Monday, December 26, 2011

Payroll Tax Cut Extended into 2012


Nearly 160 million workers will benefit from the extension of the reduced payroll tax rate that has been in effect for 2011. The Temporary Payroll Tax Cut Continuation Act of 2011 temporarily extends the two percentage point payroll tax cut for employees, continuing the reduction of their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid through Feb. 29, 2012. This reduced Social Security withholding will have no effect on employees’ future Social Security benefits.

Employers should implement the new payroll tax rate as soon as possible in 2012 but not later than Jan. 31, 2012. For any Social Security tax over-withheld during January, employers should make an offsetting adjustment in workers’ pay as soon as possible but not later than March 31, 2012.

The law also includes a new “recapture” provision, which applies only to those employees who receive more than $18,350 in wages during the two-month period (the Social Security wage base for 2012 is $110,100, and $18,350 represents two months of the full-year  amount). This provision imposes an additional income tax on these higher-income employees in an amount equal to 2 percent of the amount of wages they receive during the two-month period in excess of $18,350 (and not greater than $110,100).   

This additional recapture tax is an add-on to income tax liability that the employee would otherwise pay for 2012 and is not subject to reduction by credits or deductions.  The recapture tax would be payable in 2013 when the employee files his or her income tax return for the 2012 tax year. With the possibility of a full-year extension of the payroll tax cut being discussed for 2012, the IRS will closely monitor the situation in case future legislation changes the recapture provision.

The IRS will issue additional guidance as needed to implement the provisions of this new two-month extension, including revised employment tax forms and instructions and information for employees who may be subject to the new “recapture” provision.  For most employers, the quarterly employment tax return for the quarter ending March 31, 2012 is due April 30, 2012.

Wednesday, December 21, 2011

Six Year-End Tips to Reduce 2011 Taxes

Here are six tax-saving tips for you to consider before the calendar turns to 2012:

1. Make Charitable Contributions – If you itemize deductions, your donations must be made to qualified charities no later than Dec. 31 to be deductible for 2011. You must have a canceled check, a bank statement, credit card statement or a written statement from the charity, showing the name of the charity and the date and amount of the contribution for all cash donations. Donations charged to a credit card by Dec. 31 are deductible for 2011, even if the bill isn't paid until 2012. If you donate clothing or household items, they must be in good used condition or better to be deductible.

2. Install Energy-Efficient Home Improvements – You still have time this year to make energy-saving and green-energy home improvements and qualify for either of two home energy credits. Installing energy efficient improvements such as insulation, new windows and water heaters to your main home can provide up to $500 in tax savings. Homeowners going green should also check out the Residential Energy Efficient Property Credit, designed to spur investment in alternative energy equipment. The credit equals 30 percent of the cost of qualifying solar, wind, geothermal, or heat pump property. For details see Special Edition Tax Tip 2011-08, Home Energy Credits Still Available for 2011 on the IRS.gov website.

3. Consider a Portfolio Adjustment – Check your investments for gains and losses and consider sales by Dec. 31. You may normally deduct capital losses up to the amount of capital gains, plus $3,000 from other income. If your net capital losses are more than $3,000, the excess can be carried forward and deducted in future years.

4. Contribute the Maximum to Retirement Accounts – Elective deferrals you make to employer-sponsored 401(k) plans or similar workplace retirement programs for 2011 must be made by Dec. 31. However, you have until April 17, 2012, to set up a new IRA or add money to an existing IRA and still have it count for 2011. You normally can contribute up to $5,000 to a traditional or Roth IRA, and up to $6,000 if age 50 or over. The Saver’s Credit, also known as the Retirement Savings Contribution Credit, is also available to low- and moderate-income workers who voluntarily contribute to an IRA or workplace retirement plan. The maximum Saver’s Credit is $1,000, and $2,000 for married couples, but the amount allowed could be reduced or eliminated for some taxpayers in part because of the impact of other deductions and credits.

5. Make a Qualified Charitable Distribution – If you are age 70½ or over, the qualified charitable distribution (QCD) allows you to make a distribution paid directly from your individual retirement account to a qualified charity, and exclude the amount from gross income. The maximum annual exclusion for QCDs is $100,000. The excluded amount can be used to satisfy any required minimum distributions that the individual must otherwise receive from their IRAs in 2011. This benefit is available even if you do not itemize deductions.

6. Don't Overlook the Small Business Health Care Tax Credit – If you are a small employer who pays at least half of your employee health insurance premiums, you may qualify for a tax credit of up to 35 percent of the premiums paid. An employer with fewer than 25 full-time employees who pays an average wage of less than $50,000 a year may qualify. For more information see the Small Business Health Care Tax Credit page on IRS.gov.

And here is one final tip to remember: you should always save receipts and records related to your taxes. Good recordkeeping is a must because you need records to prepare your tax return, and it will help you to file quickly and accurately next year.

Monday, December 19, 2011

IRS Fresh Start Program

The IRS announced a new “Fresh Start” program, designed to allow taxpayers to regroup financially, getting a new start on their finances. This program provides taxpayers an opportunity to limit the damage IRS tax collection activity may have had on their credit report and credit score, thus impairing their ability to obtain new credit, or credit at a fair market rate.

