2010 Archive

The House of Representatives on Thursday by a vote of 277–148 passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, HR 4853, which would postpone the sunset of the 2001 and 2003 tax cuts, reduce the estate tax, extend a large number of expired provisions, and extend unemployment benefits. The bill now goes to President Barack Obama for his signature, which is expected soon.

The House passed the Senate’s version of the bill without amendment. Prior to the vote on the bill, the House rejected, by a vote of 194–233, a motion that would have stricken the estate tax provisions in the bill and replaced them with an estate tax provision providing for a 45% rate and a $3.5 million exemption.

The bill has provisions covering the estate tax, expiring tax cuts, expired tax provisions and an alternative minimum tax (AMT) patch.

The bill postpones the scheduled sunset of the lower tax rates introduced in 2001 by the Economic Growth and Tax Relief Reconciliation Act (EGTRRA, PL 107-16); those rates will now continue through 2012. The bill also continues the lower capital gains tax rate introduced by the Jobs and Growth Tax Relief Reconciliation Act of 2003 (PL 108-27) through 2012.

The EGTRRA’s repeal of the itemized deduction phaseout and the personal exemption phaseout are extended by the bill for two years.

For 2011 only, the bill reduces the rate for the Social Security portion of payroll taxes to 10.4%, by reducing the employee rate from 6.2% to 4.2% (the employer’s portion remains at 6.2%).

The bill includes an AMT patch for 2010 and 2011. For 2010, the AMT exemption amounts will be $47,450 for unmarried individuals and $72,450 for married individuals filing jointly. For 2011, the amounts will be $48,450 and $74,450, respectively.

The bill extends the 100% bonus depreciation for business property acquired after Sept. 8, 2010, and before Jan. 1, 2012, and placed in service before Jan. 1, 2012 (or before Jan. 1, 2013, in the case of certain property). The bill also sets the expensing limitation under IRC § 179 at $125,000 and the phaseout threshold amount at $500,000 for 2012. The bill then reduces these amounts to $25,000 and $200,000 for tax years beginning after 2012.

The bill temporarily reinstates the estate tax, with an estate tax rate of 35% and an estate tax exemption of $5 million (adjusted for inflation after 2011).

The bill also extends a large number of expired or expiring provisions, including:

• The increased standard deduction for married taxpayers filing jointly, scheduled to expire after 2010, would continue for two years;
• The $1,000 child tax credit amount would continue for two years, instead of reverting to $500;
• The increased starting and ending points for the earned income credit would continue for two years;
• The $3,000 amount for the child and dependent care credit, which is scheduled to revert to $2,400 after 2010, would continue for two years;
• The American opportunity tax credit would continue for two years;
• The temporary 100% exclusion of gain from the sale of certain small business stock under IRC § 1202, enacted by the Small Business Jobs Act of 2010, would be extended through 2011.

Please consult with your tax professional to learn more about how this bill may affect you.

If you are like me, you may find it hard to believe that Thanksgiving has past and Christmas is only weeks away. This has, without question, been the fastest year of my life. I’m guessing December will be no different. Before we know it, we will be erroneously dating everything 2010. And as if there wasn’t enough to think about in December, lets not forgot that this is also the season to act on tax reduction strategies.

Here are a few basic ideas for you to consider.

1. Give it away. To charity, that is. While the true motive behind charitable giving should never be to reduce your tax bill, the Code does promote charitable giving by providing a deduction on Schedule A for the amount you give to a qualifying charitable organization.
2. Fund retirement. Many retirement plans give you until the tax filing deadline to fund your retirement accounts in order to take the deduction on your return. Unless you utilize a Roth IRA, most qualifying retirement contributions reduce taxable income. Roth IRAs, on the other hand, do not provide a current deduction but do allow qualifying distributions to be withdrawn tax free.
3. Take credit. There are a multitude of credits available to the taxpayer. Some more common examples include child and dependent care credits, education credits, child credits and residential energy credits. There are a number of credits available to business owners as well.
4. Time it. When we know that tax rates are going to go up or down, timing the event that creates a deduction, credit or income is critical in optimizing your tax position.
5. Harvest losses. If you are sitting on investment losses, consider selling off positions. Doing so will allow up to a $3,000 reduction in income.

Just like a fingerprint, tax positions and strategy are unique to the individual. We strongly encourage you to speak with your tax advisor prior to taking any action.

We are very pleased to announce that Chad has just received his PFS credential from the AICPA. The PFS is granted exclusively to CPAs with extensive tax expertise and comprehensive knowledge of financial planning. This knowledge is critical to receiving the most valuable and objective advice available.

In a revenue ruling (Revenue Ruling 2010-25) released Thursday, the IRS ruled that mortgages of up to $1.1 million may be deductible. Prior to this ruling, the interpreted limit was $1.0 million. Therefore, such homeowners may have an additional $100,000 in eligible mortgage indebtedness.

