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Archive for December, 2011

PostHeaderIcon Monday Tax Bits a Day Late – 12/13/2011

Yes, I know it’s Tuesday.  but here’s what’s been in the news lately.

The infamous payroll tax cuts will go through another political vote today as the House is tying it to an oil pipeline deal that they know won’t pass the Senate or President Obama’s desk.  My guess is it passes, the Senate nixes it but this is too political of a topic to let it slide.  We’ll still be talking about this in two weeks but I think they’ll eventually get it done.

Taxgirl has a lot of good stuff this past week but I particularly liked her discussion on getting paid under the table.  She goes into how a person can dispute their classification and a lot of the tax implications and she does it in typical taxgirl style (i.e. easy to understand and informative).

The IRS is looking at a real time tax system and they have hearings coming up on the subject.  Basically they want to match everything up on your tax return with the source documents when it comes in so you have time to fix any discrepancies.  Sounds like a solid system, but I have a feeling that, to go along with it, there will probably be more information reporting down the road.

Finally, last week some of the more left leaning states are looking to tax the wealthy even more.  New York and California are both looking to raise marginal rates on their top earners.  Be on the lookout for this kind of thing in your state.

PostHeaderIcon 2012 Mileage Rates Announced

The IRS announced the 2012 standard mileage rates and most of them are the same from what they were back in July.  Business miles are .55, medical and moving mileage is .23 and travel for charitable organizations is .14. That’s no change for the business mileage rate and half a cent less for the other two rates.

For a brief history of the standard mileage rate, check out my previous article.

PostHeaderIcon Real Estate Dealer – How to Avoid the Trap

Whether you call them quickturns or flips, real estate investors who primarily rehab a property and then sell those properties rather quickly may fall into a trap.  If the IRS considers you a “dealer” then they basically consider you to be no different then a retailer.  Your houses are you inventory and the sales are your proceeds and more importantly, the gross margin is subject to self employment tax.

One easy way to get out some of the self-employment tax is to incorporate.  Whether it’s an S-Corporation or a C-Corporation, there is no self employment tax.  Of course then you have the complications that surround corporations including payroll and corporate entity maintenance.

There are some other factors the IRS may look at to determine whether you’re a dealer or not.  Here’s a good piece on some of the things the IRS considers.

PostHeaderIcon Monday Tax Bits – 12/5/2011

Here’s some of the stuff that’s floating around the blogosphere.

The Wall Street Journal ran a few good pieces on charitable deductions.  There’s one on the rules and then another on what to donate.  They also did a piece on how to give alternative assets to charities.  All three are worth reading especially if you plan on making a last minute gift to your favorite charity this year.

Both sides of the aisle are still trying to hash out a plan to extend the payroll tax cuts.  It’s short on details but it looks like the democrats have come up with a potential compromise but at the same time, there’s some questioning as to how this could effect social security in general.  Finally, there’s a good piece over at Taxgirl.com that talks about how the republicans are trying to link up the payroll tax cut to the approval of a gas pipeline.

The new Form 1099-K rules kick in beginning in 2012 and the IRS has put out a FAQ on the subject.  If you use paypal or accept credit card payments, this is worth a read.

If you want more frequent updates, be sure to like my Facebook page.

 

 

PostHeaderIcon Gift Tax Primer

It’s the end of the year and you want to move some money to your kids for estate tax planning purposes.  Or they just need a helping hand.  What can you do and what can’t you do and when do you have to file a dreaded gift tax return?  As always, these are general rules so be sure to talk to you adviser to discuss your personal situation.

Since 2009, the annual gift tax exemption has been $13,000.  That means you can give anyone a gift of up to $13,000 in a calendar year without filing a gift tax return.  Pretty straightforward but you can do even more if you’re married.  Since you can technically say that your spouse gave the same amount, if you’re married you can give up to $26,000.

To take this a step further, if you’re married and you’re gifting to your child that’s part of a family of four, you could give $26,000 per person, or $104,000, all without needing to do a gift tax return.

You can give gifts to your spouse without any gift tax implications so that’s one of the exclusions.  Also keep in mind, if you exceed the limit and have to file a return, you probably won’t have to pay tax because of the unified credit but once you start chewing into your unified credit, it could eventually affect how much your estate can shield from taxes.

For more information, be sure to check out Publication 950.

PostHeaderIcon Competing Payroll Tax Bills Blocked By Senate

Congress is back to locking in on a payroll tax cut of course both sides of the aisle are arguing both the extent of the cut and how to pay for it.  Two different bills were looked that came from the House and neither were able to get the votes from the Senate to turn it into law.  Let’s take a look at the specifics of each plan.
Democrats

Cut payroll taxes for employees from 6.2% to 3.1% and the same cut would apply to employers who had wages under a set amount.  This would be paid for by a 3.25% surtax on people making more then $1 million.

Republicans

They basically wanted to extend the current law for another year, meaning the employee tax would be 4.2% for another year.  They wanted to pay for this by freezing the pay of federal workers for three years and eventually cutting the government workforce by 10% through attrition.

Of course now we’re looking at the Senate to come up with a compromise.  From what I’ve heard, some of the ideas that came out out of the Super Committee might be used to pay for some kind of tax cut.  Of course there’s plenty of sides to appease.  You also have to deal with the issue that time is running out and when it comes to payroll, making a retroactive adjustment could be an administrative nightmare.  Of course a lot of that would fall on the shoulders of the ADPs and the Ceridians of the world.