Effective 2011 almost all payroll filers will have to use EFTPS.

Clients will no longer be able to use bank deposits for 941, 940, and 945 tax deposits.  Many of the local banks are no longer taking tax deposits and it looks like the IRS is phasing out of the program as well.

Federal Tax Day - Current,T.1Treasury Moves to All Electronic Payroll Tax Deposits, Benefits Payments (TDNR TG-644), (Apr. 20, 2010)

The Treasury Department announced on April 19 a gradual shift to eliminating Forms 8109-B, Federal Tax Deposit coupons, and paper benefits payments. Treasury Secretary Timothy F. Geithner predicted that the move will save hundreds of millions of dollars and substantially reduce the environmental impact.

Federal Tax Deposit Coupons

Currently, a business with a federal tax liability exceeding $200,000 during a calendar year must use the Treasury’s Electronic Federal Tax Payment System (EFTPS). Designated federal taxes include employment taxes, income taxes, Railroad Retirement taxes, Social Security taxes and various other types of nonpayroll withholding. Other taxpayers may use paper Federal Tax Deposit coupons.

Beginning in 2011, taxpayers using paper Federal Tax Deposit coupons will have to make those deposits electronically. Very small employers, generally businesses with $2,500 or less in quarterly tax liabilities, may be exempt.

2010 Roth IRA Conversions

In a prior blog post ROTH vs. Traditional IRA David Cash explained the difference between Traditional IRAs and Roths but this post will focus on the new conversion rules.


Starting in 2010 high income individuals can now convert their traditional IRAs to a Roth IRA. Prior to 2010 individuals with AGI over $100,000 could not convert traditional IRAs to a Roth IRA but could directly transfer from a Roth 401(k) to a Roth IRA. If a taxpayer converts their traditional IRA to a Roth they will have the choice to either pay the tax in 2010 or delay the tax to 2011 and 2012 but cannot do both.


The default tax treatment will defer paying the tax to 2011 and 2012 so for example if the taxpayer wishes to convert $100,000 in 2010 the taxpayer will pay tax on $50,000 in 2011 and $50,000. If the taxpayer wishes to pay the tax in 2010 the taxpayer will have to make an election to have the entire distribution taxed in 2010.


(Planning Note) It will be an advantage to convert now and push the tax to future periods if you can reasonably project your income to determine the appropriate amount to convert. In addition, many believe that since their investments may have suffered a decline in prior periods, now would be the time to get the funds growing. One issue that may not be obvious is that the election to pay the tax in 2010 is an all or none election so if the taxpayers wishes to convert and pay tax on the conversion in 2010 plus pay on an amount in 2011 and 2012 they will not be able to do so. However, if the taxpayer's spouse has a traditional IRA they will be able to make their own election and pay the tax in 2010.


(Real life example) A client called and asked if it would be a good time to convert. Prior to 2010 the client's income was over $100,000 and could not convert. The client also recently donated a conservation easement and would be entitled to a large charitable deduction. The client is concerned that he will not be able to use the charitable deduction within the 5 year carry forward period before it expires. A charitable deduction for an easement is limited to 50% of AGI so the utilization of the deduction is based on the taxpayers AGI. I determined that the client could contribute $40,000 in 2010 and $57,000 in 2011 and $57,000 2012 for a total conversion $154,000 in 2010. This allows the client to have the future value growth in the Roth IRA. The client wanted to convert as much as possible while still staying in the 15% federal tax bracket and wanted to make the conversion as soon as possible. However, the law prohibits the client from making a conversion in 2010 if he wanted to pay tax on the conversion in 2011 and 2012. Luckily the taxpayers spouse also had a traditional IRA and was able to make the conversion on the $40,000 in 2010. The taxpayer's spouse will have to make an election to pay the tax on the conversion in 2010.


There are many reasons to convert a traditional IRA to a Roth, but, with most tax planning decisions it is critical to enlist the advice of a professional before executing any tax strategy. Please feel free to contact any of the accountants at Cook Martin Poulson, PC to discuss how this strategy would affect you.

Authored by Troy R. Martin, CPA, Shareholder of Cook Martin Poulson.