Nancy Guthrie, CPA 2400 Big Timber Road Suite 101A Elgin, IL 60124
Located south of Jane Adams Tollway, northwest corner of Randall & Big Timber.
nancy@businessmatters97.com (847) 997 4101 Fax (866) 428 6861
IRA owners age 70½ or older may make a direct transfer to charity. The transfer may be up to $100,000 in one year. The IRA rollover first created by the Pension Protection Act of 2006 has been extended to the end of 2011.
Social Security benefits are subject to two levels of taxation. For some taxppayers from 0% to 50% of their Social Security benefits are subject to tax. For taxpayers with income in excess of a certain level, up to 85% of Social Security income may be subject to tax.
Withdrawing an amount from an IRA will potentially cause the recipient’s income to increase from the 50% taxable bracket to the 85% Social Security taxable bracket. Even though the withdrawn amount is given to charity and deducted, there might be additional taxation with the added 35% of social security benefits. Making the transfer directly to charity from the IRA account, many Social Security recipients will save substantial taxes.
Also… Many seniors do not have a mortgage and their medical deductions are less than 7.5% of adjusted gross income. Thus, they may not have a sufficient level of deductions to benefit from itemized deductions and choose instead to use the standard deduction.
If this donor withdraws $500 from his or her IRA and then gives it to charity, there is $500 of increased income with no offsetting charitable deduction, since the standard deduction is taken. Therefore, it will be preferable for such donors taking a standard deduction to make IRA gifts directly to charity.
(IRS) – 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.
It is very important to make the proper decision about employee classification. If an employee is incorrectly identified as an independent contractor you may be liable for the self employment taxes that you should have paid plus penalties.If you are unsure don’t feel bad you are in common company. Congress’ General Accounting Office (GAO) has estimated that 38 percent of employers examined misclassified “independent contractors”. Both WalMart and FedEx have lost lawsuits or paid penalties relating to classification of employees.
There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.
The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.
Facts that provide evidence of the degree of control and independence fall into three categories: Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job? Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.) Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
Behavioral control refers to facts that show whether there is a right to direct or control how the worker does the work. A worker is an employee when the business has the right to direct and control the worker. The business does not have to actually direct or control the way the work is done – as long as the employer has the right to direct and control the work.
The behavioral control factors fall into the categories of: Type of instructions given Degree of instruction Evaluation systems Training
Types of Instructions Given An employee is generally subject to the business’s instructions about when, where, and how to work. All of the following are examples of types of instructions about how to do work. When and where to do the work. What tools or equipment to use. What workers to hire or to assist with the work. Where to purchase supplies and services. What work must be performed by a specified individual. What order or sequence to follow when performing the work.
Degree of Instruction Degree of Instruction means that the more detailed the instructions, the more control the business exercises over the worker. More detailed instructions indicate that the worker is an employee. Less detailed instructions reflects less control, indicating that the worker is more likely an independent contractor. Note: The amount of instruction needed varies among different jobs. Even if no instructions are given, sufficient behavioral control may exist if the employer has the right to control how the work results are achieved. A business may lack the knowledge to instruct some highly specialized professionals; in other cases, the task may require little or no instruction. The key consideration is whether the business has retained the right to control the details of a worker’s performance or instead has given up that right.
Evaluation System If an evaluation system measures the details of how the work is performed, then these factors would point to an employee. If the evaluation system measures just the end result, then this can point to either an independent contractor or an employee.
Training If the business provides the worker with training on how to do the job, this indicates that the business wants the job done in a particular way. This is strong evidence that the worker is an employee. Periodic or on-going training about procedures and methods is even stronger evidence of an employer-employee relationship. However, independent contractors ordinarily use their own methods.
Financial control refers to facts that show whether or not the business has the right to control the economic aspects of the worker’s job. The financial control factors fall into the categories of: Significant investment Unreimbursed expenses Opportunity for profit or loss Services available to the market Method of payment
Significant investment An independent contractor often has a significant investment in the equipment he or she uses in working for someone else. However, in many occupations, such as construction, workers spend thousands of dollars on the tools and equipment they use and are still considered to be employees. There are no precise dollar limits that must be met in order to have a significant investment. Furthermore, a significant investment is not necessary for independent contractor status as some types of work simply do not require large expenditures.
Unreimbursed expenses Independent contractors are more likely to have unreimbursed expenses than are employees. Fixed ongoing costs that are incurred regardless of whether work is currently being performed are especially important. However, employees may also incur unreimbursed expenses in connection with the services that they perform for their business.
Opportunity for profit or loss The opportunity to make a profit or loss is another important factor. If a worker has a significant investment in the tools and equipment used and if the worker has unreimbursed expenses, the worker has a greater opportunity to lose money (i.e., their expenses will exceed their income from the work). Having the possibility of incurring a loss indicates that the worker is an independent contractor.
Services available to the market An independent contractor is generally free to seek out business opportunities. Independent contractors often advertise, maintain a visible business location, and are available to work in the relevant market.
Method of payment An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time. This usually indicates that a worker is an employee, even when the wage or salary is supplemented by a commission. An independent contractor is usually paid by a flat fee for the job. However, it is common in some professions, such as law, to pay independent contractors hourly.
Type of relationship refers to facts that show how the worker and business perceive their relationship to each other.
