President Biden support extending the individual tax provisions of the Tax Cuts and Jobs Act, many of which are set to expire next year, Department of the Treasury Secretary Janet Yellen said.

President Biden support extending the individual tax provisions of the Tax Cuts and Jobs Act, many of which are set to expire next year, Department of the Treasury Secretary Janet Yellen said.

"The President has made it clear that he would oppose raising back the taxes for working people and families making under $400,000," Secretary Yellen testified before the Senate Finance Committee during a March 21, 2024, hearing to review the White House fiscal year 2025 budget proposal.

She then affirmed that "he would" support extending the individual tax provisions of the TCJA when asked by committee Ranking Member Mike Crapo (R-Idaho), who noted that the budget did not make any mention of this.

Yellen defended the fiscal 2025 budget request against assertions that taxes will indeed go up for those making under $400,000, contrary to President Biden’s promise, because the taxes that are targeted to wealthy corporations to ensure they are paying their fair share will ultimately be passed down to their consumers in the form of higher prices and lower wages.

"I think what the impact when you change taxes on corporations, what the impact is on families involves a lot of channels that are speculative," Yellen said. "They are included in models that sometimes the Treasury used for the purposes of analysis, in a tax that is levied on corporations, that has no obvious direct effect on households."

The proposed budget would increase the corporate minimum tax from the current 15 percent to 21 percent, as well as raise the tax rate on U.S. multinationals’ foreign earnings from the current 10.5 percent to 21 percent. The current corporate tax rate would climb to 28 percent and the budget would eliminate tax breaks for million-dollar executive compensation. It would also increase the tax rate on corporate stock buybacks from 1 percent to 4 percent, among other business-related tax provisions.

By Gregory Twachtman, Washington News Editor

Corporations and billionaires will be paying more in taxes if Congress follows recommendations President Biden gave during his State of the Union address.

The IRS has launched a new initiative to improve tax compliance among high-income taxpayers who have not filed federal income tax returns since 2017.

The IRS has launched a new initiative to improve tax compliance among high-income taxpayers who have not filed federal income tax returns since 2017. This effort, funded by the Inflation Reduction Act, involves sending out IRS compliance letters to over 125,000 cases where tax returns have not been filed since 2017. These mailings include more than 25,000 to individuals with incomes exceeding $1 million and over 100,000 to those with incomes ranging between $400,000 and $1 million for the tax years 2017 to 2021. The IRS will begin mailing these compliance alerts, formally known as the CP59 Notice, this week.

Recipients of these letters should act promptly to prevent further notices, increased penalties, and stronger enforcement actions. Consulting a tax professional can help them swiftly file late tax returns and settle outstanding taxes, interest, and penalties. The failure-to-file penalty is 5 percent per month, capped at 25 percent of the tax owed. Additional resources are available on the IRS website for non-filers.

The non-filer initiative is part of the IRS's broader campaign to ensure large corporations, partnerships, and high-income individuals fulfill their tax obligations. Non-respondents to the non-filer letter will face further notices and enforcement actions. If someone consistently ignores these notices, the IRS may file a substitute tax return on their behalf. However, it's still advisable for the individual to file their own return to claim eligible exemptions, credits, and deductions.

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An individual’s claim for innocent spouse relief was rejected for lack of jurisdiction because the taxpayer failed to file his petition within the 90-day deadline under Code Sec. 6015(e)(1)(A). 

An individual’s claim for innocent spouse relief was rejected for lack of jurisdiction because the taxpayer failed to file his petition within the 90-day deadline under Code Sec. 6015(e)(1)(A). The taxpayer argued that the deadline to file a petition for a denial of innocent spouse relief was not jurisdictional and asked that the Tax Court hear his case on equitable grounds. However, the Tax Court noted that a filing deadline is jurisdictional if Congress clearly states that it is. The IRS argued that argues that the 90-day filing deadline of Code Sec. 6015(e)(1)(A) was jurisdictional because Congress clearly stated that it was and the Supreme Court’s decision in Boechler, P.C. v. Commissioner, 142 S. Ct. 1493, in addition to numerous appellate cases, supported this argument.

