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Payroll Tax Cut Extended to the End of 2012

Under the Middle Class Tax Relief and Job Creation Act of 2012, enacted on February 22, 2012, workers will continue to receive larger paychecks for the rest of this year based on a lower social security tax withholding rate of 4.2 percent, which is two percentage points less than the 6.2 percent rate in effect prior to 2011. This reduced rate, originally in effect for all of 2011, had been extended only through the end of February. On February 23, 2012 the Internal Revenue Service released revised Form 941 enabling employers to properly report the newly-extended payroll tax cut benefiting nearly 160 million workers.

Self-employed individuals will also benefit from a comparable rate reduction in the social security portion of the self-employment tax from 12.4 percent to 10.4 percent. For 2012, the social security tax applies to the first $110,100 of wages and net self-employment income received by an individual.

The new law also repeals the two-percent recapture tax included in the December legislation that effectively capped at $18,350 the amount of wages eligible for the payroll tax cut. As a result, the now repealed recapture tax does not apply.

IRS Announces 2012 Inflation Adjustments
  • The value of each personal and dependent exemption, available to most taxpayers, is $3,800, up $100 from 2011.
  • The new standard deduction is $11,900 for married couples filing a joint return, up $300, $5,950 for singles and married individuals filing separately, up $150, and $8,700 for heads of household, up $200. Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.
  • Tax-bracket thresholds increase for each filing status.
  • For tax year 2012, the maximum earned income tax credit (EITC) for low- and moderate- income workers and working families rises to $5,891, up from $5,751 in 2011. The maximum income limit for the EITC rises to $50,270, up from $49,078 in 2011.The credit varies by family size, filing status and other factors, with the maximum credit going to joint filers with three or more qualifying children.
  • The foreign earned income deduction rises to $95,100, an increase of $2,200 from the maximum deduction for tax year 2011.
  • The modified adjusted gross income threshold at which the lifetime learning credit begins to phase out is $104,000 for joint filers, up from $102,000, and $52,000 for singles and heads of household, up from $51,000.
  • For 2012, annual deductible amounts for Medical Savings Accounts (MSAs) increased from the tax year 2011 amounts.
  • The $2,500 maximum deduction for interest paid on student loans begins to phase out for a married taxpayers filing a joint returns at $125,000 and phases out completely at $155,000, an increase of $5,000 from the phase out limits for tax year 2011. For single taxpayers, the phase out ranges remain at the 2011 levels.
  • For an estate of any decedent dying during calendar year 2012, the basic exclusion from estate tax amount is $5,120,000, up from $5,000,000 for calendar year 2011. Also, if the executor chooses to use the special use valuation method for qualified real property, the aggregate decrease in the value of the property resulting from the choice cannot exceed $1,040,000, up from $1,020,000 for 2011.
  • The annual exclusion for gifts remains at $13,000.
  • The monthly limit on the value of qualified transportation benefits exclusion for qualified parking provided by an employer to its employees for 2012 rises to $240, up $10 from the limit in 2011. However, the temporary increase in the monthly limit on the value of the qualified transportation benefits exclusion for transportation in a commuter highway vehicle and transit pass provided by an employer to its employees expires and reverts to $125 for 2012.
    Details on these inflation adjustments can be found in Revenue Procedure 2011-52
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2011 Individual Tax Changes

Reporting Capital Gains and Losses on New Form 8949

In most cases, you must report your capital gains and losses on new Form 8949. Then you report certain totals from that form on Schedule D.

Foreign Financial Assets

If you had foreign financial assets in 2011, you may have to file new Form 8938 with your return in addition to separately filing Form TD F 90-22.1 with the U.S. Department of the Treasury. There are severe penalties for not filing either of these forms.

Standard Mileage Rates

The 2011 rate for business use of your car is 51 cents a mile for miles driven before July 1, 2011, and 55 ½ cents a mile for miles driven after June 30, 2011. The 2011 rate for use of your car to get medical care is 19 cents a mile for miles driven before July 1, 2011, and 23 ½ cents a mile for miles driven after June 30, 2011. The 2011 rate for use of your car to move is 19 cents a mile for miles driven before July 1, 2011, and 23 ½ cents a mile for miles driven after June 30, 2011.

