[Individual]Accident or Health Plan 2 (Feb-22-2011, 56 days left)

Health Flexible Spending Arrangement (FSA)

If it is qualified as an accident or health plan, the amount of your salary deduction and reimbursement of your medical care expenses are nontaxable.

Qualified HAS distribution: this distribution is a direct transfer to your HAS trustee. Generally, it's nontaxable and not deductible. See Pub 969 for more details.

Health reimbursement arrangement (HRA)

If it is qualified as an accident or health plan, coverage and reimbursement are nontaxable.

Qualified HRA distribution: same as HAS distribution.

Health Savings accounts (HAS)

You, your employer, or your family can make contribution to your HAS.

• Contributions other than employer contributions are deductible on your return whether or not you itemize deductions.

• Contributions by your employer is excluded from income.

• Distribution to pay qualified medical expenses is excluded from your income.

• Distribution not used for qualified medical expenses is included in your income.

Special rules apply for partnership or S-corp

Qualified HAS funding distribution: you can make a one-time distribution from your individual retirement account (IRA) to an HAS and you generally will not include any of the distribution in your income.

PSQ

Source: http://www.irs.gov

[Individual]Accident or Health Plan 1 (Feb-21-2011, 57 days left)

Generally, the value of this plan provided by your employer is not included in your income. However it may be taxable, if it is sickness and injury benefits.

There are some sub-components for accident or health plan, such as Long-term care coverage, health savings accounts and other tax-favored health plans ( Details see Pub 969). Here I just want to briefly talk about some of them and will elaborate these topics in more details later.

Long-term care coverage

Contribution by employer:

In general, it's nontaxable; but if contributions made through a flexible spending or similar arrangement ( such as a cafeteria plan) , you must include the contribution as your income, reported in W-2, box 1.

Contribution by employee:

Use the rule foe Medical and Dental Expenses (Pub 502)

Archer MSA contributions

Contribution by employer:

Generally, it's nontaxable, reported in W-2, box 12 with code R. You must file Form 8853 with your return.

PSQ

Source: http://www.irs.gov

[Individual] Adoption 2 --Credit (Feb-20-2011, 58 days left)

Yesterday, I am talking about Exclusion for employer-provided adoption benefits. Actually, you also can get adoption credit. In 2010, the adoption credit turns to be refundable, meaning that you may be able to claim it even if you owe no tax. Most of requirements are the same as Adoption assistance, such as who, when issues, etc.

You should also fill out Form 8839, then fill out Form 1040 line 71.

But be aware that you cannot claim both a credit and exclusion for the same expenses.

If any of the following statements are true, you can claim this credit:

1. You paid qualified adoption expenses in 2009 but adoption was not final in 2009; or in 2010 and adoption became final in or before 2010.

2. Adopt with a special needs and the adoption became final in 2010, even you did not pay any qualified adoption expenses.

3. paid qualified adoption expenses for a foreign child in 2010 or before and adoption became final in 2010; or 2010 and the adoption became final before 2010.

4. a carryforward of an adoption credit from a prior year.

What's qualified adoption expenses:

It includes:

• Adoption fees,
• Attorney fees,
• Court costs,
• Travel expenses while away from home,
• Re-adoption expenses relating to the adoption of a foreign child.

It do not include:

• You received funds under any state, local, or federal program,

• That violate state or federal law,
• For carrying out a surrogate parenting arrangement,

• For adoption of your spouse's child

• Get reimbursed

• As credit or deduction under other provision of income tax law

PSQ

Source: http://www.irs.gov

[Individual]Adoption 1 -- Exclusion for Employer-Provided Adoption Benefits (Feb-19-2011, 59 days left)

You may exclude from your income amounts paid or expenses incurred by your employer for qualified adoption expenses when the child is your eligible child. You should fill out Form 8839, then fill out Form 1040 line 7.

The maximum exclusion for employer-provided benefits have increased to 13,170/eligible child. If you have MAGI > 182,520, this amount begins to phase out and is completely phased out for MAGI > 222,520.

