Tax Tips A Service of Sederburg & Associates

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1 Tax Tips A Service of Sederburg & Associates As a service to our valued clients, we will be sending out tax tips and reminders on a quarterly basis. This is our third issue. John Sederburg 1/17/2011 Reminders: Job search expenses can be deducted on your tax return. Please keep track of your expenses. Tax Law Changes: Congress finally took action on income tax legislation in mid-december. The legislation contained a number of provisions that impact your 2010 tax return. This issue of Tax Tips will concern itself with these: Delay in processing some tax returns: Due to the late passage of the tax legislation, the IRS needs time to code many of the changes into their computer programs. As a result, the IRS will not accept tax returns with forms affected by the changes until mid to late February. Do not delay preparation of your return. We will complete your return and submit it at the earliest IRS acceptance date. If you have any of the following, this delay will affect your return; long form deductions (medical expenses, real estate tax, mortgage interest, employee business expense, etc.), college tuition and fees deduction, educator expense deduction, casualty and theft losses, and first time homebuyer credit or repayment of the credit. If you are impacted by this delay, we will prepare your return and hold it until the IRS is ready to accept it, and then file electronically as usual.

2 Expired tax deductions: Beginning with the 2010 tax returns, real estate tax and sales tax on cars purchased in 2010 can no longer be used to increase your standard deduction. If you purchased a car in 2009 and paid the sales tax in 2010, the sales tax can still be used to increase your standard deduction this year. Both the real estate tax and sales tax on car purchases can still be used as itemized deductions. In 2009, the first $ of unemployment compensation was excluded from taxable income. That exclusion is not available in 2010 and later years. Residential Energy Credit: A scaled down tax credit is still available for energy efficient home improvements made during The new credit is 10% of eligible expenses subject to a lifetime limit of $ That means if you took $ or more in energy improvement credits in prior years, you are not eligible for any additional credit. Bonus Depreciation: Businesses are eligible for a 100% bonus depreciation deduction for any qualifying purchases made between September 8, 2010 and December 31, The bonus depreciation applies to purchases of new assets with a useful life of 15 years or less. Neither Missouri or Illinois recognizes bonus depreciation as a deduction, so your tax professional may recommend a modified bonus depreciation deduction. Electronic return filing: Paid tax return preparers who file more than 100 returns are required to file returns electronically beginning with the 2010 tax year. Next year the requirement applies to paid preparers who file more than 10 returns. This means your tax return must be filed electronically unless you sign a form verifying that you choose to mail your return.

3 Illinois Sales/Use Tax: Illinois residents are required to calculate and pay Illinois Use Tax on their Illinois Income Tax Returns beginning this year. Use tax applies to purchases from merchants outside of the state on which you paid less than the Illinois sales tax rate. This applies to internet and mail order purchases and any items bought while traveling outside the state. Internet Sales: Beginning January 1, 2011, internet sales will be reported to the IRS if you make more than 200 sales or have a total sales value over $20, If you have been regularly selling on the internet, you have always been required to report those sales on your tax return. This new requirement is that the third party vendor (MasterCard, E-Bay, Amazon, PayPal, etc.) provide both you and the IRS with a Form 1099-K to report gross sales. Rental Real Estate: If you own rental real estate, you are subject to a new IRS reporting requirement effective January 1, You will be required to report payments to any service provider to whom you make payments of $ or more during 2011 and subsequent years. For example, if you contract someone to mow the lawn at your rental properties, and you pay the person $40.00 per week for 20 weeks, you would have paid the person $800.00, which would require the total to be reported. Forgiven debt may be taxable: In these uncertain economic times, many taxpayers are unable to pay their debt obligations. Financial institutions may sometimes forgive part of a legal debt if they feel it is uncollectable, or as part of a loan renegotiation. In these cases, the lender will report the amount of debt forgiven to the IRS and will issue a Form 1099-C to the borrower showing the amount of debt forgiven. The IRS considers these amounts to be taxable unless they meet certain exceptions. Even if the debt cancellation meets an exception, it must still be reported on the tax return for that year.

4 The two most common exceptions are: 1. The debt is on the taxpayer s principal residence. 2. The taxpayer was insolvent on the date the debt was cancelled. Insolvent merely means that your total debts on that date were greater than the total amount of your cash and bank account balances on that date. Generally, the IRS will require a statement listing your assets and debts to document that you meet this requirement. Cancelled business debt has other treatments. When you reach agreement with a lender to cancel all or a portion of your debt, call us or come in for an appointment. We can help you with the impact on your specific income tax return. Deduction for vehicle expenses: The law allows a deduction for the business use of your personal vehicle. This is true whether you operate your own business or are an employee of someone else. In order to be deductable, there must be a valid business purpose for the mileage. Generally, the round-trip mileage from your place of business to another location (or location) for business purposes is deductable. Commuting miles, the mileage from your home to work, (or the first business stop of the day) and from work to home are not deductable. However, if you are self-employed, and maintain a qualifying home office, the home office counts as your place of business and the miles are all deductable. To support the deduction, you must maintain a log that shows the date, business purpose, and mileage for each trip. The log can be in any format that is comfortable for you to maintain. It can be as formal as a computer spreadsheet or as simple as a calendar with written notations, as long as it contains the required data. If you do not maintain an appropriate log, the IRS may disallow your deduction. Note: The same recordkeeping requirements, along with the name of the client for whom the expense was incurred, apply to deductions for meals and entertainment.

5 If you have questions, or need more information on the mileage deduction, please give us a call. Missouri Shared Care Tax Credit: If you were a caregiver for an elderly person who resided in your home for more than 6 months, you may qualify for the Shared Care Tax Credit. You must register with the Department of Health as a certified caregiver, and the elderly person must be certified by a physician as physically or mentally incapable of living alone. Questions: If you have questions about these, or any other changes in the income tax law, please call your Sederburg & Associates tax professional. If you receive any government correspondence related to your tax return, or if you have tax related questions, contact us: sederburg1040@yahoo.com Find us Website: FaceBook: Sederburg & Associates: Tax Twitter: SederburgTaxAce