Category: CPA Firm Salt Lake City

CCH 2012 TAX BRIEFINGS – INDIVIDUALS – Salt Lake City Accountant

Salt Lake City Accountants

INDIVIDUALS

President Obama campaigned on a promise to extend the Bush-era tax cuts for lower and moderate income individuals, but to allow them to expire for higher-income individuals. The President is not expected to change his position after the election, but there could be some compromises on the income thresholds that trigger the higher rates.
Income Tax Rates

If Congress approves the President’s proposal, the individual income tax rates would be: 10, 15, 25, 28, 33, 36, and 39.6 percent for 2013 and subsequent years. Alternatively, Congress could extend all of the Bush-era tax rates through 2013 or, in a deadlock, take no action and allow the Bush-era tax rates to sunset. Full sunset for lower and middle-income taxpayers—which would reinstate a 15, 28, 31, 36 and 39.6 percent bracket structure—is highly unlikely from a political and economic standpoint.

IMPACT.
Under President Obama’s proposal, the 36 and 39.6-percent rates would start at a higher-income bracket level of $200,000 for single filers, $250,000 for joint filers, $225,000 for head-of-households, and $125,000 for married taxpayers filing separately. Since these thresholds were initially proposed in 2009, they would also be indexed for inflation. Also they would be keyed to adjusted gross income (AGI) rather than taxable income. Indexed 2013 projections for those AGI levels, based on the Administration’s FY 2013 Budget, are $213,200 / $266,500 / $239,850 / and $133,250, respectively.

For a married couple filing a joint return, the tax brackets under President Obama’s plan would be:

Tax Rate 2013 Taxable Income

10% $0-$17,850

15% $17,850-$72,500*

25% $72,500-$146,400

28% $146,400-$223,050

33% $223,050-$266,400

36% $266,400-$398,350

39.6% $398,350+

* Also assumes continuation of marriage penalty relief
For a single individual, the tax rates under President Obama’s plan would be:

Tax Rate 2013 Taxable Income

10% $0-$8,925

15% $8,925-$36,250

25% $36,250-$87,850

28% $87,850-$183,250

33% $183,250-$213,200

36% $213,200-$398,350

39.6% $398,350+

IMPACT.
As part of the automatic sunset of Bush-era tax benefits, after 2012 higher-income taxpayers also would once again be subject to the Personal Exemption Phaseout (PEP) and the Pease Limitation on itemized deductions (named for the member of Congress who sponsored the legislation). Alternatively, President Obama has proposed replacement of the PEP and Pease Limitation with a limit on the value of itemized deductions for higher-income taxpayers. The President would limit the value of otherwise allowable deductions to 28 percent of AGI for those in his proposed 36 and 39.6 percent tax brackets.

During the campaign, the President said he saw no way to accommodate Governor Mitt Romney’s plan to reduce the individual income tax rates by 20 percent across the board in exchange for a reduction in the number of deductions and loopholes currently available. Obama maintained that he would not support a proposal in which “the numbers don’t add up.”

Comment
The IRS has delayed issuing some 2013 inflation adjustments, including those affecting tax rate brackets, pending action by Congress. The IRS is expected to move quickly to release these inflation adjusted amounts as soon as legislation is passed by Congress and signed by the President.

Capital Gains/Dividends
President Obama campaigned on allowing the Bush-era tax cuts—including the reduced capital gains and dividend tax rates—to expire for higher income individuals, and he is not expected to change his position now. Under the President’s proposal, the current zero and 15 percent capital gains and dividend tax rates would be extended after 2012 for single individuals with incomes below $200,000 and families with incomes below $250,000.

The President’s proposal would increase the tax rate on qualified capital gains to 20 percent for single individuals with incomes over $200,000 and married taxpayers filing a joint return with incomes over $250,000. Regarding dividends, single individuals with incomes over $200,000 and families with incomes over $250,000 would pay tax on their dividends as ordinary income.

