Ordinarily, expenses related to use of a car, van, pickup or panel truck for business can be deducted as transportation expenses. Use of larger vehicles, such as tractor-trailers, is treated differently and is not part of this discussion. In order to claim a deduction for business use of a car or truck, a taxpayer must have ordinary and necessary costs related to one or more of the following:

(1) Traveling from one work location to another within the taxpayer’s tax home area. (Generally, the tax home is the entire city or general area where the taxpayer’s main place of business is located, regardless of where he or she resides.)

(4) Getting from home to a temporary workplace when the taxpayer has one or more regular places of work. (These temporary workplaces can be either within or outside taxpayer’s tax home area.)

The standard mileage rate cannot be used if the taxpayer: uses the car for hire (such as a taxi); uses five or more cars at the same time (as in fleet operations); claims depreciation or a section 179 deduction ; or is a rural mail carrier who receives a qualified reimbursement.

Actual Expenses Method

Actual car or truck expenses include: Depreciation, Lease payments, Registration fees, Licenses, Gas, Insurance, Repairs, Oil, Garage rent, Tires, Tolls or Parking fees.

Recordkeeping

It is important to keep complete records to substantiate items reported on a tax return. In the case of car and truck expenses, the types of records required depend on whether the taxpayer claims the standard mileage rate or actual expenses.

To claim the standard mileage rate, appropriate records would include documentation identifying the vehicle and proving ownership or a lease and a daily log showing miles traveled, destination and business purpose.

For actual expenses, a mileage log helps establish business use percentage. Taxpayers should also retain receipts, invoices and other documentation to show cost and establish the identity of the vehicle for which the expense was incurred. For depreciation purposes they need to show the original cost of the vehicle and any improvements as well as the date it was placed in service.

Source:  Internal Revenue Service

Congress passed and the President signed the Hiring Incentives to Restore Employment Act of 2010 (2010 HIRE Act). The 2010 HIRE Act has several business-friendly tax provisions that may benefit you.

Incentives for Hiring and Retaining Unemployed Workers

To encourage employers to hire new employees in 2010, the Act combines Social Security tax forgiveness for newly added employees and a tax credit for retaining those employees for at least 52 consecutive weeks.

Payroll Tax Forgiveness

The 2010 Hire Act effectively exempts a qualified employer from paying the 6.2% OASDI Social Security tax for wages paid for any 2010 period beginning after March 18, 2010 (the date of enactment) through December 31, 2010, for new employees if certain conditions are met. To qualify for the exemption, each employee must be a “qualified individual.”

A qualified individual is an employee:
(1) who begins work for a qualified employer after February 3, 2010, and before January 1, 2011;
(2) who has not been employed for more than 40 hours during the 60-day period ending on the date employment begins;
(3) is not employed to replace another employee of the employer unless the other employee separated from employment voluntarily or for cause; and
(4) cannot be related to the employer or own more than 50% of the business.

The reduction in taxes due for wages paid in the first calendar quarter of 2010 is treated as a payment against the second 2010 calendar quarter taxes otherwise due.

Business Credit Increase for Retention of Newly Hired Individuals in 2010

The 2010 HIRE Act allows taxpayers to increase their business credit by the lesser of $1,000 or 6.2% of wages for a 52-week period for each retained worker that satisfies a minimum employment period. A retained worker is defined the same as a “qualified individual” for purposes of the payroll tax forgiveness provision, which is discussed above. In addition, the worker must be employed by the employer for at least 52 consecutive weeks, and receive wages for the last 26 weeks of the 52-week period that are at least 80% of the wages paid during the first 26 weeks.

This increase to the business credit is effective for new hires beginning on March 18, 2010, and cannot be carried back to a taxable year that began prior to this effective date. Note that employers can claim both the work opportunity tax credit and the retention credit on the same qualified employee.

Source:  Bureau of National Affairs Tax and Accounting Center

When it comes to taxes, reaching age 70-1/2 is an important milestone. That's because you have to start taking minimum annual distributions from your traditional IRAs when you reach age 70-1/2. And if you've already retired from your company, you also must begin making withdrawals from your company retirement plan as well. If you don't take these minimum distributions when you're supposed to, you could get hit with a 50% penalty tax.

