We are over the “Fiscal Cliff”… even with the Senate Deal

Posted on January 1, 2013 by William A Olson, CPA

The House of Representatives has yet to vote on the deal reached in the Senate and the bill will then need to be signed by the President. Here’s a summary of the deal as it stands… Fiscal Cliff Deal Highlights – USA Today.

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Year End Checklist for businesses

Posted on December 27, 2012 by William A Olson, CPA

Closing Your Books

As you are cleaning up your accounting records for year-end, here are some steps you can take now to make tax-time easier:

  • Verify that you have W-9 forms for each of your independent contractors or at least have their Tax Identification Number on file.  You will need this information in order to prepare 1099 forms in January. Going forward, it’s a good practice to obtain a completed W-9 form from each new vendor before you pay them.
  • Review your Accounts Receivable.  Are all of them collectible?  If you have any bona fide bad debts on your hands, it is time to write them off before year-end. You should also review your receivables to reconcile them against your customer accounts, confirming the balance of each.
  • Review your Accounts Payable. Wherever possible, you should reconcile your vendor accounts against a statement from that vendor.
  • Reconcile all of your bank accounts using the year-end bank statements. When reconciling your bank account, be careful to review any “Uncleared” transactions, as they may be duplicate entries, checks that were lost in the mail, or simply entries that should have been deleted.
  • Reconcile all of your credit card accounts, lines of credit and outstanding loans.
  • If you carry inventory, it’s time to do a physical count of your inventory and reconcile it against the inventory reported on your balance sheet. Take this opportunity to adjust your inventory for shrinkage, spoilage, or obsolescence.
  • Make a list of all new equipment and other fixed assets acquired during the year, including the purchase date, amount and description.  If you’ve disposed of any old equipment, whether by selling it or by putting it in the dumpster out back, make a note of that, too.
  • Review your payroll liability balances (941, Michigan Withholding, unemployment, etc.) and adjust if necessary. Also double-check that all payroll tax forms have been filed as necessary.
  • Similarly, review your sales tax liability balance and confirm that your sales tax filings are up-to-date.
  • For paper records, prepare to archive any records that you need to retain. For any records considered vital, make a copy that can be kept off-site.
  • Finally, make a backup of your QuickBooks file or accounting records file to be kept off-site.

W-2s and 1099s

1. If you have employees, you must send W-2s to your employees by January 31st.

2. If you make payments to non-corporate taxpayers in excess of $600 for services or rent, you must file form 1099 to your subcontractors and/or landlord. If you have not already obtained the tax ID of the subcontractor or landlord, use form W-9. 1099s are also due to the recipients on January 31st.

If you would like me to fill out your W-2s or 1099s, please contact me with the appropriate information. If I have already been preparing your payroll and payroll tax returns, I will automatically prepare your W-2s, but will most likely need the information to prepare any 1099s you are required to issue.

Posted in 1040 Personal Income Taxes, 1065 Partnership Income Taxes, 1120 C Corporation Income Taxes, 1120 S Corporation Taxes, Accounting, IRS, Michigan Taxes, QuickBooks, Small Business, Tax filing due dates | Comments Off on Year End Checklist for businesses

Merry Christmas and happy holidays!

Posted on December 25, 2012 by William A Olson, CPA

I’ll see you in the New Year on the other side of the “fiscal cliff”.

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Another Fiscal Cliff Calculator from the Tax Policy Center

Posted on December 14, 2012 by William A Olson, CPA

The calculator is a tool to help you understand how current tax policy affects real families and what would happen if we changed that policy. With this version, you can compare four alternative tax policies to see how different taxpayers would make out in 2013:

Click here to start calculating.

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Fiscal Cliff 101

Posted on December 11, 2012 by William A Olson, CPA

Here’s a great article on what the Fiscal Cliff is from the Washington Post.

The term “fiscal cliff” is Washington shorthand for a series of automatic spending cuts and tax increases set to take effect in January. If enacted, they would amount to the largest spurt of deficit reduction in more than 40 years but could also push the country back into a recession. The cuts include about $100 billion in automatic cuts to defense and domestic government spending. The plan also includes about $400 billion in tax hikes, caused primarily by the expiration of a temporary payroll tax cut and other income tax breaks adopted during the George W. Bush administration. In addition, more than 26 million households will for the first time face the alternative minimum tax, which threatens to tack $3,700, on average, onto taxpayers’ bills for the current tax year. Leaders from both parties say they are determined to head off the fiscal cliff. But some Democrats and policy analysts have suggested it might be better to actually go over the cliff. Once the tax hikes have kicked in, these “cliff divers” argue, Republicans would be hard-pressed to roll them all back and would have to accept a deal on taming the deficit that contains more new tax revenue than GOP lawmakers want.