The factors, for the type of relationship between two parties, generally fall into the categories of: Written contracts Employee benefits Permanency of the relationship Services provided as key activity of the business
Written Contracts Although a contract may state that the worker is an employee or an independent contractor, this is not sufficient to determine the worker’s status. The IRS is not required to follow a contract stating that the worker is an independent contractor, responsible for paying his or her own self employment tax. How the parties work together determines whether the worker is an employee or an independent contractor.
Employee Benefits Employee benefits include things like insurance, pension plans, paid vacation, sick days, and disability insurance. Businesses generally do not grant these benefits to independent contractors. However, the lack of these types of benefits does not necessarily mean the worker is an independent contractor.
Permanency of the Relationship When a worker is hired with the expectation that the relationship will continue indefinitely, rather than for a specific project or period, this is generally considered evidence that the intent was to create an employer-employee relationship.
Services Provided as Key Activity of the Business If a worker provides services that are a key aspect of the business, it is more likely that the business will have the right to direct and control his or her activities. For example, if a law firm hires an attorney, it is likely that it will present the attorney’s work as its own and would have the right to control or direct that work. This would indicate an employer-employee relationship.
When someone is unsure of the status they can file form SS-8 with the IRS and they will make the determination. This can take up to 6 months but if you anyone in a business that continually hires the same types of workers to perform particular services may want to consider this option.
Article – content from Accountants World 5/27/11
The new health reform law gives a tax credit to certain small employers that provide health care coverage to their employees, effective with tax years beginning in 2010. Additional guidance on the credit is available in Notices 2010-44 and 2010-82.
Calculation of the possible credit requires detailed research as well as information relating to total hours paid employees and the percentage of premiums paid.
Which employers are eligible for the small business health care tax credit?
Small employers that provide health care coverage to their employees and that meet certain requirements (“qualified employers”) generally are eligible for a federal income tax credit for health insurance premiums they pay for certain employees. In order to be a qualified employer, (1) the employer must have fewer than 25 full-time equivalent employees (“FTEs”) for the tax year, (2) the average annual wages of its employees for the year must be less than $50,000 per FTE, and (3) the employer must pay the premiums under a “qualifying arrangement” . Can a tax-exempt organization be a qualified employer? Yes. The same definition of qualified employer applies to an organization described in Code section 501(c) that is exempt from tax under Code section 501(a).
What expenses are counted in calculating the credit?
Only premiums paid by the employer under an arrangement meeting certain requirements (a “qualifying arrangement”) are counted in calculating the credit. Under a qualifying arrangement, the employer pays premiums for each employee enrolled in health care coverage offered by the employer in an amount equal to a uniform percentage (not less than 50 percent) of the premium cost of the coverage. There are transitional rules applicable to non uniform percentages.
However, if an employer offers more than one type of coverage, such as a major medical plan and a separate limited scope dental or vision plan, the employer must separately satisfy the requirements for a qualifying arrangement with respect to each type of coverage the employer offers (meaning the employer cannot aggregate these different plans for purposes of meeting the qualifying arrangement requirement). In addition, employer contributions to health reimbursement arrangements (HRAs), health flexible spending arrangements (FSAs), and health savings accounts (HSAs) are not taken into account for purposes of the small business health care tax credit.
In addition, the amount of an employer’s premium payments that counts for purposes of the credit is capped by the premium payments the employer would have made under the same arrangement if the average premium for the small group market in the state in which the employer offers coverage were substituted for the actual premium. This one is not easy to figure !
THERE IS AN EMAIL GOING ABOUT.. Stating that we will all pay sales tax when we sell our homes after 2011?? This is incorrect and a rumor with some kind of misinformation itention.
Here is the scoop…
One of the primary benefits of selling your home is that a significant portion of any profit–$250,000 for a single taxpayer and $500,000 for a married (filing joint) taxpayer–is completely tax free if you’ve lived in the home two out of the last five years. And that part is STILL true.
The part that’s new is a tax on the profit above that exemption amount for taxpayers in certain brackets. If a single taxpayer makes more than $200,000, or for marrieds above $250,000, they are subject to a new 3.8% tax on the profit above that exempted amount starting in 2013. It will actually be collected as a Medicare tax – so this was a funding for the health care bill.
For example, let’s say a single homeowner purchased in 2001 for $300,000. That taxpayer’s home might now be worth $600,000. If that taxpayer makes more than $200,000 in AGI, she will be subject to tax of 3.8% * (300,000 profit – 250,000 exemption) = $50,000 taxable profit = additional $1900 tax on the sale of her home (in addition to capital gains taxes on the $50,000 above the exemption) . A couple filing jointly would pay neither the 3.8% tax or capital gains tax on this home example.
The recycled items raise a bit of cash that is sent to Boys and Girls Club of Dundee Township.
Federal tax returns will have to wait until at least mid-February to file. The delay is necessary because the IRS needs time to program its systems to accommodate tax breaks included the recent tax bill.
Taxpayers who will have to wait until mid- to late February to file include:
• Taxpayers who claim itemized deductions on Schedule A. Itemized deductions include mortgage interest, charitable deductions, medical and dental expenses, state and local taxes.
• Taxpayers who claim a deduction for tuition and fees. This is a so-called “above-the-line” deduction, which means taxpayers don’t have to itemize to claim it.
Parents and students who claim other education credits, including the American Opportunity Tax Credit and Lifetime Learning Credit, will not have to wait to file, the IRS said, assuming they don’t itemize.
