Tuesday, December 12, 2006

Businesses and Tax Exempts also get Telephone Tax Refund

Businesses and Tax-Exempts Can Use Formula for Telephone Tax Refund

The IRS today announced a formula that will allow businesses and tax-exempt organizations to estimate their federal telephone excise tax refunds.
“The formula will provide a less burdensome option than gathering up to 41 months of old phone records,” said IRS Commissioner Mark W. Everson.
In May 2006, the IRS announced that individuals, businesses and tax-exempt organizations who paid the long-distance telephone excise tax can request the refund on their 2006 federal income tax returns.“Businesses and tax-exempt organizations generally have more varied phone usage patterns than individuals,” Everson said.
To request a refund, businesses (including sole proprietors, corporations and partnerships) and tax-exempt organizations must complete Form 8913, Credit for Federal Telephone Excise Tax Paid. To complete this form, businesses and tax-exempt organizations may determine the actual amount of refundable long-distance telephone excise taxes they paid for the 41 months from March 2003 through July 2006, or use the formula to figure their refunds. Businesses should attach Form 8913 to their regular 2006 income tax returns. Tax-exempt organizations must attach it to Form 990-T.
Businesses and tax-exempt organizations can figure their refund amounts by comparing two telephone bills from this year to determine the percentage of their telephone expenses attributable to the long-distance excise tax. The bills they should use are the bill with a statement date in April 2006 and the bill with a statement date in September 2006. They must first figure the telephone tax as a percentage of their April 2006 telephone bills (which included the excise tax for both local and long-distance service) and their September 2006 telephone bills (which only included the tax on local service). The difference between these two percentages should then be applied to the quarterly or annual telephone expenses to determine the amount of their refunds.
The refund is capped at 2 percent of the total telephone expenses for businesses and tax-exempt organizations with 250 or fewer employees — which covers more than 99 percent of all businesses. The refund is capped at 1 percent for those with more than 250 employees. Most organizations in this category typically are able to figure the actual amount they paid in long-distance excise tax. However, the formula provides a more limited, but simpler, approach for those large employers who wish to use it.
For example, if a business has an April 2006 telephone bill of $1,000, which includes federal telephone excise tax of $28, the tax percentage is 2.8 percent. If the September 2006 bill is $1,100 including federal telephone excise tax of $16.50, the tax percentage is 1.5 percent. The business’ long-distance excise tax percentage is 1.3 percent (2.8 percent for April minus 1.5 percent for September). The business multiplies 1.3 percent by its total phone expenses over the 41-month period to arrive at the amount of its refund. If this business had more than 250 employees, its refund would be limited to 1 percent of its total phone expenses for the period. If the business had 250 or fewer employees, the 2-percent cap would apply and would not limit the amount of the refund.
The IRS already has provided individual taxpayers with the option to use standard amounts based on the number of exemptions allowed to that taxpayer. Individual taxpayers can request a $30 refund with one exemption, $40 for two exemptions, $50 for three exemptions and $60 for four or more exemptions.
Options for requesting this refund vary for sole proprietors, who file a Schedule C with the Form 1040, depending on the gross income reported on the Schedule C. Sole proprietors who report gross income of $25,000 or less on their Schedule C may use the standard amounts or request a refund based on their actual expenses. Sole proprietors reporting more than $25,000 of gross income have three options: they can use the standard amounts which cover both personal and business expenses, they can use the formula for their business expenses and actual for their personal ones, or they can choose to use actual amounts for both business and personal.
Similar rules depending on the amount of gross income reported on Schedule F or Schedule E apply to farmers and individual owners of rental property.
Trusts and fiduciaries may not use the standard amount available to individuals. They should use the formula to figure their refunds, or request the actual amount paid.
The Treasury Department announced in May that the government would stop collecting the federal excise tax on long-distance telephone service beginning Aug. 1, 2006, and provide refunds for taxes billed after Feb. 28, 2003.

Monday, December 11, 2006

Great job to Congress!

Congress Passes Extension of Tax Breaks
The House approved the Tax Relief and Health Care Act of 2006 (H.R. 6408), which was then combined with H.R. 6111 before being sent to the Senate.

Effect of passage of the bill on HEALTH SAVINGS ACCOUNTS-
The HSA provisions will permit rollovers from health flexible spending accounts and health reimbursement accounts into an HSA for a limited time and allow a one-time rollover from an IRA to an HSA. The limit on the annual deductible contributions that can be made to an HSA will also be modified so the maximum deductible contribution is not limited to the annual deductible under a high-deductible health plan.

Among those tax relief measures commonly referred to as "extenders," the bill makes retroactive to the beginning of 2006 and extends through 2007:
* an expanded and modified version of the research credit;
* the deduction for state and local sales taxes;
* the above-the-line deduction for qualified higher education expenses;
* the above-the-line deduction for teachers' classroom expenses;
* state and local governments' authority to issue qualified zone academy bonds;
* expensing for brownfields remediation costs;
* tax incentives for investment in the District of Columbia;
* tax incentives for Indian employment and business property depreciation on Indian reservations;*
the 15-year straight-line cost recovery for qualified leasehold and restaurant improvements;
*the taxable income limit on percentage depletion for oil and natural gas produced from marginal properties;
*the availability of Archer medical savings accounts;
* additional provisions related to distilled spirits, corporate donations of scientific property, and American Samoa.
-The legislation also extends for two years the work opportunity and welfare-to-work tax credits and will combine the two credits beginning in 2007.
-Other provisions in the bill extend the new markets tax credit through 2008, extend through 2008 the election to include combat pay as earned income for purposes of the earned income tax credit, and extend for one year a provision related to mental health benefits.
-An extension of the traditional alternative minimum tax relief "patch," which prevents additional taxpayers from becoming subject to AMT, was not included in the final package. One provision does modify the AMT refundable credit for individuals.
-The section 199 manufacturing deduction is extended to Puerto Rico, and tax incentives for mine safety equipment and mine rescue team training are created.
-Also, bonus depreciation for qualified Gulf Opportunity (GO) Zone property is extended through 2010.

Other tax provisions also made their way into the Senate bill, along with technical corrections related to the GO Zone Act of 2005 and the controlled foreign corporation look-through provision included in this year's tax reconciliation bill. The bill extends most expiring energy and excise tax provisions. Among those provisions, the bill extends and modifies the section 45 renewable electricity production credit. The placed-in-service date is extended through 2008 for qualified facilities.Other provisions extend for one year a number of energy incentives, including the deduction for energy-efficient commercial buildings; the business credit for energy-efficient new homes; the credit for residential energy-efficient property purchases; and a business credit for the installation of qualified fuel cells and stationary microturbine power plants and the purchase of solar energy property.

Wednesday, December 06, 2006

Business vehicle record keeping

This passage sets forth the Recordkeeping requirements for business use of a vehicle. Call us with any questions on the matter.

It is important to keep complete records to substantiate items reported on a tax return. In the case of car and truck expenses, the types of records required depend on whether the taxpayer claims the standard mileage rate or actual expenses.
To claim the standard mileage rate, appropriate records would include documentation identifying the vehicle and proving ownership or a lease and a daily log showing miles traveled, destination and business purpose.
For actual expenses, a mileage log helps establish business use percentage. Taxpayers should also retain receipts, invoices and other documentation to show cost and establish the identity of the vehicle for which the expense was incurred. For depreciation purposes they need to show the original cost of the vehicle and any improvements as well as the date it was placed in service