Standard Deduction Increased

The standard deduction for some taxpayers who do not itemize their deductions on Schedule A (Form 1040) is higher for 2011 than it was for 2010. The amount depends on your filing status.

Exemption Amount Increased

The amount you can deduct for each exemption has increased from $3,650 for 2010 to $3,700 for 2011.

Self-employed Health Insurance Deduction

This deduction is no longer allowed on Schedule SE. However, you can still take it on Form 1040, line 29.

Alternative Minimum Tax (AMT) Exemption Amount Increased

The AMT exemption amount has increased to $48,450 ($74,450 if married filing jointly or a qualifying widow(er); $37,225 if married filing separately).

Health Savings Accounts (HSAs) and Archer MSAs

For distributions after 2010, the additional tax on distributions from HSAs and Archer MSAs not used for qualified medical expenses has increased to 20%. Also beginning in 2011, amounts paid for medicine or a drug are qualified medical expenses only if the medicine or drug is a prescribed drug or is insulin. See the instructions for Form 8889 or Form 8853 for details.

Roth IRAs

If you converted or rolled over an amount to a Roth IRA in 2010 and did not elect to report the taxable amount on your 2010 return, you generally must report half of it on your 2011 return and the rest on your 2012 return.

Designated Roth Accounts

If you rolled over an amount from a 401(k) or 403(b) plan to a designated Roth account in 2010 and did not elect to report the taxable amount on your 2010 return, you generally must report half of it on your 2011 return and the rest on your 2012 return.

Alternative Motor Vehicle Credit

You cannot claim the alternative motor vehicle credit for a vehicle you bought in 2011, unless the vehicle is a new fuel cell motor vehicle.

First-time Homebuyer Credit

To claim the first-time homebuyer credit for 2011, you (or your spouse if married) must have been a member of the uniformed services or Foreign Service or an employee of the intelligence community on qualified official extended duty outside the United States for at least 90 days during the period beginning after December 31, 2008, and ending before May 1, 2010.

Repayment of First-time Homebuyer Credit

If you have to repay the credit, you may be able to do so without attaching Form 5405.

Nonbusiness Energy Property Credit

This credit is figured differently for 2011 than it was for 2010.

Health Coverage Tax Credit

This credit has been extended, and the amount has changed.

Schedule L

Schedule L is no longer in use as it is not needed to figure the 2011 standard deduction.

Making Work Pay Credit

The making work pay credit has expired and cannot be claimed on your 2011 return. Schedule M is no longer in use.

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2010 Individual Tax Changes

Exemptions and Itemized Deductions No Longer Phased Out

Overall income limits for personal and dependency exemptions and itemized deductions do not apply. Before 2010, taxpayers whose incomes were above certain levels lost part or all of their exemptions and part of their itemized deductions. For taxpayers at all income levels, limitations continue to apply to particular itemized deductions, such as medical and dental expenses, certain miscellaneous itemized deductions and casualty and theft losses.

AMT Exemption Increased

For tax-year 2010, the alternative minimum tax exemption increases to the following levels:

  • $72,450 for a married couple filing a joint return and qualifying widows and widowers, up from $70,950 in 2009.
  • $36,225 for a married person filing separately, up from $35,475.
  • $47,450 for singles and heads of household, up from $46,700.

Tax Breaks Extended

Several tax breaks that expired at the end of 2009 were renewed and can be claimed on 2010 returns. They include:

  • State and local general sales tax deduction, primarily benefiting people living in areas without state and local income taxes. Claim on Schedule A, Line 5.
  • Higher education tuition and fees deduction benefiting parents and students. Claim on Form 8917.
  • Educator expense deduction for kindergarten through grade 12 educators with out-of-pocket classroom expenses of up to $250, Claim on Form 1040, Line 23 or Form 1040A Line 16.
  • District of Columbia first-time homebuyer credit. Claim on Form 8859.
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Special Charitable Contributions for Certain IRA Owners

This provision, now available through the end of 2011, offers older owners of individual retirement accounts (IRAs) a different way to give to charity. An IRA owner age 70 1/2 or over can directly transfer, tax-free, up to $100,000 per year to eligible charities. Known as a qualified charitable distribution (QCD), this option is available for distributions from IRAs, regardless of whether the owners itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible to be treated as a qualified charitable distribution. For tax-year 2010 only, IRA owners can choose to treat QCDs made during January 2011 as if they occurred in 2010.

