WHAT A MESS – PAYROLL TAX DEBATE

The debate of the month is the extension of the 3% payroll tax extension. Let’s see how that will impact a taxpayer. If you were to make $40,000 per year this means about $46 per paycheck. Supposedly that will help stimulate the economy and create jobs, but don’t forget the money comes out of the Social Security Trust Fund.

But here is the problem. In just a few days you we will writing the first 2012 paychecks and we don’t know how much we are going to withhold. The IRS publications are out without the cut and I am sure that the computer programmers are going to be burning the midnight oil once Congress and the President act. There is also a chance that the extension of the law may occur early in 2012 and be retroactive to January 1, 2012. We hope that this does not happen, but recent history shows there is a good chance of it occurring.

The primary issue for our employers is whether the payroll tax software that they use is timely updated for these changes. If a new law is passed either at the end of the this month or early next month, the software may not get updated for your first payroll. This may cause it to be wrong and changes will need to be performed to get the right amount of pay to your employees and report the right taxes on your form 943 at year-end or form 941 for the first quarter.

We will keep you posted.

CLAIM IT NOW WHILE YOU CAN

Year-end tax planning: claim the non-business energy property credit while you can....

Of the many energy-saving provisions in the Code, few are more accessible to ordinary taxpayers than the $500 credit for non-business energy property. The credit can apply to relatively inexpensive, easy-to-do (perhaps even do-it-yourself) items—the installation of insulation (e.g., exterior caulking and weather-stripping), doors, and windows—as well as slightly more expensive but standard items such as central air conditioning and heat pumps. However, currently this credit only applies through 2011, and the prospects for an extension are uncertain. As a result, homeowners should consider accelerating energy-saving home improvements into this year if doing so will generate a credit.

Summary of the credit. The non-business energy property credit, as most recently extended, applies only through Dec. 31, 2011. A taxpayer can claim a credit on Form 5695 equal to 10% of the cost of: (1) qualified energy efficiency improvements, and (2) residential energy property expenditures. There is a lifetime credit limit of $500 (with no more than $200 due to windows and skylights) over the total credits allowed to the taxpayer for all earlier tax years ending after 2005. (The expenses must be for property originally placed in service by the taxpayer and made on or in connection with a dwelling unit located in the U.S., and owned and used by taxpayer as his principal residence at the time of installation.

Qualified energy efficiency improvements are energy efficient building envelope components, such as (a) insulation materials or systems specifically and primarily designed to reduce heat loss/gain that meet criteria set by the International Energy Conservation Code (IECC); or (b) exterior windows, skylights or doors, or any metal roof with pigmented coating or asphalt roof with cooling granules specifically designed to reduce heat gain, installed on a dwelling unit that meet Energy Star program requirements. The component must be expected to last for at least five years This requirement is met if the manufacturer offers a two-year warranty to repair or replace at no extra charge.

Residential energy property expenses are expenses for qualified energy property (including labor costs for onsite preparation, assembly, or original installation) that meets specific standards. The credit allowed for energy property expenditures can't exceed:
... $300 for any energy-efficient building property (electric heat pump water heater, electric heat pump; central air conditioner; natural gas, propane or oil water heater; or a stove burning biomass fuel to heat or provide hot water to a taxpayer's residence in the U.S.) that meets specific energy efficiency standards;
... $150 for a qualified natural gas, propane, or oil furnace; or qualified natural gas, propane, or oil hot water boiler; or
... $50 for an advanced main air circulating fan.

SIX YEAR-END TIPS TO REDUCE 2011 TAXES

The IRS wants to remind all taxpayers that with the New Year fast approaching, there is still time for you to take steps that can lower your 2011 taxes. However, you usually need to take action no later than Dec. 31 in order to claim certain tax benefits.

CLICK HERE to read the 6 tips!

COMPARING THE PRESIDENTIAL CANDIDATES’ TAX PLANS

How does Mitt Romney compare to Ron Paul on taxes? Does Newt Gingrich have a savvier plan than Michele Bachmann?

The Tax Foundation just published a comparison of the presidential candidates tax plans. I always find candidates talk about taxes interesting. They proclaim that once they get into office they can flip a switch from the White House and policy will change. In actuality tax law changes start in the Ways and Means Committee of the House of Representatives. Looking at the last two major changes in the tax laws, history tells us that it takes 2 to 3 years to accomplish change. Check out their campaign promises.