IMPACT.
For dividends, the increase in tax rate for higher-income taxpayers represents almost a 300 percent increase when a top 39.6 percent rate is combined with the new 3.8 percent Medicare contributions tax on net investment income (NII). Combined with a jump in the capital gains rate from 15 percent to 20 percent (23.8 percent with the NII tax), some economists are predicting a massive market sell-off at year end as taxpayers engage in basis-resetting strategies and reallocation of portfolio assets. To create a softer landing, one proposal would raise rates for taxpayers only with incomes above $1 million, at least for the 2013 period until a more permanent structure under the umbrella of tax reform could be enacted.

Comment
Under current law, taxpayers in the 10 and 15 percent income tax brackets pay zero percent tax on qualified capital gains and dividends.

Alternative Minimum Tax
If the alternative minimum tax (AMT) exemption amounts are not patched for 2012, they would be dramatically less than the exemption amounts for 2011. Under current law, the AMT exemption amounts for 2012 are $33,750 for single individuals, $45,000 for married couples filing joint returns and surviving spouses, and $22,500 for married couples filing separate returns. In comparison, the AMT exemption amounts for 2011 were $48,450 for single individuals, $74,450 for married couples filing joint returns and surviving spouses, and $37,225 for married couples filing separate returns.

In early 2012, President Obama proposed replacing at least a portion of the AMT with the so-called “Buffett Rule,” essentially the principle that millionaire taxpayers should not pay a smaller effective rate of income tax than middle-class families. Although the Senate voted on a version of the Buffett Rule, the proposal was never taken up by the House.
In announcing the Buffett Rule, President Obama asked Congress to pass measures that ensure individuals making over $1 million a year pay a minimum effective tax rate of at least 30 percent. The Senate approved the legislation that would subject taxpayers earning over $2 million to a 30 percent minimum federal tax rate. The tax would be phased in for individuals with incomes between $1 million and $2 million, with those taxpayers paying a portion of the extra tax required to get them to a 30 percent effective tax rate.

IMPACT.
The need for an AMT patch retroactive to the start of 2012 may force the lame-duck Congress to consider at least a small tax bill before 2013 in order to give the IRS time to finalize 2012 tax forms and start the 2013 tax return season on time.

Comment
Proposals for replacing or repealing the AMT appear to be made as long-term solutions. The AMT brings in a considerable amount of revenue and cannot be easily replaced. A tax on millionaires may not bridge that revenue gap. A solution that is rolled up into the umbrella of overall tax reform appears to be one focal point for tax policy now being pursued.

Child Tax Credit
After 2012, the $1,000 child tax credit is scheduled to revert to $500 per qualifying child. President Obama campaigned on the promise to make permanent the $1,000 child tax credit and is expected to support legislation that will do so.

Comment
Taxpayers who cannot take full advantage of the child tax credit because the credit is more than the taxes they owe may receive a payment for some or all of the credit not used to offset their taxes. The 2010 Tax Relief Act reduced the minimum earned income amount used to calculate the additional child tax credit to $3,000. President Obama has proposed to make permanent the $3,000 threshold.

Read More

Free Consultation

 

CCH TAX BRIEFINGS – TAX HELP SALT LAKE CITY

SOME TAXES GOING UP?

TAX HELP SALT LAKE CITY

During his campaign, President Obama noted that it would be impossible for the
government to reduce its deficit without bringing in additional revenue and
that additional taxes are necessary:

“We’ve identified tax rates going up to the Clinton [pre-2001] rates for
income above $250,000; making some adjustments in terms of the corporate tax
side that could actually bring down the corporate tax overall, but broaden the
base and close some loopholes. That would be good for our economy, and it would
be good for reducing our deficit.” That is why you might need tax help Salt Lake City

Individual Extenders

The individual tax extenders can be divided into two categories: Extenders that
are good candidates for renewal and extenders that are on the fence. This
assessment is based upon both the support, or lack thereof, that the Obama
Administration has given to each and how receptive members of the Congressional
tax writing committees have been to each.

Likely to be renewed

Individual extenders with a strong likelihood of renewal are:

• ▪ Higher education tuition deduction

• ▪ State and local sales tax deduction

• ▪ Teachers’ classroom expense deduction

• ▪ Qualified charitable distributions from IRAs

IMPACT.