The Tax Court examined the "text, context, and relevant historical treatment" of the provision at issue and concluded that the 90-day filing deadline of Code Sec. 6015(e)(1)(A) was jurisdictional. On the basis of statutory interpretation principles, the jurisdictional parenthetical in Code Sec. 6015(e)(1)(A) was unambiguous. It did not contain any ambiguous terms and there was a clear link between the jurisdictional parenthetical and the filing deadline. Specifically, Code Sec. 6015(e)(1)(A) is a provision that solely sets forth deadlines. Further, it was unclear what weight, if any, should be given to the equitable nature of Code Sec. 6015. The statutory context arguments were not strong enough to overcome the statutory text. Accordingly, the Tax Court ruled that the 90-day filing deadline in Code Sec. 6015(e)(1)(A) was jurisdictional.

P.A. Frutiger, 162 TC —, No. 5, Dec. 62,432

The IRS has continued to increase the amount of information available in multiple languages. This was part of the IRS transformation work under the Strategic Operating Plan, made possible by additional resources provided by the Inflation Reduction Act (P.L. 117-169).

The IRS has continued to increase the amount of information available in multiple languages. This was part of the IRS transformation work under the Strategic Operating Plan, made possible by additional resources provided by the Inflation Reduction Act (P.L. 117-169). On IRS.gov, taxpayers can select their preferred language from the dropdown menu at the top of the page, including Spanish, Vietnamese, Russian, Korean, Haitian Creole, Traditional Chinese and Simplified Chinese. Additionally, the Languages page gives taxpayers information in 21 languages on key topics such as "Your Rights as a Taxpayer" and "Who Needs to File."

"The IRS is committed to making further improvements for taxpayers in a wide range of areas, including expanding options available to taxpayers in multiple languages," said IRS Commissioner Danny Werfel. "Understanding taxes can be challenging enough, so it’s important for the IRS to put a variety of information on IRS.gov and other materials into the language a taxpayer knows best. This is part of the larger effort by the IRS to make taxes easier for all taxpayers," he added.

If taxpayers cannot find the answers to their tax questions on IRS.gov, they can call the IRS or get in-person help at an IRS Taxpayer Assistance Center. Finally, hundreds of IRS Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs have access to Over the Phone Interpreter services. VITA and TCE offer free basic tax return preparation to qualified individuals.

The IRS has granted to withholding agents an administrative exemption from the electronic filing requirements for Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons.

The IRS has granted to withholding agents an administrative exemption from the electronic filing requirements for Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons. Under the exemption:

• withholding agents (both U.S. and foreign persons) are not required to file Forms 1042 electronically during calendar year 2024; and
• withholding agents that are foreign persons are not required to file Forms 1042 electronically during calendar year 2025.

The exemption is automatic, so withholding agents do not need to file an electronic filing waiver request to use the exemption.

Electronic Filing of Form 1042

Under Code Sec. 6011(e), the IRS must prescribe regulations with standards for determining which federal tax returns must be filed electronically. In 2023, final regulations were published to implement amendments to Code Sec. 6011(e) that lowered the threshold number of returns for required electronic filing of certain returns. The regulations included requirements for filing Form 1042 electronically.

The final regulations provide that:

• a withholding agent (but not an individual, estate,or trust) must electronically file Form 1042 if the agent is required to file 10 or more returns of any type during the same calendar year in which Form 1042 is required to be filed;
• a withholding agent that is a partnership with more than 100 partners must electronically file Form 1042 regardless of the number of returns the partnership is required to file during the calendar year; and
• a withholding agent that is a financial institution must electronically file Form 1042 without regard to the number of returns it is required to file during the calendar year.

The final regulations apply to Forms 1042 required to be filed for tax years ending on or after December 31, 2023. This means that withholding agents must apply the new electronic filing requirements beginning with Forms 1042 due on or after March 15, 2024.

Challenges to Withholding Agents

Since the final regulations were published, the IRS received feedback from withholding agents noting challenges in transitioning to the procedures needed for filing Forms 1042 electronically. Withholding agents expressed concerns about the limited number of Approved IRS Modernized e-File Business Providers for Form 1042, and difficulties accessing the schema and business rules for filing Form 1042 electronically. Withholding agents that do not rely on modernized e-file business providers said that they needed more time to upgrade their systems for filing on the IRS’s Modernized e-File platform. Agents also noted challenges specific to foreign persons filing Forms 1042 regarding the authentication requirements necessary for accessing the platform.

