Congress Votes to Extend Payroll Tax Cut
February 17, 2012 | 
Author Congress passed a bill to extend the social security payroll tax cut through the end of the year. At the end of last year the cut, which was in place in all of 2011, was temporarily extended through the end of February to buy time for the Congress which couldn’t agree on how to pay for a full year extension. This bill extends the cuts in the Social Security withholding tax by 2% to 4.2% from 6.2% through the rest of the year.
Other provisions in the bill include an extension of long-term jobless benefits and a provision to stop deep cuts in Medicare reimbursements to doctors. The tax cut and additional spending in the bill are not fully offset by additional revenue or other spending cuts. Part of the costs are offset by reduction in the retirement benefits of newly hired federal employees, but the bill is still expected to add $89 billion to the federal deficit over the next decade. There is also considerable concern about the effect of the cut on the long-term fiscal viability of the Social Security program.
Posted in Individual taxes, New Legislation, Payroll, Taxation | 
Tags: Payroll, tax law changes, Taxation | 
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IRS Announces Relief for Delinquent Taxpayers
The Internal Revenue Service (IRS) has announced three new initiatives to help tax payers that owe back taxes. The new policies affect the filing of tax liens, installment agreements, and Offers in Compromise. Here is a summary of each.
Tax Liens. The IRS often files tax liens to establish a legal claim over a person’s property when they owe back taxes to establish priority over other creditors. Tax liens can have a significant effect on the reputation and credit of an individual or company. The IRS is adopting three new practices in the way they handle liens that may provide relief. First, they are significantly increasing the dollar threshold above which they file liens. Unfortunately, they didn’t disclose what that amount is. Prior policy, according to the Internal Revenue Manual requires that liens be filed for delinquent balances above $5,000. The second policy change regarding liens is to make it easier to get liens released once the taxes due are paid in full. Finally, the IRS will release liens on balances due of $25,000 or less if the taxpayer enters into an installment agreement.
Installment Agreements. The second big policy change is to significantly increase the maximum unpaid taxes a taxpayer can owe in order to qualify for the IRS’s streamlined installment agreement program. The amount has been increased from $25,000 to $50,000 and the time limit for repayment has been increased to 72 months from 60 months. Any unpaid balance greater than $25,000 must be set up on a direct debit agreement. This policy change only applies to individuals and sole proprietorships.
Offer in Compromise. The OIC is a set of policies and procedures that allow taxpayers to settle their taxes for less than the amount owed. The IRS has announced that it is expanding the scope of their streamline offers in compromise program by allowing taxpayers with annual income of up to $100,000 to participate and they are increasing the maximum liability from $25,000 to $50,000.
Action Recommendation. If you owe back taxes or have a tax lien you should consult with a tax advisor to see if these new policies can be used to help you settle your tax issues.
Just a little editorial comment. One wonders if the new relaxed policies have anything to do with these two recent news item. The first is that Federal employees own $3.4 billion in back taxes. (Click here for the story.) The second is that 36 members of the White House staff owe collective over $800 thousand in back taxes. (Story here.)
Posted in Collections, Individual taxes, IRS, Offer in Compromise, Tax audits, Tax Liens, Taxation | Tags: Business taxes, Collections, income taxes, individual income taxes, Installment Agreements, Internal Revenue Service, IRS, Liens, Offer in Compromise, Tax audits, Tax liens, Taxation | No Comments »
Tax News You Can Use
Here are three things you might find that are different this tax filing season as you file your individual income tax returns.
Tax Deadline. The tax deadline, which has long been on April 15 of each year, will be on April 17 this year. There are two reason for this. First, the 15th is on a Sunday and when the deadline is on a weekend the IRS usually gives you until the following Monday to file. This year, there is some sort of holiday in the District of Columbia celebrated on the following Monday. This is treated as a federal holiday by the IRS, so the whole country gets an extra couple days to file this year.
Reporting Investment Gains and Losses. If you are an investor, more data is being required this year on tax returns to report investment gains and losses. For example, you will need to report whether basis information on security sales was derived from the statements you received from your broker or from other source. Reporting of individual transactions is also getting more detailed and they are reported on a new Form 8949. What this means is that your tax preparer may be asking for more information than usual this year.
Electronic Filing. Almost all tax prep firms are now required to e-file the tax returns they prepare. IRS allows individual taxpayers to paper file if they wish, but you should let your preparer know you want to do so because paper filing is now the exception. My advice is to go with e-filing.
Posted in Individual taxes, Tax Filing, Tax law changes, Taxation | Tags: income taxes, individual income taxes, tax deadline, tax filings, Taxation | No Comments »
Year End Tax Tips
Here are five things you may be able to do before year-end to cut your tax bill.