Among the highlights of the program are the following:
Tax Liens
The IRS increased the dollar threshold for filing notice of tax lien. The new threshold amount is $10,000, up from $5,000. There is an exception in the case of a taxpayer bankruptcy or other similar action.
Keep in mind that a Federal Tax lien is an IRS demand for payment from the taxpayer, within 10 days of the letter delivering a copy of the lien. This is a statutory process which the IRS must follow.
A Notice of Federal Tax lien is a formal filing in the public records of the county of residence of the taxpayer and allows IRS to establish a priority position as to other creditors; it become public record. It is this act that damages a taxpayer’s credit report and their ability to obtain credit.
Taxpayers may now be able to have the public notice of the lien withdrawn, expunged if you will, thereby increasing their credit score and increasing their ability to obtain credit. There are two methods that may make a taxpayer eligible for relief:
Full Paid Lien
            Lien released within 30 days of satisfaction (payment, adjustments or statute expiration). The lien may be withdrawn or expunged, as if it never happened. The lien must be paid and the taxpayer must be in compliance with their current filings.
Lien may be withdrawn with direct debit installment arrangement
            Taxpayer liability must be less than $25,000.
            IRS must receive 3 consecutive monthly debit payments
            Taxpayer must be in compliance with all other filing requirements.
            Taxpayer must ask for Lien Withdrawal

This program is available for income taxes only, and small business taxes (trust fund payments) of companies that no longer are in business.
           
Taxpayer businesses that are currently in business and owe trust fund taxes, or have a tax liability in excess of $25,000 are not eligible for the program.
           
Business Taxpayers may benefit from a scaled down version of the fresh start program in that they are eligible for a 24 month installment payment agreement if they owe less than $25,000 in tax. A liability between $10,000 and $25,000 will require a direct debit installment agreement. 

Thursday, December 15, 2011

Last Minute Gift Giving Tax Tips

Individuals and businesses making contributions to charity should keep in mind several important tax law provisions that have taken effect in recent years. Some of these changes include the following:
Special Charitable Contributions for Certain IRA Owners
This provision, currently scheduled to expire at the end of 2011, offers older owners of individual retirement accounts (IRAs) a different way to give to charity. An IRA owner, age 70½ or over, can directly transfer tax-free up to $100,000 per year to an eligible charity. This option, created in 2006, is available for distributions from IRAs, regardless of whether the owners itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible.
To qualify, the funds must be contributed directly by the IRA trustee to the eligible charity. Amounts so transferred are not taxable and no deduction is available for the transfer.
Not all charities are eligible.

Rules for Clothing and Household Items

To be deductible, clothing and household items donated to charity generally must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances and linens.

Guidelines for Monetary Donations

To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.

Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.

These requirements for the deduction of monetary donations do not change the long-standing requirement that a taxpayer obtain an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet both requirements.

Reminders

Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2011 count for 2011. This is true even if the credit card bill isn’t paid until 2012. Also, checks count for 2011 as long as they are mailed in 2011.
Check that the organization is qualified. Only donations to qualified organizations are tax-deductible. IRS Publication 78, searchable and available online, lists most organizations that are qualified to receive deductible contributions. It can be found at IRS.gov under Search for Charities. In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even if they are not listed in Publication 78.
For individuals, only taxpayers who itemize their deductions on Form 1040 Schedule A can claim deductions for charitable contributions. This deduction is not available to individuals who choose the standard deduction, including anyone who files a short form (Form 1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2011 Form 1040 Schedule A to determine whether itemizing is better than claiming the standard deduction.
For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes this information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more.
The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C, or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.
If the amount of a taxpayer’s deduction for all noncash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.
   And, as always it’s important to keep good records and receipts.

For more information contact the Law Office of Martin Cantu or San Antonio Tax Help.

Tuesday, December 6, 2011

Tim Tebow and Your Taxes

Tim Tebow is the most discussed, hated, vilified player in the history of the National Football League. Listen to talk radio or ESPN - a day does not go by without a discussion of Tebow. The discussion always centers on what he can't do. He can't pass. He doesn't throw like an NFL QB. He can't succeed. All this before they get into his faith, the main source of criticism in college.

Collin Cowherd, ESPN talk show host on radio and TV has made a career based on criticism of Tebow. As I write this I'm waiting for Cowherd's show on the day following Denver's victory over the New York Jets. My guess is that the over under on the number of seconds before Cowherd mentions Tebow is 10. Cowherd, like most other hosts, follows the same formula - 1. I like the guy and don't want to bang on him; 2. He isn't that good so I don't want to waste time disparaging his abilities; 3. Spend the next 2 hours banging on everything Tebow.

Cowherd and the other critics focus on what Tebow can't do and who he isn't - all negative all time - Just like your taxes. We all have a tendency to focus on the negative, trying to react instead of act. There we are on January 31 trying to decide how we can shelter that big gain in the year before and reduce our tax liability. Trying to figure out how many miles you put on the car and how much of a business deduction you can get away with. Is that all I had withheld? We're hammered with the negative - you can't do that; you must do this; you have to file this - all a surprise, especially when it's too late to engage in any serious tax planning. Income taxes, in fact, may be only slightly more unpopular than Tim Tebow.

So how do you turn this around? If you're Time Tebow you grind and find a way to win. If you're dealing with your taxes you need to start earlier and grind away. A little discipline goes a long way here. The tools are there to make it a little easier for you turn a huge negative into a positive. Remember, reducing your taxes is not tax avoidance. The tax code has enough room to support just about any reasonable position you and your accountant might take. Avoid the red flags - stay away from the home office deduction for God's sake.

Here are some things to consider:

1. Re-examine your depreciation schedule.

2. Are you recording all your auto related expenses?

3. Do you employ a way to record your mileage? Use your smart phone.

4. Can you time out your income and expenses?

5. Are you leveraging you retirement plan to its fullest? Can you borrow against the plan if you need to?

6. Are you using online banking tools to allow you to spend more time on planning?

Tebow is not fancy, doesn't look or throw like Marino or Elway. He just puts his head down and finds a way to get the job done, and focus on the positive - the things you can control. So lets take a lesson from Saint Tim - lets focus on what we can control. Good luck to you and to Tim Tebow.