Annual Wisconsin Tax Booklet Mailings to Individuals Discontinued

Mileage Rate Changes

The Internal Revenue Service today announced an increase in the optional standard mileage rates for the final six months of 2011. Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business and other purposes.

Wisconsin Counties Designated as Disaster Areas

On April 5, 2011, President Obama determined that certain counties in Wisconsin qualify as disaster areas due to a severe winter storm and snowstorm during the period of January 31 to February 3, 2011. The following counties are affected: Dane, Dodge, Grant, Green, Iowa, Kenosha, Lafayette, Milwaukee, Racine, Walworth, and Washington.

As a result, persons who sustained a casualty loss in 2011 from the disaster can choose to deduct that loss on their original or an amended 2010 federal income tax return or on their 2011 return.

The option to report the casualty loss on the 2010 return also applies for Wisconsin. Although Wisconsin does not allow a deduction for a casualty loss, casualty losses related to a federally-declared disaster and deducted on federal Schedule A as an itemized deduction can be used in the computation of the Wisconsin itemized deduction credit.

New Mileage rates for 2011

Beginning on Jan. 1, 2011, the standard mileage rates for the use of cars, vans, pickups or panel trucks will be

• 51 cents per mile for business miles driven

• 19 cents per mile driven for medical or moving purposes

• 14 cents per mile driven in service of charitable organizations

Overview of the tax provisions in the 2010 Tax Relief Act

December 17, 2010

The recently enacted “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010” is a sweeping tax package that includes, among many other items, an extension of the Bush-era tax cuts for two years, estate tax relief, a two-year “patch” of the alternative minimum tax (AMT), a two-percentage-point cut in employee-paid payroll taxes and in self-employment tax for 2011, new incentives to invest in machinery and equipment, and a host of retroactively resuscitated and extended tax breaks for individuals and businesses. Here's a look at the key elements of the package:

• The current income tax rates will be retained for two years (2011 and 2012), with a top rate of 35% on ordinary income and 15% on qualified dividends and long-term capital gains.
• Employees and self-employed workers will receive a reduction of two percentage points in Social Security payroll tax in 2011, bringing the rate down from 6.2% to 4.2% for employees, and from 12.4% to 10.4% for the self-employed.
• A two-year AMT “patch” for 2010 and 2011 will keep the AMT exemption near current levels and allow personal credits to offset AMT. Without the patch, an estimated 21 million additional taxpayers would have owed AMT for 2010.
• Key tax credits for working families that were enacted or expanded in the American Recovery and Reinvestment Act of 2009 will be retained. Specifically, the new law extends the $1,000 child tax credit and maintains its expanded refundability for two years, extends rules expanding the earned income credit for larger families and married couples, and extends the higher education tax credit (the American Opportunity tax credit) and its partial refundability for two years.
• Businesses can write off 100% of their equipment and machinery purchases, effective for property placed in service after September 8, 2010 and through December 31, 2011. For property placed in service in 2012, the new law provides for 50% additional first-year depreciation.
• Many of the “traditional” tax extenders are extended for two years, retroactively to 2010 and through the end of 2011. Among many others, the extended provisions include the election to take an itemized deduction for state and local general sales taxes in lieu of the itemized deduction for state and local income taxes; the $250 above-the-line deduction for certain expenses of elementary and secondary school teachers; and the research credit.
• After a one-year hiatus, the estate tax will be reinstated for 2011 and 2012, with a top rate of 35%. The exemption amount will be $5 million per individual in 2011 and will be indexed to inflation in following years. Estates of people who died in 2010 can choose to follow either 2010's or 2011's rules.
• Omitted from the new law: Repeal of a controversial expansion of Form 1099 reporting requirements.
• Also not included: Extension of the Build America Bonds program, which permits state and localities to issue federally-subsidized municipal bonds.

I hope this information is helpful. If you would like more details about these provisions or any other aspect of the new law, please do not hesitate to call.

Affordable Care Act

Revised: 6/1/2010

The provisions of the Affordable Care Act do not apply for Wisconsin income tax purposes unless they are adopted by the Wisconsin Legislature. The Legislature is currently adjourned. It is anticipated that the Legislature will consider whether or not to adopt these provisions in the next session which will begin in January of 2011.

Until the provisions of the Affordable Care Act are adopted, Wisconsin must follow federal law in effect prior to the Affordable Care Act. Therefore, to qualify for the exclusion from gross income for employer-provided accident or health insurance benefits including coverage in a medical flexible spending account (FSA), for Wisconsin purposes the child under age 27 must qualify as a dependent for income tax purposes (either as a "qualifying child" or "qualifying relative"). For purposes of health insurance coverage only, an adult child may meet the definition of a "qualifying relative" even though the adult child's gross income may equal or exceed the exemption amount.

If the adult child does not qualify as a dependent, the fair market value of the adult child's health insurance coverage and reimbursements from a medical flexible spending account (FSA) are income and taxable wages to the employee.

Federal Roth IRA Conversion Law Adopted for Wisconsin

On March 15, 2010, Governor Doyle signed 2009 Act 161. The pension and IRA contribution limits that will apply for the federal tax purpose for 2011 will also apply to Wisconsin.

All taxpayers may convert a traditional IRA to a Roth IRA, even in those cases where the taxpayer’s adjusted gross income exceeds $100,000. No penalties will apply on the conversion.

Taxpayers who make the conversion in 2010 may postpone payment of tax on the converted amount until they file their 2011 and 2012 income tax returns or they may elect to report the entire taxable amount on their 2010 returns.

The pension and IRA contribution limits that will apply for federal tax purposes for 2011 will also apply for Wisconsin.

In addition, this Act also adopts certain provisions of the federal Heroes Earnings Assistance and Relief Tax Act of 2008. Among the provisions adopted are:

• The treatment of qualified reservist retirement plan distributions.
• Military death benefits may be contributed to Roth IRA or Coverdell ESA.
• State or local bonuses for combat veterans are not taxable income.
• Differential pay treated as wages for purposes of employer benefits.

Taxpayers who filed a 2008 or 2009 Wisconsin income tax return and adjusted for the difference between the Wisconsin and federal treatment of any of these items, may now file an amended Wisconsin income tax return (Form 1X) to reverse the adjustment. Taxpayers who have not as yet filed their 2009 Wisconsin income tax returns may ignore the Schedule I adjustment for these four items.