One item that did not get extended in this month's tax bill was the exclusion from income of the first $2,400 of unemployment benefits.
In 2009, taxpayers who received unemployment compensation during the year were not taxed on the first $2,400 of benefits received. This provision was not extended for 2010, so all unemployment benefits received in 2010 will be taxable.
Thursday, December 30, 2010
Tax Implications of the Unlicensed Daycare Provider
One of my areas of specialty is in-home daycare operations, and it's something I haven't blogged about much. One of the questions about in-home daycare operations is what the tax consequences are to an unlicensed daycare provider.
Different states have different licensing requirements for daycare providers. In Iowa, an in-home provider can care for up to 5 children without being registered or licensed. A provider caring for 6 children must be registered, and a provider caring for 7 or more children must be licensed. (Read more at the DHS website.)
For tax purposes, your in-home daycare is considered a business whether you or not you are registered or licensed. Income should be reported as business income; legitimate business expenses can be claimed as a deduction against business income.
The tricky part for the unlicensed/unregistered is figuring out whether they can take the deduction for "business use of the home." This deduction allows a taxpayer to partially deduct expenses associated with the house, such as utilities and mortgage interest. Only daycare operators who are licensed or registered with the state -- or who are not required to be licensed or registered -- can take the deduction for business use of the home.
So in Iowa, a provider caring for less than 6 children CAN take the deduction for business use of their home, because they aren't required to be registered or licensed. But if a provider cares for 6 or more children and is not registered or licensed, then no deduction is allowed for business use of their home. Of course, aside from the tax deduction issue, there could also be problems with the DHS!
Different states have different licensing requirements for daycare providers. In Iowa, an in-home provider can care for up to 5 children without being registered or licensed. A provider caring for 6 children must be registered, and a provider caring for 7 or more children must be licensed. (Read more at the DHS website.)
For tax purposes, your in-home daycare is considered a business whether you or not you are registered or licensed. Income should be reported as business income; legitimate business expenses can be claimed as a deduction against business income.
The tricky part for the unlicensed/unregistered is figuring out whether they can take the deduction for "business use of the home." This deduction allows a taxpayer to partially deduct expenses associated with the house, such as utilities and mortgage interest. Only daycare operators who are licensed or registered with the state -- or who are not required to be licensed or registered -- can take the deduction for business use of the home.
So in Iowa, a provider caring for less than 6 children CAN take the deduction for business use of their home, because they aren't required to be registered or licensed. But if a provider cares for 6 or more children and is not registered or licensed, then no deduction is allowed for business use of their home. Of course, aside from the tax deduction issue, there could also be problems with the DHS!
Tuesday, December 28, 2010
Celebrity Tax Problems - Lawyer Mickey Sherman
An attorney who has made frequent television appearances as a legal analyst and who represented a member of the Kennedy family in a murder trial a few years ago has been sentenced to jail time on tax charges. Lawyer Michael "Mickey" Sherman owes about $1.2 million in back taxes from between 2001 and 2009. Sherman was sentenced yesterday to one year and one day in prison. Read more here.
When is Income Taxable, When are Expenses Deductible?
As we head into the last few days of 2010, it is important to consider when income and expenses are recognized for tax purposes.
Most individual taxpayers are on the cash method of accounting, so any income that you have in your hands before the end of the year will be taxable in 2010. This is true even if the income is in the form of a check and you don't deposit the check until the first part of January. The same logic applies to expenses. If you write the check and send it before the end of the year, you can deduct it this year, even if the recipient doesn't cash the check until January.
It gets a little trickier for accrual basis taxpayers. Many businesses use the accrual method. Under the accrual method, income is recognized and expenses are deducted when the "all-events" tests have been met. For income, this means (from IRS Publication 334):
Special rules apply when related taxpayers are involved and they use different methods of accounting.
Most individual taxpayers are on the cash method of accounting, so any income that you have in your hands before the end of the year will be taxable in 2010. This is true even if the income is in the form of a check and you don't deposit the check until the first part of January. The same logic applies to expenses. If you write the check and send it before the end of the year, you can deduct it this year, even if the recipient doesn't cash the check until January.
It gets a little trickier for accrual basis taxpayers. Many businesses use the accrual method. Under the accrual method, income is recognized and expenses are deducted when the "all-events" tests have been met. For income, this means (from IRS Publication 334):
Under an accrual method, you generally include an amount in your gross income for the tax year in which all events that fix your right to receive the income have occurred and you can determine the amount with reasonable accuracy.For expenses, the all-events test is met in much the same way, except that "economic performance" must have occurred as well, which means the goods or services must have been received or performed, as well. (NOTE: this is a very, very general overview of economic performance.)
Special rules apply when related taxpayers are involved and they use different methods of accounting.
Friday, December 24, 2010
Federal Tax Provisions and the State of Iowa
One of the considerations of tax planning is the impact of state taxes. Many states follow along with most federal provisions for calculating income, but almost every state varies from federal law on at least a few items. This is often referred to as "de-coupling" from federal law.
For example, Iowa in 2009 "de-coupled" from federal law on Section 179 expensing and bonus depreciation. Section 179 expensing was limited to $133,000 (as opposed to $250,000 on federal returns), and bonus depreciation was not allowed at all on Iowa returns. (Read more about this tax issue in this article.)
Iowa often "de-couples" from other "extender" items such as the front-side deduction for college expenses and the front-side deduction allowed to K-12 teachers for out-of-pocket classroom expenses. These were a part of the federal tax bill signed into law last week. The Iowa legislature will decide next month on whether to de-couple from these items and not allow them to be deductible on Iowa tax returns. It is a safe bet that the legislature will vote to de-couple on these items, and also on the increase in Section 179 and bonus depreciation.
One federal provision that Iowa is coupling with is the provision in the "health care bill" passed earlier this year that allows people to keep children on their health insurance through age 26. The value of this insurance coverage will be tax-free for federal purposes, and Iowa has announced that it will go along with federal law in this case. Read more in this informational post from the Iowa Department of Revenue.
For example, Iowa in 2009 "de-coupled" from federal law on Section 179 expensing and bonus depreciation. Section 179 expensing was limited to $133,000 (as opposed to $250,000 on federal returns), and bonus depreciation was not allowed at all on Iowa returns. (Read more about this tax issue in this article.)
