Throughout 2011, as a method of stimulating consumer spending, Congress had reduced the employee share of the Social Security tax, as well as the self-employment tax rate, by 2%. But when it came time to extend this cut for 2012, Congress could not agree on how to pay for a full one-year extension. As a result, the 2% cut is only officially in the law at this point through February 29, 2012.
If Congress does not agree on an extension for the full year, there is a small planning point for those who are employees of their own corporation, or who issue occasional salary checks to family members for their services in the business.
In order to receive the 2% waiver, payroll must be issued in the first two months of 2012. And to maximize the savings, the worker must receive at least $18,350 of compensation in the first two months of the year ($18,350 is 1/6th of the $110,100 maximum amount subject to Social Security tax in 2012). So for those who only draw an occasional paycheck from their business, such as an S corporation or a C corporation, there is a tax savings (albeit under $400) if roughly $18,000 of that payroll is drawn within the first two months of 2012.
But note: If Congress extends the 2% cut for all of 2012, this becomes a moot point.
Thursday, January 12, 2012
Tuesday, January 10, 2012
HOBBY FOLLOW UP
Recently I posted about a golfer that had hobby winnings. I have had several people email me asking what the difference was between a hobby and a true business.
Here are the factors that the IRS and courts look at:
1. The manner in which the taxpayer carried on the activity
2. The expertise of the taxpayer or his or her advisers
3. The time and effort expended by the taxpayer in carrying on the activity
4. The expectation that the assets will appreciate in value
5. The success of the taxpayer in carrying on activities
6. The history of profits or losses
7. The amount of occasional profits
8. The financial status of the taxpayer
9. The elements of personal pleasure or recreation
No single factor controls and other factors may be considered. If you make profit in 3 of the 5 years the IRS thinks you are okay. This is 2 of 7 years for breeding, showing, training or racing horses.
Keep good records. DOCUMENTATION! DOCUMENTATION! DOCUMENTATION!
Here are the factors that the IRS and courts look at:
1. The manner in which the taxpayer carried on the activity
2. The expertise of the taxpayer or his or her advisers
3. The time and effort expended by the taxpayer in carrying on the activity
4. The expectation that the assets will appreciate in value
5. The success of the taxpayer in carrying on activities
6. The history of profits or losses
7. The amount of occasional profits
8. The financial status of the taxpayer
9. The elements of personal pleasure or recreation
No single factor controls and other factors may be considered. If you make profit in 3 of the 5 years the IRS thinks you are okay. This is 2 of 7 years for breeding, showing, training or racing horses.
Keep good records. DOCUMENTATION! DOCUMENTATION! DOCUMENTATION!
NEW HSA AMOUNTS FOR 2012
Here are the new contribution limits for 2012 HSA
Contribution limit ~ Family: $6,250 Self: $3,100
Catch up if over 55 ~ Family: $1,000 Self: $1,000
Minimum deductible ~ Family: $2,400 Self: $1,200
Max out of pocket ~ Family: $12,000 Self: $6,050
The catch up contribution can only be made by individuals who are at least 55 and are not yet enrolled in Medicare.
Remember that starting in 2011 because of Obama Care over-the-counter medicines may not be reimbursed thru HSA.
Tuesday, January 3, 2012
IRA CONTRIBUTION AND YOUR AGE
Q: For someone 60 what is the maximum IRA contribution? What about if you are 50?
A: If you are 50 years of age or older before the end of 2012, the maximum contribution that can be made to a traditional or Roth IRA is the smaller of $6,000 ($5,000 plus $1,000 catch up) or the amount of your taxable compensation. This limit can be split between a traditional and a Roth IRA but the combined limit is $6,000. The maximum contribution to a Roth IRA and the maximum deductible contribution to a traditional IRA may be reduced depending on your modified adjusted gross income. There can be further limitations for individuals who also participate in an employer provided plan.
If you are age 50 or older and have a SIMPLE IRA, the maximum contribution is different. The base amount is 100% of your compensation up to $11,500 and the catch up amount is $2,500, for a maximum contribution of $14,000. There is no phase out.
