May-June 2011 Tax Relief Act Creates a 100% Write-off for SUVs Used Entirely for Business Although generous tax breaks for gas-consuming heavy SUVs have raised the ire of Congress, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Relief Act) actually made tax breaks for these vehicles even more generous. Although it may be an unintended result, the limited-time 100% bonus depreciation allowance for qualified property allows taxpayers that buy a new heavy SUV and use it entirely for business to write off the entire purchase price in the year acquired. Congratulations John O’Connor Shareholder Sherry Radmore and Marketing Director Lindsay Conderman attended the 9th Annual Conference on Business and Ethics on April 14th. Client John O’Connor, founder of Shamrock Supply Company, received the Tod D. Brown Award for Exemplary Business Integrity at the Orange County Catholic Foundation event. For tax years beginning in 2010 and 2011, taxpayers generally may utilize Section 179 to expense up to $500,000 of the cost of eligible personal property used in the active conduct of a trade or business. However, depreciation dollar caps apply to passenger autos, i.e., four-wheeled vehicles manufactured primarily for use on public streets, roads, and highways, and rated at an unloaded gross vehicle weight (GVW) of 6,000 pounds or less. The first-year dollar caps for vehicles bought and placed in service in 2010 were $11,060 for passenger autos and $11,160 for trucks or vans (the 2011 limits haven’t been released yet). Since heavy SUVs are exempt from the luxury auto dollar caps, the balance of the heavy SUV’s cost may be depreciated under the regular rules. Before the 2010 Tax Relief Act, if the heavy SUV was new and acquired after 2007 and before 2011 by the taxpayer for use in its trade or business, the taxpayer could write off 50% of the cost of the heavy SUV and claim a regular 20% first-year depreciation allowance for the balance of the cost. Under the 2010 Tax Relief Act, the bonus first-year depreciation percentage is 100% (instead of 50%) for bonus-depreciation-eligible “qualified property” that is generally acquired and placed in service after September 8, 2010 and before January 1, 2012. So a taxpayer that buys and places in service a new SUV after September 8, 2010 and before January 1, 2012, and uses it 100% for business, may write off its entire cost in the placed-in-service year. If the SUV is used for personal use or commuting, the personal use percentage is added to the employees’ wages as a taxable fringe benefit. This treatment results in a company car that is eligible for 100% write-off. Call your ELLS advisor if you want to discuss this tax break in greater details. The Tod D. Brown award was established in 2000 and the Annual Conference and award are dedicated to encouraging ethical business practices while supporting Catholic education in Orange County. John was honored for his outstanding business practices and his work in the community. John founded Shamrock Supply in 1975 and has grown the company into a fair, ethical and successful Orange County business. ELLS congratulates John for this well-deserved recognition. It has been an honor and a privilege working with John all these years. Sherry Radmore Gives Tips on Taxable Gifts Most people will gift something in their lifetime whether it be property or money. These gifts could be subject to federal gift tax if the gift exceeds the annual exclusion ($13,000 in 2010 and 2011) and is not specifically excluded by law. The recipient of the gift does not have to pay gift tax or income tax on the gift. The person making the gift is responsible for filing the gift tax return and paying any gift tax. There is no tax deduction for the value of the gift given unless it is a charitable contribution. The following gifts are not taxable gifts; gifts between spouses, gifts that do not exceed the annual exclusion for the calendar year, tuition or medical expenses that you pay directly to a medical or education institution for someone, and gifts to charities. Donations made to political non-profit organziations are not exempt from gift tax reporting and are a current IRS target. You and your spouse can make a gift up to $26,000 to a third party without making a taxable gift. You must file a gift tax return if any of the following applies to you; you have given more than the annual exclusion to one person, you gave a gift to someone, other than your spouse, of a future interest that he or she cannot actually possess until a future time or you gave your spouse an interest in property that will terminate due to a future event. If you have questions about taxable or nontaxable gifting, contact your ELLS advisor. Top Tax Scams: The IRS releases the “Dirty Dozen” The IRS has released a list of the top 12 tax scams in 2010; these are things that all tax payers should be mindful of. Here are three of the items that caught our eye. Withholding offshore income is not a good idea and that is why it tops the IRS list at number one. The IRS is actively pursuing individuals, companies and professionals that assist in evading US income tax by hiding money offshore. The accounts include debit cards, credit cards, wire transfers, foreign trusts and employee-leasing schemes. Earlier this year the IRS announced a voluntary disclosure window that allows individuals with offshore accounts to report the accounts to the IRS and become current in paying taxes on the income from these accounts. This voluntary disclosure is available until August 31, 2011. Identity theft is number two on the IRS tax scams list. Your social security number, credit card numbers and other personal information could allow someone to steal your identity and run up bills in your name or file a tax return and collect your refund. Phishing is one tactic used to trick people into revealing personal and financial information online. Scam artists will pose as financial institutions, even the IRS, and try to get you to confirm or enter your information into an email that includes spyware. Preparer fraud is the third dirty tax scam on the IRS list. There are preparers out there that make basic errors or are engaged in a