In response to these concerns, the IRS used its power under the regulations to provide the exemption from the electronic filing requirement for Form 1042, in the interest of effective and efficient tax administration.

With the soaring cost of college tuition rising on a yearly basis, tax-free tuition gifts to children and grandchildren can help them afford such an expensive endeavor, as well as save the generous taxpayers in gift and generation skipping taxes. Under federal law, tuition payments that are made directly to an educational institution on behalf of a student are not considered to be taxable gifts, regardless of how large, or small, the payment may be.

With the soaring cost of college tuition rising on a yearly basis, tax-free tuition gifts to children and grandchildren can help them afford such an expensive endeavor, as well as save the generous taxpayers in gift and generation skipping taxes. Under federal law, tuition payments that are made directly to an educational institution on behalf of a student are not considered to be taxable gifts, regardless of how large, or small, the payment may be.

Code Sec. 2503(e) allows taxpayers the benefit of an unlimited gift tax exclusion for payment of tuition to colleges for students. In this way, a taxpayer can navigate around the annual gift tax exclusion limit. By so doing, a taxpayer can both give an unlimited amount of money for a student’s tuition costs without incurring a gift tax penalty. In addition, a taxpayer can then directly provide that same student with an outright cash gift up to the annual gift tax exclusion amount, without a tax penalty for doing so.

However, a direct tuition payment might prompt a college to reduce any potential grant award in your grandchild's financial aid package, so make sure to ask the college about the financial aid impact of your gift.

Requirements

In order to qualify for the gift tax exclusion, the tuition payments must be made directly to a qualifying organization, which is defined in Code Sec. 170(b). A qualifying organization is an institution that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on. Therefore, such organizations are not limited to colleges and universities, but may include various types and levels of education institutions.

The donor of the gift of tuition does not have to be related to the beneficiary for the gift to be considered tax-free. However, the tuition must be directly paid to the institution. The donee may be enrolled either part-time or full-time. 

Amounts ineligible for exclusion

Of important note, reimbursements for tuition paid by someone else is ineligible for tax-free gift exclusion treatment. Further, a transfer to an irrevocable trust established to pay tuition expenses of trust beneficiaries does not qualify for the unlimited exclusion, even if the trustee makes payments directly to the educational institution. In addition, amounts paid for fees, books, supplies or the donee’s living expenses while in school do not qualify for tax-free treatment.

Any contribution to a qualified tuition program on behalf of a designated beneficiary, as well as any contribution to a Coverdell Education Savings Account, is a completed gift of a present interest eligible for the annual gift tax exclusion at the time the contribution is made. However, such contributions are not treated as qualified transfers that are eligible for the educational expense unlimited gift tax exclusion.

An early glimpse at the income tax picture for 2017 is now available. The new information includes estimated ranges for each 2017 tax bracket as well as projections for a growing number of inflation-sensitive tax figures, such as the tax rate brackets, personal exemption and the standard deduction. Projections – made available by Wolters Kluwer Tax & Accounting US – are based on the relevant inflation data recently released by the U.S. Department of Labor. The IRS is expected to release the official figures by early November. Here are a few of the more widely-applicable projected amounts: 

An early glimpse at the income tax picture for 2017 is now available. The new information includes estimated ranges for each 2017 tax bracket as well as projections for a growing number of inflation-sensitive tax figures, such as the tax rate brackets, personal exemption and the standard deduction. Projections – made available by Wolters Kluwer Tax & Accounting US – are based on the relevant inflation data recently released by the U.S. Department of Labor. The IRS is expected to release the official figures by early November. Here are a few of the more widely-applicable projected amounts:

Tax Brackets

For 2017, for married taxpayers filing jointly and surviving spouses, the maximum taxable income for the:

• 10-percent bracket is $18,650, (up from $18,550 for 2016);
• 15-percent tax bracket, $75,900 (up from $75,300 for 2016);
• 25-percent tax bracket, $153,100 (up from $151,900 for 2016);
• 28-percent tax bracket, $233,350 (up from $231,450 for 2016);
• 33-percent tax bracket, $416,700 (up from $413,350 for 2016);
• 35-percent tax bracket, $470,700 (up from $466,950 for 2016); and
• 6 percent for all taxable income above that 35-percent bracket’s maximum income level.

