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Congress needs to do more to protect taxpayers in the wake of the Supreme Court’s decision in the Commissioner of the Internal Revenue Service v. Zuch, National Taxpayer Advocate stated in a recent blog post.

Congress needs to do more to protect taxpayers in the wake of the Supreme Court’s decision in the Commissioner of the Internal Revenue Service v. Zuch, National Taxpayer Advocate stated in a recent blog post.

NTA Erin Collins noted in the post that Congress in 1998 created the collection due process (CDP) “to give taxpayers a meaningful opportunity to contest proposed levies and Notices of Federal Tax Lien,” allowing them to request a hearing with appeals and possibly petition the tax court.

The Supreme Court decision, according to Collins, “adopted a narrow view of the Tax Court’s review in a CDP case, holding that the Tax Court’s jurisdiction under IRC Sec. 6330(d)(1) terminates once the lien or levy is no longer at issue.” She cited Justice Neil Gorsuch’s dissent noting that “under this approach, the IRS can cut off Tax Court review by choosing when and how to collect. He also noted that telling taxpayers to file a refund suit instead is often unrealistic, especially when strict refund claim deadlines have expired while CDP and Tax Court proceedings are still pending.”

Collins noted that the Supreme Court decision and an earlier Tax Court order “reveal serious gaps in the protections Congress intended CDP to provide. They make CDP and Tax Court an unreliable path to a merits-based solution. A taxpayer can do everything right: request a CDO hearing, raise issues with Appeals, and timely petition the Tax Court yet still never receive a final determination on what they owe if, for example, the IRS fully collects through offsets or accepts an OIC and then declares that a levy is no longer warranted.”

She added that “the fallback remedy of refund litigation may not grant a taxpayer full relief … which is an unrealistic option for many small businesses and individuals. … Zuch raises due process concerns when collection action is withdrawn. A taxpayer typically receives only one CDP hearing for a given tax period and type of collection action. If the IRS abandons collection after that hearing and later restarts collection on the same liabilities, the taxpayer may not get a second CDP hearing with Tax Court review, but only an IRS ‘equivalent hearing,’ which does not provide a right to Tax Court review.”

Collins noted that Congress has begun to take steps to remedy this with the House of Representatives’ introduction of the Taxpayer Due Process Enhancement Act (H.R. 6506), including clarifying and expanding Tax Court jurisdiction in CDP cases, ensuring that jurisdiction over a properly underlying liability challenges whether the collection is abandoned, protects refund rights, and prohibits the IRS from crediting the overpayment against other liabilities without taxpayer consent.

However, she is calling for more Congressional action to address the “one hearing” limitation.

“Congress should create an exception to the ‘one hearing’ limitation for cases when the IRS withdraws or abandons collection,” Collins stated in the blog. “If the IRS has effectively reset the collection episode by withdrawing or abandoning the prior levy or lien and later initiates the same collection action for the same tax period, taxpayers should be entitled to a new CDP hearing with the full protections of IRC Sec. 6330, including Tax Court review.”

She added that Congress “should also ensure that taxpayers are not permanently barred from CDP when the IRS withdraws and later restarts collection and the Tax Court has clear authority to grant meaningful relief when the IRS has already collected more than the correct amount.”

The IRS has provided interim guidance addressing the special 100 percent bonus depreciation allowance for qualified production property enacted by the One Big Beautiful Bill Act (OBBBA) (P.L. 119-21). The interim guidance provides the definition of qualified production property, qualified production activities, and other related terms. It also establishes a safe harbor for property placed in service in 2025, provides instructions for the time and manner for electing the 100-percent depreciation allowance, and addresses recapture and certain special rules. Taxpayers may rely on the interim guidance until the Treasury Department issues proposed regulations.

The IRS has provided interim guidance addressing the special 100 percent bonus depreciation allowance for qualified production property enacted by the One Big Beautiful Bill Act (OBBBA) (P.L. 119-21). The interim guidance provides the definition of qualified production property, qualified production activities, and other related terms. It also establishes a safe harbor for property placed in service in 2025, provides instructions for the time and manner for electing the 100-percent depreciation allowance, and addresses recapture and certain special rules. Taxpayers may rely on the interim guidance until the Treasury Department issues proposed regulations.

