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.
Friday, December 23, 2011
CLAIM IT 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.
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.
Wednesday, December 21, 2011
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.
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!
Tuesday, December 20, 2011
YEAR-END TAX PLANNING MEMO
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.
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.
Friday, December 16, 2011
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
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
Thursday, December 15, 2011
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.
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.
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