Iowa often "de-couples" from other "extender" items such as the front-side deduction for college expenses and the front-side deduction allowed to K-12 teachers for out-of-pocket classroom expenses. These were a part of the federal tax bill signed into law last week. The Iowa legislature will decide next month on whether to de-couple from these items and not allow them to be deductible on Iowa tax returns. It is a safe bet that the legislature will vote to de-couple on these items, and also on the increase in Section 179 and bonus depreciation.
One federal provision that Iowa is coupling with is the provision in the "health care bill" passed earlier this year that allows people to keep children on their health insurance through age 26. The value of this insurance coverage will be tax-free for federal purposes, and Iowa has announced that it will go along with federal law in this case. Read more in this informational post from the Iowa Department of Revenue.
IRS Says Itemizers Will Have to Wait a Bit to File
The IRS on Thursday announced that its computer systems won't be ready to handle certain types of tax returns until mid-to-late February. This is because of certain tax law changes enacted in last week's tax bill passed by Congress.
The IRS says people who itemize deductions, people who claim a "front-side" deduction for college expenses, and K-12 teachers who take the "front-side" deduction for purchases of classroom supplies will have to wait to file until sometime in February.
The IRS says it will soon give a more-solid date for when these types of returns can be filed.
The IRS says people who itemize deductions, people who claim a "front-side" deduction for college expenses, and K-12 teachers who take the "front-side" deduction for purchases of classroom supplies will have to wait to file until sometime in February.
The IRS says it will soon give a more-solid date for when these types of returns can be filed.
Thursday, December 23, 2010
Standard Deductions Increase Slightly for 2011 Tax Returns
On Thursday the IRS released the standard deduction amounts for 2011. This will affect your 2011 tax return that you'll file in 2012.
- The personal exemption amount will increase to $3,700 (up from $3,650 for 2010 returns).
- The standard deduction for married couples will be 11,600 (up $200 from 2010); $5,800 for single and married filing separately (up $100); and $8,500 for head of household (up $100).
- The tax bracket thresholds will increase slightly. For example, the 25% tax bracket for a married couple will begin at $69,000 (up $1,000 from 2010).
Wednesday, December 22, 2010
Residential Energy Credit Extended, But It's Not As Generous
The tax bill signed into law last week extended the "residential energy credit" that provides a tax credit for purchases of certain energy efficient doors, windows, insulation, furnaces, air conditioning systems, certain types of water heaters, and even certain types of roofs.
The credit had been set to expire on December 31, 2010, but has been extended through 2011. There's a catch though -- the amount of available credit has decreased, and people who have taken the credit in the past may not be able to take it at all in 2011.
2010 Rules vs. 2011 Rules
The credit had been set to expire on December 31, 2010, but has been extended through 2011. There's a catch though -- the amount of available credit has decreased, and people who have taken the credit in the past may not be able to take it at all in 2011.
2010 Rules vs. 2011 Rules
- 2010: The credit is 30% of the purchase price. The maximum amount of residential energy credit that you can take in total from 2005-2010 is limited to $1,500 (the credit has existed in several forms since 2005).
- 2011: The credit is 10% of the purchase price, and the maximum amount of residential energy credit that you can take in total from 2005-2011 is limited to $500.
AMT Patch Approved
A few weeks ago, I posted a story about the Alternative Minimum Tax (AMT) and how it would hit an estimated 1-in-5 taxpayers in 2010 if Congress didn't take action. Luckily, Congress did take action. The bill sets the following exemption amounts:
Taxpayers are allowed a certain amount as an AMT exemption (see the amounts above) but ridiculously, the exemption amount is not indexed for inflation. Instead, Congress passes "patches" to the AMT exemption amount year after year that increase the exemption for a year or two at a time. Unfortunately, even with higher exemption amounts, millions of people (4.5 million in 2009) have been hit with AMT. Without the patches, that number would be even higher. Again, when the law was enacted 40 years ago, it was targeted at 155 high-income people, but now it's grown into a monster.
Why isn't the AMT exemption set higher to begin with and indexed for inflation (the "non-patched" base AMT amounts are the same as they were in 1993)? It's a way to boost revenue projections when lawmakers calculate the "cost" of legislation. For example, the current AMT "patch" is set to expire at the end of 2011. So long-term budget projections will forecast revenue for 2012 and beyond based on the old, lower AMT exemption amounts, even though we all know that Congress will pass another "patch" for those later years.
- Married: $72,450 in 2010 and $74,450 in 2011
- Single and head of household: $47,450 in 2010 and $48,450 in 2011.
Taxpayers are allowed a certain amount as an AMT exemption (see the amounts above) but ridiculously, the exemption amount is not indexed for inflation. Instead, Congress passes "patches" to the AMT exemption amount year after year that increase the exemption for a year or two at a time. Unfortunately, even with higher exemption amounts, millions of people (4.5 million in 2009) have been hit with AMT. Without the patches, that number would be even higher. Again, when the law was enacted 40 years ago, it was targeted at 155 high-income people, but now it's grown into a monster.
Why isn't the AMT exemption set higher to begin with and indexed for inflation (the "non-patched" base AMT amounts are the same as they were in 1993)? It's a way to boost revenue projections when lawmakers calculate the "cost" of legislation. For example, the current AMT "patch" is set to expire at the end of 2011. So long-term budget projections will forecast revenue for 2012 and beyond based on the old, lower AMT exemption amounts, even though we all know that Congress will pass another "patch" for those later years.
The Importance of Documenting Charitable Contributions
The Dinesen Tax Times has been providing a series of articles about charitable contributions this month (in between the updates on the Congressional debate over taxes ... and of course, Wesley Snipes!). A recent Tax Court case fits in nicely with that series of articles, in particular this article about documenting charitable contributions.
The Tax Court case involved a couple (a Mr. and Mrs. Murphy) from California who had more than $27,000 of charitable contributions disallowed by the IRS on their 2006 tax return. The Court ruled against the couple, costing them nearly $11,000 in taxes and penalties.
The case centered around a lack of documentation for the contributions. According to the Court report, the Murphys had no receipts for any of the contributions they made. In one instance, the couple donated items to the Salvation Army and could have gotten a receipt, but chose not to because they "didn't want to wait in line to get one."
Mr. Murphy told the Court that he kept a journal that detailed all of the contributions, but the journal was stolen when his car was broken into in 2007. When things like that happen, a taxpayer can reconstruct their deductions using credible evidence. In this case, though, the only evidence offered was the testimony of Mr. Murphy. The couple also tried to invoke the "Cohan Rule," which allows for the use of reasonable estimates (the Cohan Rule is another blog post for another day), but again, the taxpayer has to have credible evidence on which to base the estimates.