When must these minimum distributions begin? If you reach age 70-1/2 in 2011, you actually have until April 1, 2012 to take your first year's distribution, namely the one for 2011 (your age 70-1/2 year). However, if you wait until 2012 to take this distribution, you may wind up loading too much income into 2012. That's because you'll also have to take your second year's annual minimum distribution in 2012, since the extended deadline until April 1 is available only in the first distribution year. That could have unpleasant tax consequences. For example, you may be pushed into a higher tax bracket in 2012. Additionally, you may be hit with a larger tax on social security benefits in 2012, and saddled with larger cutbacks for deductions (such as for medical expenses) that have an adjusted-gross-income-based “floor.”

The decision whether or not to accelerate minimum distribution payouts is not an easy one, and is not necessarily the best choice. If you'd like, we can sit down with you to discuss your options, taking into account your overall financial picture. We would review your financial and tax situation, and determine whether you'd be better off beginning required distributions this year, instead of next. Give us a call so that we can get together and set up the right IRA and retirement plan payout strategy for you and your family.

Source:  Federal Tax Updates on Checkpoint Newsstand 3/21/2011

On April 14, President Barack Obama signed legislation repealing the expanded 1099 reporting requirements that were enacted last year. The bill was overwhelmingly approved by the House and Senate. The AICPA had advocated strongly for repeal of both provisions and as one of the only organizations advocating against the rental property requirement was a driving force in its repeal. When the Senate passed the bill on April 5 and sent it to President Obama for his signature, AICPA President and CEO Barry Melancon described the repeal as “a victory for taxpayers.”

Source:  AICPA News Update 4/15/2011

Source: Internal Revenue Service at http://www.irs.gov/

Taxpayers nationwide will have until Monday, April 18, 2011, to file their 2010 returns and pay any taxes due. Taxpayers get the extra time because Emancipation Day, a holiday in the District of Columbia, is observed this year on Friday, April 15.  By law, D.C. holidays impact tax deadlines in the same way that federal holidays do.  The April 18 deadline applies to any return or payment normally due on April 15.  It also applies to the deadline for requesting a tax-filing extension and for making 2010 IRA contributions.
Source: Internal Revenue Service at http://www.irs.gov/

The standard mileage rate for business use of a car, van, pick-up or panel truck is 50 cents for each mile driven. The rate for the cost of operating a vehicle for medical reasons or as part of a deductible move is 16.5 cents per mile. The rate for using a car to provide services to charitable organizations is set by law and remains at 14 cents a mile.



Source: Internal Revenue Service at http://www.irs.gov/

Predovich & Company's recommended retention times (from the date your tax return is filed or the due date, whichever is later) for these common tax documents:

Copies of tax returns as filed - Keep forever.

Previous IRS audit settlement - Keep forever.

Real estate ownership records - Keep forever.

Contracts and leases - Keep forever.

Divorce papers - Keep for as long as you have alimony or child-dependent deductions, plus three years.

Stock basis records - Keep for six years after sale of stock.

All records relating to income, revenue, or gains (such as W-2s, 1099s, broker statements, bank statements, sales, ledgers, etc.) - Keep for six years.

Records pertaining to asset gain/loss computations (for investment real estate, collectibles, etc.) - Keep for six years after sale of asset.

Expense reports for reimbursed expenses - Keep for six years.

Proof of deductible personal expenses (cancelled checks, receipts for charitable contributions, etc.) - Keep for three years.

Business expense records (vendor invoices, receipts, etc.) - Keep for three years.

Depreciable asset records and cost of goods sold computations - Keep for three years, or keep forever if you use LIFO accounting.

Employment tax records (for businesses) - Keep for four years.

Proof of loss from worthless securities or bad debt deduction - Keep for seven years.

The IRS also warns:  When your records are no longer needed for tax purposes, do not discard them until you check to see if you have to keep them longer for other purposes.  For example, your insurance company or creditors may require you to keep them longer than the IRS does.

