The federal Department of Labor has recently announced the list of states that were “credit reduction states” for federal unemployment tax (FUTA) purposes in 2011. What does that mean?
Basically, it means that those states borrowed money form the federal unemployment tax pool, then did not repay the funds. Now I’m hearing, “So what? How does that affect me?”
If you were an employer during 2011 in any of those states (AR, CA, CT, FL, GA, IL, IN, KY, MI, MN, MO, NC, NJ, NV, NY, OH, PA, RI, VA, WI, or VI), you will probably pay more FUTA when you file your 2011 Form 940 at the end of January. The additional tax, called the credit reduction amount, will run between .3% and .9% of eligible wages, and is reported on Schedule A of Form 940. (That’s a maximum of $21 to $63 per employee.)
A number of states are making this list for the first time in many years, so be sure to double-check with your payroll company if your business has employees in any of the above states.)
Today is the first mailing day of the New Year. It won’t be long before the postal carrier starts delivering those pesky little tax forms – 1099s, W-2s, and the like.
Do yourself (and your tax preparer) a big favor – get a file folder or large envelope, and put it in a place where you open your mail. After reviewing the documents for accuracy, simply put them into the folder and forget about them until it’s time to take your information to your preparer. (Of course, it there’s something on the forms that is wrong, follow up with the issuer first – and soon.) That way, all those forms will be in one place – and you won’t have to search through stacks of mail to find them.
If you’re really organized, tape a list of last year’s tax document issuers (banks, employers, customers, etc.) to the front of the folder or envelope – and check them off as the new forms arrive. It’ll make it easier to figure out what may be missing!
And don’t forget – make an appointment with your tax preparer as early as possible, so that there will be enough time to prepare and review an accurate return.
I’m sure you’ve heard in the news that just before Chrismas, Congress finally passed, and the President signed, a two-month extension of the payroll tax cut that was enacted earlier this year. That means that at least for two months the employee social security withholding rate will remain at 4.2% (instead of 6.2% that the employer pays). Who knows what will come in March – whether it will be re-extended or repealed.
One item in the law that the news hasn’t really covered may affect many businesses normal practice as it relates to employees and yearly bonuses. The law has a “recapture” provision that applies to employees that earn more than $18,350 during the first two months of 2012 (that’s one-sixth of the $110,100 social security wage base this year.) The new rule imposes an extra 2% income tax on the excess wages earned during the two month period. The tax doesn’t affect withholding and payroll; it’ll be applied when the affected employees file their 2012 income tax return.
The main reason I’m bringing this to your attention is that many businesses pay bonuses to employees in the early part of the year, based on the previous year’s results. Presuming they will be paid more than the maximum for that two-month period, they would only have 4.2% social security withheld – but when they file their 2012 return, they’ll pay 2% more income tax on the excess earnings. Don’t have a clue how THAT’s going to be reported; IRS is to issue regulations on how to deal with it later. But unless Congress acts to extend the cut for a longer period, and to repeal this recapture provision too, W-2s are likely going to be harder to prepare for 2012!
Of course, there’s not much time before calendar year-end, but you may want to discuss the possibility of timing the bonus in 2011 – to avoid the recapture issue.Call me if you have any questions.
…to be generous! Many of us use the opportunity of the holidays to clean out our closets, and to donate gently-used items to deserving charities. In most cases, that generosity can result in a tax deduction – if you follow the rules.
If you’re donating clothing and household items, they must be in good used condition or better – no torn jeans unless that’s how they looked when you purchased them! Get a receipt from the charity, but don’t be surprised if they don’t assign a value to the donated items – or even itemize them. It’s up to you to make a list (and check it twice) of what you’re donating, and to estimate its fair market value at the time of the gift. There are resources available to help you with that – a good one is ItsDeductibleOnline.com – or go through the thrift shop to compare prices. Remember, if you’re ever audited, you’ll need some documentation of your valuation methodology. If the year’s total noncash donations exceed $500, you’ll need even more documentation – just ask your CPA or other tax provider what the rules are.
But don’t let tax law or benefits rule your decision – the gift should come from the heart, even while IRS gives you some lovely tax benefits for being generous.
Did you pay any noncorporate vendor more than $600 for services in 2011? If so, you may be required to issue them a Form 1099-MISC in January. Beware – the reporting requirements have changed this year – if you paid them via credit card, don’t include that payment in the reportable total. That’s because there’s a new form (1099-K) that will be filed by credit card companies and other third-party payment services (such as PayPal, etc.) to report your credit card payments.
