Payment options
If you are not able to pay the full amount of tax you owe, you have options. While you can obtain an automatic six-month extension of time to file, the IRS will still assess interest on the outstanding unpaid tax liability. To do so, you must file Form 4868, Application for Automatic Extension of Time To File U.S. Income Tax Return, by the due date for filing your calendar year return (typically April 15) or fiscal year return. However, an extension of time to file is not an extension of the time to pay your taxes. Penalties and interest continue to accrue during the extension.
Second, consider paying some or all of your tax liability by credit card or obtaining a cash advance on your credit card. The interest rate your credit card or bank charges (plus applicable fees) may be lower than the total amount of interest and penalties imposed by the IRS under the Tax Code.
You may also be eligible to take advantage of the IRS's monthly installment agreement option. This option allows eligible taxpayers to pay off their tax bill over a period of time - in monthly installments - to the IRS. However, if you have entered into an installment agreement during the preceding 5 years you cannot use this option. Additionally, even while you are making payments through an installment agreement, penalties and interest continue on the unpaid portion of that debt. To request an installment plan, you can use Form 9465, Request For Installment Agreement. Or, you can use the Online Payment Agreement (OPA) application.
There are many options for paying off your tax debt. Our office can discuss the payment options that will work best in your specific circumstances. Please don't hesitate to call our office with questions.
The term "luxury auto" for federal tax purposes is somewhat of a misnomer. The IRS's definition of "luxury auto" is likely not the same as your definition.
The IRS limits the amount of depreciation that may be claimed on a passenger automobile used for business. These limits are popularly referred to as the "luxury car rules." Taxpayers who use the IRS standard business mileage rate (which is 55 cents-per-mile in 2009) do not have to worry about the depreciation allowance because the cents-per-mile rate includes depreciation.
MACRS
Taxpayers who choose to take a depreciation deduction for their vehicles start with the regular depreciation tables under the Modified Adjusted Cost Recovery System (MACRS). The vehicle must be used 50 percent or more for business purposes. The cost of a vehicle is depreciated over six years. In Year 1, 20 percent is depreciable; 32 percent in Year 2; 19.2 percent in Year 3; 11.52 percent in Years 4 and 5; and 5.76 percent in Year 6.
Dollar limits
Under Code Sec. 280F, annual dollar limits apply to "luxury autos." The applicable set of annual dollar amount limits depends on the date on which the vehicle is placed in service. The dollar limits are adjusted for inflation annually.
The annual maximum depreciation amounts for passenger automobiles first placed in service in calendar year 2009 are:
- $2,960 for the first tax year;
- $4,800 for the second tax year;
- $2,850 for the third tax year; and
- $1,775 for each tax year thereafter.
Bonus depreciation
In 2008, Congress authorized bonus depreciation as part of the Economic Stimulus Act of 2008. Fifty percent bonus depreciation applied in 2008 to vehicles unless the taxpayer elected out of it. This resulted in higher dollar limits ($8,000 if bonus depreciation was claimed for a qualifying vehicle placed in service in 2008, for a maximum first-year depreciation of no more than $10,960 for autos). Congress may extend bonus depreciation into 2009.
If you are finally ready to part with those old gold coins, baseball cards, artwork, or jewelry your grandmother gave you, and want to sell the item, you may be wondering what the tax consequences will be on the disposition of the item (or items). This article explains some of the basic tax consequences of the sale of a collectible, such as that antique vase or gold coin collection.
If you are finally ready to part with those old gold coins, baseball cards, artwork, or jewelry your grandmother gave you, and want to sell the item, you may be wondering what the tax consequences will be on the disposition of the item (or items). This article explains some of the basic tax consequences of the sale of a collectible, such as that antique vase or gold coin collection.
Collectibles
You must pay tax on any gain you realize from the sale of a collectible item (or the entire collection), such as a gold watch or other jewelry, antique coins, artwork, figurines, and even baseball cards. Capital gains on collectibles are taxed at a rate of 28 percent, rather than the regular long-term capital gains rate, currently at 15 percent (zero for those in the 10 or 15 percent income tax brackets). Gain on collectibles is reported on Schedule D of Form 1040. To calculate capital gains on the sale or other disposition you need to determine what your basis in the item is.
If you purchased the item, your basis is generally what you paid for the item as well as certain expenses related to the purchase. Fees related to the sale itself should also be included, such as a broker's or auctioneer's fee or an appraisal or authentication fee.