- Evaluate investment portfolios before year-end and offset any taxable gains you may have by selling investments which have paper losses. If you want to keep the investments, wait 31 days or more and buy them back to avoid the wash-sale rules. If you are uneasy about market fluctuations, consider immediately buying stocks of a similar company in the same industry as a replacement investment. For that you do not have to wait the 31 days.
- Make contributions to your Health Savings account. Individuals may contribute $3,050 for individual coverage and up to $6,150 for family coverage in 2011. The HSA must be set up prior to December 1, 2011 in order to get a full deduction. If you already have one, consider making a contribution before year-end.
- Make charitable deductions, and pay medical expenses, state income taxes, property taxes, and other deductible expenses before year-end. If cash is problem, payment can be made in the current year with credit cards or charge cards and they are deductible when it is charged to the card rather than when the card is paid off. Before you accelerate payment of medical expenses, make sure that your total medical expenses will exceed 7.5% of your expected adjusted gross income or there will not be a benefit.
- Consider prepaying higher education expenses in 2011 in order to take advantage of the above-the-line deduction for qualified higher education expenses that is set to expire at year-end. To be deductible the expenses must relate to academic periods beginning in 2011 or the first three months of 2012.
- Take the Required Minimum Distributions (RMD) if you are age 70 1/2 and have IRA’s or 401(k) or other employer sponsored retirement plans. The penalty for failing to take the distribution can be 50% on the amount that was required to be distributed. If you turned 70 1/2 in 2011, you may defer the RMD to 2012, but you will have to take a double distribution next year.
Posted in Individual taxes, Retirement, tax credits, Tax law changes, Tax Reduction Strategy, Taxation | Tags: income taxes, individual income taxes, individual retirement acccounts, New Legislation, Oregon individual income taxes, Retirement, tax law changes, tax planning, Tax Reduction, Taxation | No Comments »
2011 Expiring Tax Deductions and Credits
There is a long list of tax provisions set to expire at the end of the year. Here are five of them.
- The temporary 2% cut in the employee’s share of the social security tax is set to expire. The Senate is current debating proposals to extend and increase the payroll tax cut to 3.1%, but the change is stalled as Democrats and Republicans bicker over the approach to be used to pay for it.
- There are a couple of energy savings incentive set to expire. The first is the Nonbusiness Energy Property Credit which provides a non-refundable credit of 10% of qualified energy efficient improvements such as insulation, windows, and roofs, plus set amounts for other energy property such as fans, furnaces, water heaters, heat pumps, and air conditioners. Energy expenditures must be incurred or paid for by the end of the year to qualify for the credit. No credit after year-end.
- The second energy related change is the credit allowed for placing a “plug-in” electric vehicle in service. This allows a credit of 10% of the cost of any qualified plug-in electric vehicle put into service by December 31, 2011.
- Number four is the Work Opportunity Credit which was intended to reduce the cost to employers of hiring workers in designated targeted groups. This credit will not be available for any amounts paid to workers who begin work after year-end.
- The last expiring tax provision, in this list, is the above-the-line deduction of $250 available to K through 12 teachers for expenses they pay for classroom and teaching supplies. After December 31, 2011 the above the line deduction will no longer be available, but teachers may continue to deduct these expenses as miscellaneous itemized deductions subject to the 2% of adjusted gross income limit.
Action Items.
If you plan to make energy savings improvements to your residence, buy an electric vehicle, buy classroom supplies, ( if you are a teacher), or hire someone for your business, in the near future, there may be some tax benefit to doing so before December 31, 2011.
Posted in Corporate Taxes, Individual taxes, Payroll, tax credits, Tax Deadline, Tax law changes, Tax Reduction Strategy, Taxation | Tags: Business taxes, income taxes, individual income taxes, New Legislation, Payroll, tax credits, tax law changes, tax planning, Tax Reduction, Taxation | No Comments »
Billups Company Manager Webinar Speaker
Billups CPA’s accounting and audit manager, Stephen Ashby, spoke in an webinar on worker classification issues on December 1, 2011. The Strafford webinar entitled, “Heightened IRS Scrutiny on Worker Misclassification and Tax Compliance” covered various employee versus independent contractor issues including emerging issues such as the recently announced IRS Voluntary Worker Classification Settlement program. Ashby’s presentation was an overview of the classification issue and covered the major tests used by the IRS, other Federal agencies, and states to classify workers.
A copy of the webinar is available for purchase from Strafford Publishing here.
Posted in 1099, Independent Contractors, Payroll, Tax audits, Taxation | Tags: Business taxes, Internal Revenue Service, IRS, Payroll, Tax audits, Taxation, US Department of Labor | No Comments »
Form 1099 Reporting
One of the important year-end tax reporting tasks is preparing and filing Form 1099-MISC for certain payments made to others by your business. There is always confusion about what payments must be reported, so here is a quick guide on 1099-MISC reporting.