To qualify, the funds must be contributed directly by the IRA trustee to an eligible charity. Amounts so transferred are not taxable and no deduction is available for the transfer.

Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients. Remember to check eligibility of the charity before requesting a QCD.

All QCDs from an IRA to eligible charities are counted in determining whether the owner has met the IRA's required minimum distribution. Where individuals have made nondeductible contributions to their traditional IRAs, a special rule treats QCD amounts as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions.

Report qualified charitable distributions on Form 1040 Line 15. See the instructions for Form 1040 Line 15 for details.

More People Qualify for Roth IRA Conversions

Income limits no longer apply to rollovers or conversions to Roth IRAs from other retirement plans. In the past, only taxpayers with modified adjusted gross income of $100,000 or less were eligible, and a married person filing a separate return who lived with his or her spouse at any time during the year was barred from Roth IRA rollovers or conversions, regardless of income.

For 2010 rollovers and conversions only, half of the resulting income must be included in income in tax year 2011 and the other half in 2012, unless the taxpayer chooses to include all of it in income in 2010. In all situations, taxpayers must report any 2010 conversion on Form 8606 for tax year 2010. These rules do not apply to rollovers from another Roth IRA or from a designated Roth account. See Form 8606 and its instructions for details.

Adoption Credit Expanded

The maximum adoption credit for 2010 is increased to $13,170 per child, up from $12,150 in 2009. The credit is refundable, meaning that eligible taxpayers can get the credit even if they owe no tax. In general, the credit is based on the qualified adoption expenses, which include adoption fees, court costs, attorney's fees and travel expenses. Income limits and other special rules apply.

In addition to filling out Form 8839, Qualified Adoption Expenses, eligible taxpayers must include with their return an adoption order or decree or certain other documents.

Because of these documentation requirements, taxpayers claiming the adoption credit will have to file paper tax returns. Normally, it takes six to eight weeks to get a refund claimed on a complete and accurate paper return where all required documents are attached.

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Health Insurance Deduction Reduces Self Employment Tax

In 2010, eligible self-employed individuals can use the self-employed health insurance deduction to reduce their social security self-employment tax liability in addition to their income tax liability. As in the past, eligible taxpayers claim this deduction on Form 1040 Line 29. But in 2010, eligible taxpayers can also enter this amount on Schedule SE Line 3, thus reducing net earnings from self-employment subject to the 15.3 percent social security self-employment tax.

Premiums paid for health insurance covering the taxpayer, spouse and dependents generally qualify for this deduction. Premiums paid for coverage of an adult child, under age 27 at the end of the year, for the time period beginning on or after March 30, 2010, also qualify for this deduction, even if the child is not the taxpayer's dependent.

As before, the insurance plan must be set up under the taxpayer's business, and the taxpayer cannot be eligible to participate in an employer-sponsored health plan. Details, including a worksheet, are in the instructions to Form 1040.

First-Time Homebuyer Credit

Taxpayers who claimed the first-time homebuyer credit for a home bought in 2008 must generally begin repaying it on the 2010 return. In most cases, the credit must be repaid over a 15-year period. Many of those affected by this requirement received reminder letters from the IRS.

A repayment requirement also applies to a taxpayer who claimed the credit on either their 2008 or 2009 return and then sold it or stopped using the home as their main home in 2010. Use Form 5405 to report the repayment.

In addition, certain members of the armed forces and some other taxpayers still have time to buy a home and take the credit. See Form 5405 and its instructions for details.

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Deduction for Corrosive Drywall

Taxpayers may claim a casualty loss deduction, using a special formula, for amounts paid to repair damage to their homes and household appliances resulting from corrosive drywall. The deduction is smaller for taxpayers with a pending claim for reimbursement or those who plan to pursue reimbursement through property insurance, litigation or other means.

Standard Mileage Rates for 2010

The standard mileage rate for business use of a car, van, pick-up or panel truck is 50 cents for each mile driven. The rate for the cost of operating a vehicle for medical reasons or as part of a deductible move is 16.5 cents per mile. The rate for using a car to provide services to charitable organizations is set by law and remains at 14 cents a mile.