For heads of household, the maximum taxable income for the:

• 10-percent bracket is $13,350 (up from $13,250 for 2016);
• 15-percent tax bracket, $50,800 (up from $50,400 for 2016);
• 25-percent tax bracket, $131,201 (up from $130,150 for 2016);
• 28-percent tax bracket, $212,500 (up from $210,800 for 2016);
• 33-percent tax bracket, $416,700 (up from $413,350 for 2016);
• 35-percent tax bracket, $446,700 (up from $441,000 for 2016);
• 6 percent for all taxable income above that 35-percent bracket’s maximum income level.

For unmarried, single filers who are not heads of household or surviving spouses, the maximum taxable income for the:

• 10-percent bracket is $9,325 (up from $9,275 for 2016);
• 15-percent tax bracket, $37,950 (up from $37,650 for 2016);
• 25-percent tax bracket, $91,900 (up from $91,150 for 2016);
• 28-percent tax bracket, $191,650 (up from $190,150 for 2016);
• 33-percent tax bracket, $416,700 (up from $413,350 for 2016);
• 35-percent tax bracket, $418,400 (up from $415,050 for 2016); and
• 6 percent for all taxable income above that 35-percent bracket’s maximum income level.

For married taxpayers filing separately, the maximum taxable income for the:

• 10-percent bracket is $9,325 (up from $9,275 for 2016);
• 15-percent tax bracket, $37,950 (up from $37,650 for 2016);
• 25-percent tax bracket, $76,550 (up from $75,950 for 2016);
• 28-percent tax bracket, $116,675 (up from $115,725 for 2016);
• 33-percent tax bracket, $208,350 (up from $206,675 for 2016);
• 35-percent tax bracket, $235,350 (up from $233,475 for 2016); and
• 6 percent for all taxable income above that 35-percent bracket’s maximum income level.

Standard Deduction

The 2017 standard deduction will rise $50, to $6,350 for single taxpayers. For married joint filers, the standard deduction will rise $100, to $12,700. For heads of household, the standard deduction will rise to $9,350, up from $9,300 for 2016. The additional standard deduction for blind and aged married taxpayers will remain at $1,250. For unmarried taxpayers who are blind or aged, the amount of the additional standard deduction will also remain the same ($1,550).

For 2017 the so-called "kiddie" deduction used on the returns of children claimed as dependents on their parents’ returns remains $1,050 or $350 plus the individual’s earned income.

Personal Exemptions

The personal exemption will be $4,050 for 2017, the same as for 2016. The phaseout of the personal exemption for higher-income taxpayers will begin after taxpayers pass the same income thresholds set forth for the limitation on itemized deductions.

Limitation on Itemized Deductions

For higher-income taxpayers who itemize their deductions, the limitation on itemized deductions will be imposed as follows:

• For married couples filing joint returns or surviving spouses, the income threshold will begin to phase out at income over $313,800, up from $311,300 for 2016.
• For heads of household, the beginning threshold will be $287,650 in 2016, up from $285,350 for 2016.
• For single taxpayers, the beginning threshold will be $261,500, up from $259,400 for 2016.
• For married taxpayers filing separate returns, the 2016 threshold will be $156,900, up from $155,650 for 2016.

Estate and Gift Tax

Gift Tax. The 2017 gift tax annual exemption will remain the same as for 2016, at $14,000.

Estate Tax. The estate and gift tax applicable exclusion will increase from $5,450,000 in 2016 to $5,490,000 in 2017.

Gifts to Noncitizen Spouses. The first $149,000 of gifts made in 2017 to a spouse who is not a U.S. citizen will not be included in taxable gifts, up $1,000 from $148,000 for 2016.