fraud scam. In an effort to protect tax payers, the IRS has implemented a system which requires paid tax preparers to register with the IRS and obtain a preparer tax identification number (PTIN) as well as complete a competency test and attend annual continuing education. Tax preparers and CPAs must obtain a PTIN before submitting any returns for 2011. These requirements will result in greater compliance and hopefully increased confidence in the tax system. Good thing you use ELLS CPAs & Business Advisors! Stay tuned to the ELLS Outlook for the next 3 tax scams in our July/August issue. File Your Taxes No Matter What! People frequently ask what will happen if they cannot pay their taxes and whether they should file if they cannot pay. There are significant penalties for late filings or failure to file a timely tax return! These penalties are in addition to the late payment penalties and interest on any balance due, so do not let your inability to pay keep you from filing your taxes accurately and on time. It is also important to keep in mind that an extension to file is not an extension to pay. An ELLS advisor will be able to help you tackle your taxes if you are not able to pay. The Truth About Who is Paying Taxes Are the rich really not paying any taxes? Are they somehow not paying their fair share? According to the IRS this is not even close to the truth. The adjusted gross income for the top 1% of taxpayers in 2008 (the most recent year reported) started at $380,354. The IRS reported that this 1%, approximately 1,399,606 taxpayers, paid 38.02% of all federal individual tax collected in 2008. This is down from 2007 when the top 1% of taxpayers paid 40.4% of all federal tax. The group that is indeed paying the majority of federal taxes is the top 5% of all taxpayers with income of $159,619 or more in 2008. These lucky taxpayers accounted for 58.75% of all federal income taxes paid in 2008. So maybe the rich are paying their fair share of taxes! For More Tax News, Check Out Our Blog: www.ellscpas.com/ells-blog Repeal of expanded 1099 requirements OCMA General Membership Meeting The President signed the “Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayment Act of 2011”. This law retroactively repeals the controversial Form 1099 information reporting requirement that was signed into law as part of the Patient Protection and Affordable Care Act. Shareholder Maria Arriola attended the Orange County Medical Association General Membership meeting on May 17 at the Center Club in Costa Mesa. During this year’s dinner, OCMA honored Dr. Julio Taleisnik (pictured right) with the lifetime achievement award for his work in the area of orthopedic surgery. Prior to being repealed, this law required that all payments by a business totaling over $600 for a calendar year to a single recipient be reported to the IRS. There are numerous exemptions from this law including payment to corporations, so don’t worry about that 1099 you were going to issue to the office supply store! Also included in the definition of trade or business would have been a person receiving rental income from real estate. This means if you paid the lawn service of your rental property more than $600 for the year you would have to issue them a 1099. The Act repeals 1099 requirements for reporting payments to corporations and payments for goods or other property. So please do not fret, you will not have to issue form 1099s to the office supply store or your rental property plumber. Another Day at the Office Shareholder Ron Stumpf attended the National Association of Development Companies (NADCO) Conference in Phoenix, Arizona. Ron represented the Southland Economic Development Company along with Jim Davis. Ron serves on the Southland EDC Board of Directors. Around The Calculator Congratulations are in order for Cost Segregation Specialist, Mary Ann Turner who celebrated her 6th anniversary on May 3rd. Administrative Supervisor Joni Carvale will reach the 3 year mark on June 17th and Chris Stumpf, Audit Staff, reaches the 5 year milestone on June 21st. Congratulations to Nancy Chung for receiving her CPA license! It is official; Nancy is the newest CPA in the ELLS family. CalCPA Officer Installation & Mixer Another Wedding for the Stumpfs! The ELLS Shareholder group was on hand to toast the second of shareholder Ron Stumpf’s children to be married this year. Stephen & Stacey Stumpf were wed on April 30th in Redondo Beach. The couple will reside in Tustin. Shareholder Greg Lewis, Doris Zhu, CPA, Shareholder Sherry Radmore, Jeff Boxx, CPA and Suresh Narayanamoorthy, CPA all attended the Cal CPA Officer Installation and Mixer at the Balboa Bay Club on May 3rd where Sherry Radmore was installed on the Board of Directors. They enjoyed a beautiful sunset and some great conversation with fellow CPAs. In compliance with Treasury Department Circular 230, unless stated to the contrary, any Federal tax advice contained in this newsletter, including attachments and enclosures, was not intended or written to be used and cannot be used for the purpose of avoiding penalties. Articles included herein are brief and necessarily not complete discussions. They should not be acted upon without seeking further professional advice. This newsletter is available to other interested parties by contacting our office. This publication is intended to provide accurate and authoritative information on the subject matter covered. It is distributed with the understanding the publisher and distributor are not rendering legal, accounting or other professional advice and assume no liability whatsoever in connection with its use. Copyright 2010 The ELLS Audit & Assurance Team Is As Sharp As Ever The ELLS auditors toiled long and hard as they worked their way through another season of testing financial data and analyzing information. Professional standards also require that we obtain a sufficient understanding of a company’s internal controls in order to perform an audit. It’s a demanding task and they all do a great job for us and our clients. Greg Lewis Maria Arriola Ron Stumpf Lee Weir Doris Zhu Chris Vasquez Karen Kush Kerry Osborne Laurel Morrison Irene Freeman Joanne Tang Chris Stumpf