What is the 3.8% Tax?

December 5, 2012/in Tax Tips/by revel

You will NOT pay the tax if you sell your home and the gain qualifies for the $250,000/$500,000 principal residence exclusion.

The 3.8% tax has been a topic of heated discussion since it was slipped into the healthcare bill in 2010. The law is set to take effect in 2013, yet many people are still confused as to what exactly will be taxed.

Here’s what you need to know about the 3.8%:

The 3.8% tax applies to net investment income — capital gains, net rents (so rent after expenses are deducted), passive income from partnerships, interest, and dividends.
For those who are single the tax will apply to the lesser of net investment income or income over $200,000; for those filing jointly, over $250,000. This means if a single person has $20,000 of net investment income and adjusted gross income of $210,000, the tax applies to $10,000 (the portion exceeding $200,000).
This tax goes into effect in 2013 and will be reported on the tax return you file in 2014.

Below are 4 situations where the 3.8% tax will NOT apply:

You will NOT pay the tax if you sell your home and the gain qualifies for the $250,000/$500,000 principal residence exclusion.
You will NOT pay this tax if you buy a home, as it will NOT be collected as a transfer tax.
Have a million dollars but didn’t earn a cent of it from investment income? You will NOT pay the 3.8% tax.
Are you single and made $199,000, or married and made $249,000, and some of that income came from investment income? You will NOT pay the 3.8% tax.

Still have questions about how the 3.8% tax will affect you? Contact H&S today.

photo credit: Images_of_Money via photopin cc

Retirement Plan Dollar Limits to Increase in 2013

October 24, 2012/in Tax Tips/by revel

Retirement savings dollar limits are increasing in 2013

In 2013, the IRS is increasing dollar limits for many types of retirement savings accounts due to increase in the cost-of-living. Below is a list of the retirement savings programs that will have an increase and their new 2013 maximum dollar limit:

Defined Benefit Plans: $205,000 annual benefit
Defined Contribution Plans: $51,000 annual addition
Annual Compensation Limit: $255,000
Elective Deferrals: $17,500 annual exclusion
Deferred Compensation Plans: $17,500 (applies to nonprofits and state and local governments)
ESOP Five-Year Distribution Period: $1,035,000 in 2013; $205,000 will be the dollar amount used to determine the lengthening of the distribution period in 2013
Government Plans: $380,000 annual compensation limit
SIMPLE Accounts: $12,000 annual salary deferral

For more information on 2013 changes and how they will affect your tax plan, contact H&S Companies today.

Social Security Wage Base to Increase in 2013

October 19, 2012/in Tax Tips/by revel

Employers who handle payroll in-house will need to be sure to adjust their employees’ paychecks accordingly.

On October 16^th, the Social Security Administration announced that the taxable wage base would increase from $110,100 to $113,700. This means that employees will pay the following on taxable income:

6.2% social security tax on taxable income up to $113,700:
1.45% Medicare tax (aka Hospital Insurance) for the first $200,000 of taxable income
2.35% Medicare tax on taxable income over $200,000

Employers who handle payroll in-house will need to be sure to adjust their employees’ paychecks accordingly.

Questions? Contact Melissa Miller, payroll specialist.

Melissa Miller
Payroll Specialist
231.924.8052
melissam@hscompanies.com

Earning Money on Blog Advertising? You Still Need to Pay Taxes.

October 17, 2012/in Tax Tips/by revel

You need to report all of your income, not just the wages earned at your job.

According to Accounting Today, a blogger was recently convicted of filing a false income tax return because he failed to report income earned from his blog’s advertising revenues. For 2006, 2007, and 2008 the blogger, allegedly, underreported gross receipts from advertisers, which resulted in failing to report nearly $142,000 to the IRS.

As we head into tax season, and you begin to pull together documents for your accountant, it’s important to remember that you must report all of your income. This includes, income earned from advertising, eBay earnings, and gambling.

For more tax tips, read:

Year-End Tax Planning | C-Corp Income – Accelerate or Defer?
Tax Legislation Knowns and Unknowns
Candidate Comparison | How Each Candidate Will Affect Small Biz

Year-End Tax Planning | C-Corp Income – Accelerate or Defer?