If you inherited the item, then your basis is the item's fair market value (FMV) at the time you inherited it. There are two principal methods for determining FMV: an appraisal, such as used for estate purposes, or valuing the item based on contemporaneous sales of comparable items. However, this can be tricky because the condition of a collectible item plays significantly into its value.
If the item was a gift, then your basis is the same as the basis of the person who gave you the item.
If you buy and sell collectibles on a regular basis, devote a substantial amount of time and effort to the activity and have developed a degree of skill in identifying profitable transactions, you may be engaged in a trade or business. In this case, you may be engaged in a trade or business in the eyes of the IRS, and therefore your stock of collectibles may be "inventory" and your profits taxable as ordinary income.
Precious metals
Gold and silver, like stamps and coins, are treated by the IRS as capital assets except when they are held for sale by a dealer. Any gain or loss from their sale or exchange is generally a capital gain or loss. If you are a dealer, the amount received from the sale is ordinary business income. However, metals like gold and silver are classified by the Internal Revenue Code as collectibles, and gain recognized from the sale of gold or silver held for more than one year - whether or not in the form of jewelry or sold simply for its market content - is taxed at the maximum rate of 28 percent.
For all sales of more than $600, an information return generally must be filed with the IRS.
In a period of declining stock prices, tax benefits may not be foremost in your mind. Nevertheless, you may be able to salvage some benefits from the drop in values. Not only can you reduce your taxable income, but you may be able to move out of unfavorable investments and shift your portfolio to investments that you are more comfortable with.
First, you should keep in mind that gain and loss on a sale of stock or mutual fund shares depends on the fair market value of the shares when sold or disposed of, compared to the cost basis of the stock. Your investments may have lost substantial value over recent periods. Nevertheless, if the stock's value when sold is higher than the basis, you still have a gain.
Example. You purchased X Corp stock in 2004, when it cost $5. At the end of 2007, the stock is worth $12. In November, 2008, you sell the stock when its value is $8 a share. Even though your investment has declined in value by 33 percent, you have a gain of $3 a share on the sale ($8 sales price less $5 cost).
The same tax-basis situation that may cause capital gain on the sale of shares that have dropped significantly in value over the past year also is causing many owners of mutual funds that have declined in value to be surprised with a capital gains distribution notice from their fund managers. If you own the mutual fund shares at the time of the capital gain distribution date, you must recognize the gain. Of course, that gain may be netted against your losses from stock or other capital asset sales.
If you realize a profit on a stock sale, the long-term capital gains tax is a maximum of 15 percent, while taxes on wages and other ordinary income can be taxed as high as 35 percent. For taxpayers in the 10 or 15 percent rate brackets, there is no capital gains tax. These reduced capital gains rates are scheduled to expire after 2010. Short-term capital gains (investments held for one year or less) are taxed at ordinary income rates up to 35 percent.
Capital losses can offset capital gains and ordinary income dollar for dollar. Capital gains can be offset in full, whether short-term or long-term. Ordinary income can be offset up to $3,000. If net capital losses (capital losses minus capital gains) exceed $3,000, the excess can be carried forward without limit and can offset capital gains and $3,000 of ordinary income in each subsequent year.
Because a capital loss can offset income taxed at the 35 percent rate, it can be advantageous to sell stock that yields capital gains in one year, while delaying the realization of capital losses until the following year.
Example. Mary has two assets. One asset would yield a $6,000 long-term capital loss when sold. The other would yield a $6,000 long-term capital gain. If Mary sells both assets in the same year, she has a net capital gain of zero. If she realizes the gain in 2008 and the loss in 2009 (by selling the assets in different years), she will increase her 2008 taxes by a maximum of $900 ($6,000 X 15 percent), but will reduce her taxes in 2009 and 2010 by a maximum of $2,100 ($3,000 X 35 percent X 2 years). She will reduce her taxes by $1,200 merely by shifting the timing of the sales.
Worthless securities. You can write off the cost of totally worthless securities as a capital loss, but cannot take a deduction for securities that have lost most of their value from stock market fluctuations or other causes if you still own them and they still have a recognizable value. You do not have to sell, abandon or dispose of the security to take a worthless stock deduction, but worthlessness must be evidenced by an identifiable event. An event includes cessation of the corporation's business, commencement of liquidation, actual foreclosure and bankruptcy. Securities become worthless if the corporation becomes worthless, even if the corporation has not dissolved, liquidated or ceased doing business.
If you would like to discuss these issues, please contact our office. We can help you consider your options.