In the end, the Murphys lost $27,000 in deductions for charitable contributions, amounting to additional tax owed of $9,011. The Tax Court also found the couple to be subject to the 20% "negligence penalty," which tacks on another $1,802 in penalties. In ruling that the couple was negligent, the Court said:
The Tax Court case involved a couple (a Mr. and Mrs. Murphy) from California who had more than $27,000 of charitable contributions disallowed by the IRS on their 2006 tax return. The Court ruled against the couple, costing them nearly $11,000 in taxes and penalties.
The case centered around a lack of documentation for the contributions. According to the Court report, the Murphys had no receipts for any of the contributions they made. In one instance, the couple donated items to the Salvation Army and could have gotten a receipt, but chose not to because they "didn't want to wait in line to get one."
Mr. Murphy told the Court that he kept a journal that detailed all of the contributions, but the journal was stolen when his car was broken into in 2007. When things like that happen, a taxpayer can reconstruct their deductions using credible evidence. In this case, though, the only evidence offered was the testimony of Mr. Murphy. The couple also tried to invoke the "Cohan Rule," which allows for the use of reasonable estimates (the Cohan Rule is another blog post for another day), but again, the taxpayer has to have credible evidence on which to base the estimates.
In the end, the Murphys lost $27,000 in deductions for charitable contributions, amounting to additional tax owed of $9,011. The Tax Court also found the couple to be subject to the 20% "negligence penalty," which tacks on another $1,802 in penalties. In ruling that the couple was negligent, the Court said:
Even if Mr. Murphy's journal was in fact stolen, there is no evidence that he made a reasonable attempt to reconstruct his contributions. We therefore hold that the petitioners failed to meet their burden of showing that the reasonable cause and good faith exception applies. Accordingly, the Court concludes that the petitioners are liable for the ... accuracy-related penalty....The moral? Keep good records, and if your records are lost, destroyed or stolen, do all you can to reconstruct them! The IRS will not rely on your "word" alone. That goes for all your tax-related records, not just records of charitable contributions.
Monday, December 20, 2010
Additional Standard Deduction for Real Estate Taxes is No More
Many tax breaks that had expired or were set to expire got extended in the tax bill passed by Congress last week. But one break that did not get extended and thus has gone away is the additional standard deduction for property taxes paid.
This tax break allowed people who don't itemize deductions to add up to $500 ($1,000 for married taxpayers) to the standard deduction for property taxes paid. This was a handy extra deduction for anyone who didn't have enough itemized deductions and had to take the standard deduction. Unfortunately, this tax break expired on December 31, 2009, and was not renewed in any legislation in 2010, meaning that this extra deduction for non-itemizers has ridden off into the sunset.
People who itemize deductions will still get to claim an itemized deduction for property taxes, same as always. The expiration of this tax break only affects those who take the standard deduction.
This tax break allowed people who don't itemize deductions to add up to $500 ($1,000 for married taxpayers) to the standard deduction for property taxes paid. This was a handy extra deduction for anyone who didn't have enough itemized deductions and had to take the standard deduction. Unfortunately, this tax break expired on December 31, 2009, and was not renewed in any legislation in 2010, meaning that this extra deduction for non-itemizers has ridden off into the sunset.
People who itemize deductions will still get to claim an itemized deduction for property taxes, same as always. The expiration of this tax break only affects those who take the standard deduction.
Adoption Credit Increases for 2010 and 2011
The "health care reform bill" passed by Congress earlier this year increased the credit available for expenses incurred in adopting a child. For 2010 and 2011, taxpayers can claim a credit of up to $13,170 for adoption expenses. Allowable expenses include adoption fees, court costs, attorney’s fees and travel expenses,
The bill also changed the credit to make it fully refundable. In prior years, the adoption credit was non-refundable, meaning it could only reduce your tax liability to $0. Any unused credit could be carried forward to the next year. Now, you can claim the whole adoption credit no matter what your tax liability is.
One important note for people who qualify for this credit: you will NOT be able to e-file your return. You'll have to file a paper return and attach documentation relating to the adoption (such as the adoption decree).
As always, I recommend seeking out a tax professional if you think you qualify for this credit.
The bill also changed the credit to make it fully refundable. In prior years, the adoption credit was non-refundable, meaning it could only reduce your tax liability to $0. Any unused credit could be carried forward to the next year. Now, you can claim the whole adoption credit no matter what your tax liability is.
One important note for people who qualify for this credit: you will NOT be able to e-file your return. You'll have to file a paper return and attach documentation relating to the adoption (such as the adoption decree).
As always, I recommend seeking out a tax professional if you think you qualify for this credit.
Saturday, December 18, 2010
No 1099 Relief in Tax Deal
A website visitor asks if the tax deal contained any relief from 1099 reporting for small businesses. The answer is NO, it didn't. But there is still hope that Congress will provide relief before the stricter reporting requirements take affect in 2012. Both Republicans and Democrats seem to agree that the stricter requirements will be a burden on small businesses, but for some reason, they can't reach an agreement to actually provide relief.
Oh, and rental property owners: you are subject to stricter 1099 rules starting January 1, 2011. Rental owners have not had to issue 1099s in the past, but now they will, if they pay $600 or more to service providers (accountants, lawyers, plumbers, electricians, etc.).
Read prior Dinesen Tax Times coverage here and here.
Oh, and rental property owners: you are subject to stricter 1099 rules starting January 1, 2011. Rental owners have not had to issue 1099s in the past, but now they will, if they pay $600 or more to service providers (accountants, lawyers, plumbers, electricians, etc.).
Read prior Dinesen Tax Times coverage here and here.
Analyzing the Tax Cut Deal
President Obama signed a tax bill into law yesterday (Friday) that gives us some clarity on what the tax situation will be for 2011 and 2012. Here are the highlights of the bill:
- Tax brackets to remain the same, with a 10% bottom rate and a 35% top rate. Without this legislation, the bottom rate would have increased to 15% and the top rate to 39.6%.
- A "payroll tax holiday" that reduces the amount of FICA withholding by 2% (self-employed taxpayers will see their self-employment tax decrease by 2%). For a person making $40,000/year, this would equal an $800 savings. (But the Making Work Pay Credit is expiring, which negates some of the savings.)
- Another "patch" to the Alternative Minimum Tax that will help millions of taxpayers avoid this tax.
