For highlights of any tax changes for the current tax year please refer to the “What’s New” section of the following

Form 1040 Instructions (PDF)

Form 1040A Instructions (PDF)

Form 1040EZ Instructions (PDF)

Publication 17 (PDF)

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Emil Estafanous, CPA Receives 2011 Best of Norwalk Award    

    U.S. Commerce Association’s Award Plaque Honors the Achievement

NEW YORK, NY, February 1, 2011 — For the third consecutive year, Emil Estafanous, CPA has been selected for the 2011 Best of Norwalk Award in the Tax & Accounting Services category by the U.S. Commerce Association (USCA).

The USCA “Best of Local Business” Award Program recognizes outstanding local businesses throughout the country. Each year, the USCA identifies companies that they believe have achieved exceptional marketing success in their local community and business category. These are local companies that enhance the positive image of small business through service to their customers and community.

Nationwide, only 1 in 120 (less than 1%) 2011 Award recipients qualified as Three-Time Award Winners. Various sources of information were gathered and analyzed to choose the winners in each category. The 2011 USCA Award Program focuses on quality, not quantity. Winners are determined based on the information gathered both internally by the USCA and data provided by third parties.

U.S. Commerce Association (USCA) is a New York City based organization funded by local businesses operating in towns, large and small, across America. The purpose of USCA is to promote local business through public relations, marketing and advertising.

The USCA was established to recognize the best of local businesses in their community. Our organization works exclusively with local business owners, trade groups, professional associations, chambers of commerce and other business advertising and marketing groups. Our mission is to be an advocate for small and medium size businesses and business entrepreneurs across America.

SOURCE: U.S. Commerce Association

CONTACT:
U.S. Commerce Association
Email: PublicRelations@uscaaward.com
URL: http://www.uscaaward.com

Basic benefits of a switch: If a C Corporation owner elects S corp status, the corporation’s income and deduction items are passed through to the owner, reported on his or her 1040 and taxed at personal rates. Significantly, switching to S status would avoid any threat of double taxation on: (1) future corporate operating profits and (2) future appreciation in corporate assets that occurs after the switch.

As you may know, double taxation occurs when a C corporation pays corporate-level tax on its income and gains. Then the owner pays tax again at the shareholder level when those income and gains are distributed as taxable dividends.

In contrast, a business owner is only taxed once under the S corp form of doing business, while retaining other benefits such as corporate protection from personal liability.

Basic drawbacks to a switch: The decision to switch isn’t always a slam-dunk. If the owner has substantial income from other sources or if the company is quite profitable, he or she may be forced to pay the 35% maximum rate on most or all of the incremental income passed through. Rule of thumb: With the current tax brackets in effect, the owner often fares better if the company generates annual profits of less than $100,000.

In addition, beware of the onerous “built-in gains” (BIG) tax. It comes into play if the corporation owns appreciated assets when it switches from C to S status. When this corporate-level tax applies, the rate is 35%.

We can help you with this determination. Contact us at 562-868-6333 to discuss your situation.

The IRS has recently announced that it will be scrutinizing “Section 1031 exchanges” of real estate to ensure that such exchanges comply with all the tax law requirements in this area. Nevertheless, you can still avoid current tax by following the rules to the letter.

Under Section 1031 of the tax code, you may defer taxable gains when exchanging properties that are similar in nature, except to the extent that you receive cash or other “boot” as part of the transaction. In that case, you must pay current tax on the gain up to the amount of boot received. Otherwise, you owe no tax until you sell the newly acquired property.

This is one of the rare instances when the tax law lets you off the hook for a disposition of appreciated property.

To qualify as a like-kind exchange, both the property being relinquished and the property being acquired must be investment or business property. You can’t swap personal property tax-free under Section 1031.

“Like-kind” refers to the property’s nature or character. Tax regulations provide a liberal interpretation of this standard. Examples: You can swap improved real estate for raw land, a shopping mall strip for an apartment building, a marina for a golf course. But you can’t swap real estate for personal-property assets such as equipment or vehicles.

The tax law also imposes timing restrictions on Section 1031 exchanges. You must identify (or actually receive) the replacement property within 45 days of transferring legal ownership of the relinquished property. Also, the title to the replacement property must be transferred within the earlier of 180 days or your tax return due date, plus extensions, for the tax year of the transfer.

Obviously, this is a complex area of the tax law. If you are considering a like-kind exchange of real estate, we can help address your personal situation. Call 562-868-6333 to arrange a meeting with an experienced tax professional.

P.S. The IRS has put investors on notice that it will be investigating Section 1031 exchanges that do not observe all the technical formalities.

