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July 2010


by Andrew D. Schwartz, CPA

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.



by Andrew D. Schwartz, CPA

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:

  • Result in new therapies to treat areas of unmet medical need or prevent, detect or treat chronic or acute diseases and conditions,
  • Reduce the long-term growth of health care costs in the United States, or
  • Significantly advance the goal of curing cancer within 30 years.

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:

  • Employee wages

  • Supplies and lab costs

  • Equipment purchases

  • Payments to third-party contractors

  • Other costs "necessary for and directly related to the conduct of the project"

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.

Quick Deadline:

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.


2009 & 2010 TAX FACTS

  • For 2009 and 2010, the standard deduction for a single individual is $5,700 and for a married couple is $11,400. A person will benefit by itemizing once allowable deductions exceed the applicable standard deduction. Itemized deductions include state and local income taxes (or sales taxes), real estate taxes, mortgage interest, charitable contributions, and unreimbursed employee business expenses.
  • For 2009 and 2010, the personal exemption is $3,650. Individuals will claim a personal deduction for themselves, their spouse, and their dependents. 
  • The maximum earnings subject to social security taxes is $106,800 for 2009 and 2010.
  • The standard mileage rate is $.50 per business mile as of January 1, 2010, down from $.55 per mile for 2009.
  • The maximum annual contribution into a 401(k) plan or a 403(b) plan is $16,500 in 2010. And if you'll be 50 or older by December 31st, you can contribute an extra $5,500 into your 401(k) or 403(b) account this year.
  • The maximum annual contribution to your IRA is $5,000 for 2010.  And if you turn 50 by December 31st, you can contribute an extra $1,000 that year.  You have until April 15, 2011 to make your 2010 IRA contributions. 



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