- The capital gains and qualified dividends rates remain at 0% for taxpayers in the 10% and 15% tax brackets, and at 15% for taxpayers in the higher tax brackets.
- The Child Tax Credit will remain at $1,000 (it had been set to decrease to $500 in 2011).
- You can claim dependent care expenses of $3,000 for one child or $6,000 for two or more children. These amounts had been set to decrease to $2,400 and $4,800.
- The expanded Earned Income Credit remains in place through 2012.
- The credit available for energy efficient upgrades to your home remains in place through 2012 (it had been set to expire at the end of this year).
- Extension of the American Opportunity Credit for college expenses, and an extension of the "above-the-line" deduction for college expenses.
- Special 100% "bonus depreciation" for purchases of brand-new assets from September 9, 2010, through the end of 2011.
- The estate tax returns with a $5 million exemption per person, and a 35% top rate, retroactive to January 1, 2010. Estates arising in 2010 will have the option of of using these rules, or using the "old rules" of no estate tax and a reduction in the amount of increase in carryover basis.
Friday, December 17, 2010
We Have a Tax Deal
The House has approved a tax deal that extends the Bush Tax Cuts and provides for a number of other tax provisions for 2011 and 2012. The bill heads to President Obama for signature today. Over the next few days, I'll post more about the tax implications of the bill.
Article from CNN.
Article from CNN.
Thursday, December 16, 2010
Section 179 and Bonus Depreciation for Iowans
Following up on my last post about Section 179 expensing and bonus depreciation: one other aspect of tax planning for asset purchases is to examine what your state's rules are. Some states, such as Iowa, do not follow federal guidelines for either Section 179 or bonus depreciation.
For example, in Iowa, Section 179 expensing is capped at $134,000, and bonus depreciation is not honored at all. If your federal Section 179 expense exceeds $134,000, you'll only be able to deduct $134,000 as Section 179 expensing on your Iowa return; the rest will have to be depreciated. This means an Iowan could easily have to track two sets of basis and two sets of depreciation schedules - one for the IRS and one for Iowa.
Iowa isn't the only state that does this. For example, I prepared an Ohio tax return last year, and they have a strange "5/6" rule on bonus depreciation and Section 179 expensing. The rule gets its name because you have to add back 5/6 of the bonus depreciation amount as income on your Ohio tax return. And for Section 179 expensing, you have to compare the amount of Section 179 expensing in the current year with the amount that would have been allowable if it was still 2002 (when the 179 limit was $25,000). Basically, you add back to income 5/6 of the dollar amount of Section 179 expensing in excess of $25,000.
Preparing this Ohio return opened my eyes to the fact that Iowa, while it rightfully ranks very poorly in tax friendliness, is not the only state with mystifying tax rules.
For example, in Iowa, Section 179 expensing is capped at $134,000, and bonus depreciation is not honored at all. If your federal Section 179 expense exceeds $134,000, you'll only be able to deduct $134,000 as Section 179 expensing on your Iowa return; the rest will have to be depreciated. This means an Iowan could easily have to track two sets of basis and two sets of depreciation schedules - one for the IRS and one for Iowa.
Iowa isn't the only state that does this. For example, I prepared an Ohio tax return last year, and they have a strange "5/6" rule on bonus depreciation and Section 179 expensing. The rule gets its name because you have to add back 5/6 of the bonus depreciation amount as income on your Ohio tax return. And for Section 179 expensing, you have to compare the amount of Section 179 expensing in the current year with the amount that would have been allowable if it was still 2002 (when the 179 limit was $25,000). Basically, you add back to income 5/6 of the dollar amount of Section 179 expensing in excess of $25,000.
Preparing this Ohio return opened my eyes to the fact that Iowa, while it rightfully ranks very poorly in tax friendliness, is not the only state with mystifying tax rules.
More on Section 179 and Bonus Depreciation
I have had a number of visitors to this blog with questions about Section 179 expensing, which is something I posted about briefly last week (December 10). I'll go into a little more detail in this post.
When a business purchases an asset that has a useful life of more than 1 year, the tax code gives the business 3 options for deducting the cost of that asset: depreciation, Section 179 expensing, and bonus depreciation.
Depreciation means the business can deduct a certain amount of the purchase price each year over a number of years set by the tax code for that type of asset. For example, computers are depreciated over 5 years. The number of years is set by the code and has nothing to do with how long you actually intend to use the asset in your business.
Section 179 expensing allows you to write off 100% of the cost of the purchase of an asset in the year of purchase. For 2010 and 2011, a business can write off up to $500,000 of asset purchases. If you purchase more than $2 million of assets during the year, your Section 179 deduction will be phased out. Your total Section 179 deduction is limited to your taxable income for the year; unused Section 179 expenses in one year can be carried forward to the next year. Please note that most - but not all - property qualifies for Section 179 expensing. Examples of property that does NOT qualify is leased property and air-conditioning or heating units.
Note for rental property owners: Section 179 does not apply to rental properties; if you own rental property, you can't use Section 179 expensing.
Bonus depreciation is a sort of hybrid between regular depreciation and Section 179 expensing, where you can claim 50% of the cost of an asset as a deduction, and then depreciate the remainder of the cost. Bonus depreciation is available to rental property owners. One caveat on bonus depreciation: it can only be claimed on assets that are brand new. (Section 179 can be claimed on used assets, as long as the asset is "new" to your business.) One other note on bonus depreciation: the tax bill being debated right now by Congress proposes to allow 100% bonus depreciation on assets purchased between September 9, 2010, and December 31, 2011. (UPDATE: this proposed legislation became official in the tax bill passed by Congress.)
Most of the time, a business will just take the Section 179 expense and be done with it. It provides an immediate deduction and eliminates the need for cumbersome depreciation schedules. However, Section 179 expenses are limited to the amount of taxable income (as calculated before the Section 179 deduction). In other words, Section 179 cannot create a business loss. But regular depreciation and bonus depreciation can create business losses. Plus, if you expect that your business income will grow in future years but you won't be purchasing assets in those years, it might be nice to have a depreciation deduction available to offset the increase in income.
As you can see, your depreciation/Section 179/bonus depreciation strategy is part of tax planning and is a good conversation to have with your tax advisor.
When a business purchases an asset that has a useful life of more than 1 year, the tax code gives the business 3 options for deducting the cost of that asset: depreciation, Section 179 expensing, and bonus depreciation.