With the upcoming 2012 presidential election, tax policy is on voters’ minds more than ever. Taxes are one of the central issues in any national election, and it is important for the public to understand candidates’ general views toward tax policy as well as their positions on specific issues. The online Presidential Candidate Tax Plan Comparison outlines the candidates’ positions on the most important tax questions of this election. Ten presidential candidates were evaluated on six different parameters of tax policy: individual income tax rates, the corporate income tax, the estate tax, payroll taxes, the alternative minimum tax, and taxes on capital gains and dividends.

CLICK HERE

YEAR-END TAX PLANNING

Year-end tax planning is especially challenging this year because of uncertainty over whether Congress will enact sweeping tax reform that could have a major impact in 2012 and beyond. And even if there's no major tax legislation in the immediate future, Congress next year still will have to grapple with a host of thorny issues, such as whether to once again “patch” the alternative minimum tax (e.g., to avoid a drastic drop in post-2011 exemption amounts), and what to do about the post-2012 expiration of the Bush-era income tax cuts (including the current rate schedules, and low tax rates for long-term capital gains and qualified dividends), and the expiration of favorable estate and gift rules for estates of decedents dying, gifts made, or generation-skipping transfers made after Dec. 31, 2012.

Regardless of what Congress does late this year or early the next, there are solid tax savings to be realized by taking advantage of tax breaks that are on the books for 2011 but may be gone next year unless they are extended by Congress. These include, for individuals: the option to deduct state and local sales and use taxes instead of state and local income taxes; the above-the-line deduction for qualified higher education expenses; and tax-free distributions by those age 70- 1/2 or older from IRAs for charitable purposes. For businesses, tax breaks that are available through the end of this year but won't be around next year unless Congress acts include: 100% bonus first-year depreciation for most new machinery, equipment and software; an extraordinarily high $500,000 expensing limitation (and within that dollar limit, $250,000 of expensing for qualified real property); and the research tax credit.

1099 FORM LETTER TO YOUR VENDORS

We thought it might be helpful if you had a ‘form’ letter in which you could send to your vendors. Please feel free to copy and paste this into a word doc and send it out. Click on the link below the letter to obtain the W-9.

Dear Vendor,

IRS regulation requires that we issue 1099 forms to certain companies and individuals. In order to accurately prepare these forms, IRS requires that we obtain and maintain form W-9 for all of our vendors.

Therefore, in order to ensure our reporting accuracy, please complete the enclosed form W-9 and return to us by mail or fax.

Thank you for your immediate attention to this matter.

Sincerely,

W-9 LINK

W-9 WHAT ABOUT SENDING TO….

Q. I read your business blog and saw the topic on ‘Issuing 1099-MISC’s’: I own an Electrical company and wondered if I need to send a w-9 to our vendors for the Electrical Co. & the Construction Co.? And then send 1099’s to them if required. ~ Thanks for your help.

A. I would advise getting W-9’s from them. This will assure that you were not required to do backup withholding. The IRS has not been penalizing companies that do not have W-9’s but it technically is required. My guess is that someday this will be an issue. You just as well get ahead of the curve.

If they are not a corporation and they are providing services then a 1099 is in order. If they are just your supplier and you buy inventory, hard goods etc. then you do not need to do a 1099. Some taxpayers are unsure of the form of business of the companies that they are dealing with. The W-9 will solve that problem. At the same time if you are not sure there form of business it is okay to send a 1099. There is no penalty for sending to a corp.

IRS OFFERS TIPS FOR YEAR-END GIVING

If you itemize your deductions (long form), you can deduct charitable contributions. The IRS just published Tips for Year-End Giving that you might want to review.

CLICK HERE

DON’T FORGET YOUR FLEXIBLE SPENDING MONEY

Check your flexible spending account balance. You must clean it out by Dec. 31 if your employer still has not adopted the 2½-month grace period that IRS now permits. Otherwise, any money remaining in your account is forfeited. When you are deciding how much you should put into your flex plan for 2012, remember that a $2,500 annual cap on FSA payins is set to go into effect in 2013.

CLEAN OUT THE CLOSETS

AND GET A TAX DEDUCTION

If you itemize deductions (the long form) you not only can deduct your cash contributions but you can also deduct your non cash contributions. What we are talking about here is items given to the Salvation Army and the like. Remember the key is Documentation, Documentation, Documentation!

Here are the rules for non cash contributions:

First, make sure that this is a qualified charity. If in doubt ask to see their 501(c) approval.

Remember, no matter how charitable a contribution to an individual may be, contributions to individuals are not deductible.

If the contribution of goods is less than $250 you should have either a written acknowledgment from the charity of some other reliable list.