Of course to complicate matters there are some exceptions. If you are covered by a retirement plan at work here are the phase outs. CLICK HERE
If your spouse is covered by a pension plan then there are some different phase outs. CLICK HERE
A: If you are 50 years of age or older before the end of 2012, the maximum contribution that can be made to a traditional or Roth IRA is the smaller of $6,000 ($5,000 plus $1,000 catch up) or the amount of your taxable compensation. This limit can be split between a traditional and a Roth IRA but the combined limit is $6,000. The maximum contribution to a Roth IRA and the maximum deductible contribution to a traditional IRA may be reduced depending on your modified adjusted gross income. There can be further limitations for individuals who also participate in an employer provided plan.
If you are age 50 or older and have a SIMPLE IRA, the maximum contribution is different. The base amount is 100% of your compensation up to $11,500 and the catch up amount is $2,500, for a maximum contribution of $14,000. There is no phase out.
Of course to complicate matters there are some exceptions. If you are covered by a retirement plan at work here are the phase outs. CLICK HERE
If your spouse is covered by a pension plan then there are some different phase outs. CLICK HERE
Monday, January 2, 2012
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
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
Sunday, January 1, 2012
HAPPY NEW YEAR
We wish all of our readers a very happy New Year. We started this blog over two years ago and every month without fail we have ever increasing readership. From just having a couple of comments and questions per month to probably having at least 5 a week, we have enjoyed every day of interacting with the readers. We hope the information has been useful and look forward to providing even more in 2012.
We wish everyone a prosperous New Year and we shall see what surprises 2012 bring.
We wish everyone a prosperous New Year and we shall see what surprises 2012 bring.
WHAT'S YOUR BUSINESS NEW YEAR'S RESOLUTION?
Here are a few helpful end of year steps to help get your 2012 year off to a good start.
1. Examine your Financials - The first step is you must get your financials in order. In order to set new financial goal you must have real life numbers from 2011. Without these it will be impossible to set 2012 bench marks. By analyzing your Profit & Loss Statement you can review your total net sales (revenues), cost of sales, gross profit, profit margin, controllable expenses, as well as fixed expenses. Understand what your numbers are telling you.
2. Review last year's Goals - Don't just jump and begin creating your 2012 goals. Begin this process by reviewing your 2011 goals and compare your financial successes. A key question to ask yourself is "Did your business accomplish what you set out to do?" "Did it meet your 2011 finical goals?" Even though these questions can be painful, these important questions will assist you in creating a new action plan for 2012. Goal’s are a great ‘road map’ to reflect where you’re planning to go, however, if you throw the map in the glove box & drive by the seat of your pants you may or may not end up at the anticipated destination.
3. Planning for the coming year - Now that you have a clear picture of your successes and perhaps areas of opportunities, you can begin to do some business planning for the New Year. Set clearly defined 2012 year's goals. Implement an action plan for each goal and create deadlines for each action step.
With a little planning and organization, your Business New Year's Resolutions for 2012 will be a huge success.
Do you need help on how to make 2012 goals for your business? Isn't this what you want from your Trusted Business Advisor? Email us today and start your year off on the right foot!
1. Examine your Financials - The first step is you must get your financials in order. In order to set new financial goal you must have real life numbers from 2011. Without these it will be impossible to set 2012 bench marks. By analyzing your Profit & Loss Statement you can review your total net sales (revenues), cost of sales, gross profit, profit margin, controllable expenses, as well as fixed expenses. Understand what your numbers are telling you.
2. Review last year's Goals - Don't just jump and begin creating your 2012 goals. Begin this process by reviewing your 2011 goals and compare your financial successes. A key question to ask yourself is "Did your business accomplish what you set out to do?" "Did it meet your 2011 finical goals?" Even though these questions can be painful, these important questions will assist you in creating a new action plan for 2012. Goal’s are a great ‘road map’ to reflect where you’re planning to go, however, if you throw the map in the glove box & drive by the seat of your pants you may or may not end up at the anticipated destination.
3. Planning for the coming year - Now that you have a clear picture of your successes and perhaps areas of opportunities, you can begin to do some business planning for the New Year. Set clearly defined 2012 year's goals. Implement an action plan for each goal and create deadlines for each action step.
With a little planning and organization, your Business New Year's Resolutions for 2012 will be a huge success.
Do you need help on how to make 2012 goals for your business? Isn't this what you want from your Trusted Business Advisor? Email us today and start your year off on the right foot!
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