“The American Institute of CPAs reported Thursday that its quarterly Personal Financial Satisfaction Index reached an all-time high for the second quarter of the year, thanks to the record number of job openings and the strong stock market, and in spite of rising interest rates.

The PFSI measured 27.7, an all-time high for the index, representing a 0.7 point (2.6 percent) increase from the first quarter of the year and indicating that the average American should be feeling a strong sense of financial well-being.”

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The Child and Dependent Care Credit might be useful if a parent pays for camp for his or her child while working. However, for the expenses to qualify, certain conditions must be met.
Call our accountants today to learn if you qualify!

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“The Supreme Court’s 5-4 decision last month in the case South Dakota v. Wayfair, Inc., allows states to require out-of-state retailers to collect sales tax from customers, even if they don’t have a physical store or warehouse in the state, clearing the way for more sales tax revenue from internet purchases.”

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You can organize your tax papers and information by completing the Tax Organizer located on our “Info Center” tab and collecting tax papers into one manila folder. Be sure to add your signed Tax Return Engagement Letter you received in the mail last month. Drop off your paperwork or schedule an appointment with one of our partners and check “file tax return” off your to-do list!

Estimated tax is used to pay tax on income that is not subject to withholding or if not enough tax is being withheld from a person’s salary, pension or other income. Income not subject to withholding can include dividends, capital gains, prizes, awards, interest, self-employment income, and alimony, among other income items. Generally, individuals who do not pay at least 90 percent of their tax through withholding must estimate their income tax liability and make equal quarterly payments of the “required annual payment” liability during the year.

Basic rules

The “basic” rules governing estimated tax payments are not always synonymous with “straightforward” rules. The following addresses some basic rules regarding estimated tax payments by corporations and individuals:

Corporations. For calendar-year corporations, estimated tax installments are due on April 15, June 15, September 15, and December 15. If any due date falls on a Saturday, Sunday or legal holiday, the payment is due on the first following business day. To avoid a penalty, each installment must equal at least 25 percent of the lesser of:

— 100 percent of the tax shown on the corporation’s current year’s tax return (or of the actual tax, if no return is filed); or

— 100 percent of the tax shown on the corporation’s return for the preceding tax year, provided a positive tax liability was shown and the preceding tax year consisted of 12 months.

A lower installment amount may be paid if it is shown that use of an annualized income method, or for corporations with seasonal incomes, an adjusted seasonal method, would result in a lower required installment.

Individuals. For individuals (including sole proprietors, partners, self-employeds, and S corporation shareholders who expect to owe tax of more than $1,000), estimated tax payments are due on April 15 (April 18 for 2011), June 15, and September 15 of 2011, and January 15 of 2012. Individuals who do not pay at least 90 percent of their tax through withholding generally are required to estimate their income tax liability and make equal quarterly payments of the “required annual payment” liability during the year. The required annual payment is generally the lesser of:

— 90 percent of the tax ultimately shown on your return for the 2011 tax year, or 90 percent of the tax due for the year if no return is filed;

— 100 percent of the tax shown on your return for the preceding (2010) tax year if that year was not for a short period of less than 12 months; or

— The annualized income installment.

For higher-income taxpayers whose adjusted gross income (AGI) shown on your 2010 tax return exceeds $150,000 (or $75,000 for a married individual filing separately in 2011), the required annual payment is the lesser of 90 percent of the tax for the current year, or 110 percent of the tax shown on the return for the preceding tax year.

Adjusting estimated tax payments

If you expect an uneven income stream for 2011 your required estimated tax payments may not necessarily be the same for each remaining period, requiring adjustment. The need for, and the extent of, adjustments to your estimated tax payments should be assessed at the end of each installment payment period.

For example, a change in your or your business’s income, deductions, credits, and exemptions may make it necessary to refigure estimated tax payments for the remainder of the year. Likewise for individuals, changes in your exemptions, deductions, and credits may require a change in estimated tax payments. To avoid either a penalty from the IRS or overpaying the IRS interest-free, you may want to increase or decrease the amount of your remaining estimated tax payments.

Refiguring tax payments due

There are some general steps you can take to reconfigure your estimated tax payments. To change your estimated tax payments, refigure your total estimated tax payments due. Then, figure the payment due for each remaining payment period. However, be careful: if an estimated tax payment for a previous period is less than one-fourth of your amended estimated tax, you may be subject to a penalty when you file your return.

If you would like further information about changing your estimated tax payments, please contact our office.

April 18, 2011 (the deadline for filing 2010 federal income tax returns) marks the official end for the 2011 filing season. According to the IRS, this year’s filing season has moved along with few problems. Statistics show that return filings of all Form 1040s for individual taxpayers are trending at a slightly higher pace from this time last year, with an increase particularly noticeable in the amount of refunds.  Of course, some individuals will owe money to the IRS and there are options for making payments. At the same time, there are more options for refunds, such as using refunds to purchase U.S. Savings Bonds. The IRS also reports that it expects more individuals than ever to file automatic six-month extensions to file. Although the extension is “automatic,” an extension request must nevertheless be filed by the April 18 deadline or the return will be considered late. Irrespective of an extension, full payment of your 2010 tax liability is due on April 18 in any case, with interest charged on late payments and late-payment penalties usually due.

IRS trends

In fiscal year (FY) 2010, the IRS collected more than $2.3 trillion in taxes, which represents over 90 percent of the federal government’s total receipts. The IRS processed over 140 million individual tax returns in FY 2010 and issued refunds worth $366 billion. The numbers are expected to be similar for FY 2011.

The IRS also reports that returns are coming in earlier. As of March 23, it had processed over 73 million individual income tax returns, an increase of 3.4 percent over the same time last year. Refunds also were up from the same time last year. The IRS issued $193 billion in refunds as of March 23, 2011, representing an increase of 1.6 percent from the same time last year.