The IRS has recently announced that it will be scrutinizing “Section 1031 exchanges” of real estate to ensure that such exchanges comply with all the tax law requirements in this area. Nevertheless, you can still avoid current tax by following the rules to the letter.

Under Section 1031 of the tax code, you may defer taxable gains when exchanging properties that are similar in nature, except to the extent that you receive cash or other “boot” as part of the transaction. In that case, you must pay current tax on the gain up to the amount of boot received. Otherwise, you owe no tax until you sell the newly acquired property.

This is one of the rare instances when the tax law lets you off the hook for a disposition of appreciated property.

To qualify as a like-kind exchange, both the property being relinquished and the property being acquired must be investment or business property. You can’t swap personal property tax-free under Section 1031.

“Like-kind” refers to the property’s nature or character. Tax regulations provide a liberal interpretation of this standard. Examples: You can swap improved real estate for raw land, a shopping mall strip for an apartment building, a marina for a golf course. But you can’t swap real estate for personal-property assets such as equipment or vehicles.

The tax law also imposes timing restrictions on Section 1031 exchanges. You must identify (or actually receive) the replacement property within 45 days of transferring legal ownership of the relinquished property. Also, the title to the replacement property must be transferred within the earlier of 180 days or your tax return due date, plus extensions, for the tax year of the transfer.

Obviously, this is a complex area of the tax law. If you are considering a like-kind exchange of real estate, we can help address your personal situation. Call 562-868-6333 to arrange a meeting with an experienced tax professional.

It’s difficult to formulate a year-end plan in the current political environment. Nevertheless, following are seven sensible tax strategies for individual taxpayers in 2010. Caution: Tax rates are scheduled to go up next year, so consider the long-term implications of any year-end moves.

1. Generate energy tax credits. If you install certain energy-saving devices, you may qualify for the “residential energy credit.” The credit for 2010 is 30% of qualified expenses up to a maximum credit amount of $1,500 (reduced by any credit claimed for 2009).

2. Audit-proof charitable gifts. A recent tax law change requires you to substantiate all monetary gifts to charity. Keep all the records required by the IRS now instead of trying to resurrect them at tax return time.

3. Harvest losses from securities sales to shelter previous capital gains. On the other hand, if you’re showing a net loss for the year, you may trigger some capital gains before year-end. The earlier losses can shelter later gains from taxes.

4. Have a child trigger capital gains. For 2008 through 2010, the normal 5% rate for individuals in the regular 10% and 15% tax brackets is reduced to a rock-bottom 0%. But don’t forget about potential “kiddie tax” complications.

5. Review alternative minimum tax (AMT) liability. You may be able to reduce or eliminate the damage by postponing tax preferences to 2011. However, if you definitely will pay the AMT in 2010, you might accelerate taxable income into this year if the extra income will be taxed at a lower rate than your normal rate.

6. Seek a tax underpayment shelter. To avoid an “estimated tax” penalty for an underpayment, meet one of these three safe-harbor rules.

• Pay at least 90% of the current year’s tax liability.
• Pay at least 100% of the prior year’s tax liability (110% if your AGI for that year exceeded $150,000).
• Pay installments under a special annualized basis. This option is only available if you receive more income on a seasonal basis.

7. Sell real estate on the installment basis. As long as at least one payment is received in the year after the year of the sale, you’re taxed on just the portion of each payment attributable to the gain for each year, plus the interest.

These are only seven potential tax moves to make at the end of the year. Others may be appropriate for your situation. Contact our office at 562-868-6333 to discuss the possibilities.

Very truly yours,

Emil Estafanous, CPA

P.S.  Every situation is different. To develop a comprehensive year-end tax plan tailored to your particular circumstances, schedule a meeting by calling us at  562-868-6333.

The Small Business Jobs and Act of 2010, signed by President Obama on Sept. 27, 2010, includes a bevy of tax breaks for small business owners. Here are the highlights of this important new legislation.

Section 179: For tax years beginning in 2010 and 2011, your business can immediately write off up to $500,000 of qualifying assets (including purchased software). The new $500,000 maximum allowance doubles the previous $250,000 maximum deduction. More good news: The threshold for the Section 179 deduction phase-out rule jumps from $800,000 to $2 million, for tax years beginning in 2010 and 2011. Also, for tax years beginning in 2010 and 2011, up to $250,000 of qualified real property costs can also be deducted under Section 179. Previously, real property costs did not qualify for Section 179 deductions.

Bonus depreciation: The new law retroactively reinstates 50% first-year bonus depreciation for qualifying new (not used) assets placed in service by Dec. 31, 2010.  This tax break had officially expired after 2009, but it’s now been resurrected for qualified assets placed in service by year-end.