• Taxpayers who claim the educator expense deduction. This deduction, which is also an above-the-line deduction, allows teachers to deduct up to $250 in out-of-pocket costs for classroom materials.
A few other taxpayers will also need to wait to file, due to the impact of other recent changes, primarily some of those included in the Small Business Jobs Act of 2010. Affected forms include:
The delay affects both paper and electronic filers. All tax returns claiming these credits or deductions should not be filed until the IRS is ready to start processing these returns in mid- to late February. IRS e-file is the fastest, best way for those impacted by the delay to get their refunds.
The bill goes to the White House for President Barack Obama’s signature…..
The biggest winners, at least in dollar terms, are individual taxpayers, whose tax benefits account for roughly $700 billion of the bill’s total $858 billion 10-year price tag.
The measure includes retention of the Bush-era tax rates and breaks for all earners for two years, as well as protection through 2011 from the Alternative Minimum Tax for more than 20 million mostly middle-class households. It includes a new payroll-tax credit for virtually all workers, as well as a 13-month extension of benefits for the long-term unemployed. The wealthy won a lowered estate tax rate for the next two years of 35% on estates of more than $5 million.
Middle-income Americans fared best from the deal, due in large part to the new payroll-tax holiday, according to the nonpartisan Tax Policy Center. Those with the largest average gain in after-tax income, compared with current tax policies, earn between $35,000 and $64,000. They gain about $613, or 0.9% of their income. Lower-income earners will benefit from continued expanded availability of the child credit and other breaks. Higher-income people took the most cash from the deal. The average gain for households with $500,000 to $1 million in income was $3,859 compared to current tax levels. Democrats had wanted tax rates for this group to rise.
A number of short expiration dates now litter the U.S. tax code, affording a lack of predictability and continued political noise. In 2010 there were 141 tax provisions that were either expiring or just expired, including all the Bush-era individual rates. With this week’s votes to extend most of those provisions for just a year or two, many of the predictability problems could continue beyond the 2012 presidential election.
paraphrased from the WSJ
Some educational expenses such as tuition may qualify for the tax credits, but transportation expenses and room and board are not considered qualified expenses for these purposes. It is possible that a combination of credits and deductions may render the best tax result.
Is it deductible – Schedule A – misc deductions: MAINTENANCE OR IMPROVEMENT OF SKILLS vs. NEW TRADE OR BUSINESS OR MINIMUM EDUCATIONAL REQUIREMENTS
To be deductible, expenses must be for education that maintains or improves the taxpayer’s skills or that meets legal or employer requirements for the taxpayer to maintain his or her employment, status or pay level. Nondeductible expenses include those for education to meet an employer’s minimum requirements for a position or those that qualify the taxpayer for a new trade or business. Taxpayers must be prepared to substantiate in detail a direct relationship between the expense and the taxpayer’s business or employment. This determination will depend on the specific facts of each case, and the taxpayer will bear the burden of proof.
If the education qualifies the taxpayer for a new trade or business or if it meets the minimum entry-level educational requirements for the taxpayer’s job, then the travel expenses are not deductible. In the field of education certain job transitions, including classroom teacher to principal, are not to a new trade or business. Although , a teaching assistant working under the supervision of a licensed teacher while taking college courses cannot deduct transportation expenses.
Education expenses in preparation for entering a new business prior to the “functioning” of or active engagement in the business are not deductible.
TRAVEL AWAY FROM HOME: If the travel away from home is lengthy enough to require sleep or rest, then transportation, meals (subject to limits) and lodging may be deductible. If the travel does not require a stay for sleep or rest away from the taxpayer’s tax home, the taxpayer cannot deduct expenses such as meals and lodging
TRAVEL AND PERSONAL EXPENSES: Expenses for travel as a form of education are not deductible. Taxpayers may not deduct the cost of a vacation with educational aspects. Although a taxpayer may “gain insights” that help the taxpayer in a job, the taxpayer must establish “a direct relationship between her travels and the specific skills required” in her job, or that the employer required the travel. However, travel for the purpose of taking courses for college credit, involving syllabuses and reading, rather than being mere tours, may be deductible in some circumstances.
FOREIGN TRAVEL AND CRUISES: If the travel is outside the United States or by cruise ship, limitations on the amount of the deduction for certain foreign travel expenses may apply. In addition, if the travel is to a convention or seminar outside the North American area, the travel is scrutinized more carefully.
SUBSTANTIATION
Educational expense deduction cases are often won or lost based upon substantiation of the deductible expenses. As well as losing the benefit of the expense deductions, some taxpayers may also incur accuracy-related penalties under section 6662 relating to the disallowed deductions. The taxpayer bears the burden of properly substantiating the amount, time, place and business purpose of any travel.
Taxpayers should keep a diary or log of expenses, together with supporting documentary evidence, such as receipts, canceled checks, statements and similar records. The diary should indicate the dates the taxpayer left and returned on each trip for further education, the number of days or amount of time spent on education during each trip, the destination of the trip and the business purpose. Generally, the IRS looks more favorably upon records created and obtained at or near the time of the travel, instead of self-serving records or those created in hindsight many months or years after the travel occurred. Taxpayers should keep records of the cost of each separate expense for travel, lodging, transportation and meals. In addition, for automobile expenses, the taxpayer should keep a record of the cost of the car and improvements, the date the taxpayer started using it for business, a mileage log, the mileage for each business use, total miles for the year, the date of the expense and the date of the use of the car.