If you receive a Form 1099-K, be sure to let your tax preparer know about it – there may be disclosures to make that will avoid “matching” issues with the IRS.
Does your business provide employer-sponsored health coverage to your employees? It’s optional for 2011, but will be mandatory for 2012…employers must begin reporting the cost of the healthcare benefits they provide to all employees on Forms W-2. Since the beginning of the year is just around the corner, it’s definitely time to get systems in place (if you haven’t already done so) to gather the required information. That will make your life much easier when January 2012 rolls around – you’ll have what you need at your fingertips.
Now that mortgage rates are at historically low levels, we’re seeing a lot of our clients refinancing their mortgages. Unfortunately, sometimes the first indication we have that this is occurring is when the mortgage officer calls to ask us to confirm that we prepared the client’s return, and other information related to the return (like employment confirmation, etc.)
IRS regulations prohibit a paid return preparer from using or disclosing ANY information received during the tax return preparation process to a third party without prior written consent. This includes the fact that we prepared the return, even though it’s evident from the return itself.
So save yourself some time and let us know that you’re applying to refinance your mortgage. That way, we’ll provide you with consents to disclose tax return information to the mortgage company – so when they call, we can answer their questions!
As of this morning, you’ll see a brand new look on our website at www.mbr-cpa.com. It’s been redesigned to make navigation easier, and add more tools & tips – including the brand-new blog. Let us know what you think of it.
Did you know that, beginning January 1, 2012, all professionals who prepare at least 10 individual federal returns will be required to file them electronically? This means that, except in very rare circumstances, your professionally-prepared return will no longer be mailable.
This is the second and final stage of the sweeping changes to the filing system that were mandated by legislation enacted in 2009. During the just-completed filing season, the efile requirement applied to professionals preparing 100 returns or more; that number will now be reduced to 10 or more.
There are ways to opt-out of efiling, but it will require the affected taxpayer to sign a waiver which the preparer must maintain in her files. It has no effect on the manner and timing of tax payments – at least for now – and states have differing rules.
Be sure to consult with your tax professional if you have any questions about this new efile requirement.
Today’s Tax Tip From the IRS:
You may not be thinking about your tax return right now, but summer is a great time to start planning for next year. Organized records not only make preparing your return easier, but may also remind you of relevant transactions, help you prepare a response if you receive an IRS notice, or substantiate items on your return if you are selected for an audit.
Here are a few things the IRS wants you to know about recordkeeping.
1. In most cases, the IRS does not require you to keep records in any special manner. Generally, you should keep any and all documents that may have an impact on your federal tax return. It’s a good idea to have a designated place for tax documents and receipts.
2. Individual taxpayers should usually keep the following records supporting items on their tax returns for at least three years:
- Credit card and other receipts
- Mileage logs
- Canceled, imaged or substitute checks or any other proof of payment
- Any other records to support deductions or credits you claim on your return
You should normally keep records relating to property until at least three years after you sell or otherwise dispose of the property. Examples include:
- A home purchase or improvement
- Stocks and other investments
- Individual Retirement Arrangement transactions
- Rental property records
3. If you are a small business owner, you must keep all your employment tax records for at least four years after the tax becomes due or is paid, whichever is later. Examples of important documents business owners should keep Include:
- Gross receipts: Cash register tapes, bank deposit slips, receipt books, invoices, credit card charge slips and Forms 1099-MISC
- Proof of purchases: Canceled checks, cash register tape receipts, credit card sales slips and invoices
- Expense documents: Canceled checks, cash register tapes, account statements, credit card sales slips, invoices and petty cash slips for small cash payments
- Documents to verify your assets: Purchase and sales invoices, real estate closing statements and canceled checks
For more information about recordkeeping, check out IRS Publication 552, Recordkeeping for Individuals, Publication 583, Starting a Business and Keeping Records, and Publication 463, Travel, Entertainment, Gift, and Car Expenses. These publications are available at www.IRS.gov or by calling 800-TAX-FORM (800-829-3676).
- Publications 552, Recordkeeping for Individuals (PDF)
- Publications 583, Starting a Business and Keeping Records (PDF)
- Publication 463, Travel, Entertainment, Gift, and Car Expenses (PDF)