Both conditions are required:

Condition 1: your employer had a qualified adoption assistance program.

Condition 2: any of the following statement are true.

1. received adoption benefits in 2010, except for adoption of a foreign child.

2. adopt with special needs and adoption became finale in 2010.

3. adopt a foreign child: get benefit in 2010 and adoption became final in 2010 or before 2010.

Who is eligible child?

1. any child under age 18. If the child turned 18 during the year, you only consider the part of the year he/she was under age 18.

2. any disabled person physically or mentally unable to take care of himself or herself.

What's Employer-Provided Adoption Benefits?

It should be shown in W-2, Box 12 with code T. Your salary may have been reduced to pay this benefits, also may not show in box 12 but you still can exclude from your income, if all of following apply,

• Special needs
• Became final in 2010
• Existence of employer-qualified adoption assistance program

Who can take the credit and exclusion?

• Generally, if you are married, you must file a joint return to take the credit or exclusion. But we still have special rule for people file separately.
• MAGI less than 222,520 or you have a carryforward of adoption credit from a prior year

When to take the credit or exclusion?

You can began to get the credit or exclusion when child become a U.S. citizen or resident, even if the adoption never became final. If the child is a foreign child, you cannot take benefit until the adoption becomes final. So if you get early benefit, you cannot take it until the adoption became final.

PSQ

Source: http://www.irs.gov

[Individual]Financial Counseling Fees (Feb-18-2011, 60 days left)

Usually financial counseling fees paid by your employer are included in your income. It includes tax preparation, accounting, legal or brokerage services.

Some of fees, like tax or investment counseling, can be deducted on schedule A as a miscellaneous deduction (subject to the 2%-of-AGI limit)

Exception: Qualified retirement planning services paid by your employer may be excluded from your income. It includes retirement planning advice, information about your retirement plan, and information about how the plan may fit into your overall individual retirement income plan.

PSQ

Source: http://www.irs.gov

[Individual]Group-Term Life Insurance (Feb-17-2011, 61 days left)

What's Group-term life insurance?

It's term life insurance protection (insurance for a fixed period of time) that:

• Provides a general death benefit,
• Is provided to a group of employees,
• Is provided under a policy carried by the employer, and
• Provides an amount of insurance to each employee based on a formula that prevents individual selection

Here is the tax rule for group-term life insurance

Nontaxable income	Taxable income
Cost of up to 50,000 of group-term life insurance coverage provided by employer	Excess of 50,000 the cost of coverage provided by employer - any amount you pay toward the purchase of insurance Multiple employers: you only can exclude total cost of 50,000 of coverage no matter the insurance is provided by a single employer or multiple employer. So you must adjust your taxable income. Limits to subtraction: you cannot reduce the amount to include in your income by: Payments for coverage in a different tax year, Payments for coverage through a cafeteria plan, unless the payments are after-tax contributions, Payments for coverage not taxed to you because of the exceptions .
	Permanent benefits=the cost of the permanent benefits - the amount you pay for them. Examples are paid-up or cash surrender value
Entire cost excluded: if any of the following circumstances apply: --Permanently and totally disabled and have ended your employment --Employer is the beneficiary of the policy --A charitable organization to which contributions are deductible is the only beneficiary --the plan existed on Jan-1-1984, and a) you retired before Jan-2-1984; b) you reached age 55 before Jan-2-1984 and employed in 1983	Entire cost taxed: if either of the following circumstances apply: --The insurance is provided by your employer through a qualified employees' trust, such as a pension trust or a qualified annuity plan. --You are a key employee and employer's plan discriminates in favor of key employees.

You can use worksheet-Figuring the cost of Group-Term Life Insurance to Include in income to calculate your number. (See Pub 525)

PSQ

Source: http://www.irs.gov

[Individual]Dependent Care Benefits (Feb-16-2011, 62 days left)

You can exclude this benefit from your income, the benefits include:

• Amounts your employer pays directly to either you or your care provider for the care of your qualifying person while you work
• The fair market value of care in a daycare facility provided or sponsored by your employer.