On November 29, the Senate failed to gain the necessary votes on two amendments offered to S. 510, the FDA Food Safety Modernization Act, that would have repealed expanded Form 1099 reporting requirements included in health care reform legislation.

The defeated amendment offered by Senate Finance Committee Chair Max Baucus (D-MT) would have repealed the expanded information requirements carried in Sec. 9006 of the Patient Protection and Affordable Care Act; the amendment did not include an offset for the cost of repealing Sec. 9006 of the Affordable Care Act.  The defeated amendment offered by Senator Mike Johanns (R-NE) would have repealed Sec. 9006 of the Patient Protection and Affordable Care Act, but would have offset the cost with a decrease in non-defense spending.  The Johanns amendment, with a vote of 61-35, failed to achieve the two thirds majority of 67 votes needed to pass.

The many Congressional opponents of the expanded Form 1099 information reporting requirements doubtless will try again to do away with Sec. 9006 of the Affordable Care Act.  Senator Max Baucus said in a statement following the November 29 vote that he will continue working to repeal the requirements.  "Small business owners voiced legitimate concerns that these requirements would be burdensome, and the Senate should act in response to those concerns.  I am disappointed that we weren't able to repeal these requirements today, but intend to keep working until we do," he said.  "Our bill will allow small business owners to direct their focus onto job creation and growth rather than paperwork."

Senate Finance Committee ranking member Charles Grassley (R-Iowa) affirmed November 30 that Democrats and Republicans are back at the negotiating table with an expectation that a fix is still possible before year end once an appropriate legislative vehicle is found to tie the measure to the next time it's brought up.

Source:  RIA Newsstand 12/1/2010

The Senate voted to reject repeal of the expanded Form 1099 reporting requirements enacted in Sec. 9006 of the Patient Protection and Affordable Care Act.

In general, under current law, information returns must be made to IRS by every person engaged in a trade or business who makes payments for services, aggregating $600 or more, in any tax year to another person (other than corporations) in the course of the payor's trade or business.  Effective for payments made after 2011, Sec. 9006 of the Patient Protection and Affordable Care Act would add payments of amounts in consideration for property and gross proceeds - i.e., it would add payments for goods - to the list of payments subject to reporting.  In addition, it provides that starting in 2012, payments to corporations (that are not tax-exempt) - which had previously been exempt from the reporting requirement - would be subject to information reporting.

Source:  RIA Newsstand 11/30/2010

The lame-duck Congress departed for its Thanksgiving recess with no clear path in sight for dealing with pressing tax issues: extension of the Bush tax cuts; resolving the estate tax problem; patching the alternative minimum tax (AMT); and dealing with extenders, i.e., deciding whether to retroactively extend some or all of the tax provisions that expired at the end of 2009 (including the research credit).  What's more, it looks as if the lame-duck Congress may not resolve these issues until the very last minute, i.e., right before Christmas.  On November 18, Senate Finance Chair Max Baucus (D-MT) told members of the press to "get your snow boots on."

The thorniest issue is the expiring Bush-era tax cuts.  The Democrats (and the Administration) want to extend the tax cuts for "non-high-income" taxpayers only.  The Republicans want to extend the tax cuts for everyone.  The problem is that neither party has the votes to prevail.  That inevitably will lead to a compromise of some sort.  One possibility is an accross-the-board, but temporary, extension of the Bush-era tax cuts for individuals.

Source:  RIA Newsstand 11/22/2010

By John McKinnon, Wall Street Journal, November 10, 2010

Two top Senate Democrats floated the idea Tuesday of extending the Bush-era income-tax rates for a limited time only, and tying that move to an overhaul of the U.S. tax code or passage of policies to address the budget deficit.

The idea injects a new element into the ongoing political discussion about the tax breaks, which expire December 31 unless they are extended, at a time of growing concerns about government deficits. The new proposals could lay the groundwork for a multi-year debate many experts say would be needed to overhaul the bulky tax code.

Republican aides on Capitol Hill expressed cautious interest in the Democrats’ idea. But they said they would be on guard against any measure, such as a fast-track procedure for passing a tax overhaul, that might put the GOP at a disadvantage in blocking future tax increases.  White House officials didn’t immediately respond to requests for comment.