The health care reform enacted earlier this year originally required employers to include cost of employer-sponsored health care coverage on employee Form W-2 for tax years starting on or after January 1, 2011.

The IRS decided that employers need additional time to make the necessary changes to their payroll systems and procedures to comply with this rule. On Tuesday, the IRS issued a notice (Notice 2010-69) providing interim relief to employers. Under the notice, employers are not required to include employer-sponsored health care coverage on Form W-2 for 2011 although they may elect to. Employers who choose to report 2011 health care coverage cost to their employees will do so in Box 12 using code DD. The IRS has posted a draft 2011 Form W-2 on its site.

This is the first of, perhaps, several changes to the legislation. Stay tuned.

Good news one day, bad news the next. Experts talk theory, politicians point blame and talking heads do what they do best. Everyone reacts.

How should we react? That is the real question. Here are a few ideas for you to think about.

• Don’t look. Watching the markets every day is unhealthy. One day rarely has a material impact in the overall scheme of things. The negative emotions as a result of a brief downward market are avoidable. For that matter, the positive emotions as a result of a brief upward market may be unwarranted.
• Think long term. Many of you will not need to tap into your (retirement) savings at all for several years. For those who are taking distributions, chances are you still have some good years ahead of you. Time is on our side.
• Avoid prophets. Be very skeptical of anyone, regardless of what their name is and what their track record indicates, who makes claims on the future. Sure, we have history, empirical data, and some great minds out there but no one is capable of predicting the future. Run from these people.
• Diversification still works. It doesn’t work all the time, as with a market crash, but it does work over time. Are you adequately diversified considering your comfort level with risk and where you are at in life?
• Deleverage. Cut back on spending and ramp up on debt reduction. Not only are you doing what is prudent, you are providing yourself a guaranteed rate of return on your money which happens to be the interest rate on the debt you are paying down. You might be hard pressed to find this rate of return elsewhere.

Naturally, these ideas cannot be all-inclusive. It is my hope, however, that they will offer you some comfort and a little logic as we continue to navigate these economic tides.

Nashville has done it again! In a report by Accounting Principals, an accounting and finance staffing provider, using data from the Bureau of Labor Statistics, Nashville ranked 6th in top cities to find a job in the financial services industry. Topping the list of seven were: San Francisco, Denver, Paramus (N.J.), Chicago, Portland, Nashville and Miami.

MCM launched its charitable giving program today, with the initial donation being made to Mercy Children’s Clinic. A portion of the fees earned from the preparation of every new client tax return was contributed to Mercy.

Giving back to Williamson County is fundamental to MCM’s mission and Mercy Children’s Clinic was the natural choice this year. “Children should not have anything less than exceptional healthcare, regardless of their socioeconomic background and their family’s ability to pay,” McKinney stated.

In our continued efforts to support the medical profession and community, MCM is now offering exclusive discounts to Vanderbilt Faculty and Staff. Michael C. McKinney, CPA, PLLC offers a 15% discount on tax preparation services and McKinney Capital Management, LLC offers a 15% discount on financial planning services. Contact us to take advantage of this special offer.

Thank you Vanderbilt for all that you do!

Our last post was dated January 14th. So much has happened since then and yet we have had little time to write about it. Having recently celebrated a couple of milestones, we would like to share them with you.

For starters, we just wrapped up our first tax season here in Franklin, Tennessee. Not only did we meet our goals, we’ve managed to recover from the long hours.

Adding to that, a little over a year ago, on April 15th 2010 to be exact, we set out on a journey to create something new; something different and, dare we say it, something better than what you are accustomed to. Without question, this has been the fastest year of our lives – and one of the more rewarding.

We are off to a very good start. Thank you Franklin for the warm welcome.

A study conducted by the University of Chicago Booth School of Business found small businesses whose books are audited by a CPA save an average of $6,900 annually for every $1 million in outstanding debt due to more favorable interest rates. In addition, a joint study last year by Michigan State University and Indiana University found small businesses with audited financial statements were significantly less likely to be denied credit from banks.

Michael C. McKinney, CPA, PLLC is teaming up with Mercy Children’s Clinic in 2011. For every new client tax return we prepare in 2011, we will donate $10 to Mercy. Learn more about Mercy at www.mercytn.org.

According to the Tuesday, January 4th Tennessean, Steve McNair died without a will. McNair earned about $90 million during his career and passed with an estate valued at almost $20 million.

Does it surprise you that a multimillionaire superstar would pass without a plan? It shouldn’t. You see, it happens every day - people die without a plan for what and who they leave behind. I often wonder why we work so hard all of our lives to accumulate wealth only to omit this critical component. It resembles writing a book without a final chapter.

Regardless of your stardom and riches (or lack thereof), don’t die without a will.