But, the amount is limited to the lesser of :

• Total amount of dependent care benefits you received
• Total amount of qualified expenses you incurred
• Your earned income
• Your spouse’s earned income
• 5,000 (2,500 if married filing separately)

PSQ

Source: http://www.irs.gov

[Individual]Athletic Facilities & Employee Discount (Feb-15-2011, 63 days left)

Athletic Facilities

If your employer provides you with the free or low-cost use of an employer-operated gym or other athletic club on your employer’s premises	If your employer pays for a fitness program at an off-site resort hotel or athletic club
the value is not included in your income	the value is included in your income

Employee Discounts:

Excluded from income	Not excluded from income
Discounts on property or services offered to customers in the ordinary course of the line of business in which you work The exclusion is limited to : The price charged nonemployee customers * employer’s gross profit percentage on property or 20% on services	Discounts on real property or property commonly held for investment (stock or bonds)

PSQ

Source: http://www.irs.gov

[Individual]De Minimis (Minimal) Benefits and No-additional-cost services (Feb-14-2011, 64 days left)

De Minimis Benefits:

If your employer provides you with a product or service at a very low cost, you don't need to include this part as your income. General examples would be discounts at company cafeterias, cab fares home when working overtime, and company picnics.

During Christmas or other holidays, you may receive holiday gifts as following:

Turkey, Ham, etc.	Cash, gift certificate or similar item that you easily can exchange for cash
Nontaxable	Taxable as extra salary or wages regardless of the amount involved

Another similar benefit is No-Additional Cost Services:

You receive service from employer free, at cost, or for a reduced price is not included in your income if employer:

• Offers the same service for sale to customers in the ordinary course of the line of business in which you work

• Does not have a substantial additional cost (including any sales income given up)

Generally, they are excess capacity services, such as airline, bus, or train tickets, hotel rooms, and telephone services.

PSQ

Source: http://www.irs.gov

[Individual]Fringe Benefits -- General(Feb-13-2011, 65 days left)

What's the Fringe Benefits?

It is received in connection with the performance of your services. In general, it is included in your income as compensation unless you pay fair market value for them or they are specifically excluded by law.

You must realize the accounting period used by your employer:

2 options available for your employer to report taxable noncash fringe benefits:

1. full calendar year (Jan-1 to Dec-31)

2. treat the last 2 months of the calendar year (or any shorter period) as a part of the following calendar year (e.g. Nov-1 2011 to Oct-31 2012)

Employer can use different accounting period for each fringe benefits, but must use the same period for each particular benefits.

Employee must use the same accounting method as employer used

PSQ

Source: http://www.irs.gov

[Individual]Social security and Medicare taxes paid by employer & Stock appreciation rights (Feb-12-2011, 66 days left)

• Social security and Medicare taxes paid by employer:

If your employer agree to pay your part of Social Security and Medicare taxes, you must report this part as your income. And you must include this part of income when you calculate your social security and Medicare taxes and benefits, except that you are household worker or a farm worker.

• Stock appreciation rights:

Do not include stock appreciation until you exercise the right. The income equal to the difference between the fair market value of the stock on the date of exercise and the fair market value on the date the right k granted.

PSQ

Source: http://www.irs.gov

[Individual]Sick pay (Feb-11-2011, 67 days left)

You must include the payment from your employee when you are sick or injured.

Where do you get the payment?

1. if you get payment from a 3rd party who is not your employer, you may choose to withhold your tax or not. Then you must fill out Form W-4S.

2. if you receive the payment under a collective bargaining agreement between your union and your employer, the withholding part depends on the provisions in the agreement.