 

The Earned Income Tax Credit (EITC) is a tax credit for people who work but do not earn high incomes. Nationwide last year, over 26 million eligible taxpayers received nearly $59 billion total in EITC. The IRS encourages all eligible taxpayers to claim the EITC credit as it is a valuable tool to lower their taxes or to claim a refund.

The American Recovery and Reinvestment Act of 2009 created a new category of families with three or more children and increased the maximum benefit of EITC for tax years 2009 and 2010. The Tax Relief and Job Creation Act of 2010 extended these changes through 2012.

To qualify, taxpayers must meet certain requirements and file a tax return, even if they did not earn enough money to be obligated to file a tax return.

Many taxpayers who qualify for EITC may also be eligible for free tax preparation, such as IRS Free File, and electronic filing by participating tax professionals and volunteers. Taxpayers and tax professionals should review the rules before attempting to claim the EITC.

The EITC has no effect on certain welfare benefits. In most cases, EITC payments will not be used to determine eligibility for Medicaid, Supplemental Security Income (SSI), food stamps, low-income housing or most Temporary Assistance for Needy Families (TANF) payments. Unemployment benefits are not considered earned income, but must be included in income calculations.

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Do You Qualify for EITC?

To qualify, you must meet certain requirements and file a U.S. Individual Income Tax Return. As described below, some EITC rules apply to everyone. There are also special rules for people who have children and for those who do not.

Individuals and families must meet certain general requirements:

  • You must have earned income.
  • You must have a valid Social Security number for yourself, your spouse (if married filing jointly) and your qualifying child.
  • Investment income is limited to $3,100.
  • Your filing status cannot be "married filing separately."
  • Generally, you must be a U.S. citizen or resident alien all year.
  • You cannot be a qualifying child of another person.
  • You cannot file Form 2555 or Form 2555-EZ (related to foreign earned income).

Your income cannot exceed certain limitations. For Tax Year 2010, your earned income and adjusted grow income (AGI) must each be less than:

  • $43,352 ($48,362 married filing jointly) with three or more qualifying children
  • $40,363 ($45,373 married filing jointly) with two qualifying children
  • $35,535 ($40,545 married filing jointly) with one qualifying child
  • $13,460 ($18,470 married filing jointly) with no qualifying children

If you claim a child, he or she must meet these eligibility tests:

  • Residency Test - The child must have lived with you in the United States for more than half of 2010.
  • Relationship Test - The child must be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them. Your child includes:
    • A foster child who was placed with you by an authorized placement agency, or by judgment, decree, or other order of any court of competent jurisdiction
    • A legally adopted child or a child lawfully placed with you for legal adoption
  • Age test - At the end of 2010, the child must have been under age 19, a full-time student under age 24, younger than the EITC-claiming taxpayer or any age if permanently and totally disabled at anytime during 2010.
  • The child must be younger than the person claiming the child, unless the child is permanently and totally disabled.
  • The child must not have filed a joint return other than to claim a refund.

Your qualifying child cannot be used by more than one person to claim EITC. If a child meets the rules to be a qualifying child of more than one person, only one person can treat that child as a qualifying child and claim EITC. Also, if a qualifying child can be claimed by both a parent and another person, the other person must have an AGI higher than the parent in order to claim the child for EITC purposes.

If you don't have a child, you must meet three additional tests:

  • At the end of 2010, you must have been at least age 25, but under age 65.
  • You cannot qualify as the dependent of another person.
  • You must have lived in the United States for more than half of 2010.
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Credit Limits for 2010 Tax Year

Income and family size determine the amount of the EITC. The Earned Income Credit Table, which shows the credit amounts, is included in the Instruction booklet for Form 1040 and in Publication 596, Earned Income Credit.

For tax year 2010, the maximum credit amounts are:

  • $5,666 with three or more qualifying children
  • $5,036 with two qualifying children
  • $3,050 with one qualifying child
  • $457 with no qualifying children

Combat Zone Pay

Members of the military have the option to include their tax exempt combat zone pay when computing their earned income for EITC. The combat pay remains exempt for federal taxes. However, families should be aware that they must include all of the combat pay or none of it. For example, if the inclusion of combat pay would push a taxpayer's adjusted gross income above the EITC income limit, taxpayers should leave it out of their EITC calculations. If, however, the inclusion of combat pay would enable a taxpayer to obtain a higher refund, then combat pay should be included.

