The IRS announced that it will provide penalty relief to taxpayers impacted by the storms who were not able to file or pay taxes due until after the April 15th tax deadline.

If you were impacted by the storms, you may qualify for relief of the late-filing penalty of 5% per month and the late-payment penalty of 0.5 percent per month as long as there is reasonable cause and you file your tax return or pay the taxes due within a reasonable time after the power outages and transportation problems are resolved.

If you receive a penalty notice from the IRS and you were impacted by the storms, the IRS will remove the late-filing and late-payment penalty.

Don’t forget, if you suffer a casualty loss from a federally declared disaster, you may be able to deduct the casualty loss on your tax return for the previous tax year or amended tax return for the preceding year.

Disaster Relief

In the aftermath of Hurricane Sandy, the president signed disaster declarations for taxpayers impacted by Hurricane Sandy yesterday.  Today it was announced that the IRS is giving relief to those who file payroll and excise tax returns and make payments normally due on Wednesday.  The deadline for payroll and excise tax returns was extended one week and is now November 7th.

The IRS says additional filing and payment relief will be granted as the Federal Management Agency (FEMA) makes further disaster declarations.

Per the IRS, no action is required by impacted taxpayers, as the relief is automatic.  For more information on disaster relief, check out the IRS newsroom announcement.

Natural Disaster

If you haven’t already filed your taxes and were a victim of recent severe storms, flooding, or disasters you may have more time to pay taxes and file your tax returns if you were affected and in counties designated as federal disaster areas qualifying for individual assistance.

The extended dates are specified by county and may give you an extension to file your 2011 tax return as late as May 31, 2012 (the postponement applies to the normal April 17 tax deadline for filing 2011 individual income tax returns, making income tax payments, and making 2011 contributions to an IRA if you were an affected taxpayer)

You can consult the FEMA website to see if your area was declared a Federal Disaster Area. That web address is http://www.fema.gov/news/disaster_totals_annual.fema

Who May Be Entitled to Relief

Taxpayers affected by disaster and eligible for relief include:

• Individuals whose principal residence and any business entity whose place of business is located in counties designated as disaster areas.
• Any individual who is a relief worker assisting in a covered disaster area, regardless of whether they are affiliated with recognized government or philanthropic organizations.
• Individuals whose principal residence, and any business entity whose principal place of business is not located in a covered disaster area, but whose records necessary to meet the filing or payment deadline are maintained in a covered disaster area.
• Estates or trust that have tax records necessary to meet filing or payment deadlines in a covered disaster area.
• Any spouse of an affected taxpayer with regard to a joint return of the husband and wife.

Claiming Casualty Loss for Disasters

Whether or not your area was declared a federal disaster, you are entitled to claim casualty losses as an itemized deduction on your tax return.  A casualty loss is officially defined as “the damage, destruction or loss of your property from any sudden, unexpected or unusual event such as a flood, hurricane, tornado, fire, earthquake or even volcanic eruption.”  The loss can be from a natural or man-made disaster.

You’ll claim your loss on Form 4684, which is  filed with your tax return. The first $100 of loss is not deductible, and the remainder of the loss is deductible to the extent that it exceeds 10% of your adjusted gross income. Of course, any losses reimbursed by insurance or covered by federal disaster funds aren’t deductible.  TurboTax walks you through, step by step, and makes all the computations for you.

Though a casualty loss is usually deductible in the year it happened, you have the option of taking the deduction on your prior year’s return so you can reap the benefit quickly.  The deadline for choosing in which tax year to claim the loss is generally the due date of your current-year return.  If you’ve already filed, use TurboTax to amend your return on Form 1040X, writing in red at the top of the return  “Disaster” and the name of your city, county or state that was declared a disaster area.

Other Relief Available

The IRS will also waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

Though a tax deduction doesn’t reimburse your loss dollar for dollar, it does reduce your taxable income, resulting in a lower tax bill or bigger refund.

payroll tax holiday

The law maintains the lower payroll tax rate which reduced the social security tax taken out of your paycheck from 6.2% to 4.2% on income up to $110,100.  In addition, if you are self-employed, you will continue to pay the reduced social security tax rate of 10.4% instead of 12.4%.  The law also extends federal unemployment benefits and prevents doctors who accept medicare from taking a 27.4 percent reimbursement cut.

The payroll tax holiday extension also increases the amount new federal hires and those with less than five years as a government employee have to contribute to their pension plans in order to fund the payroll tax holiday extension and unemployment benefits.

