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MONTHLY TAX NEWSLETTERJuly 2010
Would you be interested in having the government fund 50% of your 2009 and 2010 research expenditures? As long as your business has less than 250 employees, you have until July 21st to submit your application to the IRS on Form 8942.
As part of the Patient Protection and Affordable Care Act signed into law on March 23, 2010, the federal government set aside $1 billion toward the Qualifying Therapeutic Discovery Project Program. According to the IRS in their Q and A on the Tax Credit or Grant for Qualifying Therapeutic Discovery Projects:
The credit is a tax benefit targeted to therapeutic discovery projects that show a reasonable potential to:
Allocation of the credit will also take into consideration which projects show the greatest potential to create and sustain high-quality, high-paying U.S. jobs and to advance U.S. competitiveness in life, biological and medical sciences.
What Expenses Qualify?
Per the instructions to the Form 8942, up to $10 million in costs paid or incurred during 2009 and 2010 in connection with your approved project qualify. Eligible expenses include:
Not all costs qualify, however. Make sure to exclude salaries paid to the CEO, interest expense, and facility costs including mortgage or rent payments, insurance, utilities, and maintenance costs. More information is available in IRS Notice 2010-45.
You'll need to act quickly to apply for this grant. The deadline to submit the Form 8942 is July 21, 2010. With the application, you'll also need to include a Project Information Memorandum.
While the IRS is collecting this information, the US Department of Health and Human Services will be the organization to determine whether your project meets the requirements for this program. The IRS will then dole out the $1 billion based on the total eligible costs of all the certified projects. While the maximum grant is 50% of each project's cost, the percentage will drop across the board if total costs for all of the approved projects exceed $2 billion.
Assuming you get the paperwork submitted by the July 21st deadline, expect to hear from the IRS by the end of October whether your therapeutic discovery project has been accepted into this lucrative program.
Here is another great opportunity available to health care professionals thanks to the Affordable Care Act. According to our friends at the IRS in IR-2010-74:
As part of a larger Administration announcement on efforts to strengthen the health care workforce, the Internal Revenue Service announced that under the Affordable Care Act health care professionals who received student loan relief under state programs that reward those who work in underserved communities may qualify for refunds on their 2009 federal income tax returns as well as an annual tax cut going forward.
“Doctors and nurses who choose to practice in underserved areas make a great contribution to their local communities,” Commissioner Doug Shulman said. “By expanding the tax exclusion for student loan forgiveness, the Affordable Care Act provides an even greater incentive to practice medicine in areas that need it most.”
The Affordable Care Act included a change in the law, effective in 2009, that expands a tax exclusion for amounts received by health professionals under loan repayment and forgiveness programs. Prior to the new law, only amounts received under the National Health Service Corps Loan Repayment Program or certain state loan repayment programs eligible for funding under the Public Health Service Act qualified for a tax exclusion.
The Affordable Care Act expands this tax exclusion to include any state loan repayment or loan forgiveness programs intended to increase the availability of health care services in underserved areas or health professional shortage areas and makes this exclusion retroactive to the 2009 tax year.
Health care professionals participating in these programs who have reported income from repaid or forgiven loan amounts on their 2009 returns, possibly after receiving a Form W-2, Wage and Tax Statement, or Form 1099, may be due refunds. Those who believe they qualify for this relief may want to consult their state loan program offices to determine whether the program is covered by the new law.
Health care professionals who have not yet filed for 2009 need not report eligible loan repayment or forgiveness amounts when they file. Those who have already filed may exclude eligible amounts by filing Form 1040X, Amended U.S. Individual Income Tax Return. Individuals filing Form 1040X to claim this exclusion should write “Excluded student loan amount under 2010 Health Care Act” in the Explanation of Changes box.
Health care professionals may request an employer or other issuer to provide a Form W-2c, Corrected Wage and Tax Statement, or 1099 and may attach the corrected form to the Form 1040X. However, the Form 1040X may also be filed without attaching a corrected form.
An individual whose employer withheld and paid taxes under the Federal Insurance Contributions Act (FICA) on payments covered under the new exclusion may request that the employer seek a refund of withheld FICA on the employee’s behalf. And because employers also pay a portion of the FICA tax, the employer also may also be entitled to a refund.
According to FEMA, the federal government has declared 49 Major Disasters during the first six months of 2010. People impacted include residents of specific counties within the following states:
Alabama, Arizona, Arkansas, California, Connecticut, Delaware, District of Columbia, Iowa, Massachusetts, Mississippi, Kansas, Kentucky, Maine, Maryland, Minnesota, Nebraska, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Oklahoma, Pennsylvania, Rhode Island, South Dakota, Tennessee, Virginia, West Virginia,
Have you suffered a loss while living or owning a business within a Federally Declared Disaster Area? If so, you might be in a position to quickly get back some money from the IRS in connection with the loss you suffered.
According to IRS Publication 547, Casualties, Disasters, and Thefts, you are allowed to claim a deduction for certain types of losses. When dealing with non-business property, however, these losses are generally limited to the extent the loss incurred exceeds 10% of your income. So if you earn $100k, the first $10k of your loss doesn't save you any taxes.
When your loss is within a Disaster Area, the rules become a lot more liberal. For starters, the 10% threshold does not apply to Disaster Area losses, making 100% of your loss fully allowable.
Plus, you can elect to claim the loss on the tax return filed for the year of loss, or you can deduct the loss as part of the original return or an amended return for the prior tax year. For 2010 Disaster Area losses, therefore, affected taxpayers can either amend their 2009 returns to claim the loss or can hold off claiming the loss until they file their 2010 returns. People who amend their 2009 returns should see their tax refund within 90 days of filing the paperwork.
To report your loss, complete and attach a Form 4684, Casualties and Thefts, to your federal income tax return. Plenty of good information about claiming these types of losses is available as part of the instructions to Form 4684.
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