AMT Exemptions

The American Taxpayer Relief Act of 2012 provided for the annual inflation adjustment of the exemption from alternative minimum tax (AMT) income. Previously, this inflation adjustment had to be enacted by Congress each year. For 2017, the AMT exemption for married joint filers and surviving spouses is projected to be $84,500 (up from $83,800 for 2016). For heads of household and unmarried single filers, the exemption will be $54,300 (up from $53,900 for 2016). For married separate filers, the exemption will be $42,250 (up from $41,900 for 2016).

It’s not too early to get ready for year-end tax planning. In fact, many strategies take time to set up in order to gain maximum benefit. Here are some preliminary considerations that may help you to prepare.

It’s not too early to get ready for year-end tax planning. In fact, many strategies take time to set up in order to gain maximum benefit. Here are some preliminary considerations that may help you to prepare.

Gather your data. One major reason for planning towards year’s end is that you usually now have a clearer picture of what your total income and deductions will look like for the entire year. From those estimates, you may want to do some planning to accelerate or defer income and/or deductions in a way that can lower your overall tax bill for this year and next. To do that effectively, however, you need to take inventory of your year-to-date income and deductions, as well as take a look ahead at likely events through December 31, 2016, that may impact on that tally. Since you’ll need to eventually gather this data for next year’s tax return, you can double-down on the benefits of doing so now.

Personal changes. Changes in your personal and financial circumstances – marriage, divorce, a newborn, a change in employment, investment successes and downturns – should all be noted for possible consideration as part of overall year-end tax planning. A newborn, for example, may not only entitle the proud parents to a dependency exemption, but also a child tax credit and possible child care credit as well. Also, as with any ‘life-cycle” change, your tax return for this year may look entirely different from what it looked like for 2015. Accounting for that difference now, before year-end 2016 closes, should be an integral part of your year-end planning.

New developments. Recent tax law changes – whether made by legislation, the Treasury Department and IRS, or the courts –should be integrated into specific to 2016 year-end plan. A strategy-focused review of 2016 events includes, among other developments:

• the PATH Act (including those handful of extended provisions that will expire before 2017, as well as longer-extended changes to bonus depreciation and expensing rules);
• new de minimis and remodel-refresh safe harbors within the ground-breaking and far-reaching “repair regulations;”
• the definition of marriage as applied by new IRS guidance;
• growing interest by the IRS in the liabilities and responsibilities of participants within the “sharing economy”;
• changing responsibilities of individuals and employers under revised rules within the Affordable Care Act; and
• the impact of recent Treasury Department regulations, including those affecting certified professional employer organizations, late rollover relief, changes to deferred compensation plans, partial annuity payment options from qualified plans, and more. 

Timing. Once December 31, 2016 has come and gone, there is very little that you can do to lower your tax bill for 2016. True, there are some retirement plan contributions made early in 2017 that may count to offset 2016 liabilities and some accounting-oriented elections may be made when filing a 2016 return. But those opportunities are limited, with much greater potential savings on most fronts available if action is taken by December 31. For business taxpayers, one of many planning points to keep in mind: a deduction for equipment is not allowed until it is “placed into service” within the business operations; purchasing it is not enough.

Many taxpayers realize significant tax from year-end tax planning. If you wish to explore further whether you might benefit, please feel free to contact our offices.

Employers generally have to pay employment taxes on the wages they pay to their employees. A fine point under this rule, however, is missed by many who themselves have full time jobs and don’t think of themselves as employers: a nanny who takes care of a child is considered a household employee, and the parent or other responsible person is his or her household employer. Housekeepers, maids, babysitters, and others who work in or around the residence are employees. Repairmen and other business people who provide services as independent contractors are not employees. An individual who is under age 18 or who is a student is not an employee.

Employers generally have to pay employment taxes on the wages they pay to their employees. A fine point under this rule, however, is missed by many who themselves have full time jobs and don’t think of themselves as employers: a nanny who takes care of a child is considered a household employee, and the parent or other responsible person is his or her household employer. Housekeepers, maids, babysitters, and others who work in or around the residence are employees. Repairmen and other business people who provide services as independent contractors are not employees. An individual who is under age 18 or who is a student is not an employee.

