MJS Tax Newsletter August 2010 Edition
MJS Tax Services
Maria Siconolfi, Enrolled Agent
Still Waiting on New Legislation……..
We are still waiting for new and extended tax provisions for 2010 and beyond. Many key
provisions expired in 2009 or are expiring in 2010. This includes the AMT index for
inflation which left as is would subject many taxpayers to increases in Alternative
Minimum Tax. It looks like this won’t get resolved until at least September and maybe
as late as December. If you are subject to Alternative Minimum Tax, tax planning may
become even more important than ever. If you are not doing tax planning as part of your
yearly tax return you may be losing valuable deductions.
Summer Child Care Expenses
Did you know that your summer day care expenses may qualify for an income tax credit?
Many parents who work or are looking for work must arrange for care of their children
under 13 years of age during the school vacation. Those expenses may help you get a
credit on next year’s tax return.
The Child and Dependent Care Credit is available for expenses during summer and
throughout the rest of the year.
The cost of day camp may count as an expense towards the child and
dependent are credit.
Expenses for overnight camps do not qualify.
If your childcare provider is a sitter at your home or a daycare facility
outside the home, you'll get some tax benefit if you qualify for the credit.
The actual credit can be up to 35 percent of your qualifying expenses, depending upon
your income. You may use up to $3,000 of the unreimbursed expenses paid in a year for
one qualifying individual or $6,000 for two or more qualifying individuals to figure the
Registered Domestic Partners in CA
On May 28, 2010, the IRS adopted changes in the federal tax treatment of California
registered domestic partners’ (RDP) community income. The IRS concluded that a
California RDP must report one-half of the community property income on the federal
returns. Effective for 2010 but can be elected earlier if it benefits you.
The federal advice is based on the California law changes, effective beginning January 1,
2007, that treats earned income of a registered domestic partnership as community
property for state income tax purposes. Previously, the IRS did not recognize this
community property treatment; however, the IRS has now decided to extend full
community property treatment to registered domestic partners in California The IRS also
explained that it can consider the assets of a taxpayer's registered domestic partner when
determining the reasonable collection potential of a taxpayer's offer in compromise, since
California law provides both partners have an equal interest and liability in the
New Preparer Regulations
Effective January 1, 2011, the IRS will require all paid tax preparers who sign federal
tax returns to have a Preparer Tax Identification Number (PTIN).
In addition to the PTIN requirement, paid tax preparers who are not attorneys, certified
public accountants or enrolled agents will have to pass an IRS competency exam and
complete continuing education requirements. Tax preparers registered with the California
Tax Education Council (CTEC) will not be exempt from the new IRS mandate.
Nonexempt tax preparers will be required to:
Obtain a PTIN.
Complete 15 hours of continuing education on federal tax laws each year.
Renew IRS registration every three years from the date of initial registration.
Within three years of initial registration, pass a competency exam from the IRS.
Starting January 1, 2011, nonexempt tax preparers who fail to meet the December
31, 2010 registration deadline will have to pass the IRS competency exam before
they can be issued a PTIN.
Nonexempt tax preparers will have three years from the date of initial registration to pass
two levels of IRS examination. The test can be taken as many times as needed; however,
a fee will be charged each time. Once the practitioner passes the test, the requirement is
filled, and the test doesn’t have to be taken yearly.
Nonexempt tax preparers will have to complete 15 hours of continuing education on
federal tax laws each year. The hours must be completed from an IRS-approved
education provider and include:
3 hours of federal tax law updates.
2 hours of tax ethics.
10 hours of other federal tax law topics.
Tax Preparer Enforcement
The IRS plans to implement an enforcement strategy for the 2011 tax season. Our
enforcement program to identify and penalize unregistered tax preparers will remain
intact for California. All CRTPs will be required to complete IRS and CTEC
requirements in order to be legally qualified to prepare state and federal tax returns.
To learn more about the new IRS requirements, go to irs.gov.
Trusts as beneficiaries of IRA’s
Inherited IRA’s tax law allow for beneficiaries of IRA’s to take funds out over their
lifetime as a designated beneficiary which may lessen the tax bite. Designating the trust
as the beneficiary may invalidate that election unless properly stated in the trust
document. The IRS will not allow you to modify the trust after death to meet the rules of
inherited IRA’s so make sure if you have a trust you have checked this out.
President Signs Unemployment Benefits Extension
President Obama signed the Unemployment Benefit Extenders Bill on July 22, 2010. The
bill extends unemployment benefits through November 30, 2010. The program, which
expired on June 2, 2010, will extend up to 73 weeks of federal benefits to people who
have exhausted their initial 26 weeks of state jobless benefits (for a total of 99 weeks).
They are also eligible for retroactive payments for the period when benefits lapsed.
This newsletter is for informational purposes only. It is not to be construed as tax advice.
You should contact your tax preparer for advice concerning your individual tax return.
Any U.S. tax advice contained in the body of this e-mail was not intended or written to be
used, and cannot be used, by the recipient for the purpose of avoiding penalties that may
be imposed under the Internal Revenue Code or applicable state or local tax law
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