Depreciation means the business can deduct a certain amount of the purchase price each year over a number of years set by the tax code for that type of asset. For example, computers are depreciated over 5 years. The number of years is set by the code and has nothing to do with how long you actually intend to use the asset in your business.
Section 179 expensing allows you to write off 100% of the cost of the purchase of an asset in the year of purchase. For 2010 and 2011, a business can write off up to $500,000 of asset purchases. If you purchase more than $2 million of assets during the year, your Section 179 deduction will be phased out. Your total Section 179 deduction is limited to your taxable income for the year; unused Section 179 expenses in one year can be carried forward to the next year. Please note that most - but not all - property qualifies for Section 179 expensing. Examples of property that does NOT qualify is leased property and air-conditioning or heating units.
Note for rental property owners: Section 179 does not apply to rental properties; if you own rental property, you can't use Section 179 expensing.
Bonus depreciation is a sort of hybrid between regular depreciation and Section 179 expensing, where you can claim 50% of the cost of an asset as a deduction, and then depreciate the remainder of the cost. Bonus depreciation is available to rental property owners. One caveat on bonus depreciation: it can only be claimed on assets that are brand new. (Section 179 can be claimed on used assets, as long as the asset is "new" to your business.) One other note on bonus depreciation: the tax bill being debated right now by Congress proposes to allow 100% bonus depreciation on assets purchased between September 9, 2010, and December 31, 2011. (UPDATE: this proposed legislation became official in the tax bill passed by Congress.)
Most of the time, a business will just take the Section 179 expense and be done with it. It provides an immediate deduction and eliminates the need for cumbersome depreciation schedules. However, Section 179 expenses are limited to the amount of taxable income (as calculated before the Section 179 deduction). In other words, Section 179 cannot create a business loss. But regular depreciation and bonus depreciation can create business losses. Plus, if you expect that your business income will grow in future years but you won't be purchasing assets in those years, it might be nice to have a depreciation deduction available to offset the increase in income.
As you can see, your depreciation/Section 179/bonus depreciation strategy is part of tax planning and is a good conversation to have with your tax advisor.
Deducting Charitable Mileage (And Other Miscellaneous Charitable Deductions)
An often overlooked charitable deduction is the deduction for mileage driven for charitable purposes.
Taxpayers can take a deduction -- 14 cents per mile in 2010 and 2011 -- for mileage driven in giving services to a charitable organization, or taxpayers can take a deduction for the actual cost of gas and oil associated with giving services to a charitable organization.
Iowa taxpayers are allowed to take 39-cents per mile as a deduction. (Technically, the Iowa deduction is the standard 14-cents per mile as an itemized deduction, and then you can take another 25-cents per mile as an additional deduction. The net effect is 39-cents per mile.)
Example
You volunteer to answer the phones once a week for a charitable organization. The organization's office is 10 miles from your home. You can claim 20 miles (10 miles each way) as a deduction each week. If you do this 52 weeks a year, that would be 1,040 miles. At 14-cents per mile, the charitable mileage deduction would be $146. If you live in Iowa, your total deduction on your Iowa return would amount to $406.
Taxpayers can also deduct certain other out-of-pocket expenses incurred while giving services to a charity. For example, if the organization you volunteer for requires you to wear a special uniform, the cost of the uniform and the cost of dry-cleaning the uniform would be deductible.
The "value of your time" is NEVER deductible. In the example above, if a receptionist would be paid $10 per hour to answer the phones, you CANNOT claim a deduction of $10/hour for the time you spend doing that work.
Special rules apply to travel expenses other than mileage. Generally, you can't deduct travel costs (airplane expenses, motels, etc.) for charitable work if there is any element of recreation to the travel. If you are planning to travel for charitable work, I would suggest consulting a tax advisor to determine if any of your travel expenses are deductible.
Taxpayers can take a deduction -- 14 cents per mile in 2010 and 2011 -- for mileage driven in giving services to a charitable organization, or taxpayers can take a deduction for the actual cost of gas and oil associated with giving services to a charitable organization.
Iowa taxpayers are allowed to take 39-cents per mile as a deduction. (Technically, the Iowa deduction is the standard 14-cents per mile as an itemized deduction, and then you can take another 25-cents per mile as an additional deduction. The net effect is 39-cents per mile.)
Example
You volunteer to answer the phones once a week for a charitable organization. The organization's office is 10 miles from your home. You can claim 20 miles (10 miles each way) as a deduction each week. If you do this 52 weeks a year, that would be 1,040 miles. At 14-cents per mile, the charitable mileage deduction would be $146. If you live in Iowa, your total deduction on your Iowa return would amount to $406.
Taxpayers can also deduct certain other out-of-pocket expenses incurred while giving services to a charity. For example, if the organization you volunteer for requires you to wear a special uniform, the cost of the uniform and the cost of dry-cleaning the uniform would be deductible.
The "value of your time" is NEVER deductible. In the example above, if a receptionist would be paid $10 per hour to answer the phones, you CANNOT claim a deduction of $10/hour for the time you spend doing that work.
Special rules apply to travel expenses other than mileage. Generally, you can't deduct travel costs (airplane expenses, motels, etc.) for charitable work if there is any element of recreation to the travel. If you are planning to travel for charitable work, I would suggest consulting a tax advisor to determine if any of your travel expenses are deductible.
Closure on Bush Tax Cuts Could Come Today
The long wait to know what the tax landscape will look like in 2011 could end today. The U.S. House is expected to vote on an extension of the "Bush Tax Cuts." The Senate approved the extension yesterday by a vote of 81-19. Iowa's Senators were split on the measure, with Republican Charles Grassley voting for it, and Democrat Tom Harkin voting against it. In addition to extending the Bush-era tax rates, the measure also includes other tax provisions such as another "patch" to the Alternative Minimum Tax.
Tuesday, December 14, 2010
Donating a Car to Charity
In the good old days (before 2005), taxpayers could donate a car to charity and claim a deduction for the fair-market value of the car. It didn't matter if the charity only sold the car for a few-hundred dollars. The taxpayer could claim a deduction for the fair-market value of the car. That all changed in 2005.
You can still claim a deduction for donating a car to charity, but there are limits on the amount you can deduct. If you donate a car to charity and the charity sells the car as a fundraiser, your deduction is limited to the lesser of the car's fair-market value or what the charity sold the car for.