Continue reading here.

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New Taxes in the Affordable Care Act (“Obama Care”)

Posted on December 10, 2012 by William A Olson, CPA

Here are some of the new taxes you’re going to have to pay to pay for Obamacare:

  • A 3.8% surtax on “investment income” when your adjusted gross income is more than $200,000 ($250,000 for joint-filers). What is “investment income?” Dividends, interest, rent, capital gains, annuities, house sales, partnerships, etc. Taxes on dividends will rise from 15% to 18.8%–if Congress extends the Bush tax cuts. If Congress does not extend the Bush tax cuts, taxes on dividends will rise from 15% to a shocking 43.8%. (WSJ)
  • A 0.9% surtax on Medicare taxes for those making $200,000 or more ($250,000 joint). You already pay Medicare tax of 1.45%, and your employer pays another 1.45% for you (unless you’re self-employed, in which case you pay the whole 2.9% yourself). Next year, your Medicare bill will be 2.35%. (WSJ)
  • Flexible Spending Account contributions will be capped at $2,500. Currently, there is no tax-related limit on how much you can set aside pre-tax to pay for medical expenses. Next year, there will be. If you have been socking away, say, $10,000 in your FSA to pay medical bills, you’ll have to cut that to $2,500. (ATR.org)
  • The itemized-deduction hurdle for medical expenses is going up to $10,000. Right now, any medical expenses over $7,500 per year are deductible. Next year, that hurdle will be $10,000. (ATR.org)
  • The penalty on non-medical withdrawals from Healthcare Savings Accounts is now 20% instead of 10%. That’s twice the penalty that applies to annuities, IRAs, and other tax-free vehicles. (ATR.org)
  • A tax of 10% on indoor tanning services. This has been in place for two years, since the summer of 2010. (ATR.org)
  • A 40% tax on “Cadillac Health Care Plans” starting in 2018.Those whose employers pay for all or most of comprehensive healthcare plans (costing $10,200 for an individual or $27,500 for families) will have to pay a 40% tax on the amount their employer pays. The 2018 start date is said to have been a gift to unions, which often have comprehensive plans. (ATR.org)
  • A”Medicine Cabinet Tax” that eliminates the ability to pay for over-the-counter medicines from a pre-tax Flexible Spending Account. This started in January 2011. (ATR.org)
  • A “penalty” tax for those who don’t buy health insurance. This will phase in from 2014-2016. It will range from $695 per person to about $4,700 per person, depending on your income. (More details here.)
  • A tax on medical devices costing more than $100. Starting in 2013, medical device manufacturers will have to pay a 2.3% excise tax on medical equipment. This is expected to raise the cost of medical procedures. (Breitbart.com)

Source: http://finance.yahoo.com/blogs/daily-ticker/taxes-going-pay-pay-obamacare-145413745.html

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What will the “Fiscal Cliff” cost you?

Posted on December 5, 2012 by William A Olson, CPA

This article from Bloomberg provides links to various tools you can use to calculate what the “fiscal cliff” will mean to you in terms of a tax increase… assuming Congress takes no action, that is.

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The “Fiscal Cliff”… what is it?

Posted on November 28, 2012 by William A Olson, CPA

What is the fiscal cliff? A combination of tax increases and spending cuts automatically scheduled to take effect January 1, 2013 unless Congress and the President take action.

Automatic spending cuts

Since Congress failed last year to reach a bipartisan debt-reduction deal, the Budget Control Act requires automatic spending cuts to commence on Jan. 2 that will amount to $1.2 trillion in deficit reduction over 10 years.

Defense: $55 billion will be cut in 2013 from projected levels of discretionary defense spending. That translates into at least a 10% cut to every program, project and activity that’s not explicitly exempt.

Nondefense: $55 billion will be cut from projected levels of nondefense spending, which includes things like education, food inspections and air travel safety. Budget experts estimate the cuts will result in at least an 8% cut to programs, projects and activities.

Bush tax cuts

The Bush tax cuts, the eternal partisan trip-wire, are set to expire Dec. 31. And as a result:

Income tax rates: Rise to 15%, 28%, 31%, 36% and 39.6%, up from 10%, 15%, 25%, 28%, 33% and 35%.

Capital gains rate: Rises to 20% from 15% for most filers.

Qualified dividend rate: Rises to one’s top income tax rate, up from 15% for most filers.

PEP/Pease limitations: Restored. High-income households may not be able to take some itemized deductions and personal exemptions in full.