Payments and Withholding

As a household employer, the parent must withhold and pay Social Security and Medicare taxes if the cash wages paid to the nanny exceed the threshold amount for the year. If the amount paid is less than the threshold, the parent does not owe any Social Security or Medicare taxes. For 2017, the domestic employee coverage threshold, as adjusted for a slightly different inflation factor and subject to rounding, will be $2,000, which is the same as for 2016 after rising from $1,900 in 2015. Earnings of any domestic employee are not subject to Social Security taxes if they do not exceed that threshold for the year. If the employee earns more than $1,000 in any calendar quarter, the parent must also pay federal unemployment (FUTA) tax on wages paid, up to $7,000. Publication 926, Household Employer's Tax Guide, has more information about withholding and paying employment taxes.  

If the amount paid is more than the threshold, the parent must withhold the employee's share of Social Security and Medicare taxes unless the parent chooses to pay both the employee's and the employer's share. The taxes are 15.3 percent of cash wages, 7.65 percent each for the employee and the employer. This includes 6.2 percent for Social Security and 1.45 percent for Medicare (hospitalization insurance).

The parent is not required to withhold income tax from the nanny's wages. However, the parent and the nanny may agree to withholding income tax from the nanny's wages. The nanny must provide a filled-out Form W-4, Employee's Withholding Allowance Certificate, to the employer.

The employment taxes amounts are part of the parent's tax liability and can trigger an estimated tax penalty if not enough is paid during the year. The parent submits estimated tax payments on Form 1040-ES, Estimated Tax for Individuals.

Forms to File

If the parent must pay Social Security and Medicare taxes, or if the parent withholds income tax, the parent must file Schedule H, Household Employment Taxes, with the parent's Form 1040. The parent may also need to file a Form W-2, Wage and Tax Statement, and furnish a copy of the form to the nanny. To complete Form W-2, the parent must obtain an employer identification number (EIN) from the IRS, either by applying online or by submitting Form SS-4, Application for Employer Identification Number.

Please do not hesitate to contact this office if you have any questions regarding your “nanny tax” responsibilities.

Businesses of all sizes are preparing for a possible avalanche of information reporting after 2011.

To help pay for health care reform, lawmakers tacked on expanded information reporting to the Patient Protection and Affordable Care Act (PPACA). The health care reform law generally requires all businesses, charities and state and local governments to file an information return for all payments aggregating $600 or more in a calendar year to a single provider of goods or services. The PPACA also repeals the longstanding reporting exception for payments to a corporation. The magnitude of the reporting requirement has opponents working feverishly to persuade Congress to either repeal it or scale it back.

Pre-PPACA law

Pre-PPACA law generally requires businesses to file an information return with the IRS reporting payments to non-corporate service providers that exceed $600 in a given year. Payments to providers of goods are excluded from reporting. Payments to a corporation for goods or services are excluded from reporting with some limited exceptions.

Sea change ahead

Effective for purchases made after December 31, 2011 the PPACA requires all businesses purchasing  $600 or more in goods or services from another entity (including corporations but not tax-exempt corporations), to provide the vendor and the IRS with an information return. Presumably, Form 1099-MISC will be used for purposes of the new reporting rule, or the IRS will develop a new form. We will keep you posted on developments.

Example. In February 2012, your business buys computers, printers, and fax machines from an office supply company, doing business as a corporation, for $4,000. Your business also spends $1,000 at a local caterer, doing business as a partnership, for office breakfasts and lunches throughout the year. Additionally, the company spends $600 for business travel on Amtrak. Your business must provide each of these vendors with a Form 1099 for 2012, as well as the IRS. 

Day-to-day transactions

Here are some more examples of purchases after 2011 that appear to fall under the PPACA’s reporting requirements:

-- You make small, incremental purchases from the same vendor; for example, your business purchases more than $600 of office supplies, such as staples, toner, pens, paper, and calendars from the same vendor.
-- You pay more than $600 throughout the year in mail and shipping costs to the same vendor; however each individual charge costs no more than $10 or $12.
-- You purchase floral arrangements for the office throughout the year, although each purchase may be no more than $40 to $70, your cumulative purchases are more than $600;
-- You purchase an $800 computer for your new employee;
-- You hold a summer picnic for your employees and purchase more than $600 in food from a local grocery store;
-- Every Friday you buy breakfast pastries from the local bakery for your employees, and even though each purchase is no more than $40, you spend more than $600 in the year.