Background

OBBBA enacted Code Sec. 168(n), which allows taxpayers to elect to take a 100 percent bonus depreciation allowance for qualified production property constructed after January 19, 2025, and before January 1, 2029, and placed in service after July 4, 2025, and before January 1, 2031.

Qualified Production Property Defined

Qualified production property is generally defined as new MACRS nonresidential real property that is (or will be once placed in service) as an integral part of a qualified production activity. Qualified production property must be placed in service in the United States, or its territories. Each building, including its structural components, is a single unit of property and any improvement of structural component that the taxpayer later places in service is a separate unit of property. A special rule is available for integrated facilities. For purposes of determining whether used property is acquired after January 19, 2025, and before January 1, 2029, a taxpayer applies rules consistent with Reg. § 1.168(k)-2(b)(5).

Under the interim guidance satisfies the integral part requirement if the qualified production activity takes place within the physical space of the property. The guidance provides a de minimis rule that permits a taxpayer to elect to treat the entire property as qualified production property if 95 percent or more of the physical space of a property satisfies the integral part requirement.

Although leased property that is owned by the taxpayer and used by a lessee does not qualify, the guidance provides an exception for consolidated groups, commonly controlled pass-through entities, and certain sole proprietorships, partnerships, or corporations of which 50 percent or more is owned, directly or by attribution by the lessor.

Under the guidance, a taxpayer may use any reasonable method to allocate a property’s unadjusted depreciable basis between eligible property and ineligible property. Each allocation method must be applied consistently and reflect the property’s facts and circumstances. In the case of property that contains infrastructure that serves both eligible property and ineligible property, a taxpayer may allocate the basis of such property between eligible property and ineligible property using any reasonable method.

Qualified Production Activity Defined

Generally, a qualified production activity means the manufacturing, production, or refining of a qualified product. The guidance provides specific definitions of production, qualified product, manufacturing, refining, agricultural production, chemical production, and substantial transformation of the property comprising a qualified product.

Under the guidance, a related business activity will not fail to be a qualified production activity if the related activity occurs within the same property. Such activities include: oversight and management of activities, material selection of vendors or materials related to the qualified product, developing product design and other intellectual property used in conducting a manufacturing, production, or refining activity that results in a substantial transformation of the property comprising the qualified product.

Safe Harbor for Qualified Production Property Placed in Service in 2025

For property placed in service after July 4, 2025, and on or before December 31, 2025, a taxpayer’s trade or business activity will be treated as a qualified production activity if the principal business activity code that the taxpayer, or the relevant trade or business of the taxpayer, used on its most recently filed Federal income tax return filed before February 19, 2026, is listed under sectors 31, 32, or 33, or under subsectors 111 or 112, that appear in the North American Industry Classification System (NAICS), United States, 2022, published by the Office of Management and Budget (OMB), Executive Office of the President. In addition, the activity must result in, or is otherwise essential to, the substantial transformation of the property comprising a qualified product.

Recapture

Recapture of the 100-percent bonus depreciation taken on qualified production property if a change in use occurs within 10 years after qualified production property is placed in service. Under the guidance a change in use occurs if the qualified production property ceases to satisfy the integral part requirement. A change in use has not occurred if a taxpayer begins to use qualified production property in a different qualified production activity. Property that has been placed in service but is temporarily idle does not cease to satisfy the integral part requirement.

Making the Election

A taxpayer may elect to treat property as qualified production property by attaching a statement to its Federal income tax return for the taxable year in which the eligible property is placed in service. The statement must include the following information: the name and taxpayer identification number of the taxpayer making the election; the street address, city, state, zip code, and a description of the property; the unadjusted depreciable basis of the property; the dollar amount of the unadjusted depreciable basis of eligible property the taxpayer is designating as qualified production property. Separate instructions are available for taxpayers applying the de minimis rule. A election may be revoked only by filing a request for a private letter ruling and obtaining the written consent of the IRS.

Request for Comments

The IRS requests comments on the interim guidance provided in Notice 2026-16. Comments must be submitted by the date, and in the form and manner, specified in Section 10.02 of Notice 2026-16.

Notice 2026-16

IR 2026-25

The Treasury Department and the IRS have extended the deadline for amending individual retirement arrangements (IRAs), SEP arrangements, and SIMPLE IRA plans to comply with the SECURE 2.0 Act of 2022. The new deadline is December 31, 2027. The extension does not apply to qualified plans such as 401(k) and 403(b) plans.