If a taxpayer is entitled to reimbursement from his or her employer for educational expenses and does not claim reimbursement, the taxpayer cannot deduct the expenses. Therefore, if a taxpayer is currently employed and the employer maintains a reimbursement plan, the taxpayer should request reimbursement of the travel expenses in writing even if the taxpayer is certain that the employer will not pay these expenses. The taxpayer should obtain any denial of reimbursement in writing from the employer.
from Journal of Accountancy
The 2011 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes, beginning on Jan. 1, 2011 will be:
The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. A taxpayer may not use the business standard mileage rate for a vehicle after using any non straight line depreciation. Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
What is the IRS standard for business deductions related to entertaining? In general – entertainment you provide must be directly related to the active conduct of your business or associated with a directly-related discussion that preceded or followed the meal or entertainment. In order to deduct the cost of the party, you must conduct business before, during, or after the party – such as a product demonstration or a sales pitch. Also the environment must be conducive to conducting business. This is the concept for the deduction….
Is it deductible at 100% or 50% – The guest list determines the extent to which you can write off the party.
You have a 100% write off if: 1. The party is open to the general public, or 2. The party is for employees and their spouses
You follow the 50% limitation rules that apply in general to meals and entertainment and write off half the cost if The party is for customers and prospective customers and/or Independent contractors associated with your firm.
Technically, there is no write off for attendance by family members, even if they are employees or owners. The expense is considered personal and no deduction is allowed. If there is a mix of employees, customers, and family members, allocate the expense and deduct accordingly. (I know -….. them’s the rules !)
How to document the deduction:
1. Save the invitation, 2. Keep a guest list and pictures of the event 3. Keep all receipts for all expenses incurred.
Maintain all of the above documentation in your tax file. When providing the expenses to your tax preparer, separate the cost of the party that is 100% deductible to a different category from “Meals and Entertainment.” Track it under “100% Entertainment” to ensure the correct write-off at tax time.
The Senate on Nov. 30 turned back a legislative efforts to repeal a requirement that employers furnish 1099 statements if they do more than $600 in business with a corporate vendor—failed to win enough votes to be attached to a food safety bill. Small employers have complained that the reporting burden of the health care reform law requirement, which is scheduled to go into effect in 2012, is too great. While there is broad congressional support for repealing the requirement, the amendments failed for reasons unrelated to the health care reform law, Washington observers say. Despite the setback, new proposals to repeal the 1099 reporting requirements are expected soon. Keepin’ an eye pealed !
By most expectations, personal income tax rates will likely stay level in 2011 for all taxpayers after Congress executes expected extensions. Qualified dividend and long-term capital gains rates are likely to stay the same for most, but may increase slightly for taxpayers in the top one or two tax brackets. But any extension of lower tax rates is likely to be temporary. As a result, the same issues should be back on the table in a few years. Farther down the line, there is already a new tax on the horizon: A Medicare surcharge on net investment income is slated to hit high earners in 2013. And given the size of the federal deficit, Congress may look to other new taxes to raise revenue.
Maxing out pretax contributions to a 401(k) or IRA helps reduce current tax liability by the amount of the pretax contribution amount times the applicable marginal income tax rate. In 2010 you can contribute up to $16,500 for 401(k) plans (up to $22,000 for those age 50 and older), and $5,000 to IRAs ($6,000 for age 50 and older).
But if you think you will be in the same or a higher tax bracket when you retire, or that the extension of 2010 rates may ultimately mean higher rates in the future, it may make more sense to contribute after-tax money to a Roth 401(k) or Roth IRA, particularly while income tax rates are still relatively low. When you retire you’ll benefit from tax-free withdrawals, provided certain conditions are met. With a traditional IRA or 401(k), distributions are taxed at your marginal rate.
If predicting your future tax rate is nothing more than a random guess, or if you want a mix of savings vehicles with different tax strategies, a tax-diversification strategy may make sense. A mix of taxable, pre-tax, and after-tax savings vehicles, may give you choices when it comes time to withdraw from these accounts.
You may also want to consider converting a traditional IRA or other eligible retirement balance to a Roth IRA before year-end. Converting could be more expensive if tax rates increase (and higher income could put you into a higher tax bracket as well). Essentially, you would pay taxes on the money you convert, rather than when you withdraw that money in retirement. For conversions made in 2010, because of a special one-time tax rule, you can elect to pay the entire tax bill on your 2010 return or split it evenly between your 2011 and 2012 tax returns. Again the unknown rates in the next couple of years may add confusion to the decision. If Congress fails to extend the cuts, you can undo a Roth IRA conversion up until October 17, 2011, through a process called recharacterization.
Tax advisers often suggest that those who itemize deductions, should defer income into future tax years while accelerating deductions into the current tax year. While you’ll likely end up with the same tax liability, you would pay it at a later date. In the meantime, you may be able to benefit from the use of that money. If tax rates stay the same next year, this tried-and-true year-end tax move should work in 2010 as well, with one important exception. You may want to consider delaying payment from contract work or bonuses until January (pushing some income into next year). In this case, you could potentially defer paying some of the tax on that income until 2012 when you file your 2011 tax return. Or consider prepaying January’s mortgage bill in December (pulling a mortgage-interest deduction into this year). That way you could potentially get an additional deduction in 2010.