The Democrats’ proposal likely would require extensive compromise by lawmakers at a time when the two parties have been preparing for battle. Most Democrats, including President Barack Obama, have supported extending the current levels for the middle class, defined as families earning less than $250,000, while allowing them to expire for higher earners.

Republicans and some Democrats want all the Bush-era breaks extended, including those for higher earners, at least for some period.  Since the Republican victories in last week’s midterm elections, Mr. Obama has signaled he is also willing to consider some extension for higher earners, but the two sides remain divided on the details.

The two parties also remain far apart on what a tax-system overhaul would look like. Republicans tend to focus on streamlining and simplifying the tax code, and making it more competitive for U.S. companies overseas. Many Democrats do too, but many also view tax-code changes as an important element of deficit reduction.

At a news conference, Sen. Kent Conrad (D., N.D.), the current chairman of the Senate Budget Committee, said he would prefer to extend the current breaks only until a complete tax overhaul can be accomplished. “If I were able to make the decision, I would go for changing the tax system fundamentally,” Mr. Conrad said. “And I’d have an extension [of the Bush-era tax cuts] until that was accomplished.”

Sen. Evan Bayh (D., Ind.) suggested a similar approach. He proposed a two-year extension of all the current tax levels, to be followed by the implementation of policies to reduce government deficits.  “For the next couple of years we need to err on the side of growth, not adding to the burdens of people who make the hiring and investing decisions,” he said. “But after that we need to quickly pivot and begin reducing this debt.”  He pointed to the example of the U.K., where recently-elected Conservatives have pushed a debt-reduction program that emphasizes spending cuts and some tax increases.

The two senators spoke at an event organized by the Peter G. Peterson Foundation, a group that advocates for deficit reduction. It’s launching a $6 million advertising campaign to draw public attention to the grim U.S. fiscal picture and to build political momentum for action.

Several senior GOP Senate aides said they were open to the Democrats’ proposal notion of combining a tax-rate extension with a tax overhaul, but added that the lack of detail so far makes it difficult to respond.

A spokesman for Rep. Dave Camp (R., Mich.), who is in line to become Ways and Means Committee chairman next year, said Mr. Camp preferred making the current rates permanent but has expressed a willingness to support a two-year extension “and then use that time to work on fundamental tax reform.”

Sen. Orrin Hatch (R., Utah), who is expecting to become the top Republican on the Finance Committee, “believes that America’s tax code is overly burdensome and complicated, needing reform,” a spokeswoman said. “How that reform will take shape – too early to say.”

Supporters of combining tax cuts and tax reform likely will soon have more ammunition. A panel appointed by President Barack Obama to come up with deficit-reduction recommendations is scheduled to issue a report on December 1 just as Congress addresses the Bush-era breaks.  The panel isn’t expected to make any direct recommendations on the Bush breaks; its budget baseline assumes that the breaks for the middle class are extended, and the breaks for higher earners end. One likely focus: tightening up some income-tax deductions such as those for mortgage interest and state and local taxes.  Another, unofficial panel is releasing recommendations next week, and it is likely to include a simplified tax code with fewer breaks.

Alice Rivlin, a former director of the Congressional Budget Office who is a member of both panels, said she thought the tax cuts ought to be phased out. “My personal view is the tax cuts, except for the ones at the very, top should be extended but not permanently,” she said in an interview.

In a rare display of bipartisanship on Tuesday, the Democratic and Republican leaders of the congressional tax-writing committees pledged to “do everything possible” to pass another annual extension of middle-class relief from the alternative minimum tax for 2010.  That relief has lapsed for this year, potentially exposing about 21 million mostly middle-class taxpayers to the AMT, which originally was intended to affect only the very wealthy.

Source:  WSJ Online, 11/10/10

The House and Senate voted late Wednesday and early Thursday morning to adjourn until after the November elections, funding the government through Dec. 3 and leaving work on all 12 annual appropriations bills and a vote on the expiring Bush tax cuts until the chambers return for a lame duck session after Nov. 2.