On-Line Tools

If you are in doubt about your eligibility, you or your tax preparer may use the EITC Assistant on the IRS website. The EITC Assistant, available in English and Spanish ( Asistente EITC), will help you determine your eligibility by answering a few simple questions.

2011 EITC Change

Starting in January 2011, taxpayers can no longer get advance payments of the earned income tax credit in their pay throughout the year as they could in 2010 and earlier years. This is because the law has changed. However, this does not affect EITC claims on tax returns.

 

Small Business Tax Changes

 

During 2010, new laws, such as the Affordable Care Act and the Small Business Jobs Act of 2010, created or expanded deductions and credits that small businesses and self-employed individuals should consider when completing their tax returns and making business decisions in 2011.

Health Insurance Deduction Reduces Self Employment Tax

With the enactment of the Small Business Jobs Act of 2010, self-employed taxpayers who pay their own health insurance costs can now reduce their net earnings from self-employment by these costs. Previously, the self-employed health insurance deduction was allowed only for income tax purposes. For tax year 2010, self-employed taxpayers can also reduce their net earnings from self employment subject to SE taxes on Schedule SE by the amount of self-employed health insurance deduction claimed on line 29 on Form 1040.

Taxpayers can claim the self-employed health insurance deduction if the insurance plan is established under their business and if any of the following are true:

  • They were self-employed and had a net profit for the year,
  • They used one of the optional methods to figure net earnings from self-employment on Schedule SE, or
  • They received wages from an S corporation in which the taxpayer was a more-than-2-percent shareholder.

During tax year 2008, the most recent year for which data is available, the self-employed health insurance deduction was claimed on 3.6 million tax returns, reducing taxpayers' adjusted gross incomes by $21 billion.

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Small Business Health Care Tax Credit

In general, the Small Business Health Care Tax Credit is available to small employers that pay at least half of the premiums for single health insurance coverage for their employees. It is specifically targeted to help small businesses and tax-exempt organizations that primarily employ moderate- and lower-income workers.

Small businesses can claim the credit for 2010 through 2013 and for any two years after that. For tax years 2010 to 2013, the maximum credit is 35 percent of premiums paid by eligible small businesses and 25 percent of premiums paid by eligible tax-exempt organizations. Beginning in 2014, the maximum tax credit will increase to 50 percent of premiums paid by eligible small business employers and 35 percent of premiums paid by eligible tax-exempt organizations.

The maximum credit goes to smaller employers (those with 10 or fewer full-time equivalent (FTE) employees) paying annual average wages of $25,000 or less. The credit is completely phased out for employers that have 25 or more FTEs or that pay average wages of $50,000 or more per year. Because the eligibility rules are based in part on the number of FTEs, not the number of employees, employers that use part-time workers may qualify even if they employ more than 25 individuals.

Eligible small businesses will first use Form 8941 to figure the credit and then include the amount of the credit as part of the general business credit on its income tax return.

The IRS has developed a page on IRS.gov devoted to this credit with answers to frequently asked questions and with explanations of the credit through various tax scenarios.

General Business Credit for Employers

The general business credits of eligible small businesses in 2010 are not subject to alternative minimum tax The new law allows general business credits to offset both regular income tax and alternative minimum tax of eligible small businesses as described in Section 2012 of the Small Business Jobs Act. The provision is effective for any general business credits determined in the first taxable year beginning after December 31, 2009, and to any carryback of such credits. For a list of the general business credits, see Form 3800.


Small Businesses Can Benefit from Higher Expensing / Depreciation Limits

For tax years beginning in 2010 and 2011, small businesses can expense up to $500,000 of the first $2 million of certain business property placed in service during the year.

In general, businesses can choose to treat the cost of certain property as an expense and deduct it in the year the property is placed in service instead of depreciating it over several years. This property is frequently referred to as section 179 property, after the relevant section in the Internal Revenue Code.