Example:
You donate a car with a fair-market value of $2,000 to a charity. The charity sells the car at a fundraising auction, but only gets $800 for the car. Your charitable contribution deduction is limited to $800.
You can still claim the fair-market value as a deduction if the charity uses the car as part of its "stated cause" rather than selling it as a fundraiser.
Donating a car to charity is not always a straightforward tax situation, and there are recordkeeping requirements that must be met. It's best to consult with a tax pro before making such a donation.
You can still claim a deduction for donating a car to charity, but there are limits on the amount you can deduct. If you donate a car to charity and the charity sells the car as a fundraiser, your deduction is limited to the lesser of the car's fair-market value or what the charity sold the car for.
Example:
You donate a car with a fair-market value of $2,000 to a charity. The charity sells the car at a fundraising auction, but only gets $800 for the car. Your charitable contribution deduction is limited to $800.
You can still claim the fair-market value as a deduction if the charity uses the car as part of its "stated cause" rather than selling it as a fundraiser.
Donating a car to charity is not always a straightforward tax situation, and there are recordkeeping requirements that must be met. It's best to consult with a tax pro before making such a donation.
Saturday, December 11, 2010
Tax Problems for Rapper Doug E. Fresh
Rapper/record producer/beat-boxer Doug E. Fresh appears to be in trouble with the IRS. Fresh owes more than $2.2 million in back taxes, and the IRS has filed a lien against him in New York. It's not the first time Fresh has had problems with the IRS; the IRS came after him in 2008 for $367,000 in back taxes.
Read more here and here.
Read more here and here.
Friday, December 10, 2010
Section 179 Limits for 2010 and 2011
The Section 179 expensing limits have been increased for 2010 and 2011. A Section 179 election allows businesses to elect to expense asset purchases in the year of the purchase, rather than depreciating those assets over a period of years. For both 2010 and 2011, businesses can elect to expense up to $500,000 of assets in any one year. (NOTE: watch legislation this month to see if anything happens with the 2011 limits.)
Section 179 does not apply to owners of residential rental property. However, rental owners can take advantage of "bonus depreciation," a special election to expense 50% of the cost of an asset and depreciate the remaining 50%. Bonus depreciation is an option available to businesses, as well. In some cases, a business may not want to take a Section 179 expense, and instead take bonus depreciation.
Iowa taxpayers should keep in mind that Iowa does not follow along with federal Section 179 rules or with federal bonus depreciation. Iowa only allows Section 179 expensing of up to $133,000, and does not honor bonus depreciation at all. This means an Iowa business or rental property owner could very easily have to track multiple depreciation schedules and basis information.
Section 179 does not apply to owners of residential rental property. However, rental owners can take advantage of "bonus depreciation," a special election to expense 50% of the cost of an asset and depreciate the remaining 50%. Bonus depreciation is an option available to businesses, as well. In some cases, a business may not want to take a Section 179 expense, and instead take bonus depreciation.
Iowa taxpayers should keep in mind that Iowa does not follow along with federal Section 179 rules or with federal bonus depreciation. Iowa only allows Section 179 expensing of up to $133,000, and does not honor bonus depreciation at all. This means an Iowa business or rental property owner could very easily have to track multiple depreciation schedules and basis information.
Recordkeeping Requirements for Charitable Contributions
We've explored the basics of charitable contributions and which organizations qualify for tax-deduction purposes. Today, I'll explore the recordkeeping requirements for documenting your charitable contributions.
Documentation for contributions by cash, check or credit card is straightforward enough. Maintain receipts or other records that show the amount donated and when.
If you donate more than $250 in cash to an organization at any one time, the organization must provide you with a written confirmation of the donation.
What if you donate property, such as used clothing to Goodwill? In that case, you should try to obtain a receipt from the organization.
If you donate more than $500 worth of property to charities during the year, you have to file Form 8283 and include more detail to the IRS about who you made the contribution to, what type of property was donated, and how you determined the value of the property.
If you donate $500 or more of any single item of clothing or household items that are not in "good condition," you must include a report from a qualified appraiser.
If you claim a deduction for more than $5,000 worth of property donations, you also must include a report from a qualified appraiser.
The rules for donating a car to a charity are even more complex, and will be explored in a future blog post.
If you donate more than $5,000 worth of property, even more detail is required, such as (possibly) a report from an appraiser.
Documentation for contributions by cash, check or credit card is straightforward enough. Maintain receipts or other records that show the amount donated and when.
If you donate more than $250 in cash to an organization at any one time, the organization must provide you with a written confirmation of the donation.
What if you donate property, such as used clothing to Goodwill? In that case, you should try to obtain a receipt from the organization.
If you donate more than $500 worth of property to charities during the year, you have to file Form 8283 and include more detail to the IRS about who you made the contribution to, what type of property was donated, and how you determined the value of the property.
If you donate $500 or more of any single item of clothing or household items that are not in "good condition," you must include a report from a qualified appraiser.
If you claim a deduction for more than $5,000 worth of property donations, you also must include a report from a qualified appraiser.
The rules for donating a car to a charity are even more complex, and will be explored in a future blog post.
If you donate more than $5,000 worth of property, even more detail is required, such as (possibly) a report from an appraiser.
Thursday, December 9, 2010
Snipes Reports to Prison
Wesley Snipes reported to a federal prison in Pennsylvania today to begin serving his 3-year prison sentence on tax-evasion charges. Snipes was convicted in 2008 of failing to file tax returns and pay income tax on more than $37 million of income between 1999-2004. He lost an appeal in July and another appeal in November. Click here to read more about Snipes reporting to prison.
Prior Dinesen Tax Times coverage can be found here, here and here.
Prior Dinesen Tax Times coverage can be found here, here and here.
Wednesday, December 8, 2010
The IRS is Now on Twitter
The IRS announced yesterday that it now has a Twitter account. From "IRS Special Edition Tax Tip 2010-14":
The Internal Revenue Service is using Twitter and other social media tools to share information with taxpayers and the tax professional community.
The IRS Twitter news feed, @IRSnews, provides the latest federal tax news and information for taxpayers. The focus of the IRS Twitter messages will be on easy-to-use information, including tax tips, tax law changes, and important IRS programs such as e-file, the Earned Income Tax Credit and “Where’s My Refund." Anyone with a Twitter account can follow @IRSnews by going to http://twitter.com/IRSnews.
Another important IRS Twitter feed, @IRStaxpros, is designed for the tax professional community. Follow @IRStaxpros by going to http://twitter.com/IRStaxpros.