The sources of sick pay benefits:

• A welfare fund

• A state sickness or disability fund
• An association of employers or employees.
• An insurance plan via accident or health plan

Employer pay the premium	Employee pay the premium	Both pay the premium
The benefits are taxable	The benefits are nontaxable	The benefits are taxable only the amount due to employer's payments

If the accident or health insurance plan is under cafeteria plan

If you include the premiums as you income	If you don't include the premiums as your income
The benefits are nontaxable	The benefits are taxable

PSQ

Source: http://www.irs.gov

[Individual]Severance pay (Feb-10-2011, 68 days left)

You must include the following in income:

• Severance pay

--Outplacement services: No matter you severance is reduced by outplacement services fee or not, you must include the unreduced amount as your income.

• Any payment for the cancellation of your employment contract

--Accrued leave payment: you are a federal employee and receive a lump-sum payment for accrued annual leave when you retire or resign.

You may make adjustment for gross income :

• Repayment for your Accrued leave payment, because reemployed by another agency. You can reduce this part from your gross income.

You can deduct as miscellaneous deduction (subject to the 2% of AGI limit on schedule A):

• The value of the outplacement services up to the difference between the severance pay included in income and the amount actually received)

PSQ

Source: http://www.irs.gov

[Individual]Note received for services (Feb-9-2011, 69 days left)

When your employer gives you a secured note:

You must include the fair market value of the note in your income.

When your employer gives you a nonnegotiable unsecured note:

The principal amount of the note are compensation income when you receive them.

When you receive the periodic payment or lump-sum payment following:

You don't include the recovery part of the fair market value as your income, and only include the remaining part, like interest.

PSQ

Source: http://www.irs.gov

[Individual]Prizes, Bonuses and Awards (Feb-8-2011, 70 days left)

Generally, when you receive prizes or awards from employer for outstanding work, you should include the fair market value of prizes or awards into your income, except you get them from charity or non-profit organization. There are some rules for specific awards:

Back pay awards:

These include payments made to you for damages, unpaid life insurance premiums, and unpaid health insurance premiums, and unpaid health insurance premiums.

Employee achievement award:

If you receive tangible personal property (other than cash, a gift certificate, or an equivalent item) as an award for length of service or safety achievement, you generally can exclude its value from your income. The amount is limited to the lesser of:

• Employer's cost
• 1600, or 400, if awards are not qualified plan awards

But the exclusions does not apply to the following awards:

• A length-of-service award if you received it for less than 5 years of service or if you received another length-of-service award during the year or the previous 4 years.
• A safety achievement award if you are a manager, administrator, clerical employee, or other professional employee or if more than 10% of eligible employees previously received safety achievement awards during the year.

PSQ

Source: http://www.irs.gov

MY working list --Tax Credits (Feb-7-2011, 71 days left)

• Foreign tax credit, except any credit that applies to wages not subject to U.S. income tax withholding because they are subject to income tax withholding by a foreign country.
• Child and Dependent Care Credit
• Credit for the elderly or the disabled
• Child Tax Credit & Additional Child Tax Credit

• Education credits

• Earned income credit, unless you requested advance payment of the credit

• Retirement savings contributions credit

• Mortgage interest credit

• Adoption credit

• Credit for prior year minimum tax (both refundable and nonrefundable) if you paid alternative minimum tax in an earlier year.

• General business credit.

• Alternative motor vehicle credit (including the plug-in conversion credit)

• Alternative fuel vehicle refueling property credit

• Plug-in electric motor vehicle credit

• Credit to holders of tax credit bonds

• Health coverage tax credit

• Residential energy credits

• Making work pay credits

• Carryforward from prior years of a qualified electric vehicle passive activity credit

• Credit for tax on undistributed capital gain

• First-time homebuyer credit

• Credit for excess social security tax or railroad retirement tax withheld

PSQ

Source: http://www.irs.gov

MY working list -- Standard Deduction & Itemized Deductions(Feb-6-2011, 72 days left)

• Standard Deductions
• Medical and dental expenses that are more than 7.5% of your 2010 AGI
• Taxes, like State and local income or property taxes
• Interest Expense

