by Jeff Dunlop - Beginning March 19, 2010, if certain employers hire a formerly unemployed worker, the employer will not have to pay Social Security tax for the new hire. The pay-roll tax holiday is available for wages paid to both full-time and part-time employees, as well as rehired employees of the employer who were previously laid-off. The pay-roll tax holiday ends December 31, 2010 and there are some technical requirements to qualify, but an employer can save as much as $6,621.60 for the year per employee, so the sooner the employer hires a formerly unemployed worker the greater the tax savings.

By Ryan Beadle
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 added health savings accounts (HSAs) to the Code effective for taxable years beginning after December 31, 2003. The rules for inheriting an HSA are different than for IRAs and other tax-deferred retirement accounts, and therefore may be unfamiliar to many given that HSAs are a relatively new concept and very few have been inherited. Under §223(f)(8)(B)(i) of the Internal Revenue Code:

If the HSA account owner’s surviving spouse is the designated beneficiary of the HSA, §223(f)(8)(A) specifies that the HSA becomes the HSA of the surviving spouse and is excluded from income. This is similar to a spousal rollover of an IRA or other tax-deferred retirement account. No other “rollover” is permitted for HSAs.

If the account is acquired by the owner’s estate, the HSA ceases to be an HSA at the account owner’s death, and the account’s value must be included in the account owner’s income for his or her last taxable year.

If the account is acquired by anyone other than the owner’s surviving spouse or estate, then the HSA ceases to be an HSA at the account owner’s death, and the person acquiring the HSA must include the fair market value of the HSA as of the date of death in income in the taxable year that includes the date of the account owner’s death.

There is a provision to reduce the includible income by the deceased HSA account owner’s qualified medical expenses paid by the HSA recipient (other than the spouse or estate) within one year after the account owner’s death. There is also a provision allowing a deduction for increased estate taxes attributable to an item which is also taxable income. §223(f)(8)(B)(ii).

This is a different rule than for an IRA or other tax-deferred retirement account of which the estate is the beneficiary—for retirement accounts, normally the estate includes the item of income on its tax return, and the estate passes that income, and the tax obligation, out to the beneficiaries of the estate, thus taxing the income at the beneficiary’s (usually) lower rates, depending on how many beneficiaries there are and what their marginal income tax rates are.

The Internal Revenue Service has announced that people who give to charities providing earthquake relief in Haiti can claim these donations on the tax return they are completing this season (i.e. the return for tax year 2009, which is due April 15, 2010).
Taxpayers who itemize deductions on their 2009 return qualify for this special tax relief provision, enacted Jan. 22. Only cash contributions made to these charities after Jan. 11, 2010, and before March 1, 2010, are eligible. This includes contributions made by text message, check, credit card or debit card.
The new law only applies to cash (as opposed to in-kind) contributions. The contributions must be made specifically for the relief of victims in areas affected by the Jan. 12 earthquake in Haiti. Taxpayers have the option of deducting these contributions on either their 2009 or 2010 returns, but not both.
Only taxpayers who itemize their deductions on Schedule A may take advantage of this deduction. Those who claim the standard deduction, including all short-form filers, are not eligible.
Taxpayers should be sure their contributions go to qualified charities. Most organizations eligible to receive tax-deductible donations are listed in a searchable online database available on the site: IRS.gov, under “Search for Charities”. Some organizations, such as churches or governments, may be qualified even though they are not listed on the site: IRS.gov. Donors can find out more about organizations helping Haitian earthquake victims from agencies such as USAID.
Federal law requires that taxpayers keep a record of any deductible donations they make. For donations by text message, a telephone bill will meet the recordkeeping requirement if it shows the name of the donee organization, the date of the contribution and the amount of the contribution. For cash contributions made by other means, be sure to keep a bank record, such as a cancelled check, or a receipt from the charity showing the name of the charity and the date and amount of the contribution. Publication 526 has further details on the recordkeeping rules for cash contributions.

by Ryan Beadle

Most taxpayers know that contributions to a tax-deferred retirement account will be taxable income when withdrawn.  However, until January 1, 2010, individuals 70½ and older who make a qualified charitable distribution of up to $100,000 from a traditional IRA will not include the distribution in taxable income.  Married individuals filing jointly may exclude distributions up to $200,000 from income, $100,000 per individual IRA owner.  IRC §408(d)(8)(A).

Such distributions are not taken into account for charitable deduction purposes; that is, the taxpayer cannot claim the contribution as an itemized deduction (No double dipping!).  Most importantly, the distribution must be made by the IRA trustee directly to a charitable organization as described in IRC §170(b)(1)(A) (i.e., 50-percent organizations).

by Jeff Dunlop

There are many reasons why you might have a non-U.S. bank account. Maybe you spend a significant amount of time in a foreign country and want a local bank account or perhaps you support family members in a foreign country and as a matter of convenience have an account in your family members’ country of citizenship. Regardless of the reasons for your use of non-U.S. bank accounts, every U.S. person has reporting obligations regarding their foreign accounts and the income generated on these accounts. If you have failed to report the income from or existence of a non-U.S. bank account, you could be subject to substantial civil monetary and criminal penalties.

To induce compliance from taxpayers who have inadvertently failed to report the income from or existence of non-U.S. bank accounts, the IRS recently instituted a program where owners of unreported non-U.S. bank accounts can make a voluntary disclosure to become compliant with the IRS requirements, avoid substantial civil penalties, and generally eliminate the risk of criminal prosecution by the IRS. Making a voluntary disclosure also provides the opportunity to calculate, with a reasonable degree of certainty, the total cost of resolving all non-U.S. tax issues.

If a person does not voluntarily disclose non-U.S. bank accounts under the IRS program, he or she could be liable for civil and criminal penalties, which are significantly higher than the voluntary penalties.

The voluntary disclosure program for unreported offshore bank accounts may not be for everyone and the last date to participate is September 23, 2009. For more information regarding this IRS program you can visit:

http://www.irs.gov/newsroom/article/0,,id=206012,00.html?portlet=7.

To comply with certain U.S. Treasury regulations, we inform you that, unless expressly stated otherwise, any U.S. Federal tax advice contained in this communication, including attachments, is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.