What Does This Mean for You?

The extended payroll tax holiday prevents a tax hike that would impact 160 million working Americans and keeps an extra $1,000 per year in your pocket if you earn $50,000 per year($50,000 x 2%).

For 2012, your maximum savings will be up to $2,202($110,100 x 2%).  If you are married and each of you earn at least $110,100, that is a savings of $4,404!  That’s more money for you and your family.

How will that savings help you this year?

payroll tax

If you recall, the Senate passed the payroll tax bill extension for two months to give the Democrats and Republicans time to come to an agreement on other tax and non-tax related provisions attached to the bill.

The payroll tax extension would keep Social Security tax at 4.2%, extend unemployment benefits, and prevent cuts to doctors’ medicare payments until a compromise was reached and the bill was extended for a longer period.

There is no guarantee that there will be a compromise from the House of Representatives, but there is hope that pressure from the President and the Senate will further encourage an extension of the payroll tax bill by January 1.

If the payroll tax is not extended, the typical family making $50,000 per year, will lose $40 per paycheck, 3 million people who receive long-term unemployment benefits will see a drop in benefits, and Medicare payments to doctors will be lowered.

How would a $40 loss per paycheck impact you and your family?  What could you do with $40 per paycheck?

Create an Electronic Backup Set of Records

• Taxpayers should keep a set of backup records in a safe place away from the original set.  Also, keep in mind that financial institutions provide documents and statements electronically, available on the internet.  These documents can be downloaded to a backup storage device or burned to a CD.
• If you prepared your taxes using tax software, always save your return as a PDF file. This step can assist you when you need to access your adjusted gross income for tax purposes or if documentation is required for loans.
• As an additional safeguard, I always suggest that you email your PDF file(s) to your email address so that even if your computer has had enough, you can still access your emailed PDF file from any computer.

Order Transcript or Copies From the IRS

• Still can’t access backup copies of your tax return?  The IRS can help.  You can request backup copies of previously filed tax returns and all attachments by filing Form 4506.
• You can also request transcripts by filing Form 4506-T.  Transcripts show most line items including your adjusted gross income.  Transcripts can also be ordered online or by calling (800)908-9946.
• Special tax law provisions may help taxpayers and businesses recover financially from the impact of disaster especially when the federal government declares their location to be a major disaster area.  Click on IRS’ s Disaster Assistance and Emergency Relief for Individuals and Businesses for more information.
• If you are affected by disaster, you can also call (866)562-5227 to speak to a specialist trained to handle disaster related issues.
• For additional information regarding assistance in the event of a disaster, check the IRS Disaster Losses Kit for Individuals.

Document Valuables

• Taxpayers should photograph or videotape contents of their home to help prove the market value of items for insurance and casualty loss claims.  Photographs and videotapes should be stored with friends and family outside your area.

Update Emergency Plans

• Personal and business preparedness needs can change over time.  Emergency plans should be reviewed and discussed with all involved annually.

Check on Fiduciary Bonds

• If your business uses a payroll service provider, ask if it has a fiduciary bond in place.  The bond could protect you as an employer in the event of default by the payroll service provider.

Source

In December 2010, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (Tax Act) was approved in Congress and signed into law. The tax law changes contained within the Act basically allowed existing tax rates to prevail until 2012. One other thing to keep in mind is that many of the tax breaks in the 2010 Act were designed to be phased in over a number of years, or indexed to inflation. These breaks applied to 2010 and later years.

With 2010 now behind us, let’s take a look at what changes the Act has in store for us with regard to our 2011 tax returns. I’ll focus specifically on what is new or different for 2011.

New Payroll Tax Cut for Wage Earners

Source

Wage earners and self employed individuals will see a significant cut in their share of payroll taxes. Instead of paying 6.2% on wages up to $106,800, they will now pay 4.2%. That could mean a savings of over $2000 for those making over $100,000 per year. This applies just for 2011. What’s really great about this tax cut is that you’ll see the savings reflected in each paycheck throughout the year. In other words, it’s not going to be reflected in the tax return you file by next April 15, 2012, but in each current paycheck. For example, if you earn $60,000 annually and are paid bi-weekly, you’ll see an extra $46 in each paycheck.

Self-employed individuals also benefit from the payroll tax cut. Self-employed individuals will pay 10.4%, instead of 12.4%, on self-employment income up to the $106,800 threshold.

