2012 Summary of Tax Law Changes

As you prepare for the upcoming tax season, we thought you might find this brief rundown of 2012 tax changes useful:

• PAYROLL TAX CUT for employees extended through February 29, 2012. (Social security tax rate on wages up to $110,100 will be 4.2% rather than 6.2%.)

• ADOPTION TAX CREDIT decreases to $12,650 for adoption of an eligible child.

• SECTION 179 maximum deduction decreases to $139,000, with a phase-out threshold of $560,000.

• STANDARD MILEAGE RATE for business driving remains at 55.5¢ a mile. Rate for medical and moving mileage decreases to 23¢ a mile. Rate for charitable driving remains at 14¢ a mile.

• ESTATE TAX top rate remains at 35%, and the exemption amount increases to $5,120,000. The ANNUAL GIFT TAX EXCLUSION remains at $13,000.

• 401(k) maximum salary deferral increases to $17,000 ($22,500 for 50 and older).

• SIMPLE maximum salary deferral remains at $11,500 ($14,000 for 50 and older).

• IRA contribution limit remains at $5,000 ($6,000 for 50 and older).

• KIDDIE TAX threshold remains at $1,900 and applies up to age 19 (up to age 24 for full-time students).

• NANNY TAX threshold increases to $1,800.

• TRANSPORTATION FRINGE BENEFIT limit decreases to $125 for vehicle/transit passes and increases to $240 for qualified parking.

• SOCIAL SECURITY taxable wage limit increases to $110,100. Retirees under full retirement age can earn up to $14,640 without losing benefits.

• HSA CONTRIBUTION limit increases to $3,100 for individuals and to $6,250 for families. An additional $1,000 may be contributed by those 55 or older.

Thank you for visiting our site. Please call Bill Huml or Ronda Landry with any questions.

Pay yourself reasonable wages

What rule do you follow if there are no rules to follow?

As the owner of an S corporation trying to determine a reasonable salary to pay yourself, the question is important – and difficult to answer. The reason: At present, there are no specific regulations, safe-harbor provisions, or minimum wage requirements defining what amount of compensation is “reasonable” for S corporation shareholder-employees.

As a result, when times are tough, the lack of hard and fast rules could tempt you to forego paying yourself a salary and instead take money from your corporation in other ways, such as distributions or loans. Yet that approach might be costly.

Why? While these methods can be legitimate, without the presence of a reasonable salary, it’s possible for distributions and loans that you pay yourself from your S corporation to be reclassified as wages. If that happens, you could end up owing interest and penalties in addition to payroll taxes.

Here are two general guidelines for setting your salary.

* How much you pay key employees. Wages and other amounts you pay unrelated, non-owner staff can indicate a starting point for your own compensation.

* The average salary for your profession or industry. Information from government wage surveys and online benchmarking tools offer compensation trends and information.

Congress is considering new rules concerning certain professional services and the salary paid by S corporations. Give us a call to review your situation.

Use 2010 numbers for this year’s tax planning

The law requires the IRS to make annual inflationary adjustments to a variety of tax numbers. Because 2009 inflation was minimal, most of these numbers will remain unchanged or change only slightly for 2010. Here are some of the key tax numbers you’ll use for your 2010 tax planning. Read the rest of this entry »

Big changes ahead make 2010 a critical year for tax planning

The dawn of the second decade of the 21st century will start off with sunsets, at least in the tax world. You may recall that many of the tax acts passed over the last nine years included “sunset” provisions, or built-in expiration dates. The result: 2010 might be the last year to take advantage of certain credits, deductions, and other federal tax breaks.

The biggest change involves tax rates. Current favorable capital gains and ordinary income tax rates are scheduled to expire at the end of 2010. On January 1, 2011, rates will revert to higher pre-2001 levels – unless Congress enacts new legislation. Either way, the potential for increased tax rates in 2011 and beyond calls for advance planning. Two areas in particular need your attention if you want to minimize your taxes. Read the rest of this entry »

It’s tax time again: Some reminders

* Deduction reminders

With the ever-changing tax law, it’s easy to lose track of what’s deductible from one year to the next. Don’t overlook these deductions available for your 2009 return:

* Sales tax paid on up to $49,500 of the purchase price for a new vehicle.

* Choice of deducting sales taxes paid in 2009 or state and local income taxes paid.

* Educator’s deduction of up to $250 for classroom supplies purchased.

* Deduction for college tuition and fees.

* Additional standard deduction of up to $500 ($1,000 for couples) for real estate taxes paid.

Various restrictions and income limits usually apply. Read the rest of this entry »