No one can predict what Congress will ultimately do but the higher education
tuition deduction, the state and local sales tax deduction, the teachers’
classroom expense deduction, and charitable distributions from IRAs appear to
enjoy strong support for extension. These incentives could be extended for one
year (through 2012) or for two years (through 2013).

Comment

In September, a bipartisan group of about 60 House members from states without
an income tax called for extension of the state and local sales tax deduction.

Selected individual extenders on the fence include:

• ▪ Deduction for qualified mortgage insurance premiums

• ▪ Code Sec. 25C residential energy property credit

Comment

The Code Sec. 25D residential energy efficient property credit is available for
qualified property placed in service before January 1, 2017. Qualified property
includes certain geothermal energy property and small wind energy property.

Business Extenders

Like the individual extenders, the business extenders can be divided into two
groups: good candidates for renewal and extenders on the fence.

Likely to be renewed – Tax Help Salt Lake City

Business extenders likely to be renewed include:

• ▪ Code Sec. 41 research tax credit

• ▪ Code Sec. 179 small business expensing

• ▪ Work Opportunity Tax Credit (WOTC)

• ▪ 15-year recovery for qualified leasehold improvements, restaurant property
and retail improvements

• ▪ New Markets Tax Credit

Comment

The research tax credit, which expired after 2011, enjoys strong bipartisan
support in Congress, with many lawmakers and the White House calling for a
permanent credit. The research tax credit is likely to be extended for one year
(through 2012) or two years (through 2013).

Comment

Under current law, employers can take advantage of an enhanced WOTC for hiring
qualified military veterans. The enhanced WOTC for veterans is scheduled to
expire after 2012 but is a good candidate for renewal. However, it is unclear
at this time if the WOTC for other target groups, which expired after 2011,
will be extended.

Selected business extenders on the fence include:

• ▪ Production tax credit for wind energy projects

• ▪ Employer credit for activated military reservists

• ▪ Seven-year recovery period for motorsports complexes

• ▪ Railroad track maintenance credit

• ▪ Brownfields remediation

• ▪ Credit for energy efficient homes

Comment

During the campaign, President Obama called for extension of the production tax
credit for wind energy projects, which is scheduled to expire af ter 2012 (and
after subsequent years for other projects). However, extension of the
production tax credit faces significant hurdles in the GOP-controlled House.

Comment

Brownfields remediation expensing and the credit for energy efficient homes
were two incentives not included in the SFC’s Middle Class Tax Cut Relief Act
of 2012.

Areas of Service: Tax Help Salt Lake City

 

IRS Provides Guidance on Employee Use of Cell Phones

The IRS has issued guidance on the treatment of employer-provided cell phones, as well as on the treatment of employer reimbursement to an employee for the cost of maintaining a personal cell phone that is used for business purposes (Notice 2011-72 ).

This notice provides that, when an employer provides an employee with a cell phone primarily for noncompensatory business reasons (i.e. it is necessary for the employee to have one to do his or her job effectively) , the IRS will treat the employee’s use of the cell phone for reasons related to the employer’s trade or business as a working condition fringe benefit, the value of which is excludable from the employee’s income.  In addition, the IRS will treat the value of any personal use of a cell phone provided by the employer primarily for noncompensatory business purposes as excludable from the employee’s income as a de minimis fringe benefit. The rules of this notice apply to any use of an employer-provided cell phone occurring after December 31, 2009. The application of the working condition and de minimis fringe benefit exclusions under this notice apply solely to employer-provided cell phones and should not be interpreted as applying to other fringe benefits.

I have been thinking a lot lately about the small business owner and how they can plan for the future in these turbulent times.

Several key techniques for mitigating risk and planning for the future are as follows:

1. Plan for the contiuation of your business if you should die or become disabled. This is an often overlooked principal that the small business owner never feels they have time for. A financial planner friend of mine told me of a company whose owner had a light-bulb moment. It became clear to him that two of his employees were extremely important to the company’s success – the head of the sale’s department and the project manager. So he approached them about getting life insurance. They in turn, expressed their own concern, saying the owner needed life insurance as well. The result was a buy/sell agreement funded by life insurance policies on all three. Just a short time later, the owner died in a car accident. The widow received the proceeds of the life insurance policy, while the two employees received control of the company. Those two employees took the company to new heights. Having a buy/sel agreement in place is crtical, especially when you have key employees.