Deductible home mortgage interest

Investment interest up to net investment income

• Contributions

Charitable contributions

• Nonbusiness Casualty and theft losses that are more than 100 and 10% of your AGI
• Car Expenses and Other Employee Business Expenses
• Tax Benefits for Work-related education
• Fully deductible miscellaneous itemized deductions, including:

a. impairment-related work expenses of persons with disabilities,

b. Federal estate tax on income in respect of a decedent,

c. Repayment of more than 3,000 of income held under a claim of right that you included in income in an earlier year because at the time you thought you had an unrestricted right to it

d. Unrecovered investments in an annuity contract under which payments have ceased because of the annuitant's death

e. Gambling losses up to the amount of gambling winnings

f. Casualty and theft losses from income-producing property

• Other miscellaneous itemized deductions that are more than 2% of your AGI, including:

a. unreimbursed employee business expense, such as education expenses, work clothes and uniforms, union dues and fees, and the cost of work-related small tools and supplies

b. Safe deposit box rental

c. tax counsel and assistance

d. Certain fees paid to an IRA trustee or custodian

PSQ

Source: http://www.irs.gov

MY working list -- Gross Income & Adjustment (Feb-5-2011, 73 days left)

I am struggling for the best way to present tax rules as clear as possible about one week. Finally, I divide the tax issues into 3 categories: Gross income & Adjustments, itemized deductions, tax credits. OK, I am going to list out detailed items for each categories and try to go through each of them in the future.

Salaries and wages

Employee Compensation

Miscellaneous Compensation

Advance commissions and other earnings

Allowances and reimbursements

Back pay awards

Bonuses and awards

Differential wage payments

Government cost-of-living allowances

Nonqualified deferred compensation plans

Note received for services

Severance pay

Sick pay

Social security and Medicare taxes paid by employer

Stock appreciation rights

Fringe Benefits

General

Accident or Health Plan

Long-term care coverage

Health Savings Accounts (HSAs)

Medical Savings Accounts (MSAs)

Archer MSAs

Medicare Advantage MSAs

Flexible Spending Arrangements (FSAs)

Health Reimbursement Arrangements (HRAs)

Adoption Assistance

Athletic Facilities

De Minimis (Minimal) Benefits

Employee Discount

Financial Counseling Fees

Educational Assistance

Group-Term Life Insurance

Retirement Planning Services

Meals and Lodging

Moving Expense Reimbursement

No-Additional-Cost Services

Transportation

Retirement Plan Contributions

Stock Options

Restricted Property

Special Rules for Certain Employees

Clergy

Member of Religious Orders

Foreign Employer

Military

Volunteers

Sickness and Injury Benefits

Disability Pensions

Long-Term Care Insurance Contracts

Workers' Compensation

Other Sickness and Injury Benefits

Foreign Income

Tips

General

Allocated Tips

Interest Income

General

Taxable Interest

U.S. Savings Bonds

Education Savings Bond Program

U.S. Treasury Bills, Notes and Bonds

Bonds sold between interest dates

State or local government Obligations

Original Issue Discount (OID)

Dividends and other Distributions

General

Ordinary Dividends

Capital gain distributions

Nondividend distributions

Other distributions you may receive from a corporation or a mutual fund

Rental Income and Expenses

General

Rent Income

Rent Expense

Renting part of Property

Property Changed to Rental Use

Not Rented for Profit

Personal Use of dwelling unit (including vacation home)

Depreciation

Limits on rental losses

Retirement Plans, Pensions and annuities

General

Taxation of Periodic Payments

Taxation of Nonperiodic Payment

Rollovers

Special Additional Taxes

Tax on Early Distributions

Tax on Excess Accumulation

Other Income

Bartering

Canceled debts

Sales parties at which you are the host or hostess

Life insurance proceeds

Partnership income

S Corporation income

Recoveries (including state income tax refunds)

Rents from personal property

Repayments

Royalties

Unemployment benefits

Welfare and other public assistance benefits

PSQ

Source: http://www.irs.gov

[Individual]Do you have to pay Estimated Tax? (Feb-4-2011, 74 days left)

The person who meet both conditions must pay estimated tax:
First, you expect to owe at least 1000 tax liability after subtracting your withholding and refundable credits.
Second, you expect your withholding and refundable credits to be less than the smaller of 90% of tax on your current year file or 100% of the tax on your last year file.