For gifts to charity, focus on how you are giving as much as the amount. If you believe your tax rates are headed higher in the future, you might consider deferring major charitable gifts until rates go up (thus potentially making charitable deductions more valuable). However, in 2010, you can still maximize your charitable deduction by the way you make your gift, or, if it’s large, by pairing it with other moves such as a Roth IRA conversion.
For this year, given the stock market’s gains, donating long-term appreciated securities may be a particularly tax-savvy strategy. As a general rule, donations of long-term appreciated securities (either stock or mutual funds) directly to a qualified charity are deductible at their fair market value on the date of contribution, and you don’t pay capital gains taxes on the donated security.
Keeping your overall investment plan in mind, you may want to consider holding income-paying investments in accounts that shelter or defer income from taxes, such as IRAs, 401(k)s, deferred annuities, or other tax-advantaged accounts. If qualified dividends are again treated as ordinary income and taxed at your marginal rate, paying heed to where your investments are located could be even more important.
Keeping your income-producing investments in tax-advantaged accounts may also help you prepare your portfolio for the 3.8% Medicare tax in 2013, which will affect married couples filing jointly with modified adjusted gross income (MAGI) of more than $250,000 ($200,000 for single filers). The tax will apply to the lesser of net investment income or MAGI over the threshold. Investment income would include income from interest, dividends, capital gains, annuities, rents, and royalties.
It is not too soon to begin preparing for this 2013 tax change. An extension of current tax rates could be an opportunity to plan ahead. You’ll want to consider maximizing savings in tax-advantaged accounts such as IRAs and 401(k)s, because withdrawals from them will not be included when determining investment income for the new Medicare tax. Further, Roth IRA withdrawals aren’t considered investment income or an addition to your MAGI under current legislation—possibly making conversions and contributions to Roth-type accounts more relevant for the near term.
Because there is still some uncertainty related to tax rates on investment income, if you believe investment taxes may rise, you may want to consider these strategies in addition to the five above.
“If you have losses you are considering realizing to offset gains in 2010, it may make sense to hold off until the beginning of 2011,” says Steven Feinschreiber, senior vice president of research at Fidelity Strategic Advisers, Inc. “If long-term capital gains rates rise next year, it increases the value of tax losses you can use to offset gains.” Remember, capital losses may generally be used to offset only capital gains and, in the case of individuals, small amounts of ordinary income. This move needs to be considered in light of any gains you’d be offsetting in 2010 instead of 2011.
If you don’t have significant losses to offset gains, you may still want to sell some winners, because of the possibility of an increase in the top long-term capital gains tax rate from 15% to 20% in 2011. For example, closing the sale of a small business in 2010 rather than 2011 could potentially save a high earner a significant amount in taxes over waiting until 2011. This also holds true for large positions of highly appreciated long-term securities.
Most people closely following tax policy in Washington, believe it appears likely that most of the tax cuts will be extended into 2011. But the current legislative atmosphere is highly uncertain, and nothing is set in stone until a bill is signed by the President. That’s why it’s important to stay alert and be prepared should the situation change.
from fidelity.com
Tax cuts enacted in 2001 and 2003 are scheduled to expire on December 31, meaning taxes on income, dividends, capital gains, and estates would revert to higher, pre-2001, levels. Congress isn’t expected to take up the issue until December, and it’s too soon to predict whether they will manage to enact a bill this year or punt until next year. Whether it’s done in 2010 or 2011, the conventional wisdom is that Congress will extend all of the tax cuts for at least one or two years. Conventional wisdom, however, does not always prevail, and the political dynamics of the lame-duck session may produce a different outcome. as for dividends and long term capital gains, Obama’s proposed budget caps the long-term capital gains and dividend rate at 20%, and a lot of people on both sides of the debate might live with that compromise.
There is broad support for extending all tax cuts for people in the bottom four tax brackets. The debate is really about the estate tax and the income, capital gains, and dividend rates for people in the top one or two brackets.
from Fidelity.com
NxLevel™ Entrepreneurial Training Program Helping entrepreneurs reach the next level of success
This independent study program being offered in association with the Illinois Small Business Development Center will involve (6) one-on-one sessions, each an hour long, over approximately 6 weeks that may be personalized according to the students schedule. During each session the instructor and student will cover specific NxLevel materials while also allowing the student time for review and follow-up. The cost for the (6) week program will be $475.00* which includes a comprehensive reference book, workbook, and hand-outs. The student will also be able to utilize all of the resources available at the Illinois Small Business Development Center before, during and after their NxLevel course. (there may be grant money available)
Call: (847) 214-7488 www.elgin.edu/sbdc
The IRS requires documentation of the method used by a exempt organization board to establish executive compensation. Guide Star (guidestar.org) provides some help in seeking comparative information (there is a fee involved):
Last year, we introduced CEO Compensation Checkpoint Report, a customized report that analyzed CEO compensation at a specific nonprofit within a group of comparable organizations. This year, we’ve made the report even more flexible and put the power in the user’s hands. You can now use National Taxonomy of Exempt Entities (NTEE) codes or location to identify peer organizations that best align with your organization’s mission and programs.