Section 179 property is property that you acquire by purchase for use in the active conduct of your trade or business, including:

  • Tangible personal property.
  • Other tangible property (except buildings and their structural components) used as:

    1. An integral part of manufacturing, production, or extraction or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services;

    2. A research facility used in connection with any of the activities in (1) above; or

    3. A facility used in connection with any of the activities in (1) above for the bulk storage of fungible commodities.

  • Single purpose agricultural (livestock) or horticultural structures.
  • Storage facilities (except buildings and their structural components) used in connection with distributing petroleum or any primary product of petroleum.
  • Off-the-shelf computer software.

Section 179 property generally does not include land, investment property (section 212 property), property used mainly outside the United States, property used mainly to furnish lodging and air conditioning or heating units.

The Small Business Jobs Act (SBJA) of 2010 increases the section 179 limitations on expensing of depreciable business assets for tax years beginning in 2010 and 2011 and expands temporarily the definition of section 179 property, for tax years beginning in 2010 and 2011, to include certain qualified real property a taxpayer elects to treat as section 179 property. Qualified real property means qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property.

The $500,000 amount provided under the new law is reduced, but not below zero, if the cost of all section 179 property placed in service by the taxpayer during the tax year exceeds $2 million.

For tax years beginning in 2012, the maximum amount is $125,000; before enactment of the 2010 tax relief legislation, it was set at $25,000.

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Depreciation limits on business vehicles

The total depreciation deduction (including the section 179 expense deduction and the 50 or 100 percent bonus depreciation) you can take for a passenger automobile (that is not a truck or a van) you use in your business and first placed in service in 2010 is increased to $11,060. The maximum deduction you can take for a truck or van you use in your business and first placed in service in 2010 is increased to $11,160. If you do not take any bonus depreciation for the passenger automobile, truck, or van you use in your business and first placed in service in 2010, the maximum deduction you can take for a passenger automobile is $3,060 and for a truck or van is $3,160.

50 or 100 Percent Bonus Depreciation

Generally, businesses can take a special depreciation allowance to recover part of the cost of qualified property placed in service during the tax year. The allowance applies only for the first year you place the property in service.

Businesses that acquire and place qualified property into service after Sept. 8, 2010 can now claim a depreciation allowance of 100 percent of the cost of the property. The property must be placed in service before Jan. 1, 2012 (Jan. 14, 2013 in the case of certain longer-lived and transportation property). Businesses that acquire qualified property during 2010 on or before Sept. 8, 2010 can claim a depreciation allowance of 50 percent of the cost of the property. The property must be placed in service before Jan. 1, 2013 (Jan. 1, 2014 in the case of certain longer production period property and for certain aircraft.)

The allowance is an additional deduction you can take after any section 179 deduction and before you figure regular depreciation under MACRS for the year you place the property in service. The types of property that can be depreciated are described in the instructions to Form 4562.

Small Businesses To Use EFTPS for Deposits Beginning in 2011

The paper coupon system for Federal Tax Deposits will no longer be maintained by the Treasury Department after Dec. 31, 2010. Most businesses must now make deposits and pay federal taxes through the Electronic Federal Tax Payment System (EFTPS).

Using EFTPS to make federal tax deposits provides substantial benefits to both taxpayers and the government. EFTPS users can make tax payments 24 hours a day, seven days a week from home or the office.

Deposits can be made online with a computer or by telephone. EFTPS also significantly reduces payment-related errors that could result in a penalty. The system helps taxpayers schedule dates to make payments even when they are out of town or on vacation when a payment is due. EFTPS business users can schedule payments up to 120 days in advance of the desired payment date.

Information on EFTPS, including how to enroll, can be found on line or by calling EFTPS Customer Service at 1-800-555-4477.

Some businesses paying a minimal amount of tax may make their payments with the related tax return, instead of using EFTPS. More details regarding taxes required to be deposited using EFTPS, dollar thresholds and other specific requirements are described on page 2 of IRS Publication 15, (Circular E) Employer's Tax Guide.

 

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IRS Announces 2011 Standard Mileage Rates

On December 3, 2010 the Internal Revenue Service issued the 2011 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on Jan. 1, 2011, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 51 cents per mile for business miles driven
  • 19 cents per mile driven for medical or moving purposes
  • 14 cents per mile driven in service of charitable organizations

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for any vehicle used for hire or for more than four vehicles used simultaneously.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

IRS Revenue Procedure 2010-51 contains additional details regarding the standard mileage rates.


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