Senate Majority Leader Harry Reid made it clear Wednesday afternoon that leaving town was the top priority for leaders, both Democrat and Republican. "We both have the same goal in mind, and that is to get out of here," Reid said of an agreement he had reached with Senate Minority Leader Mitch McConnell. "We may not agree on much, but I think, with rare exception, all 100 senators want to get out of here and get back to their states."

Although endangered incumbents were eager to leave Washington to concentrate on campaigning in their home districts, members of both parties left town frustrated that Democratic leaders had not held a vote on the Bush tax cuts before adjourning.

"I would have preferred to have the Bush tax cuts extended for everyone before we left," Sen. Ben Nelson (D-Neb.) told Politics Daily. "But the Democratic leadership evaluated that and made the decision not to bring them up. My preference would have been to get them done and passed as quickly as possible so that there is more certainty and clarity for businesses."


Behind the Democrats' decision not to vote on the expiring tax cuts was a growing intra-party feud over how to proceed, with President Obama and House Speaker Nancy Pelosi calling for an end to tax cuts for the wealthiest Americans, while moderates pushed to extend the cuts for every income level, even temporarily.

In a display of just how much disagreement Democrats had within their own caucus, 39 House Democrats joined the House Republicans late Wednesday in an effort to force Congress to vote on the cuts before leaving town. Democrats won 210 to 209, but only after Pelosi took the unusual step of voting to break a tie.

Before the vote, Republican Minority Leader John Boehner blasted Democrats for leaving the issue on the table.

"The idea that we are going to leave here without extending these tax cuts and end the uncertainty is an irresponsibility on behalf of this Congress," Boehner said in a speech on the House floor. "How any member can vote to adjourn and punt this into a lame duck session, I think is putting your election above the needs of your constituents."

But House Minority Leader Steny Hoyer insisted that the Democrats are not divided in their commitment to cutting taxes and will hold a vote before they expire in January. "Democrats are united that there should be no tax increases on the first $200,000 of every American's income. Period," he told reporters. "That will be done before the end of the year."

In addition to the question of taxes, Democrats and Republicans traded blame before adjourning over who is responsible for none of the 12 appropriations bills being passed this year, despite the fact that the current spending bills expire on Friday. 

"We have no business packing up and going home," Sen. John McCain (R-Ariz.) said Wednesday. "We should stay here in session and consider each appropriations bill in order."

But Sen. Daniel Inouye (D-Hawaii), the chairman of the Appropriations Committee, said that his committee had sent all of the bills to the full Senate for consideration months ago, some as early as June, and suggested that Republicans had delayed action on them. "The bills are all at the desk, but somebody held them up," Inouye said. "I can assure you none of us held it up."

No matter who is to blame for the impasse, nearly all senators agreed Wednesday that something needs to change in the way federal spending is handled by Congress, which has for years failed to pass spending bills before their expiration dates.

Sen. John Thune (R-S.D.) told Politics Daily that the entire budgeting process needs to be reformed, and said this year is a perfect example as to why. "I think it's terrible," he said. "Here you've got an economy that is trying to struggle its way through this downturn and all Congress is doing is creating more uncertainty."

Source:  Politics Daily 10/28/2010

The top tax rate on dividends will rise to 68 percent in 2011 when combined with the effects of the expiration of the 2001 and 2003 tax cuts, the new health care surtax, and the "double tax on corporate profits," theTax Foundation says in a report.  The group says the double tax on corporate profits imposes a combined federal-state corporate tax rate of 39.1 percent on businesses as well as a top tax rate of 17.3 percent on dividends distributed to individual shareholders.  "With the sunset of the 2003 Bush tax cut at the end of 2010, which will increase the federal dividend tax rate from 15 percent to 39.6 percent, and the new Medicare tax on investment income of 3.8 percent, the integrated effective dividend tax rate will rise dramatically to 68 percent," the Tax Foundation says.