The Treasury Department and the IRS have extended the deadline for amending individual retirement arrangements (IRAs), SEP arrangements, and SIMPLE IRA plans to comply with the SECURE 2.0 Act of 2022. The new deadline is December 31, 2027. The extension does not apply to qualified plans such as 401(k) and 403(b) plans.

Under section 501 of the SECURE 2.0 Act (P.L. 117-328), retirement plans and contracts had until the end of the first plan year beginning on or after January 1, 2025, or by a later date prescribed by the Secretary, to adopt plan amendments reflecting changes made by the SECURE Act, the SECURE 2.0 Act, the CARES Act, and the Taxpayer Certainty and Disaster Tax Relief Act of 2020. In the absence of model language from the IRS, IRA custodians have requested more time to ensure proper amendments. Notice 2026-9 gives stakeholders until the end of 2027 to complete the necessary changes.

The extension applies to governing instruments of IRAs under Code Sec. 408(a) and (h), annuity contracts under Code Sec. 408(b), SEP arrangements under Code Sec. 408(k), and SIMPLE IRA plans under Code Sec. 408(p). Further, the IRS is developing model language to be used by IRA trustees, custodians, and issuers to amend an IRA for compliance with the legislation.

Notice 2026-9

The IRS issued answers to frequently asked questions (FAQs) about the implementation of Executive Order 14247, Modernizing Payments to and from America’s Bank Account. The order described advancing the transition to fully electronic federal payments both to and from the IRS. The purposes of said order were to (1) defend against financial fraud and improper payments; (2) increase efficiency; (3) reduce costs; and (4) enhance the security of federal transactions.

The IRS issued answers to frequently asked questions (FAQs) about the implementation of Executive Order 14247, Modernizing Payments to and from America’s Bank Account. The order described advancing the transition to fully electronic federal payments both to and from the IRS. The purposes of said order were to (1) defend against financial fraud and improper payments; (2) increase efficiency; (3) reduce costs; and (4) enhance the security of federal transactions.

The FAQs discussed included:

Tax Refunds and Tax Filing

The IRS stopped issuing paper refund checks for individual taxpayers after September 30, 2025. The Service would publish all guidance for filing 2025 tax returns before opening the 2026 tax filing season.

Further, direct deposit into a bank account would remain the primary method for issuing refunds. Alternative electronic payment methods, mobile apps and prepaid debit cards, would also be available. Limited exceptions to the paper check phase-out would also be established.

Alternative to Providing Direct Deposit Information

It is not mandatory for taxpayers to provide electronic payment information. However, if no exception applies, their refunds could take longer to process.

Sunset of Enrollment to EFTPS

Effective October 17, 2025, individual taxpayers are no longer able to create new enrollments via EFTPS.gov. Individual taxpayers not enrolled in the Electronic Federal Tax Payment System (EFTPS).gov by October 17, 2025 can instead create an IRS Online Account for Individual taxpayers or use the IRS Direct Pay guest path.

FS-2026-2

IR 2026-13

The IRS has encouraged all taxpayers to create an IRS Individual Online Account to access tax account information securely and help protect against identity theft. It emphasized that this digital resource is available to anyone who can verify their identity. Thus, the IRS highlighted how taxpayers have used the account with the same convenience as online banking to view adjusted gross income, check refund statuses, and request identity protection PINs.

The IRS has encouraged all taxpayers to create an IRS Individual Online Account to access tax account information securely and help protect against identity theft. It emphasized that this digital resource is available to anyone who can verify their identity. Thus, the IRS highlighted how taxpayers have used the account with the same convenience as online banking to view adjusted gross income, check refund statuses, and request identity protection PINs.

Further, the IRS supported collaboration between taxpayers and tax professionals through the use of digital authorizations. When taxpayers utilize Individual Online Accounts, they are able to approve power of attorney and tax information authorization requests entirely online. This digital process has allowed tax professionals to use their own Tax Pro Accounts to complete authorized actions on their clients’ behalf more efficiently. Tax professionals have supported this effort by encouraging clients to receive and view over 200 digital notices.

Additionally, the IRS expanded the account’s capabilities in early 2025 to allow taxpayers to view and download certain tax documents. It has made forms such as the W-2, 1095-A, and various 1099s available for the 2023, 2024, and 2025 tax years. These documents provide essential information return data reported by employers and financial institutions to help taxpayers file their returns. Consequently, the IRS advised individuals to visit IRS.gov to learn more about accessing records and managing payment plans.