Child tax credit: Falls to $500 per child from $1,000. The refundable portion also reduced.

American Opportunity Tax Credit: Expires. The lesser value HOPE tax credit for college tuition is reinstated. Several smaller education tax benefits also expire.

Earned Income Tax Credit: Expansion of eligibility for the credit expires.

Marriage penalty relief: Expires. Effectively that means a low- or middle-income two-earner couple will owe more to the IRS than they would if they were single making the same income.

Estate tax: Parameters revert to pre-2001 levels. The exemption level falls to $1 million from $5 million; and the top tax rate on taxable estates rises to 55%, up from 35%.

AMT patch

Expired already for 2012. Income exempt from the Alternative Minimum Tax in 2012 — for which taxpayers will file returns next year — falls to $33,750 for individuals and $45,000 for married couples. That’s down from $50,600 and $78,750, respectively, if the exemption amounts had been adjusted for inflation.

As a result more than 30 million people will be hit by the so-called “wealth” tax, up from 4 million to date.

Payroll tax holiday

Expires. The Social Security tax rate reverts to 6.2%, up from 4.2%, on the first $110,100 in wages. Effectively, someone making $50,000 will pay another $1,000 in payroll taxes next year.

Unemployment benefits extension

The federal extension expires. That means workers who lose their jobs after July 1, 2012, will only receive up to 26 weeks in state unemployment benefits, down from as many as 99 weeks in state and federal benefits that had been available until recently.

By one estimate, more than 2 million claimants will lose their benefits by January.

Tax extenders

A host of smaller individual and business tax breaks will have expired. A bipartisan bill from the Senate Finance Committee proposes to extend many of them, but it has not passed the Senate or House yet.

Medicare doc fix

Expires. Medicare payment rates for physician services drops by 27%.

Other

Some budget experts count as part of the fiscal cliff the onset of a new Medicare surtax on high-income households under health reform.

But unlike the other fiscal cliff tax provisions, the new tax was not written into law as a wink-wink “temporary” provision. It is, however, included to reflect the magnitude of tax increases set to take effect simultaneously in 2013.

A 0.9% surtax will apply to wages on earned income over $200,000 ($250,000 if married). That’s on top of the 1.45% Medicare currently owed on all wages. Those making between $200,000 and $500,000, for instance, will only pay about $633 extra while households making $1 million or more would pay another $11,242.

A 3.8% Medicare surtax will also apply for the first time to at least a portion of high-income households’ investment income.

Click here for the source of the above information from CNN Money.

Posted in 1040 Personal Income Taxes, 1065 Partnership Income Taxes, 1120 C Corporation Income Taxes, 1120 S Corporation Taxes, IRS, Personal Finance | Comments Off on The “Fiscal Cliff”… what is it?

Post-Election Tax Policy: A briefing from CCH

Posted on November 15, 2012 by William A Olson, CPA

This is a great briefing on what we can expect post-election when it comes to tax policy.

An excerpt…

President Obama secured a second term in office November 6, 2012, in the end winning the Electoral College by a wide margin. The President’sre-election now sets in motion what will likely be difficult negotiations between Democrats and Republicans over the fate of the Bush-era tax cuts, nearly $100 billion in automatic spending cuts, and the more than 50 expiring tax extenders, which include the alternative minimum tax (AMT) patch for tens of millions of taxpayers. The President’s re-election has also significantly changed the dynamics for reaching an eventual agreement over long-term tax reform.

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Personal Opinion: What will happen to taxes in 2013?

Posted on November 8, 2012 by William A Olson, CPA

With the election over, the two parties can now (hopefully) focus on tax reform.

CORPORATE TAX REFORM: Both parties agree that lowering the overall corporate tax rate while eliminating deductions and “loopholes” is a good idea… so I imagine that this will get done and get done separately from reforming individual income taxes.

INDIVIDUAL INCOME TAX REFORM: Both parties do not agree on how to do this. Democrats want higher taxes on upper income individuals and Republicans want lower tax rates with the elimination of deductions, credits and “loopholes”. My guess is that we will not have tax reform legislation passed this year. Instead, the so-called “Bush Tax Cuts” will expire on December 31st, 2012. At that time, Congress will then act to find a compromise between the competing alternatives mentioned above… higher taxes on upper income individuals with parts of the Bush Tax Cuts re-enacted for lower income individuals. In effect, it will a partial re-enactment of the Bush Tax Cuts.

Regardless, it is a good time now (despite the uncertainty) to do tax planning for 2012, 2013 and beyond so you are not surprised by anything.

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