2. The risk of not having enough liability insurance. Many small businesses believe that “big business problems” don’t apply to them. Things like harrassment suits or hackers bringing down their computer systems could potentially harm a small business or in some cases end it. Employment practices liability insurance is probably one of the more important coverages that is not purchased by small businesses. It covers employee litigation for such things as sexual harrassment and discrimination which often come in the form of a lawsuit for wrongful termination. Most business general liability insurance exclude this coverage while a small number offer very limited coverage. The lawsuits generated from wrongful termination are very expensive and could cost anywhere from $20,000 on up. Another overlooked coverage is privacy breach insurance. This insures a small business against the effects of having their computer system hacked and the network being destroyed or private records being made public. This type of insurance addresses the potential damages from these breeches that can cause litigation, busniness interruption or crisis management.

3. Many small business owners do not have a plan for retirement. Many are planning on selling their business and using that for retirement. Others have funded IRAs and 401k plans but is it enough? Considering the precarious position we are in with Social Security, we can’t rely too heavily on that. One way to assess whether we will have enough or not is to do a projection of future cash inflows and outflows after retirement and see how fast the money runs out based on a lifestyle that has been chosen. Our firm can provide this type of analysis free of charge and there are many other financial planners out there that will do likewise. Many of the financial projection software programs will give a matter-of-fact disclosure of what needs to be done to shore up your financial future.

Whatever you do, please don’t procrastinate implementation of sound plan for yourself and your business

Epay Your Estimated Tax Payments

Just had a client ask me today if he could shedule his estimated tax payments to come directly out his checking account on a quarterly basis.                     

There are two ways to have this automatic withdrawal to occur.  If you efile your return through a tax preparer, you can have your preparer designate how much to withdraw on each of the dates 4/15, 6/15, 9/15 & 1/15.  You can also notify the IRS within 2 days of the payment date that you don’t want to make the payment if circumstances change.  The other method is to register with EFTPS and you can designate up to a year in advance what dates and what payments you would like to have taken out of your account.  For those of you who have a tough time remembering to make your estimated tax payments on time, this is a great way to take the worry out it.  You just need to make sure you have money in the account on the appointed days

Six Important Facts about Dependents and Exemptions

Some tax rules affect every person who may have to file a federal income tax return – these rules include dependents and exemptions. Here are six important facts the IRS wants you to know about dependents and exemptions that will help you file your 2010 tax return.

1.  Exemptions reduce your taxable income. There are two types of exemptions: personal exemptions and exemptions for dependents. For each exemption you can deduct $3,650 on your 2010 tax return.

2.  Your spouse is never considered your dependent. On a joint return, you may claim one exemption for yourself and one for your spouse. If you’re filing a separate return, you may claim the exemption for your spouse only if they had no gross income, are not filing a joint return, and were not the dependent of another taxpayer.

3.  Exemptions for dependents. You generally can take an exemption for each of your dependents. A dependent is your qualifying child or qualifying relative. You must list the social security number of any dependent for whom you claim an exemption.

4.  If someone else claims you as a dependent, you may still be required to file your own tax return. Whether you must file a return depends on several factors including the amount of your unearned, earned or gross income, your marital status, any special taxes you owe and any advance Earned Income Tax Credit payments you received.

5.  If you are a dependent, you may not claim an exemption. If someone else – such as your parent – claims you as a dependent, you may not claim your personal exemption on your own tax return.

6.  Some people cannot be claimed as your dependent. Generally, you may not claim a married person as a dependent if they file a joint return with their spouse. Also, to claim someone as a dependent, that person must be a U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico for some part of the year. There is an exception to this rule for certain adopted children. See IRS Publication 501, Exemptions, Standard Deduction, and Filing Information for additional tests to determine who can be claimed as a dependent.

If you need further clarification on who can be claimed as a dependent on your tax return, contact us!