Source:  Bureau of National Affairs at http://www.bna.com/

Source: CBSnews.com

T.D. 9482, 05/10/2010 ; Reg. § 54.9815-2714T ; DOL Fact Sheet and FAQs: “Young Adults and the Affordable Care Act: Protecting Young Adults and Eliminating Burdens on Businesses and Families”


IRS has issued temporary regs on the rule in the Patient Protection and Affordable Care Act (Affordable Care Act) requiring group health plans and health insurance issuers that provide dependent coverage of children to continue to make such coverage available for an adult child until age 26.   A group health plan, or a health insurance issuer that offers (1) group health insurance coverage, and (2) dependent coverage of children, must make such coverage available for children until they reach age 26. (Reg § 54.9815-2714T(a))

For a child who has not attained age 26, a plan or issuer can't define who is a dependent eligible for dependent coverage of children other than in terms of a relationship between a child and the participant. Thus, for example, a plan or issuer can't deny or restrict coverage for a child under age 26 based on: the presence or absence of the child's financial dependency (upon the participant or any other person); residency with the participant or with any other person; student status; employment, or any combination of those factors. (Reg § 54.9815-2714T(b))

[Note: DOL's FAQs on “Young Adults and the Affordable Care Act: Protecting Young Adults and Eliminating Burdens on Businesses and Families” can be view on the DOL website at http://www.dol.gov/ebsa/newsroom/fsdependentcoverage.html.]

There is transitional relief for a child whose coverage ended under pre-Affordable Care Act rules, or who was denied coverage (or was not eligible for coverage) under a group health plan or health insurance coverage under these rules. A plan or issuer must give such children an opportunity to enroll that continues for at least 30 days (including written notice of the opportunity to enroll), regardless of whether the plan or coverage offers an open enrollment period and regardless of when any open enrollment period might otherwise occur. (Reg § 54.9815-2714T(f))

Grandfathered group health plans: Group plans that were in existence on Mar. 23, 2010, may exclude adult children eligible to enroll in an employer-sponsored health plan (as defined in Code Sec. 5000A(f)(2) ), other than a group health plan of a parent. However, this exception does not apply for plan years beginning on or after Jan. 1, 2014. (Reg § 54.9815-2714T(f), T.D. 9482, 05/10/2010, DOL FAQ)

RIA observation: There's less than meets the eye in the new coverage requirement. Despite the apparently wide sweep of the new rule, the preamble to Treasury/DOL/HHS regs says that for a variety of reasons, of the 29.5 million young adults in the 19-25 age group, only 2.37 million might be affected.

Source: Federal Tax Updates on Checkpoint Newsstand tab 5/11/2010

The landmark health care reform package is now the law of the land, with immediate and far-reaching tax implications.

Mark Luscombe, CPA, LLM, JD, principal tax analyst for CCH, a Wolters Kluwer business, has tracked this legislation through all its peaks and valleys, and zeroes in on these key issues:

1. For 2010 through 2013, small businesses are eligible for a 35 percent tax credit for premiums paid for employee health coverage. A “small business” has no more than 25 employees and average annual wages less than $50,000. “To qualify, you can exclude company owners from the calculation,” Luscombe says.

2. Starting in 2014, large companies (50 or more workers) will be liable for an additional tax if they do not provide minimum essential coverage. Even if they provide minimum essential coverage, they may be subject to a penalty if any employees received premium assistance or cost-sharing to purchase health insurance through an insurance exchange.

3. Starting in 2014, individuals may be subject to an individual responsibility penalty for failure to maintain minimum essential health coverage. Lower-income individuals may qualify for a refundable premium assistance tax credit.

4. Starting in 2013, Medicare tax will be assessed on investment income for high-income individuals or families. Investment income includes interest, dividends, capital gains, rental income, royalties, and passive business income. “In effect, that’s an additional 3.8 percent tax on net investment income,” Luscombe says. “Many analysts expect the top marginal rate to move up from 35 percent to 39.6 percent in 2011, an additional 4.6 percent tax increase. Top capital gain rates may also increase form 15 percent to 20 percent.” Planning tip: The definition of “investment” does not include tax-exempt bonds.

5. In addition to taxing investment income, the Medicare tax rate itself on earned income has increased by a third, from 2.9 to 3.8 percent, for higher-income individuals and families.

6. Starting in 2013, the legislation increases the adjusted gross income threshold for claiming an itemized deduction for medical expenses, from 7.5 to 10 percent. A temporary exemption is provided for senior citizens.