IR 2026-21

In light of the IRS’s new Voluntary Worker Classification Settlement Program (VCSP), which it announced this fall, the distinction between independent contractors and employees has become a “hot issue” for many businesses. The IRS has devoted considerable effort to rectifying worker misclassification in the past, and continues the trend with this new program.  It is available to employers that have misclassified employees as independent contractors and wish to voluntarily rectify the situation before the IRS or Department of Labor initiates an examination.

The distinction between independent contractors and employees is significant for employers, especially when they file their federal tax returns. While employers owe only the payment to independent contractors, employers owe employees a series of federal payroll taxes, including Social Security, Medicare, Unemployment, and federal tax withholding. Thus, it is often tempting for employers to avoid these taxes by classifying their workers as independent contractors rather than employees.

If, however, the IRS discovers this misclassification, the consequences might include not only the requirement that the employer pay all owed payroll taxes, but also hefty penalties. It is important that employers be aware of the risk they take by classifying a worker who should or could be an employee as an independent contractor.

“All the facts and circumstances”

The IRS considers all the facts and circumstances of the parties in determining whether a worker is an employee or an independent contractor. These are numerous and sometimes confusing, but in short summary, the IRS traditionally considers 20 factors, which can be categorized according to three aspects: (1) behavioral control; (2) financial control; (3) and the relationship of the parties.

Examples of behavioral and financial factors that tend to indicate a worker is an employee include:

• The worker is required to comply with instructions about when, where, and how to work;
• The worker is trained by an experienced employee, indicating the employer wants services performed in a particular manner;
• The worker’s hours are set by the employer;
• The worker must submit regular oral or written reports to the employer;
• The worker is paid by the hour, week, or month;
• The worker receives payment or reimbursement from the employer for his or her business and traveling expenses; and
• The worker has the right to end the employment relationship at any time without incurring liability.

In other words, any existing facts or circumstances that point to an employer’s having more behavioral and/or financial control over the worker tip the balance towards classifying that worker as an employee rather than a contractor. The IRS’s factors do not always apply, however; and if one or several factors indicate independent contractor status, but more indicate the worker is an employee, the IRS may still determine the worker is an employee.

Finally, in examining the relationship of the parties, benefits, permanency of the employment term, and issuance of a Form W-2 rather than a Form 1099 are some indicators that the relationship is that of an employer–employee.

Conclusion

Worker classification is fact-sensitive, and the IRS may see a worker you may label an independent contractor in a very different light. One key point to remember is that the IRS generally frowns on independent contractors and actively looks for factors that indicate employee status.

Please do not hesitate to call our offices if you would like a reassessment of how you are currently classifying workers in your business, as well as an evaluation of whether IRS’s new Voluntary Classification Program may be worth investigating.

Charitable contributions traditionally peak at the end of the year-end. While tax savings may not be your prime motivator for making a gift to charity, your donation could help your tax bottom-line for 2015. As with many tax incentives, the rules for tax-deductible charitable contributions are complex, especially the rules for substantiating your donation. Also important to keep in mind are some enhanced charitable giving incentives scheduled to expire at the end of 2015.

Year-end charitable giving can benefit your 2015 tax bottom-line

Charitable contributions traditionally peak at the end of the year-end. While tax savings may not be your prime motivator for making a gift to charity, your donation could help your tax bottom-line for 2015. As with many tax incentives, the rules for tax-deductible charitable contributions are complex, especially the rules for substantiating your donation. Also important to keep in mind are some enhanced charitable giving incentives scheduled to expire at the end of 2015.

Tips

The IRS has posted tips for deducting charitable contributions on its website. The tips are a good refresher of the fundamental rules for deducting charitable contributions:

• To be tax-deductible, a contribution must be made to a qualified organization.
• To deduct a charitable contribution, you must file Form 1040 and itemize deductions on Schedule A.
• If you receive a benefit because of your contribution such as merchandise, tickets to a ball game or other goods and services, then you can deduct only the amount that exceeds the fair market value of the benefit received.
• Donations of clothing and household items must generally be in good used condition or better to be tax-deductible.
• Special rules apply to donations of motor vehicles.
• Many donations must be substantiated; the substantiation rules vary for different donations.