The IRS also tweets tax news and information in Spanish at @IRSenEspanol. Follow this Twitter feed by going to http://twitter.com/IRSenEspanol.
The IRS Twitter feeds will work in conjunction with http://www.irs.gov/ and the IRS YouTube channels to bring IRS information direct to taxpayers. Since August of 2009, there have been more than 1 million views of videos on the IRSvideos ( http://www.youtube.com/irsvideo), IRS Multilingual (http://www.youtube.com/user/IRSvideosmultilingua) and IRS American Sign Language (ASL) ( http://www.youtube.com/IRSvideosASL) channels.
In addition to Twitter and YouTube, the IRS provides additional social media tools to inform and assist taxpayers.
Roth IRAs Must Be Converted by Year-End to Defer Taxes
A deadline is approaching for Roth conversions. The deadline is December 31st for anyone who wants to defer taxation on the conversion into 2011 and 2012.
I talk about Roth conversions in much more detail in this article, but in general: the amount of the conversion must be claimed as income on your tax return. For conversions happening in 2010 only, you have the option of claiming all the income in 2010, or deferring recognition to 2011 and 2012.
For conversions happening after the first of the year, the income will have to be recognized in full in the year the conversion takes place.
I talk about Roth conversions in much more detail in this article, but in general: the amount of the conversion must be claimed as income on your tax return. For conversions happening in 2010 only, you have the option of claiming all the income in 2010, or deferring recognition to 2011 and 2012.
For conversions happening after the first of the year, the income will have to be recognized in full in the year the conversion takes place.
Tuesday, December 7, 2010
Deal Reached on Taxes (Maybe)
President Obama and Republicans in Congress have reached an agreement on taxes. The agreement calls for the following:
- Extension of the Bush Tax Cuts through the end of 2012. For more on what this means, see this article posted a few days ago on the Dinesen Tax Times.
- A two-year "AMT patch." This will prevent an estimated 22 million taxpayers from falling victim to this tax. For more on what would happen without this patch, see this Dinesen Tax Times article.
- Extension of the expanded Earned Income Tax Credit, extension of the expanded child tax credit, and extension of the American Opportunity Credit for college expenses.
- Extension of miscellaneous tax provisions such as the additional standard deduction for real estate taxes paid by non-itemizers. The $250 "above-the-line" deduction for classroom expenses of K-12 teachers is also extended.
- Unlimited expensing of new assets in 2011.
- A reduction in the employee portion of FICA withholding, from the current 6.2% to 4.2%. For a person making 40,000 per year, this would equate to a savings of $800 over one year. This provision may have been put in the agreement to make up for the expiration of the Making Work Pay Credit.
- The estate tax will return with a $5 million exemption and a top rate of 35%
Monday, December 6, 2010
What is a Qualified Organization for Charitable Deductions?
In a post last week, I explored the basics of charitable contributions, and I mentioned that not all "not-for-profit" organizations are qualified organizations for purposes of getting a tax deduction for a donation. In general, 501(c)(3) organizations qualify, as do churches.
Officially, the Internal Revenue Code, at Section 170(c), defines a charitable organization as:
Officially, the Internal Revenue Code, at Section 170(c), defines a charitable organization as:
- A state or city, as long as your donation is used exclusively for public purposes.
- A community chest, corporation, trust, fund or foundation organized for any of the following purposes: religious, charitable, educational, scientific, literary or the prevention of cruelty to animals.
- A post or organization for war veterans.
- Fraternal societies, as long as the gift is used for the same purposes as described under bullet-point 2 (religious, charitable, educational, etc.).
- Nonprofit cemetary companies or corporations.
Saturday, December 4, 2010
Back to the Drawing Board on Taxes
The Senate today voted down two measures to extend the Bush Tax Cuts. CNN article.
Friday, December 3, 2010
Debt Commission Report Fails to Get Necessary Votes
President Obama's "Debt Commission" voted today on their plan to reduce the federal deficit by $4 trillion over the next 10 years. The plan was approved by a vote of 11-7, but 14 "yes" votes were needed in order for the proposal to be put before Congress. Despite that, many analysts think that parts of the proposal will be brought before Congress as part of other budget proposals.
You can read more about today's vote here, and previous Dinesen Tax Times coverage here.
You can read more about today's vote here, and previous Dinesen Tax Times coverage here.
IRS Announces Mileage Rates for 2011
The IRS has released the mileage rates for 2011. The regular mileage rate increased by 1 cent; the rate for medical mileage increase by 2.5 cents; and the rate for charitable mileage remains the same as in 2010.
- Mileage rate for 2011: 51 cents per mile (up 1 cent from 2010)
- Medical mileage rate: 19 cents per mile (up 2.5 cents from 2010)
- Charitable mileage rate: 14 cents per mile (same as 2010)
Thursday, December 2, 2010
House Passes Extension of Bush Tax Cuts
The U.S. House of Representatives today passed an extension of the Bush Tax Cuts for the lower and middle classes. The measure passed 234-188 in the House and now goes to the Senate. Pundits say the Senate will likely vote the measure down.
Link to a Reuters news article about the House vote.
Link to a Reuters news article about the House vote.
Making Work Pay Credit Expires - Paychecks Will Decrease
I haven't seen much media coverage of the "Making Work Pay Credit," but this credit expires soon and will cause a lot of people's paychecks to be smaller in 2011.
The Making Work Pay Credit was part of the 2009 economic "stimulus" package and existed in 2009 and 2010, but is set to expire on December 31st.
The credit amounts to $400 per person for most working adults. People who receive W-2 wages have received the credit bit-by-bit in each paycheck, in the form of lower withholding.
If Congress does not renew the Making Work Pay Credit, you'll notice that your first paycheck of 2011 will be lower. The decrease will amount to $33.33 per month per person ($400/12).
President Obama has proposed extending the credit into 2011, but lawmakers have not been receptive to the idea.
(UPDATE: the tax bill signed into law December 17th, 2010, did not extend the Making Work Pay Credit, but it did provide for a reduction in FICA withholding from paychecks in 2011, which will more than offset the expiration Making Work Pay Credit.)
The Making Work Pay Credit was part of the 2009 economic "stimulus" package and existed in 2009 and 2010, but is set to expire on December 31st.
The credit amounts to $400 per person for most working adults. People who receive W-2 wages have received the credit bit-by-bit in each paycheck, in the form of lower withholding.
