Tax Guru – Ker$tetter Letter

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Archive for March 22nd, 2010

Posted by taxguru on March 22, 2010

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Sickening new taxes…

Posted by taxguru on March 22, 2010

There’s no doubt that we will be analyzing the new taxes created by the DemonRats in their evil socialized medicine scheme for decades.

Being buried in tax season work, I don’t have time to pore over the actual legislation. Of course, neither did anyone in Congress who voted for it; but they live on a different planet than we mere mortals inhabit.

I was grateful to receive the first of what I am assuming will be many analyses of this latest tax legislation from the good folks at TaxCoach.

Subject Line: Washington Reforms Health Care And Taxes

Sunday’s night’s health care bill will go down as one of those once-in-a-generation accomplishments. I’m not here to debate the merits of the bill – historians will still be doing that decades from now. But it’s important to point out some important tax changes included in the bill and the companion “reconciliation” bill now before the Senate. (Just how important are they? Well, the Congressional Budget Office says the IRS will need $10 billion and 17,000 new employees to enforce its share of the new rules!)

Here are some of the key tax provisions:

* Starting immediately, certain small businesses with less than 10 employees will get a 35% credit for the cost of providing employee health benefits.

* Starting in 2011, employers will have to report the value of health benefits on Form W2.

* The penalty tax for Health Savings Account distributions not used for health care expenses doubles from 10% to 20%. This will discourage using HSAs for supplemental retirement savings.

* Starting in 2013, the 7.5% floor for deducting medical and dental expenses climbs to 10% (unless you or your spouse are 65 or older, in which case it remains at 7.5% until 2016).

* Healthcare flexible spending account contributions are capped at $2,500 per year.

* Starting in 2014, businesses with more than 50 employees will have to offer heath benefits or pay a penalty of $750/employee.

The reconciliation bill includes one more unwelcome surprise. Currently, the Medicare tax is limited to 2.9% of earned income. The reconciliation bill imposes an additional Medicare tax of 0.9% on earned income above $200,000 (individuals) or $250,000 (families). It also adds a 3.8% “Unearned Income Medicare Contribution” on investment income – specifically, interest, dividends, annuities, royalties, capital gains, and rents – for taxpayers with Adjusted Gross Income above those same thresholds. Those new levies would take effect in 2013.

The complete bill is 1,018 pages, so it’s going to take some time to analyze. But we’ll be paying close attention as details become available. In the meantime, call us with any questions!

It’s good to see that some of the new taxes aren’t scheduled to take effect for a few more years; giving us time to plan for how to avoid or minimize them. I’m sure TaxCoach will be including a lot of tips on how to deal with these new taxes in their future updates.

Update: You can download an eight page pdf file with more detailed analysis of the new taxes from CCH.

TaxCoach Software: Finally! Plain-English Tax Planning That Builds Your Business!

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New tax on rent income?

Posted by taxguru on March 22, 2010

From a client:


This is worrisome. How will this work – Medicare tax on rents . . .. Do you suppose it will be on gross rents – that would totally clobber me.

The new 2.9 percent tax would apply to interest, dividend, annuity, royalty, and rent payments.

Under current law, Medicare payments come from salaries alone.

See Link for complete article.

My response:

As you know, this entire thing is very fluid. Just like all of the bozos in DC, I haven’t read the actual 3,000 page bill that they voted on yesterday; but I have seen and heard various discussions of this particular proposal.

I have heard and seen it mentioned as anywhere from a 2.9% to 3.9% Medicare tax on investment income, which would include interest and dividends from Sch. B, capital gains from Sch. D, and rents from Sch. E. Some discussions claim it will only apply to people with AGI over $200,000 (aka the Evil Rich).

Whether it will be based on gross rents or net rental income is very unclear. From the practical viewpoint of how to actually collect that tax, I could see our rulers in DC just widening the coverage of the SE tax to be from just active earned income (normally Sch. C & F) to all kinds of income, including the net from Sch. E. There have been proposals over the past few years to add different types of income to SE tax coverage, such as from LLCs and LPs; so that would be somewhat consistent with that tactic for generating more revenue for our power mad DC rulers to spend.

As depressing as yesterday’s vote was for those of us who fear the continued growth of socialism in this country, I am still hopeful that this can be stopped before we have to actually pay this kind of new tax. I have heard many in the GOP claim that they will be able to use legal challenges to hold up implementation of this new law for several years. Hopefully, that will be the case; at least until after we can vote a non-communist president into the White House.

That’s the best I can say about it right now.


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Checking on IRS Prepayments

Posted by taxguru on March 22, 2010

We have a question on our 2009 tax return organizer asking clients if they received the $250 economic stimulus payments that IRS sent out to some people last year. Rather than checking the Yes or No box, most clients are writing in a question mark, forcing me to guess as to what to enter into the tax program.

This must be a common problem all over the country, with IRS most like receiving a ton of phone calls asking about those payments because they have actually set up a do it yourself automated look-up tool on their website to allow people and their tax preparers (or anyone else who knows their ID numbers, birth-dates and zip-codes) to see if those payments were made.

Since the payments were to individuals, a separate look-up needs to be done for each spouse on a joint tax return.

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The Annual Tax Season Ritual

Posted by taxguru on March 22, 2010

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