Qualified organizations

Some individuals are surprised to learn that their donation is not tax-deductible because the recipient is not a qualified charitable organization. Generally, churches, temples, synagogues, mosques, and other religious organizations are qualified charitable organizations. Nonprofit community service, educational, and health organizations are also generally qualified charitable organizations. Special rules apply to foreign charities. If you have any questions whether the organization is a qualified charitable organization, please contact our office.

Substantiation rules

Unless a charitable contribution is properly substantiated, the IRS may deny your deduction.

Regardless of the amount, to deduct a contribution of cash, check, or other monetary gift, you must maintain a bank record, payroll deduction records or a written communication from the organization containing the name of the organization, the date of the contribution and amount of the contribution. Remember, this rule applies to all cash contributions, even contributions of small monetary amounts. The IRS will not accept certain personal records. For example, you cannot substantiate a contribution by reference to a diary or notes made at the time of the donation.

In recent years, text message donations have grown in popularity. For text message donations, a telephone bill will meet the record-keeping requirement if it shows the name of the receiving organization, the date of the contribution, and the amount given.

To claim a deduction for contributions of cash or property equaling $250 or more you must have a bank record, payroll deduction records or a written acknowledgment from the qualified organization showing the amount of the cash and a description of any property contributed, and whether the organization provided any goods or services in exchange for the gift.

One document may satisfy both the written communication requirement for monetary gifts and the written acknowledgement requirement for all contributions of $250 or more. If your total deduction for all noncash contributions for the year is over $500, you must complete and attach IRS Form 8283, Noncash Charitable Contributions, to your return.

Additional rules apply for donations valued at more than $5,000. These donations generally require an appraisal and you must advise the IRS of that appraisal by filing a special form.

Expiring provisions

Under current law, certain IRA owners can directly transfer tax-free, up to $100,000 annually from the IRA to a qualified charitable organization. The benefit is limited. The IRA owner must be age 70 ½ or older. Additionally, the contribution does not qualify for the deduction for charitable donations. To qualify, the IRA funds must be contributed directly by the IRA trustee to the qualified charitable organization. You can also take advantage of this tax incentive if you itemize or do not itemize deductions.

Unless extended, this incentive will have officially expired after December 31, 2014. It is unclear if Congress will extend the incentive retroactively for 2015 or beyond. If you are considering a charitable contribution from your IRA, please contact our office so we can review the rules in detail.

Several other enhanced charitable giving incentives will no longer be available for the 2015 tax year and beyond. They include special rules for contributions of food inventory.

Clothing and household items

Cleaning out your closet can help generate year-end tax savings. However, not all charitable contributions of clothing and household items are deductible. Generally, clothing and household items donated to a charitable organization must be in good used or better condition. Other rules also apply to donations of clothing and household items. Properly valuing the items to withstand any IRS examination is also important.

Motor vehicles and other types of donations

The tax deduction for a motor vehicle, boat or airplane donated to charity is fraught with complexity. The substantiation requirements depend on the amount of your claimed deduction. If you are considering donating a motor vehicle, boat or airplane to charity, please contact our office so we can help you navigate the substantiation rules to maximize your tax benefits.

The rules for donations of conservation easements, intellectual property and other items likewise require expert planning. Otherwise, you could miss the tax benefit.

Limitations

The Tax Code includes a number of provisions limiting tax-deductible contributions. Limitations may be based on the individual’s income, the type of donation and the nature of the recipient organization. Our office can describe how these limitations may impact you.

As in past years, a provision known as the limitation on itemized deductions applied to higher-income individuals. This provision reduces the total amount of a higher-income individual's allowable deductions; however, some deductions are not impacted. For purposes of the limitation on itemized deduction, a taxpayer's total, itemized deductions do not include deductions for medical expenses, investment interest expenses, casualty or theft losses, and allowable wagering losses; charitable deductions do count, however.

If you have any questions about the mechanics of tax-deductible charitable contributions, please contact our office.

Job-hunting expenses are generally deductible as long as you are not searching for a job in a new field. This tax benefit can be particularly useful in a tough job market. It does not matter whether your job hunt is successful, or whether you are employed or unemployed when you are looking.

Expenses directly connected with a job search are deductible as a miscellaneous itemized deduction. You can deduct job-hunting expenses if the amount of all your so-called miscellaneous itemized deductions exceeds two percent of your adjusted gross income. However, if you claim the standard deduction, you cannot deduct job-hunting expenses. Therefore, as a practical matter for many job seekers, job hunting expenses do not materialize as a tax deduction.