IRS mandates the use of Electronic Payment System
and discontinues paper coupons effective Jan. 1, 2011
Effective January 1, 2011 the IRS has mandated the use of the Electronic Payment System and discontinued paper coupons (IRS Form 8109). The Electronic Federal Tax Payment System (EFTPS) can be used seven days a week. Payments can be scheduled up to 120 days in advance of the payment date. There is no cost for using EFTPS. Note: Some businesses paying a minimal amount of tax (up to $2500 per quarter) may continue to make payments with the related tax return (IRS Form 941).
WHEN IS YOUR GIFT DEDUCTIBLE ??
Though the final transfer to charity is not actually made until the check clears the banking institution, checks are usually deductible on the date of unconditional mailing or delivery through U.S. Mail. Therefore, so long as the check clears in the normal course of business, the charitable deduction will be allowable in the year the donor mailed or delivered the check. This is true despite the fact donors could hypothetically stop payment on the check and negate the actual gift.
CHARITABLE GIFTS by credit card are becoming a more popular and convenient gift method. With increasing use of the Internet and expanding charities’ websites, credit card gifts are likely to substantially increase in the future.
The basic rule is that a gift to a charity is deductible when the property or cash is delivered to a charity. Since credit card charges are normally immediately created by electronic debit on an account, the credit card gift is immediately deductible. Furthermore, because a legal obligation is immediately created, Treasury does not consider this a mere promissory note or promise to pay. Thus, a donor could deduct a gift by credit card on December 31 of year one and pay the bill the following January 30 in year two.
QUESTIONS often arise as to: …Whether an activity is a business or a hobby, an activity not engaged in for profit. In general, taxpayers may deduct ordinary and necessary expenses for conducting a trade or business. An ordinary expense is an expense that is common and accepted in the taxpayer’s trade or business. A necessary expense is one that is appropriate for the business. Generally, an activity qualifies as a business if it is carried on with the reasonable expectation of earning a profit.
In order to make this determination, taxpayers should consider the following factors:
The IRS presumes that an activity is carried on for profit if it makes a profit during at least three of the last five tax years, including the current year — at least two of the last seven years for activities that consist primarily of breeding, showing, training or racing horses. If an activity is not for profit, losses from that activity may not be used to offset other income. An activity produces a loss when related expenses exceed income. The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. It does not apply to corporations other than S corporations.
…What are the rules for renting property such as a second home?
If you receive rental income from renting to others a dwelling unit, such as a house or an apartment, you may deduct certain expenses. These expenses, which may include interest, taxes, casualty losses, maintenance, utilities, insurance, and depreciation, will reduce the amount of rental income that is taxed. You will generally report such income and expenses on Form 1040, Schedule E. If you are renting to make a profit and do not use the dwelling unit as a home, your deductible rental expenses can be more than your gross rental income, subject to certain limits. Your rental losses, however, may be limited by the “at-risk” rules and the passive activity loss rules. However, if you rent a dwelling unit that you also use as a home, your deductible rental expenses will be limited.
You are considered to use a dwelling unit as a home if you use it for personal purposes during the tax year for more than the greater of: 14 days or 10% of the total days it is rented to others at a fair rental price. It is possible that you will use more than one dwelling unit as a home during the year.
For example, if you live in your main home for 11 months, your home is a dwelling unit used as a home. If you live in your vacation home for the other 30 days of the year, your vacation home is also a dwelling unit used as a home unless you rent your vacation home to others at a fair rental value for 300 or more days during the year.
A day of personal use of a dwelling unit is any day that it is used by: You or any other person who has an interest in it, unless you rent your interest to another owner as his or her main home under a shared equity financing agreement; A member of your family or of a family of any other person who has an interest in it, unless the family member uses it as his or her main home and pays a fair rental price; Anyone under an agreement that lets you use some other dwelling unit; or Anyone at less than fair rental price.
If you use the dwelling unit for both rental and personal purposes, you generally must divide your total expenses between the rental use and the personal use based on the number of days used for each purpose. However, you will not be able to deduct your rental expense in excess of your gross rental income. If you itemize your deductions on Form 1040, Schedule A (PDF), you may still be able to deduct mortgage interest, property taxes, and casualty losses on that schedule.
There is a special rule if you use a dwelling as a home and rent it for fewer than 15 days. In this case, do not report any of the rental income and do not deduct any expenses as rental expenses.
Why Roth? Post 59 ½ (taxpayer age) distributions from Roth IRA’s held at least 5 years are tax free. Which means tax free growth (vs. tax deferred growth in a traditional IRA’s).
Important New Tax Provisions Related to New Hires
These two provisions of the 2010 HIRE ACT may be of interest to you as a business owner or to your employer.
1. If an employee is hired after February 3, 2010 who worked less than a TOTAL of 40 hours in the 60 day period prior to beginning work for the new employer and certifies as such by signed affidavit… The new employer will save the 6.2% employer social security tax on wages paid from March 18, 2010 to the end of 2010.
The second quarter Federal 941 will begin to accommodate this tax credit.
It will be up to the employer to provide a copy of the affidavit to your payroll service or accountant, in order to apply the credit.
2. If the above described employee is retained for 52 consecutive weeks, an additional $1,000 tax credit may be applicable on the income tax filing of the employer.
for small employers and taxexempt organizations that provide health insurance coverage
Under the new law, a maximum tax credit of 35% of premiums paid in 2010 by eligible small businesses and 25% of premiums paid by eligible employers that are tax-exempt organizations will be available. In 2014, this maximum credit jumps to 50% of premiums paid by eligible small employers and 35% of premiums paid by eligible employers that are taxexempt organizations.
