Depreciation rules change for 2012

February 28, 2012

If you’re planning to buy equipment or other business assets this year, you need to be aware of the changes in how much of the cost you can deduct in 2012.

 Here are the new limits.

 * Bonus depreciation. The enhanced deduction — up to 100% of qualified assets — expired at the end of 2011. The maximum bonus depreciation allowance for most qualified property placed in service in 2012 is 50% of the cost of the property.

 Bonus depreciation is generally available for new assets that have a useful life of 20 years or less.

 * Section 179. The expanded $500,000 Section 179 write-off that has been available for the past two years ended December 31, 2011. For 2012, you can elect to expense up to $139,000 of qualified assets you purchase during the year.

 To receive the full benefit of the Section 179 deduction, the total cost of all qualifying assets purchased in 2012 must be $560,000 or less. Your deduction may also be limited by the amount of your business income.

 Both new and used assets qualify for Section 179.

 Congress may change these rules at any time. If you’re thinking of purchasing assets for your business this year, please give us a call for the latest depreciation developments.

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Use adjusted tax numbers for 2012 planning

February 24, 2012

The IRS is required by law to adjust certain tax numbers each year. Here are some of the adjusted numbers you’ll need for your 2012 tax planning.

 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.

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

 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.

 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.

 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.

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).

 ESTATE TAX top rate remains at 35%, and the exemption amount increases to $5,120,000.

 ANNUAL GIFT TAX EXCLUSION remains at $13,000.

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

 ALTERNATIVE MINIMUM TAX (AMT) exemption decreases to $33,750 for singles and to $45,000 for married couples.

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Are you ignoring this new tax credit?

February 21, 2012

Health care legislation passed in 2010 included a tax credit for small businesses that provided health care coverage for their employees. Recent surveys have shown that the majority of small companies that could qualify for the credit have failed to take it. The reasons given for ignoring the credit ranged from being unaware of it to finding the credit too complicated to compute.

 * Take another look

If your business or nonprofit organization might be eligible, perhaps you should take another look at the requirements and be sure you’re taking advantage of this tax break. If you qualify, you can use this tax credit to offset your federal income tax liability by up to 35% of the cost of health insurance premiums you pay for employees. Since this is a tax credit, not a deduction, it will reduce your tax bill dollar-for-dollar.

 * Can your business qualify?

In general, the credit is available to employers that have fewer than 25 full-time equivalent (FTE) employees paying average annual wages of less than $50,000 per employee. Eligibility is based partially on FTEs, not the number of employees; therefore, an employer with fewer than 50 half-time workers could qualify for the credit. The maximum credit goes to those employers with ten or fewer employees who pay annual average wages of $25,000 or less.

 When you’re self-employed, either as a partner or a sole proprietor, or if you own more than 2% of an S corporation, you’re not considered an employee for purposes of the credit.

 Tax-exempt organizations can use the credit to offset payroll tax liability (up to 25% of qualified premiums paid).

 For assistance in determining eligibility for this tax credit and in doing the calculations to obtain the credit, contact our office.

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If you have foreign investments, you may have a new filing obligation

February 17, 2012

If you own foreign investments, you may have an additional federal tax filing requirement this year.

 Form 8938, “Statement of Specified Foreign Financial Assets,” is due April 17, 2012, and is filed as part of your individual tax return. You’ll use Form 8938 to disclose interests in certain foreign financial accounts when your ownership exceeds the reporting requirements.

 What are the reporting requirements? They vary depending on where you live and your filing status. For example, say you’re married and live in the United States, and you’ll file a joint tax return for 2011. You’ll include Form 8938 with your tax return when the total value of your reportable assets on the last day of 2011 is more than $100,000, or if the value exceeds $150,000 at any time during the year.

 Tip: In some cases, you may also need to file Form 8938 for tax year 2010.

 Reportable assets include investment accounts you own that are held in foreign financial institutions, interests in foreign entities, and stocks or securities issued by foreign individuals or companies.

 You’ve probably noticed the reporting requirements are similar to the “Report of Foreign Bank and Financial Accounts” (FBAR), a separate return you may already be filing. Be aware the new Form 8938 does not replace the FBAR, which you’ll still need to complete by June 30.

 Penalties for failure to file Form 8938 start at $10,000. We urge you to contact us so we can help you evaluate your filing requirements for foreign investments.

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Meetings underway on payroll tax cut extension

February 14, 2012

Last December, the 4.2% social security tax rate that workers pay on wages was extended through February 29, 2012.

 Now a Congressional conference is being held to find a way to extend the lower tax rate through the end of 2012. The sticking point is lack of agreement between Republicans and Democrats on how to pay for the extension, estimated to cost $100 billion.

 House Democrats have expressed the hope that the conference will be completed by the Presidents’ Day recess scheduled for the week of February 20. The legislation would extend the current 4.2% payroll tax rate through December 31, extend unemployment insurance benefits, and prevent cuts in reimbursements to Medicare providers.

 Several legislators want to include tax extenders in the payroll tax cut legislation. These “extenders” include such provisions as the research and development credit for businesses, the optional deduction for state and local sales taxes, and the $250 deduction for school supplies purchased by teachers. Though these tax breaks appear to be universally popular, finding a way to pay for them remains the big issue.

 As you do your 2012 tax planning, keep the uncertain legislative picture in mind.

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IRS plans random small business audits

February 10, 2012

The IRS plans to conduct random audits of 2,500 returns from 2010 filed by corporations with less than $250,000 in assets. The results will be used to update the IRS formulas for selecting returns for audit.

 The IRS is also trying to improve tax compliance among sole proprietors. According to a Treasury report, sole proprietors accounted for 20% of the $345 billion tax gap calculated for 2001.

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Basis reporting expands this year

February 7, 2012

Your broker statement for 2011 reported the basis in the stocks you acquired last year. This basis reporting requirement expands this year to include mutual fund shares and stock acquired in a dividend reinvestment plan. The cost basis for these investments is included in reports that brokers send to the IRS. The IRS will compare this information with the basis you report on your tax return when you sell the investment.

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More tax deadlines ahead

February 3, 2012

Don’t miss these deadlines if they apply to your business:

 February 15 – Brokers must provide 2011 Forms 1099-B and 1099-S to customers.

 February 28 – Send Forms 1099 with Form 1096 to the IRS. If you file these forms electronically, you have until April 2 to file with the IRS.

 February 29 – Send Copy A of employee W-2s for 2011, along with Form W-3, to the Social Security Administration. If you file electronically, you have until April 2 to file.

 March 1 – Farmers and fishermen who did not make 2011 estimated tax payments must file 2011 tax returns and pay taxes in full.

 For more information or filing assistance, contact our office.

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