For those who are able to use job seeking expenses as a deduction, it can be difficult to determine what a new field is. A professional photographer who pursues a job in the retail industry clearly is searching in a new field and cannot deduct any of his or her job-hunting expenses. But there are exceptions. The IRS has allowed persons who retired from the military to search for jobs in new fields and claim their job-hunting expenses. Taking a temporary job while searching for permanent employment in your current field will not be considered a job change that disqualifies your job-hunting expenses.

Persons entering the job market for the first time, such as college students, and persons who have been out of the job market for a long period of time, such as parents of young children, cannot deduct their job-hunting expenses. However, a college student who worked in a particular field while in school may be able to deduct job-hunting expenses.

Deductible expenses include typing, printing and mailing a resume. Long-distance phone calls are also deductible. You can deduct travel costs for going on a job search or an interview, including air transportation, railroad, or car expenses. The standard rate for car expenses for business is 55 cents per mile for 2012. Amounts you pay to a job counselor, employment agency or job referral service are all deductible.

It is important to keep records of your costs. While your individual expenses may not be substantial, your total expenses can add up to a significant amount.

November 2
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates October 26–28.

November 4
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates October 29–November 1.

November 9
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates November 2– 4.

November 10
Employees who work for tips. Employees who received $20 or more in tips during October must report them to their employer. Form 4070 may be used.

Employers. Employers file Form 941 for the third quarter of 2011.

November 14

Employers. Semi-weekly depositors must deposit employment taxes for payroll dates November 5–8.

November 15
Monthly depositors. Monthly depositors must deposit employment taxes for payments in October.

November 16
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates November 9–11.

November 18
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates November 12–15.

November 23
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates November 16–18.

November 28
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates November 19–22.

November 30
Employers. Semi-weekly depositors must deposit employment taxes for payroll dates November 23–25.

2011 year end tax planning for individuals lacks some of the drama of recent years but can be no less rewarding.  Last year, individual taxpayers were facing looming tax increases as the calendar changed from 2010 to 2011; particularly, increased tax rates on wages, interest and other ordinary income, and higher rates on long-term capital gains and qualified dividends.

Thanks to legislation enacted at the end of 2010, tax rates are stable for 2011 and 2012, although the uncertainty will return as 2013 approaches, as political pressure in Washington builds to do something quickly for the economy. Ordinary income tax rates for individuals currently are 10, 15, 25, 28, 33 and 35 percent; capital gains rates are zero and 15 percent.

President Obama has proposed to preserve these tax rates for taxpayers with income below $200,000 (individuals) and $250,000 (married couples filing jointly) and to raise the rates for taxpayers in these higher-income brackets. If Congress is gridlocked and takes no action, everybody’s rates will rise, but again, not until 2013.

Expiring tax breaks

Unfortunately, not all is quiet on the tax front despite no dramatic rate changes until 2013. There are some specific tax provisions that will terminate at the end of 2011, unless Congress and the President agree to extend them. These include the tuition and fees above-the-line deduction for high education expenses, which can be as high as $4,000. Another expiring provision is the deduction for mortgage insurance premiums, which covers premiums paid for qualified mortgage insurance.

Several other benefits (“extenders”) are also scheduled to expire after 2011:

• The state and local sales tax deduction;
• The classroom expense deduction for teachers;
• Nonbusiness energy credits;
• The exclusion for distributions of up to $100,000 from an IRA to charity;
• A higher deduction limit for charitable contributions of appreciated property for conservation purposes.

Retirement accounts

An old standby that makes sense from year-to-year is maximizing contributions to an IRA. The contribution is deductible up to $5,000 ($6,000 for taxpayers over 50), depending on some specific taxpayer income levels and circumstances. Taxpayers in a 401(k) plan can reduce their income by contributing to their employer plan, for which the limit in 2011 is $16,500.

In 2010, it was particularly important to consider whether to convert a traditional IRA to a Roth IRA, because the income realized on conversion could be recognized over two years. While a conversion continues to be worthwhile to consider (because distributions from a Roth IRA are not taxable), there are no longer any special break to defer a portion of the income from the conversion.