Also trending higher are the numbers of tax returns filed electronically. The IRS reported that more than 65 million individual returns had been filed electronically as of March 23, 2011, an increase of 6.3 percent from the same time last year. Contributing to the growth in e-filing may be the IRS’s decision to no longer mail paper form packages to taxpayers. Individuals who want to file on paper returns must locate the returns on their own.

Economic pains

Another reality for the filing season is the economic downturn. The slowly recovering economy has left many individuals hurting financially. They may be unable to pay their federal tax obligations. The most important advice is to file your return. Failure to file a return or filing late can be costly. If taxes are owed, a delay in filing may result in penalty and interest charges that could increase your tax bill by 25 percent or more.

Taxpayers have several options in making payments to the IRS. Payments can be made by several electronic payment options, check, money order, cashier’s check, or cash. Taxpayers can authorize an electronic funds withdrawal when using IRS e-file to file their return, use a credit or debit card, or enroll in the U.S. Treasury’s Electronic Federal Tax Payment System (EFTPS).

Some taxpayers may be considering an installment plan. Keep in mind that interest and penalties do not stop with an installment plan. Penalties and interest continue to be charged on the unpaid portion of the debt throughout the duration of the installment agreement/payment plan.

In February, the IRS announced some taxpayer-friendly changes affecting installment agreements. The IRS reported it will withdraw federal tax liens on taxpayers with unpaid assessments of $25,000 who enter into a direct debit installment agreement. The IRS will also withdraw federal tax liens for taxpayers on a regular installment agreement who convert to a direct debit installment agreement. Additionally, the IRS is making streamlined installment agreements available to more small businesses.

Refunds

The IRS is strongly encouraging individuals to have their refunds electronically deposited rather than receiving checks as was common in the past. Every year, many refund checks are returned to the IRS by the postal service as undeliverable because the recipient moved or the address was incorrect. Direct deposit also guards against theft of a refund check.

Taxpayers have several options for receiving their refunds. Among other things, they can:

• Split a refund with direct deposits into two or three checking or savings accounts;
• Direct deposit a refund into one checking or savings account; or
• Buy up to $5,000 in U.S. Series I Savings Bonds with a refund.

Homebuyer credit

One of the most popular tax incentives in recent years was the first-time homebuyer credit. For most taxpayers, eligibility for the credit ended in 2010 (although members of the uniformed services, foreign service and intelligence community generally have an additional year to take advantage of the credit).

The IRS recently reported that it is experiencing delays in processing some returns reporting the credit. The affected returns are ones where taxpayers are reporting repayment of the credit. When Congress first enacted the credit in 2008, it was similar to a no-interest loan and had to be repaid over 15 years. Congress removed the repayment requirement for qualified homes purchased after 2008. The IRS emphasized that the delay is affecting only a small number of taxpayers.

If you have any questions about payments, refunds or any filing season news, please contact our office.

A business with a significant amount of receivables should evaluate whether some of them may be written off as business bad debts. A business taxpayer may deduct business bad debts if the receivable becomes partially or completely worthless during the tax year.

In general, most business taxpayers must use the specific charge-off method to account for bad debts. The deduction in any case is limited to the taxpayer’s adjusted basis in the receivable.

The deduction allowed for bad debts is an ordinary deduction, which can serve to offset regular business income dollar for dollar. If the taxpayer holds a security, which is a capital asset, and the security becomes worthless during the tax year, the tax law only allows a deduction for a capital loss. However, notes receivable obtained in the ordinary course of business are not capital assets. Therefore, if such notes become partially or completely worthless during the tax year, the taxpayer may claim an ordinary deduction for bad debts.

For a taxpayer to sustain a bad debt deduction, the debt must be bona fide. The IRS looks carefully at a bad debt of a family member.

To be entitled to a business debt write off, the taxpayer must also make a reasonable attempt to collect the debt. However, in a nod to reality, the IRS does not request the taxpayer to turn the debt over to a collection agency or file a lawsuit in an attempt to collect the debt if doing so has little probability of success.

Deadlines for claiming a write off for any past business bad debt must be watched. Taxpayers have until the later of (1) seven years from the date they timely filed their tax return or (2) two years from the time they paid the tax, to claim a refund for a deduction for a wholly worthless debt not deducted on the original return.

A limited liability company (LLC) is a business entity created under state law. Every state and the District of Columbia have LLC statutes that govern the formation and operation of LLCs.

The main advantage of an LLC is that in general its members are not personally liable for the debts of the business. Members of LLCs enjoy similar protections from personal liability for business obligations as shareholders in a corporation or limited partners in a limited partnership. Unlike the limited partnership form, which requires that there must be at least one general partner who is personally liable for all the debts of the business, no such requirement exists in an LLC.

A second significant advantage is the flexibility of an LLC to choose its federal tax treatment. Under IRS’s “check-the-box rules, an LLC can be taxed as a partnership, C corporation or S corporation for federal income tax purposes. A single-member LLC may elect to be disregarded for federal income tax purposes or taxed as an association (corporation).

LLCs are typically used for entrepreneurial enterprises with small numbers of active participants, family and other closely held businesses, real estate investments, joint ventures, and investment partnerships. However, almost any business that is not contemplating an initial public offering (IPO) in the near future might consider using an LLC as its entity of choice.

Deciding to convert an LLC to a corporation later generally has no federal tax consequences. This is rarely the case when converting a corporation to an LLC. Therefore, when in doubt between forming an LLC or a corporation at the time a business in starting up, it is often wise to opt to form an LLC. As always, exceptions apply. Another alternative from the tax side of planning is electing “S Corporation” tax status under the Internal Revenue Code.