Qualified small business stock: Previously, you could exclude up to 75% of the gain from qualified small business stock (QSBS) acquired between Feb. 18, 2009 and Dec. 31, 2010 if you held the stock more than five years. The new law increases the potential gain exclusion to 100% for QSBS acquisitions made between Sept. 28, 2010 and Dec. 31, 2010. For these shares, the new law also removes the QSBS gain exclusion from the list of items that count as income for alternative minimum tax (AMT) purposes.

BIG tax: When a C corporation converts to an S corporation, it may be liable for a “built-in gains” (BIG) tax on gains recognized in its first 10 years of operation. First, the 10-year recognition period was reduced to seven years for built-in gains recognized in tax years beginning in 2009 and 2010. Now the new law cuts the recognition period to five years for gains in tax years beginning in 2011.

Start-ups: The new law increases the maximum deduction for qualified start-up expenditures to $10,000 for tax years beginning in 2010 (up from $5,000). The threshold for the start-up deduction phase-out rule increases from $50,000 to $60,000, but only for tax years beginning in 2010.

AMT: Normally, general business credits can’t offset the AMT. But the new law allows an “eligible small business” an AMT offset for general business credits arising in tax years beginning in 2010. Also, the business can carry back general business credits arising in tax years beginning in 2010 for up to five years.

Health insurance deduction: For 2010 only, a self-employed individual can reduce his or her self-employment income by deductible health insurance premiums when calculating the self-employment tax.

Cell phones: Cell phones and similar devices used for business will no longer be subject to super-strict recordkeeping requirements for business versus personal use, retroactive to tax years beginning after 2009.

Retirement accounts: Several provisions help facilitate transfers from 401(k), 403(b) and 457 retirement plans to designated Roth accounts.

This is only a brief summary of several key provisions in the new small business law. Contact our office at 562-868-6333  for more details.

Very truly yours,

Emil Estafanous, CPA

P.S.  It’s not too late to develop year-end tax strategies based on the new small business law. Call us at 562-868-6333 as soon as possible to schedule a meeting.

CAP procedures are available to you if you’ve received any one of the following notices:

• Notice of Federal Tax Lien
• Notice of Levy
• Notice of Seizure
• Denial or Termination of Installment Agreement

CAP Procedures

If your only collection contact has been a notice or telephone call:

• Call the IRS telephone number shown on your notice
• Explain why you disagree and that you want to appeal the decision
• Be prepared to offer a solution
• Before you can come to Appeals you will need to first discuss your case with a Collections manager.

If you have been contacted by a Revenue Officer:

• Call the Revenue Office you’ve been dealing with
• Explain why you disagree and that you want to appeal the decision
• Be prepared to offer a solution
• Before you can come to Appeals you will need to discuss your case with a Collections manager.
• Complete Form 9423, Collection Appeals Request
• You have 2 days from your conference with the Collections manager to submit Form 9423 to the Revenue Officer.

For more information please refer to:

• Form 9423, Collection Appeals Request
• CAP Frequently Asked Questions

Our office represented hundreds of  clients on their appeals with the IRS. Please contact us at 562-868-6333 to see if Appeals would be the best approach for you.

Collection Appeals Program (CAP)
Collection Appeals Program (CAP) is generally quick and available for a broad range of collection actions. However, you can’t go to court if you disagree with the Appeals decision.

Collection Due Process (CDP)
Collection Due Process (CDP) is available if you receive one of the following notices:
Notice of Federal Tax Lien Filing and Your Right to a Hearing Under IRC 6320 (Lien Notice), a Final Notice – Notice of Intent to Levy and Notice of Your Right to A Hearing, a Notice of Jeopardy Levy and Right of Appeal, a Notice of Levy on Your State Tax Refund – Notice of Your Right to a Hearing (Levy Notices), and a Notice of Levy and Notice of Your Right to a Hearing. If you disagree with the Appeals decision, you may be able to take your case to court.

Offer in Compromise (OIC)
An Offer in Compromise (OIC) is an agreement between the taxpayer and the government that settles a tax liability for payment of less than the full amount owed.

Trust Fund Recovery Penalty (TFRP)
If you are a person responsible for withholding, accounting for, or depositing or paying specified taxes including non-resident alien (NRA) withholding and employment taxes, and willfully fail to do so, you can be held personally liable for a penalty equal to the full amount of the unpaid trust fund tax, plus interest. A responsible person for this purpose can be an owner or officer of a corporation, a partner, a sole proprietor, or an employee of any form of business. A trustee or agent with authority over the funds of the business can also be held responsible for the penalty.