Tax Relief Act Creates a 100% Write-off

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