October 5, 2012/in Tax Tips/by revel

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C-Corp Tax The Economic Growth and Tax Relief Reconciliation Act (EGTRAA) of 2001 is scheduled to sunset at the end of the year. The uncertainty over the EGTRRA sunset and how it will affect 2013 tax rates makes tax planning difficult for individuals. C-Corporations, however, should keep in mind that they need to decide whether to accelerate or defer their income as EGTRRA sunsets will not affect corporate rates. There are no significant proposals to raise corporate tax rates, yet.
With so much uncertainty, it may be advisable to accelerate deductions or defer income to another year if it will put you in a more favorable tax bracket.
To learn more contact an H&S tax professional today.

Year-End Tax Planning | C-Corp Income – Accelerate or Defer?

October 5, 2012/in Tax Tips/by revel

C-Corp Tax The Economic Growth and Tax Relief Reconciliation Act (EGTRAA) of 2001 is scheduled to sunset at the end of the year. The uncertainty over the EGTRRA sunset and how it will affect 2013 tax rates makes tax planning difficult for individuals. C-Corporations, however, should keep in mind that they need to decide whether to accelerate or defer their income as EGTRRA sunsets will not affect corporate rates. There are no significant proposals to raise corporate tax rates, yet.

With so much uncertainty, it may be advisable to accelerate deductions or defer income to another year if it will put you in a more favorable tax bracket.

To learn more contact an H&S tax professional today.

Tax Legislation Knowns and Unknowns

October 1, 2012/in Newsletters, Tax Tips/by revel

Tax Rate Comparison Former U.S. Secretary of Defense, Donald Rumsfeld once said, “There are knowns; there are things we know that we know. There are known unknowns; that is to say there are things that, we now know we don’t know. But there are also unknown unknowns – there are things we do not know, we don’t know.”

No better words could describe the current state of affairs with regard to our tax laws. So here are 13 key known knowns:

Tax rates are set to increase in 2013. See chart to the right.
Personal exemption and itemized deduction phase-outs will return in 2013.
In 2013, child tax credit will drop from $1,000/child to $500.
0% capital gains rates for taxpayers in the 10% and 15% brackets expire on 12/31/12.
Maximum capital gains tax rate increases from 15% in 2012 to 20% in 2013.
Dividends will no longer be taxed at capital gains rates but instead as ordinary income (like wages and interest earnings) in 2013.
Bonus depreciation expires 12/31/12.
College tax credit reduces from maximum of $2,500/year per person to $1,500/year per person in 2012.
Medicare surtax begins in 2013 on upper income taxpayers which is 3.8% on the lesser of net investment income or the amount that modified AGI (Adjusted Gross Income) exceeds $200,000 single/$250,000 married.
Wages and self-employment income in excess of $200,000 single and $250,000 married are subject to .9% Medicare surtax.
Many more taxpayers will be affected by the AMT (Alternative Minimum Tax) due to lower exemption amounts and fewer allowable credits.
Section 179 (expensing election for capital assets) decreases from $139,000 in 2012 to $25,000 in 2013.
Tax-free estate limit drops from $5.1 million to $1 million and exemption portability expires 12/31/12.

And how about the known unknowns? Quite simply no one knows what Congress and the President may do before the end of the year relative to extension of expiring tax provisions or the economic stimulus. Here, however, are the significant provisions of the Family and Business Tax Cut Certainty Act of 2012, as passed by a bipartisan vote of 19-5 by the Senate Finance Committee:

Raises exemption and allowable tax credits of the AMT (ie AMT Patch).
Reinstates tax-free distribution from IRAs for charitable purposes.
Increases (effective for 2012 and 2013!) Section 179 expensing election to $500,000 ($250,000 for qualified leasehold improvements, restaurant and retail improvement property).

And what about the unknown unknowns? Well…I don’t know! Perhaps this best describes our government today. So, let’s wrap this up with some planning strategies as best we know.

Contrary to conventional wisdom, 2012 may very well be a year to accelerate income, especially if you anticipate greater income in 2013. This sort of strategy should not be undertaken without counsel from your tax advisor.
You may want to consider selling capital assets on an installment basis in 2012 and electing to pay all the tax in 2012, rather than as you collect on the contract. In this situation, the election does not need to be made until the filing of your return.
Business owners will likely wish to accelerate equipment purchases in 2012 to take advantage of bonus and write-off provisions, in spite of impending higher tax rates in 2013.
Those of you who may be affected by the lower estate tax rates and are in a financial position to do so, may want to do some gifting to your loved ones before year-end.