Source: CCH, a Wolters Kluwer business at http://business.cch.com/, April 22, 2010.

It’s a tipping point that Washington has talked about for a long time – and it’s approaching fast, Federal Reserve Board Chairman Ben Bernanke indicated on Wednesday.

The point in question is the moment at which the recovery appears to have advanced far enough for policymakers to turn their attention to another crucial economic priority: deficit reduction.

A credible plan to reduce America’s huge fiscal imbalance could boost economic confidence while reducing long-term interest rates, said Mr. Bernanke in testimony to the Joint Economic Committee of Congress.  "Addressing the country’s fiscal problems will require difficult choices, but postponing them will only make them more difficult," he said.
'A serious long-term threat.'  Bernanke indicated "the current path of fiscal policy is a serious long-term threat to the health of the national economy – there is no single issue that is more worthy of political sacrifice from elected representatives than this one," said Mr. Bethune in a statement.

In his remarks, the Fed chief struck a moderately optimistic note about the current state of the US economy. Recovery began in the second half of last year, boosted by government stimulus spending, according to Bernanke. But with stimulus funds set to diminish in coming months, it's the private sector that will now have to take the lead in stoking the engine of US GDP.

That private-sector boost appears to be happening, said Bernanke, as consumer spending has increased in the first months of 2010. In particular, car sales were strong in March as manufacturers offered another round of purchase incentives.  "Going forward, consumer spending should be aided by a gradual pickup in jobs and earnings, the recovery in household wealth from recent lows, and some improvement in credit availability," said Bernanke.

The Fed chairman did sound a cautionary note on employment, saying it will take a significant amount of time to restore the 8-1/2 million jobs lost in the recent severe downturn. Weakness in the construction sector, plus the cash-strapped situation faced by many state and local governments, will be a drag on economic growth for the foreseeable future.

Bank lending falls.  Bernanke also noted that bank lending to both households and businesses has continued to fall, despite the relatively improved financial position of the banking sector. The Fed is working to make sure its own supervision of banks isn’t part of the reason for the credit slowdown.

"Achieving the appropriate balance between necessary prudence and the need to continue making sound loans to creditworthy borrowers is in the interest of banks, borrowers, and the economy as a whole."

But Bernanke saved perhaps his toughest words for the state of the US balance sheet. His tone on the dangers of the deficit has sharpened in recent weeks as the dangers of financial meltdown have receded.  While federal deficits will decline somewhat in coming years with the decline in stimulus spending, a significant part of the deficit appears to be "structural," he said, caused by long-term projections for Medicare and Social Security spending.

Current projections show the government running an imbalance of 4 to 5 percent of GDP through 2020, and that's dangerous, Bernanke said.  "Maintaining the confidence of the public and financial markets requires that policymakers move decisively to set the federal budget on a trajectory toward sustainable fiscal balance," he said.

Source: "Ben Burnanke: Time to Shift from Stimulus to Federal Deficit," Yahoo News 4/14/10

Source: SmartMoney April 2009, “10 Things the Internal Revenue Service Won’t Tell You” by Jason Kephart

A new tax relief law allows people who contributed in 2010 to charities providing earthquake relief in Haiti to take a tax deduction for the contribution on their 2009 tax return instead of their 2010 return. This means you can receive an immediate tax benefit, rather than having to wait until you file next year’s return. Certain requirements apply:

• 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 contributions must be made specifically for the relief of victims in areas affected by the Jan. 12 earthquake in Haiti.
• You may deduct these contributions on either your 2009 or 2010 returns, but not both.

In addition, the general rules about tax deductions for charitable donations apply:

• You must itemize your deductions on Schedule A; those claiming the standard deduction, including all short-form filers, are not eligible.
• You must keep a record of any deductible donations you make.  For donations by text message, a telephone bill will meet the requirement if it shows the name of the donee organization and the date and 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.
• Contributions to foreign organizations generally are not deductible.

Make sure your contribution goes to a qualified charity. Most organizations eligible to receive tax-deductible donations are listed in a searchable, online database available under Search for Charities. Some organizations, such as churches or governments, may be qualified even though they’re not listed on IRS.gov.