Backup withholding

The PPACA requires sellers to provide, and purchasers to collect, Taxpayer Identification Numbers (TINs). If a seller fails to furnish a correct TIN, you must impose backup withholding at the rate of 28 percent of the purchase price.

Moreover, if your business fails to issue an accurately completed Form 1099 to a vendor, the IRS can assess a penalty.

Preparing now

There are some proactive steps your business can take now to prepare for the new reporting requirement and its heavy administrative and paperwork burden. The way you collect and manage vendor information will be more important than ever. Basic information you will need to track includes every vendor’s name and TIN, the amounts spent at each vendor and the total annual amount spent at each vendor.

You should also begin requesting that each of your vendors, particularly your regular vendors, complete IRS Form W-9 for your records. Form W-9 will provide you with the vendor’s legal name, address, and TIN.

Pending legislation

Opponents of the expanded information requirement are hoping that Congress will repeal it before 2012. Outright repeal is a long-shot. As written now, the PPACA reporting requirement is estimated to raise $17 billion over 10 years. Congress will need to find another source of revenue if it repeals the reporting requirement. More likely, Congress will modify the requirement.

Senate Democrats have introduced legislation to raise the reporting threshold from $600 to $5,000 and exclude some routine payments, such as office supplies, from reporting. All purchases made with a credit card would also be exempt from the reporting requirement. Additionally, small businesses employing not more than 25 employees would be completely exempt from the reporting requirement.

Casualty losses are damages from a sudden, unexpected or unusual event, including natural disasters. These losses are deductible to the extent they fit under specific tax rules. Ironically, however, due to insurance reimbursements and other payments, you may actually have taxable "casualty gain" as the result of a disaster or accident. Casualty losses and gains are reported on Form 4684.

Casualty losses are damages from a sudden, unexpected or unusual event, including natural disasters. These losses are deductible to the extent they fit under specific tax rules. Ironically, however, due to insurance reimbursements and other payments, you may actually have taxable "casualty gain" as the result of a disaster or accident. Casualty losses and gains are reported on Form 4684.

Casualty loss

The amount of casualty loss is based on the fair market value of the property immediately before it was damaged compared to its value immediately after the event. Alternatively, the loss determination can be based on the property's adjusted basis just before the loss. However, if business property (or property that produces income) is totally destroyed, the casualty loss is the adjusted basis of the property regardless of its fair market value. Whatever value you place on the loss, however, you then must deduct any insurance reimbursement that you receive or are likely to receive for that loss. That final figure is your official casualty loss for tax purposes.

Deductions

You can deduct a personal casualty loss only as an itemized deduction, only to the extent that it is more than $100 for any one event and only to the extent that all such losses over the course of the tax year are than 10 percent of your adjusted gross income. If the property is covered by insurance, you must file a claim for reimbursement. Otherwise, the loss cannot be deducted as a casualty loss. If the loss is on business property, the deduction is not restricted by the $100 or 10 percent rule. These restrictions apply only to personal casualty loss.

Disaster loss

A disaster loss can receive special treatment if it occurs in an area declared by the President of the United States to be eligible for federal disaster assistance. Typically, these are areas damaged by fire, hurricane or other natural disasters. A special rule allows you to deduct the loss in either the year in which the loss occurred or the preceding year. Claiming it in the preceding year typically allows you to file a refund claim immediately and, therefore, have immediate cash-in-hand from the deduction.

Gain

If your insurance reimbursement is more than your personal property's cost or basis (which may be the case if your property has increased in value since you bought it), you have a "personal casualty gain." If personal casualty gains from any year exceed personal casualty losses, a net capital gain results. Net capital gain generally is taxed at a maximum rate of 15 percent.

You may, however, be able to pay no tax on your gain. You can postpone net casualty gain using the so-called involuntary conversion rules. To postpone gain, you must purchase replacement property for a price equal to or more than the reimbursement you received.