For more information contact Dorothy Paris

Dorothy Paris
Certified Public Accountant
231.924.8015
dorothyp@hscompanies.com

You may also be interested in:
Candidate Comparison | How Each Candidate Will Affect Small Biz
The Presidential Race Is In Full Swing and The Candidates Have Very Different Views On Tax Issues

“The Fight” photo credit: Cain and Todd Benson via photo pin cc

UIA Employer Update

October 1, 2012/in Locations & Services, Newsletters, Tax Tips/by revel

Don’t forget to update your practices to follow UIA’s new rules.

Below is a checklist of a few key updates regarding Michigan unemployment taxes:

Beginning in 2012, the taxable wage base is now $9,500.
When computing the unemployment tax, employers used to be taxed at 2.7% for the first 2 years. After that, they were taxed at 2.7% plus the experience rating. Beginning in 2012, it will take a new employer 4 years to be considered experienced, rather than 5, and in 2013, it will take a new employer 3 years. Because of this change, the minimum tax rate could potentially be .06%, for some employers, after only 3 years.
Beginning in 2013, employers with more than 25 employees must file quarterly reports online. In 2014, employers with more than 5 employees but fewer than 26 must file online. In 2015, all employers must file online.
The penalty for filing a late or erroneous report is increased from $25 to $50 if the return is filed within 30 days after the due date. After that, the penalty is $250 per quarter that the report remains late. If the UIA notifies an employer of an error and it’s corrected within 14 days, no penalty will apply.
Seasonal designation can be obtained by any employer that employs workers for regularly recurring 26-week periods or less, in any 52-week period. As long as the employer gives the worker reasonable assurance of returning, the workers will not be paid unemployment benefits between seasons. It no longer matters whether the employer’s industry is also seasonal.
Beginning with the 3rd quarter of THIS YEAR, there will be a single quarterly report filed.
Beginning in 2013, an employer with 25 or fewer employees that incurred 50% or more of its unemployment tax liability in the first quarter of the previous year, may elect to spread out its first quarter liability in the current year over all four quarters without interest or penalty charges.
Household employers may elect to pay unemployment taxes once a year, but must still file quarterly reports.
The 7-week limitation of unemployment benefits for certain family members employed by family owned corporations has been removed.

For more information contact Melissa Miller

Melissa Miller
Accountant, Payroll Specialist
231.924.8052
melissam@hscompanies.com

Economically Speaking

October 1, 2012/in Newsletters, Tax Tips/by revel

“If it bleeds it leads”. The economy isn’t exactly bleeding anymore but, based on the headlines, it still seems that way.

Many individuals and businesses continue to struggle in this economy, particularly those involved in construction/real estate and businesses in need of financing.

The economic trends, however, are far better than what we often hear in the media – bad news obviously sells better than good.

The following are excerpts of key economic trends, as reported by Bloomberg Finance in 2012:

Initial jobless claims are just below the average of the past 45 years.
Non-farm payrolls have increased for 21 straight months.
Chicago Purchasing Managers Index indicates expansion for 33 months.
Capacity utilization approaching 40-year average of 80%.
U.S. GDP up 11 straight quarters.

To succeed in business, you must possess a positive attitude, look for opportunities, and continue to evolve and change with the world around you.

As your trusted business advisors, we expect you to hold us accountable to the above not only as it relates to your business, but ours, as well!

For more information contact Dan Slate

Dan Slate
Certified Public Accountant
231.924.8009
dans@hscompanies.com

Medicare Payroll Tax Will be Increasing for Some Wage Earners

September 28, 2012/in Tax Tips/by revel

Some wage earners will be paying an extra .9% in Medicare tax to cover the Hospital Insurance tax

Effective January 1, 2013, high-income wage earners will be required to pay a higher Medicare tax rate on their compensation due to the 2010 Health Care Bill. The Medicare tax rate is currently 1.45% and will increase to 2.35% for those who earn more than $200,000; $250,000; and $125,000 for single filers, filing jointly, and married filing separately respectively. The additional .9% is to cover the Hospital Insurance tax.

This new withholding will need to be reported on the 2013 W-2 in box 6. If you have questions, contact Lori Johnson, H&S Payroll Specialist, today.

Lori Johnson
Payroll Specialist
231.798.6511
lorij@hscompanies.com