Thursday, October 21, 2010

As If You Should Have to Ask: “Plain Writing” Rule Becomes Law

           “Huh?” has become the typical response of people who receive and are forced to read notices, pamphlets, and other government published materials.  IRS notices alone can cover several pages, front and back, with relatively no instructions.  Much to our relief, President Obama signed the Plain Writing Act of 2010 into law on October 13, 2010.
            The law requires the federal government to write its documents in simple, easy to understand language.  The law itself defines “plain writing” as writing that is clear, concise, well-organized, and follows other best practices appropriate to the subject or field and intended audience. “Americans lose time and money because government instructions, forms, and other documents are too complicated,” Senator Daniel Akaka of Hawaii, the bill’s co-sponsor said.  “The Plain Writing Act will require agencies to write documents which are clear, well organized, and understandable, leading to fewer customer service questions and increased compliance, making the government more efficient.” 
            One possible hiccup in the mandate: no punishment.  Each federal agency is stuck with the task of training and educating its employees on what constitutes “plain language,” and agency heads will issue annual reports on compliance.  However, there is no provision in the law for its violation.
Here are two examples of changes already made:

            The Department of Health and Human Services took a six-page article and replaced it
            with a single brochure:
The Dietary Guidelines for Americans recommends a half hour or more of moderate physical activity on most days, preferably every day. The activity can include brisk walking, calisthenics, home care, gardening, moderate sports exercise, and dancing.
Do at least 30 minutes of exercise, like brisk walking, most days of the week.

The Medicare Beneficiary Services took standard correspondence and cut it down to two sentences:

Investigators at the contractor will review the facts in your case and decide the most appropriate course of action. The first step taken with most Medicare health care providers is to reeducate them about Medicare regulations and policies. If the practice continues, the contractor may conduct special audits of the provider’s medical records. Often, the contractor recovers overpayments to health care providers this way. If there is sufficient evidence to show that the provider is consistently violating Medicare policies, the contractor will document the violations and ask the Office of the Inspector General to prosecute the case. This can lead to expulsion from the Medicare program, civil monetary penalties, and imprisonment.

We will take two steps to look at this matter: We will find out if it was an error or fraud.  We will let you know the result.

For other comparisons and examples of the new “plain writing,” visit

Wednesday, October 13, 2010

Strapped for Cash? Try Checking Out Your Old Tax Returns.

            In a recent article featured in the Wall Street Journal, attorney Barbara Weltman discussed how old tax returns still have value.  Individuals and businesses can seek to amend past returns in order to receive tax refunds.  Reviewing old tax returns may also serve as a reminder to take other deductions or carryovers on this year’s return.  For business owners, here are some important things to check when reviewing your old returns:
·        Home Office Deductions:  The deduction for home office expenses cannot exceed the gross income from the home office activity in any taxable year.  However, any excess may be carried forward and used to offset gross income at any time in the future.
·        Net Operating Losses (NOLs):  Losses relating to your business that are not used on a current year’s tax return may be carried back for two years and carried forward for up to 20 years. 
·        Tax Credits:  Tax credits as a part of the general business credit (meaning the overall limitation of a combination of business credits) may be carried back for one year and forward for up to 20 years.  This year, small businesses may carry back credits for up to five years.
These are just a few of the ways you can squeeze more pennies out of your tax return.  For the complete article, visit

Tuesday, October 5, 2010

Changes for Small Businesses under the Small Business Jobs Act of 2010

       As mentioned in our September 30th blog, President Obama’s Small Business Job Act contains many new tax breaks and incentives for businesses.  Below is a highlight of some of these new provisions. 