 Alternative minimum tax

The AMT has been “patched” for 2011. The exemptions have been temporarily increased from the normal statutory levels to the “patched” levels:

• From $33,750 to $48,450 for single individuals;
• From $45,000 to  $74,450 for married couples filing jointly and surviving spouses; and
• From $22,500 to $37,335 for married couples filing separately.

The amounts return to the “normal levels” of $33,750/$45,000/$22,500, respectively, in 2012 unless Congress takes action to maintain the patch. Elimination of the AMT is a goal of long-term tax reform, but the loss of revenue has been considered too high in the past. Without  the “patch,” the Congressional Budget Office estimates that an additional 20 million middle-class taxpayers would suddenly become subject to an AMT once designed only for millionaires.

While planning for the AMT is difficult, taxpayers may want to consider realizing AMT income, such as capital gains, in 2011, when the patch is higher, rather than in 2012.

Conclusion

Taxpayers can take advantage of 2011 provisions to realize last-minute tax benefits. Some of these benefits may not be available in 2012.  It is worthwhile to look at these planning opportunities as part of an overall year-year financial strategy.

Many tax benefits for business will either expire at the end of 2011 or become less valuable after 2011. Two of the most important benefits are bonus depreciation and Code Sec. 179 expensing. Both apply to investments in tangible property that can be depreciated. Other sunsetting opportunities might also be considered.

Bonus depreciation

Bonus depreciation is 100 percent for 2011. A business can write-off, in the first year, the entire cost of its investment in new depreciable property. Under current law, bonus depreciation will decrease to 50 percent in 2012 and will terminate after 2012. (These deadlines are extended one year for certain transportation property and property with a longer production period). President Obama has proposed to extend 100 percent bonus depreciation through 2012. Normally, this would have a good chance of being approved, but with the focus on deficit reduction and the linking of tax benefits to tax increases, it is not at all clear what will happen.

So, if a business has income in 2011 and plans to invest in depreciable property, it is worthwhile to consider making that investment in 2011, while the available write-off is at its highest. Under normal depreciation rules, a business will still be able to claim accelerated write-offs, but this may be 50 percent or less of the cost of the property, with the balance written-off over several years, instead of all in one year.

Planning for bonus depreciation is important because the property must satisfy placed-in-service and acquisition date requirements. Property is placed in service when it is in a condition or state of readiness on a regular ongoing basis for a specifically assigned function in a trade or business. The acquisition date rules may vary. For 2011, property is acquired when the taxpayer incurs or pays its cost. This could occur when the property is delivered, but it could also be when title to the property passes. For 2012, property is acquired when the taxpayer takes physical possession of the property.

Code Sec. 179 expensing

Code Sec. 179 expensing (first-year writeoff) has been around for awhile, but at higher amounts more recently. While there is no limit on bonus depreciation, expensing is limited to a statutory amount. For 2011, this amount is $500,000. It is scheduled to drop to $125,000 in 2012 and to $25,000 after 2012 (adjusted for inflation). Moreover, the cap is reduced for the amount of total investment in Code Sec. 179 property. The phaseout threshold is $2 million for 2011, dropping to $500,000 for 2012 and $200,000 for 2013 and subsequent years. For businesses who want to invest in depreciable property, the payoff is definitely greater in 2011. Taxpayers taking advantage of expensing should write off assets that would otherwise have the longest recovery periods.

Other 2011 benefits

Some other important benefits expire at the end of 2011 or become less valuable. A significant benefit in 2011 is the 100 percent exclusion for small business stock. After 2012, the normal exclusion rate will drop to 50 percent, although it has been 75 percent in recent years. The exclusion is based on the year the stock is acquired; the stock must be held for five years before sold and satisfy other requirements.

Another important benefit is the 20 percent research credit. The credit has been extended one year at a time for a long period, so it is likely to be extended again. Nevertheless, until Congress acts, there is some uncertainty for research expenses incurred after 2011.

Conclusion

To maximize the benefits of 2011 year-end tax planning, a business must be proactive in determining what upcoming capital investments might be accelerated into this year and what investments become cost effective because of the immediate tax benefits that they offer. Some business-related tax benefits will be less valuable after 2011; for others, it is not clear what Congress and the administration will do in terms of surprising taxpayers with a year-end tax bill. Please contact this office if you have any questions over how year-end tax strategies that begin now and continue through December can help maximize tax benefits for your business.