The government defines an eligible small employer as one with fewer than 25 full-time equivalent employees paying wages averaging less than $50,000 per employee per year. The eligibility formula is based in part on the number of FTEs, not the number of employees, many businesses will qualify even if they employ more than 25 individual workers. The maximum credit goes to smaller employers with 10 or fewer FTEs that pay annual average wages of $25,000 or less.
The credit is based on the % paid by the employer ( if employer share is at least 50% of a single premium) and will have limitations related to the average premium for the small group market in a State (or an area within the State) will be determined by the Department of Health and Human Services (HHS) and published by the IRS. Publication of the average premium for the small group market on a State-by-State basis is expected to be posted on the IRS website by the end of April. There will be special limitations in the calculation of the credit for a tax exempt organization.
FTEs will be calculated from the total hours paid for the year divided by 2080. (rounded down). Generally business owners, employed family members and seasonal employees are not included in the total hours or wages.
Eligible small businesses can claim the credit as part of the general business credit starting with the 2010 income tax return they file in 2011. Note: the employer tax deduction for health premiums will be decreased by the amount of the credit.
It will be important to maintain accessible records of the number of hours paid and health premiums paid per employee for the year 2010.
HOW WILL THE NEW 2009 TAX LAW STILL AFFECT Individual Taxpayers?
Click here for a chart of the Energy Credits 2009 and on
For 2009 and 2010, the Making Work Pay provision of the American Recovery and Reinvestment Act will provide a refundable tax credit of up to $400 for working individuals and $800 for married taxpayers filing joint returns.
This tax credit will be calculated at a rate of 6.2 percent of earned income and will phase out for taxpayers with adjusted gross income in excess of $75,000, or $150,000 for married couples filing jointly.
For people who receive a paycheck and are subject to withholding, the credit will typically be handled by their employers through automated withholding changes in early spring. These changes may result in an increase in take-home pay. The amount of the credit must be reported on the employee’s 2009 income tax return filed in 2010. Taxpayers who do not have taxes withheld by an employer during the year can also claim the credit on their 2009 tax return.
It is not necessary to submit a Form W-4 to get the automatic withholding change. However, an employee with multiple jobs or married couples whose combined incomes place them in a higher tax bracket may elect to submit a revised W-4 to ensure enough withholding is held to cover the tax for his or her combined income. Publication 919 provides additional guidance for tax withholding.
2010 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on Jan. 1, 2010, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
All Charitable Gifts need documentation !
To be deductible, clothing and household items donated to charity after Aug. 17, 2006, must be in good used condition or better. However, a taxpayer may claim a deduction of more than $500 for any single item, regardless of its condition, if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances, and linens.
Beginning in 2007: To deduct any charitable donation of money, 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. A bank record includes canceled checks, bank or credit union statements and credit card statements. Bank or credit union statements should show the name of the charity and the date and amount paid. Credit card statements should show the name of the charity 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, 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.
Prior law allowed taxpayers to back up their donations of money with personal bank registers, diaries or notes made around the time of the donation. Those types of records are no longer sufficient.
The new law does not change the prior-law requirement that a taxpayer get an acknowledgement 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 the requirements of both provisions.
To help taxpayers plan their holiday-season and year-end donations, the IRS offers the following additional reminders:
Great information from NOLO.com… my favorite “regular guy” legal reference site
We’ve all been told that if we do nothing else to take care of our legal affairs, we should write a will. That’s pretty good advice. If you don’t make a will before your death, state law will determine who gets your property (and it may well not be whom you would have chosen), and a judge may decide who will raise your children. In your will, you can make these decisions yourself.
If all you need is a basic which :
By and large, if you are under age 50 and don’t expect to leave assets valuable enough to be subject to estate taxes, you can probably get by with only a basic will. But as you grow older and acquire more property, you may want to engage in more sophisticated planning
Making a will rarely involves complicated legal rules. In most states, if you’re married, your spouse has the right to claim a certain amount of your property after your death. If you leave your spouse at least half of your property, this won’t be an issue.
Make sure your will reflects your current wishes and situation.
Experience teaches us that the only constant in life is change. But we don’t always keep up with the important tasks — such as updating wills and other important legal documents — that should accompany big changes in our lives. Your will should always be tailored to your current family and financial situation, not the one you faced five years ago or maybe even just last year.
Life events such as marriage, divorce or other changes in partners should nudge you toward making a new will and reviewing beneficiary designations you’ve made for insurance policies, bank accounts, and retirement accounts.
It’s smart to make documents setting out your wishes for health care in case you are ever unable to speak for yourself.
If you’re like most people, you aren’t eager to spend time thinking about what would happen if you became unable to direct your own medical care because of illness, an accident, or advanced age. But if you don’t do at least a little bit of planning — writing down your wishes about the kinds of treatment you do or don’t want to receive and naming someone you trust to oversee your care — these important matters could wind up in the hands of estranged family members, doctors, or sometimes even judges, who may know very little about what you would prefer.
There are two basic documents that allow you to set out your wishes for medical care: a living will and a durable power of attorney for health care. It’s wise to prepare both. In some states, the living will and the power of attorney are combined into a single form — often called an advance directive. (In fact, both of these documents are types of health care directives — that is, documents that let you specify your wishes for health care in the event that you become unable to speak for yourself.)