Perhaps not too surprisingly, the good news is offset by some bad news. The payroll tax cut replaces the Making Work Pay Credit (MWPC), which expired at the end of 2010 and was not renewed for 2011. The MWPC provided a tax credit of up to $400 for individuals and up to $800 for married taxpayers filing joint returns. Nevertheless, you can see that if you’re earning more than $20,000 annually, the payroll tax cut is a big winner.

Mortgage Insurance Premiums

Source

The deduction for mortgage insurance premiums paid on mortgages taken out after 2006 expired on Dec. 31, 2010 so this deduction no longer applies for 2011. Keep in mind that this is for your mortgage insurance premiums, not your mortgage interest.

Flexible Spending Accounts

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Employees with flexible spending accounts can no longer use pretax funds to pay for many over-the counter medicines, except for insulin, without a doctor’s prescription. So this limits the benefit of paying for drugs like aspirin and other common cold remedies from your flexible spending account. This rule also applies to health reimbursments accounts, health savings accounts, and medical savings account plans. In addition to stingier rules for using your flex spending account funds, the penalty has doubled in some cases when you use these spending account funds for non-qualified expenditures. The penalty can be as much as 20% of the amount taken out of the account.

Residential Energy Improvement Credits

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For individuals making energy-efficient improvements to their homes in 2011 important changes have taken place for a popular tax credit. The Tax Relief Act extended the energy efficient property credit for homeowners for one year, through December 31, 2011. However, more restrictive rules apply for 2011 than applied in 2010. An individual is now entitled to a 10% credit qualified energy efficiency improvements (building envelope components) installed during the tax year.

The maximum credit allowable is $500 over the lifetime of the taxpayer. The $500 amount must be reduced by the total amount of credits previously taken by the taxpayer in 2006, 2007, 2009 and 2010. There are also certain restrictions on the amounts claimed for certain items as well. For example, the amount claimed for windows and skylights in a year cannot exceed $200 less any credits you claimed for these items in all earlier tax years ending after December 31, 2005. The credit also cannot exceed $50 for an advanced main circulating fan, $150 for any qualified natural gas, propane, or hot water boiler, and $300 for any item of energy efficient property.

New Broker Basis Reporting Rules

Source

Beginning in 2011, generally all brokers will be required to report your “adjusted cost basis” in stock you sell that year as well as whether it is short or long term. This reporting will be done on Form 1099-B. This simplifies the task of tracking your stock costs and ensures that your investment transactions are properly reported.

These are just some of the many important tax changes that you’ll see in 2011 and for the federal return you prepare by the deadline on April 15, 2012.

When disaster strikes like this, it can take weeks or months before things return to normal. Filing taxes is the last thing on anyone’s mind. The IRS certainly understands that there will be delays in tax filings and payments by those affected by the storms and floods, and they provide for extensions of time when those filings and payments are due. They have put together a section of their website which highlights some of the latest information on tax relief for disaster victims.

Here are some of the highlights from the affected areas:

Joplin, Missouri – Due to the devastating effects of the May 22, 2011 tornado outbreak in the area, both individual and business taxpayers throughout Jasper County, Missouri do not have to file returns or pay taxes due until August 1, 2011. This applies to any payments or filings that were due since April 19, 2011. For those who pay estimated taxes, this means you will not have to pay them on June 15, 2011. You can wait till August 1st. See more information at Joplin area disaster tax relief.

Alabama – An unbelievable forty-two counties in Alabama were declared a federal disaster area in April and May of 2011. Since the bad storms started on April 15th in the area, taxpayers in the affected counties get tax relief from the federal individual deadline, which was on April 18th this year. Taxpayers in the affected areas have until June 30, 2011 to complete their federal tax return, payment, and 2010 contribution to their IRAs. In addition, casualty losses due to the disaster can be taken on either their 2010 or 2011 returns. See more information at Alabama disaster tax relief.

Other states affected by storms and listed on the IRS site include: Kentucky, Mississippi, Tennessee, Arkansas, Georgia, Oklahoma, and North Carolina. Several counties in each of these states have been declared federal disaster areas and thus, individuals and businesses who reside there, or who have tax forms there, are allowed to delay their filings and payments. The times and types of delays that taxpayers are eligible for will vary by incident. When in doubt, contact the IRS to see if you are eligible for tax relief due to a disaster in your area.