If the goods have a value between $250 and $500 then you need a written acknowledgement and, of course a list.

If between $500 and $5,000 then written acknowledgement; your list and a file a Form 8283 with the return.

If over $5,000 all of the above and you must file an appraisal with the return.

ONLY IN AMERICA

A fugitive who took a Kansas couple hostage in their home is suing them for $235,000. Accused murderer Jesse Dimmick claims Jared and Lindsay Rowley accepted his knifepoint offer of money to hide in their house. But the Rowleys later breached their "oral contract" by escaping as he slept, Dimmick says, "resulting in my being shot in the back by authorities."

Wow only in America!

PLANNING IDEAS FOR THE CURRENT LOWER CAPITAL GAINS & DIVIDEND RATES

1. Don't forget that there is a 0% qualified dividend and long term capital gain rate if you have AGI below $69,000 ($34,500 for singles). This is also the case for 2012. It is possible to generate "free" capital gain and dividend income.

2. Gifting appreciated stock to adult children or parents in a low bracket can be a good plan for utilizing the 0% rate.

3. Watch installment sales. Installment sale proceeds are taxed at the rate in effect in the year the principal is collected. Collections in 2011 and 2012 will be at the 0% or 15% rates. Collections in later years maybe subject to higher capital gains rates and, for some upper income taxpayers, the new 3.8% Medicare tax may apply in 2013.

4. Watch out for AMT. The AMT and state taxes often makes effective LTCG higher than the 15% that is advertised.

5. If you have a corporation you have two or years to pay out dividends at the 15% rate. This may be a good time to clear out shareholder loans

2012 STANDARD MILEAGE RATES

The Internal Revenue Service today issued the 2012 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, 2012, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
~55.5 cents per mile for business miles driven
~23 cents per mile driven for medical or moving purposes
~14 cents per mile driven in service of charitable organizations

The rate for business miles driven is unchanged from the mid-year adjustment that became effective on July 1, 2011. The medical and moving rate has been reduced by 0.5 cents per mile.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study.

Independent contractor Runzheimer International conducted the study. You do have the option of calculating the actual costs of using your vehicle rather than using the standard mileage rates.

HARSH 1099 PENALTIES

The IRS wants everyone to issue 1099's so that they can spot unreported income. This year the penalty for failure to file a 1099 is $250 per form with an addition $250 per form if you did not act in good faith.

I can guarantee you that one of the first things that the IRS looks at during the audit is 1099's. It is easy money for them if you did not file.

Think about it. If you missed 10 forms for three years the penalty would be $7,500 minimum with it possibly going to $15,000. That is on just 10 missed forms. Do the math. Make sure you issue 1099's.

CHINA BUYING LAND IN SOUTH AMERICA

I was going through some clippings I saved from this summer and ran across an article in the Wall Street Journal that reported that Chinese companies are continuing to invest in South America especially in buying up farm land to feed their people. Through the twelve month period ended May 31, 2011, the China’s investment in Latin America had hit $15.6 billion.

During the last three years, more than 70% of their investments had been in energy and minerals, but farming is attracting more attention.

This summer, China’s largest farming company, Heilongjian Beidahuan Nongken Group signed a joint venture with Argentina’s Creud SA to buy land and farm soybeans. Creud SA already controls more than 2.5 million acres of land in Argentina. Heilongjian had already indicated back in March their intentions to purchase 500 thousand acres of land overseas during this year and Latin America is their primary target area.

They are also spending $1.5 billion to develop about 750 thousand acres of land in Rio Negro Province over a ten year period. These developments will not be a direct purchase of land, but they will be in control of the production.

With the backing of the Chinese government, it looks like this type of investment is going forward.

QUESTION FROM A MISCLASSIFIED WORKER

Q. I am definitely an employee at my job but, my employer did not withhold anything and instead of giving me a W-2 like he should have he gave me a 1099. Last year he gave me a W-2. Now not only do I owe a bunch of tax I also have to pay both halves of the Social Security and Medicare tax. This is not fair. Is there anything I can do?

A. Yes there is something you can do to cut your Social Security and Medicare in half. Since 2007, you are allowed to file a Form 8919M Uncollected Social Security and Medicare Tax on wages instead of filing Schedule SE. The form SE charges you tax at 15.3% versus the 7.65%.

There are some codes on the form that you will need to review and if you meet one of the criteria, walla you qualify.

By the way, this IRS may be visiting your employer. He will at least be getting a bill from the IRS for his 1/2.