·        Enhanced Small Business Expensing (Section 179 Expensing).  To help small businesses quickly recover the cost of capital outlays, small business taxpayers can elect to write off these expenditures in the year they are made instead of recovering them through depreciation.  Under the old rules, taxpayers could generally expense up to $250,000 of qualifying property—including machinery, equipment and software—placed in service in during the tax year.  This annual limit was reduced by the amount by which the cost of property placed in service exceeded $800,000. Under the Small Business Jobs Act, the $250,000 limit is increased to $500,000 and the investment limit to $2,000,000 for tax years beginning in 2010 and 2011.  The Small Business Jobs Act also makes certain real property eligible for expensing.  Thus, for property placed in service in any tax year beginning in 2010 or 2011, the $500,000 amount can include up to $250,000 of qualified leasehold improvement, restaurant and retail improvement property.

·        Extension of 50% Bonus First-Year Depreciation. Before the Small Business Jobs Act, Congress allowed businesses to rapidly deduct capital expenditures of most new tangible personal property placed in service in 2008 or 2009 by permitting the first-year write-off of 50% of the cost.  The Small Business Jobs Act extends the first-year 50% write-off to apply to qualifying property placed in service in 2010 (as well as 2011 for certain aircraft and long production period property).

·        Boosted Deduction For Start-Up Expenditures. The Small Business Jobs Act allows taxpayers to deduct up to $10,000 in trade or business start-up expenditures for 2010.  The amount that a business can deduct is reduced by the amount by which startup expenditures exceed $60,000.  Previously, the limit of these deductions was capped at $5,000, subject to a $50,000 phase-out threshold.

·        General Business Credits of Eligible Small Businesses for 2010 Get Five-Year Carryback.  Generally, a business's unused general business credits can be carried back to offset taxes paid in the previous year, and the remaining amount can be carried forward for 20 years to offset future tax liabilities.  Under Small Business Jobs Act, for the first tax year of the taxpayer beginning in 2010, eligible small businesses can carry back unused general business credits for five years instead of just one.  Eligible small businesses are sole proprietorships, partnerships and non-publicly traded corporations with $50 million or less in average annual gross receipts for the prior three years.

·        General Business Credits of Eligible Small Businesses Not Subject to AMT for 2010.  Under the AMT, taxpayers can generally only claim allowable general business credits against their regular tax liability, and only to the extent that their regular tax liability exceeds their AMT liability.  A few credits, such as the credit for small business employee health insurance expenses, can be used to offset AMT liability.  The Small Business Jobs Act allows eligible small businesses to use all types of general business credits to offset their AMT in tax years beginning in 2010.

·        Deductibility of Health Insurance for the Purpose of Calculating Self-Employment Tax.  The Small Business Jobs Act allows business owners to deduct the cost of health insurance incurred in 2010 for themselves and their family members in calculating their 2010 self-employment tax.

·        Cell Phones No Longer Listed Property.  This means that cell phones can be deducted or depreciated like other business property, without onerous recordkeeping requirements.

·        S-Corporation Holding Period for Appreciated Assets Shortened to Five Years.  Generally, a C corporation converting to an S corporation must hold onto any appreciated assets for 10 years or face a built-in gain tax at the highest corporate rate of 35%.  The 2010 Small Business Jobs Act temporarily shortens the holding period of assets subject to the built-in gains tax to 5 years if the 5th tax year in the holding period precedes the tax year beginning in 2011.

·        New Tax Break for Long-Term Contract Accounting.  The Small Business Jobs Act provides that in determining the percentage of completion under the percentage of completion method of accounting, bonus depreciation in 2010 is not taken into account as a cost.  This prevents the bonus depreciation from having the effect of accelerating income.

·        Limitation on Penalty for Failure to Disclose Certain Reportable Transactions.  The Small Business Jobs Act generally limits the Section 6707A penalty to 75% of the decrease in tax resulting from the transaction, retroactively to penalties assessed after Dec. 31, 2006.  Minimum and maximum penalties apply.

·        Revenue Raisers.  These tax breaks come at a cost.  To mention a few of these unfavorable provisions, information reporting will generally be required for rental property expense payments made after Dec. 31, 2010, and increased information return penalties will be imposed.