If Congress does not renew the Making Work Pay Credit, you'll notice that your first paycheck of 2011 will be lower. The decrease will amount to $33.33 per month per person ($400/12).
President Obama has proposed extending the credit into 2011, but lawmakers have not been receptive to the idea.
(UPDATE: the tax bill signed into law December 17th, 2010, did not extend the Making Work Pay Credit, but it did provide for a reduction in FICA withholding from paychecks in 2011, which will more than offset the expiration Making Work Pay Credit.)
AMT Could Hit 20% of Taxpayers in 2010
(UPDATE 12/22/10: The tax bill signed into law on December 17, 2010, does provide an AMT patch that will help millions of Americans avoid the AMT. Read the story here.)
We are hearing constantly about Congress debating the "Bush Tax Cuts" and whether to extend the tax cuts for only people who earn less than $250,000 a year, or to extend them for all taxpayers. But there are other tax provisions unrelated to the Bush Tax Cuts that Congress needs to take action on this month -- and in my opinion, the most important of those provisions is the alternative minimum tax (AMT).
If Congress does nothing regarding the AMT, millions upon millions of taxpayers (an estimated 1-in-5) will be hit with this tax, which, when it was enacted in 1969, was only supposed to hit a few extremely wealthy people. The AMT exemption amount for a married couple will drop from $70,000 in 2009 to just $45,000 in 2010; and from $46,700 in 2009 for single or head of household to $33,750 in 2010.
The AMT is too complex to go into in one article, but suffice to say that at the very least, Congress MUST extend the 2009 exemption amounts into 2010 or lots of people will be very unhappy when they find out they owe this tax….
We are hearing constantly about Congress debating the "Bush Tax Cuts" and whether to extend the tax cuts for only people who earn less than $250,000 a year, or to extend them for all taxpayers. But there are other tax provisions unrelated to the Bush Tax Cuts that Congress needs to take action on this month -- and in my opinion, the most important of those provisions is the alternative minimum tax (AMT).
If Congress does nothing regarding the AMT, millions upon millions of taxpayers (an estimated 1-in-5) will be hit with this tax, which, when it was enacted in 1969, was only supposed to hit a few extremely wealthy people. The AMT exemption amount for a married couple will drop from $70,000 in 2009 to just $45,000 in 2010; and from $46,700 in 2009 for single or head of household to $33,750 in 2010.
The AMT is too complex to go into in one article, but suffice to say that at the very least, Congress MUST extend the 2009 exemption amounts into 2010 or lots of people will be very unhappy when they find out they owe this tax….
Wednesday, December 1, 2010
Defining the Term "Bush Tax Cuts"
There has been a lot of talk lately about Congress needing to decide on the fate of the "Bush Tax Cuts." What exactly are people like me referring to when we say "Bush Tax Cuts"? I'll try to explain a little bit in this article.
The term "Bush Tax Cuts" refers to a host of tax provisions implemented in the early years of the Bush administration. These provisions are set to expire on December 31, 2010, unless Congress extends them. If Congress takes no action:
The term "Bush Tax Cuts" refers to a host of tax provisions implemented in the early years of the Bush administration. These provisions are set to expire on December 31, 2010, unless Congress extends them. If Congress takes no action:
- The top tax rate in 2011 will rise to 39.6% (up from 35% now), and the bottom rate will rise to 15% (up from 10% now).
- The "child tax credit" will be cut in half in 2011, dropping from $1,000 to just $500.
- The so-called "marriage penalty" will return in 2011.
- The long-term capital gains tax rate is set to increase, and the preferential tax treatment of "qualified dividends" will go away.
- The estate tax will return in 2011 at its pre-Bush Tax Cut levels of a $1 million exemption and 55% top rate.
Major Tax Changes Proposed in Debt Commission Report
President Obama's "Debt Commission" released a report today (Wednesday) with recommendations on how to cut the federal deficit. The Commission says its recomendations would reduce the federal debt by $4 trillion over the next 10 years. The Commission is made up of 6 Republicans, 6 Democrats and 6 others appointed by the President. In order for any of these recommendations to be put before Congress, at least 14 members of the Commission need to approve the plan. The Commission is set to conduct a vote on Friday.
Major changes to the tax code are a part of the plan. The Commission proposes repealing the alternative minimum tax, creating three tax brackets for individuals (12%, 22% and 28%), and eliminating all itemized deductions (everyone would take a standard deduction, but certain tax credits would be allowed for mortgage interest and charitable contributions).
Corporate taxes would have one flat rate of 28%.
The proposal includes much more than just tax reform. You can read the entire proposal here, and a CNN article about the proposal here.
Major changes to the tax code are a part of the plan. The Commission proposes repealing the alternative minimum tax, creating three tax brackets for individuals (12%, 22% and 28%), and eliminating all itemized deductions (everyone would take a standard deduction, but certain tax credits would be allowed for mortgage interest and charitable contributions).
Corporate taxes would have one flat rate of 28%.
The proposal includes much more than just tax reform. You can read the entire proposal here, and a CNN article about the proposal here.
U.S. House Will Vote Thursday on Tax Cuts
Democrats in the U.S. House of Representatives say they will try to push through a vote tomorrow (Thursday) on extending the "Bush Tax Cuts" for people who earn $250,000 a year or less. Republicans seem lukewarm to the idea, though, because they say the tax cuts should be made permanent for all taxpayers.
The Bush Tax Cuts are just one of a number of items lawmakers need to deal with. We still don't know whether a number of provisions that expired at the end of 2009 will be extended to 2010.
And perhaps most importantly, we don't know whether lawmakers will provide relief to the "alternative minimum tax" (AMT). Under current provisions, the AMT exemption amounts are reduced dramatically in 2010, and an estimated 1-in-5 Americans will be hit with this tax unless Congress passes legislation to -- at the very least -- retain the 2009 exemption levels.
This article from CNN provides more information about the wrangling going on in the House.
The Bush Tax Cuts are just one of a number of items lawmakers need to deal with. We still don't know whether a number of provisions that expired at the end of 2009 will be extended to 2010.
And perhaps most importantly, we don't know whether lawmakers will provide relief to the "alternative minimum tax" (AMT). Under current provisions, the AMT exemption amounts are reduced dramatically in 2010, and an estimated 1-in-5 Americans will be hit with this tax unless Congress passes legislation to -- at the very least -- retain the 2009 exemption levels.
This article from CNN provides more information about the wrangling going on in the House.
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