First, you need a written statement that details the type of care you want (or don’t want) if you become incapacitated. This document is most often called a living will, though it may go by a different name in your state. A living will bears no relation to the conventional will or living trust used to leave property at death; it’s strictly a place to spell out your health care preferences. You can use your living will to say as much or as little as you wish about the kind of health care you want to receive.
You’ll also want what’s usually called a durable power of attorney for health care. In this document, you appoint someone you trust to be your health care agent (sometimes called an attorney-in-fact for health care, health care proxy, or surrogate) to make any necessary health care decisions for you and to see that doctors and other health care providers give you the type of care you wish to receive.
Name the best person to direct your medical care if you are unable to do so yourself.
When you make a durable power of attorney for health care, the most important decision you will face is deciding who your health care agent should be. (In your state, this person may also be called a health care proxy, surrogate, or attorney-in-fact.)
Most people name their spouse, partner, a relative, or a close friend as their health care agent. What’s most important is that you trust the person absolutely — and that you feel confident discussing your wishes for medical care with him or her. Your agent need not agree with all of your wishes, but must completely respect your right to get the kind of treatment you want.
In case you don’t know, a durable power of attorney for health care gives another person authority to make medical decisions for you if you are unable to speak for yourself. In some states, this document may be called an Appointment of Health Care Proxy, Designation of Health Care Surrogate, or something similar — but it works the same as a durable power of attorney.
Is the person assertive? Keep in mind that your agent may have to fight to assert your wishes in the face of a stubborn medical establishment — and against the wishes of family members who may be driven by their own beliefs and interests, rather than yours. If you foresee the possibility of a conflict in enforcing your wishes, be sure to choose an agent who is strong-willed and assertive
The risk involved with an incorrect classification of an “employee” as an independent contractor includes possible liability for back employment taxes ( not offset by taxes already paid by the contractor), entitlement to fringe benefits and penalties and interest. The determination turns on the issue of control over the services performed.
See the resources Under EMPLOYER page (right margin)
DIFFICULT ECONOMIC TIMES CALL FOR WATCHING EXPENSES IN SMALL BUSINESSES
One of the biggest opportunities to save money is by taking a look at those recurring, monthly expenses that we all have in our businesses. Because we spend roughly the same amount of money on them month after month, we can save not only for this month but for all future months when we can cut these expenses.
Let’s examine five common overhead expenses that may be ripe for cutting in your business.
Communications Telephone systems, pagers, cell phones, web hosting, and internet connections have all dropped drastically with increased technology and competition. Re-evaluate your needs: do you need all those phone features, can you drop a few lines, and is it necessary to have both a pager and a cell phone? Ask your existing vendor to re-price your package. You might also be able to save by paying for these features a year in advance; ask your vendor to see if this applies.
Insurance
Workers compensation, health, professional liability, errors and omissions, directors and officers liability, building, auto, and personal umbrella – these are a few of the insurance needs you and your business may have.
Ask your agent if you are over or under covered. If you have multiple agents covering multiple policies, are there any savings by going to fewer vendors or combining policies? You might be able to change dollar limits or increase your deductible, but if you do this, you need to keep the long term in mind. There are good reasons to carry adequate insurance.
Advertising Instead of spending money on costly advertising, try two other things first:
Leveraging your customer or client base for referrals.
Public relations exposure.
Ask your customers or clients directly for referrals. I know most of us are shy about doing this, but try it anyway. Offer some kind of bonus, such as a gift certificate or an hour free of work for each new referral who becomes a client. To get publicity, send out press releases on some of the latest tax changes, IRS tips, or organizational ideas to local newspapers, news stations, and radio. Do some research on what shows would cover tips on your topic and make sure the host knows you are an expert on the topic. Being mentioned in an article or on the news will build credibility, exposure, and will add content for your prospect kit that you mail to potential clients. If you do need to advertise, be sure to spend the money on media that brings the biggest return.
Office Supplies, Printing, and Postage The office supply closet seems to be one of those black holes in many companies; supplies disappear so fast you wonder what happened. One of the solutions is to digitize as much as possible so that paper, pens, paperclips, and other supplies are needed less often. Create a campaign to help people get used to reviewing documents in the computer without printing. An example message of the campaign would be to use your print preview button every time to help avoid printing mistakes. When you need to print larger quantities of a document, always print less than what you think you’ll need. You’ll no doubt find a typo or want to change the wording before the document inventory is used up. Saving on postage is easy. Just email it instead if you can, and if not, use the two-day or regular post instead of overnight.
Rent and Utilities The need for office space has changed dramatically in the last ten years. Many of us work at home, telecommute, or have gone green and reduced paperwork so much that we need a lot less space to work. If you have too much office space, you might consider subleasing if your rental contract allows it. If you are leasing, it might be time to consider purchasing a building so that your rental money goes into an asset instead of an expense. You may also be able to relocate to another part of town and save big on rent. There may be some real deals in your city if you keep your eyes open. To save big on utilities, there are many green ideas available such as changing all your light bulbs to CFLs, keeping computers turned off and unplugged (or using an energy saving “smart” power strip) when not in use, and even switching utility vendors to get a better price or go with a greener company. To get employees on board with these changes, put a program in place in the name of saving the earth, and challenge them to see what ideas they can come up with to green up your workplace.