The first thing to remember is that only payments made in the course of a trade or business are reportable. This means that personal payments that are not connected with a trade or business are not reportable.
You must report total payments for each person to whom you have made the following types of payments.
- At least $10 in royalties or broker payments in lieu of dividends or tax exempt income.
- Total payments of $600 or more for rents, services, prizes and awards, other income, medical and health care payments, crop insurance proceeds, or cash payments for fish purchased from anyone engaged in the trade or business of catching fish.
- Any fishing boat proceeds.
- Gross payments of $600 or more paid to an attorney (even if incorporated).
The following payments do not have to be reported even if they are in connection with a trade or business.
- Any payments to corporations unless the payments are for medical or health care payments, fish purchases, attorney fees, payments in lieu of dividends, or payments by a federal executive agency for services.
- Any payments for merchandise, telegrams, telephone, freight, storage, or similar items.
- Payments of rent to a real estate agents.
- Payments, such as wages, reportable on other forms such as Form W-2.
- Payments to tax exempt organizations or foreign and domestic governments at all levels.
Now is a good time to start collecting information on payees that you will have to report on. You can request that the payees complete Form W-9 to provide the information you need. The best time to do this is at the start of the business relationship.
Properly completing and filing 1099-MISC is important because the Internal Revenue Code provides penalties for failure to do so, and failing to report payments to an independent contractor on Form 1099 can disqualify you for the IRS’s worker classification settlement program.
Posted in 1099, Tax audits, Taxation | Tags: Form 1099, Independent Contractors, Tax audits, tax filings, tax planning, Taxation | No Comments »
Unused Estate Tax Exclusion of Deceased Spouses
The general collective psychosis exhibited by Congress when crafting tax law has been particularly evident in what they have done in the arena of the estate and gift taxes for the last ten years. (“Craft” is probably the wrong word since it connotes skill.)The most recent incarnation is amending the estate tax law in late 2010 to do two important things. The first is to raise the estate exclusion amount to $5,000,000 and the second is to allow “portability”, where surviving spouses may add the unused exclusion amount of their deceased spouse to their own exclusion amount. Those are two good things. Unfortunately these provisions both expire at the end of 2012 continuing the very challenging and uncertain climate of estate planning that has now persisted for over a decade.
Recently the IRS released guidance on the “portability” provision. The guidance alerts executors, of the estates of those dying after December 31, 2010, that a timely filed estate tax return, Form 706, must be filed to make the election to transfer the decedent’s unused estate and gift tax exclusion to their surviving spouse. This is very important because normally no estate tax return would be required for gross estates of less than $5 million.
Action Item for executors or surviving spouses. Estate tax returns are generally due nine months from the date of the decedent’s death. In order to take advantage of the portability provisions for decedents with a date of death after December 31, 2010, an estate tax return must be timely filed within nine months of their date of death, or the extended due date, with an election to transfer the unused exclusion amount.
Posted in Estate and Gift Taxes, tax credits, Tax Deadline, Tax Reduction Strategy, Taxation, Trust Administration, Trusts and Estates | Tags: Estate Tax, gift taxes, Health care tax provisions, New Legislation, tax law changes, tax planning, Tax Reduction, Taxation, Trusts and Estates | No Comments »
W-2 Reporting of Employer Sponsored Health Coverage
The Affordable Care Act requires that employers report the cost of employer provided health coverage on each employee’s W-2. Guidance issued by the IRS last year made reporting optional for all employers in 2011. Recently the IRS issued more guidance that makes reporting in 2012 optional for “smaller” employers issuing fewer than 250 W-2’s. The requirement will remain optional for small employers in future years unless the IRS issues other guidance.
Companies that are required to report the information or smaller companies that elect to do so voluntarily can get information on how to do so in IRS Notice 2011-28. Other information is available here.
More on Independent Contractors
Earlier articles discussed the greater emphasis on the employee-independent contractor issue by government tax auditors at all levels, here, and the IRS worker classification amnesty program, here, which was rolled out within the last couple of weeks. Now the IRS and US Department of Labor have announced a joint initiative to share information and collaborate in efforts to “reduce… misclassification of employees as independent contractors, reduce abusive employement/unemployement tax schemes, and improve compliance with labor and tax law”.
Probably, taxing authorities are concerned that poor economic conditions are causing companies to misclassify employees as independent contractors in order to save a few bucks on payroll tax costs. Companies that use independent contractors definitely need to be more careful in insuring they are properly classified and that transactions with independents are well documented to substantiate the classification.