You can use Estimated Tax Worksheet to figure out your estimated tax. Also don't forget the due date for each period(Apr-15, Jun-15, September-15, January-15). You may be charged penalty on your late filing.

PSQ

Source: http://www.irs.gov

[Individual]What's Backup Withholding (Feb-3-2011, 75 days left)

Certain incomes paid by banks or other businesses are not subject to withholding. However, "backup" withholdng is required in certain situations:

Payment may subject to backup withholding
• Investment payment (Form 1099-INT)
• Dividends (Form 1099-DIV)
• Patronage dividends, if at least half the payment is cash (Form 1099-PATR)
• Rents, profits, or other gains (Form 1099-MISC)
• Commissions, fees, or other payments for independent contractor work (Form 1099-MISC)
• Payments by brokers (Form 1099-B)
• Payments by fishing boat operator (Form 1099-MISC)
• Royalty payment (Form 1099-MSIC)
• Gambling winnings (Form W-2G)

Payment not subject to backup withholding
Payments reported on Form 1099-MISC unless one of the following situations applies:
• Amount you received is more than 600.
• Payer give you a Form 1099 last year
• Payer pay you last year and that payment is subject to backup withholding.

Usually, bank or businesses will give you Form W-9 to get your TIN. If they don't get correct TIN, or don't get TIN in time, they must withhold at a flat rate 28%.

PSQ

Source: http://www.irs.gov

[Individual]Who can claim exemption from withholding (Feb-2-2011, 76 days left)

In general, you can use the following figure to get the answer. But this figure doesn't apply to the following peoples:

Age is 65 or older Blind	Use worksheet in Pub 505 Page 12
Will itemize deductions Will claim an exemption for a dependent Will claim any tax credits	Use the Estimated Tax Worksheet in Form 1040-ES to figure your expected tax liability. Only if your total expected tax liability is zero, you can claim exemption

How to claim exemption?

Enter "Exempt" on line 7 Form W-4.

PSQ

Source: http://www.irs.gov

[Individual] Figure out your withholding allowances in Form W-4 --2(2-1-2011, 77 days left)

Form W-4 provides a set of worksheets to help you figure out your withholding allowances. But remember for nonresident alien, you usually can claim only one withholding allowance, except you are a resident of Canada or Mexico, or you are a U.S. national.

Change your allowances:

Once you feel you withhold too much or too little tax, you can change your withholding allowances by giving your employer a new Form W-4.

Please be aware of the following changes happen in your life, they may cause changes in your allowances:

Factor	Examples
Lifestyle change	Marriage, Divorce, Birth or adoption of child, loss of an exemption, Purchase of a new home, Retirement, Filing chapter 11 bankruptcy
Wage income	You or your spouse start to stop working, or start or stop a second job
Change in the amount of taxable income not subject to withholding	Interest income, dividends, capital gains, self-employment income, IRA distributions
Change in the amount of adjustments to income	IRA deduction, student loan interest deduction, Ailmony expense
Change in the amount of itemized deductions or tax credits	Medical expenses, Taxes, Interest expense, Gifts to charity, Job expenses, Dependent care expenses, Education credit, Child tax credit, Earned income credit

Source: Publication 505 Page 4

If your employer agrees to use Cumulative wage method, it means you may be able to compensate for this for the rest of the year. You must ask your employer in writing to use this method. To be eligible, you must use the same payroll period since the beginning of the year.

PSQ

Source: http://www.irs.gov