If your business paid $600 or more in 2011 to a landlord, accountant, lawyer or any other entity that requires a Form 1099 , you should be aware of an important change in the 2011 individual and corporate business tax returns. The IRS has added two questions to the business income tax returns (both to the Schedule C on the 1040 and the Forms 1120 and 1065): [Read more…] about New In 2011: IRS Adds 1099 Questions
Mortgage Interest Deduction: It’s All About Equitable Ownership
The harsh economic environment, and stricter lending policies, have led many to fail to qualify for traditional lending. A popular solution has been to tap into the creditworthiness of parents or other family members, with the understanding that the occupant of the home will be responsible for the monthly mortgage payment. The question that arises from this arrangement is whether the mortgage interest expense can be deducted by the occupant of the home, even though he is not legally responsible for paying the mortgage. [Read more…] about Mortgage Interest Deduction: It’s All About Equitable Ownership
Spouse Has Tax Problems? IRS Lets You Have Your Cake and Eat it Too
Normally, there are several reasons for a couple to file as married joint. One significant advantage is having lower tax brackets than those filing separate. For example, if you file jointly, you will receive a $10,000 refund. For simplicity’s sake, let’s say each spouse earned 50% of the total income. Filing separately will only get you $3,000 each. Sounds like filing joint is a no brainer right? [Read more…] about Spouse Has Tax Problems? IRS Lets You Have Your Cake and Eat it Too
NJ Employer Contribution Rate Notice Now Available Online
Beginning fiscal year 2012/2013, employers will no longer receive an annual paper Notice of Employer Contribution Rates. Instead, it will now be accessible through the Tax Web Enabled System (TWES). This change will enable employers to get their contribution rates much sooner. The TWES also provides the employer with valuable information such as account status, payment history, open balance, delinquent reports and more. To set up a TWES account, go to NJ Employer Contribution Rate and follow the instructions. The employer must establish the administrator account first; creating a user account is optional.
S-Corp Owners- Take a Raise to Keep the IRS Away
A popular income trick played by S-Corp owners is to take a
significantly deflated salary, and then collect large profit distributions. This
tactic lowers tax liability because income collected as salary is subject to a
2.9% Medicare tax and some is subject to a 12.4% Social Security, or FICA, tax.
By shifting that income to a profit distribution one can sidestep those taxes.
Recent IRS statistics have caused an increased scrutiny of S-Corp owners’
salaries. Over the past decade and a half, while executive paychecks exploded,
the salaries of S-Corp owners declined as a percentage of total income, from
52% in 1995 to 39% in 2007. During the same period, S-Corp income doubled,
while salaries increased only 26%. While many think that the IRS can only force
someone to take a salary decrease, a recent district court case showed that one
can also be forced to increase one’s salary. In David E. Watson P.C. vs. U.S.,
Mr. Watson, a CPA with 20 years of experience, took a salary of $24,000 in 2002
and 2003, and made profit distributions of $203,651 and $175,470, respectively.
Recent graduates with no experience earned an average of $40,000 at that time.
The court determined that a fair salary for Mr. Watson would have been $91,044,
and ordered him to pay back the nearly $20,000 he saved in payroll taxes as
well as interest and penalties. What S-Corp owners have going for them,
however, is that fair salary is a very gray area. While Mr. Watson’s salary was
low enough to attract the attention of the IRS, it would be difficult to prove
that a more appropriate salary is too low, even if it is on the lower end of
the spectrum.
Tax Tips for 2011-still time to reduce taxes!
Here are a few tax-saving tips you should consider before the calendar turns 2012:
- Get Those New Windows
You still have time this year to make energy-saving home improvements and qualify for either of two home energy credits. Installing energy efficient improvements such as insulation or new windows can provide up to $500 in tax savings.
- Low Income? Make an IRA Distribution
The saver’s credit, also known as the Retirement Savings Contribution Credit,isa special tax credit that helps offset part of the first $2,000 low- to moderate- income workers voluntarily contribute to IRAs and to 401(k) plans. For more information about the saver’s credit, click here: Retirement Savings Credit
The deadline to set up a new IRA or add money to an existing IRA and receive credit for 2011 is April 17, 2012. You normally can contribute up $5,000 to a traditional or Roth IRA, or up to $6,000 if age 50 or over.
- Don’t Overlook The Small Business Health Care Tax Credit
If you are a small employer who pays at least half of your employee health insurance premiums, you may qualify for a tax credit of up to 35% of the premiums paid. To qualify you must have fewer than 25 full-time employees who are paid an average wage of less than $50,000 a year.
- Check Your Portfolio
You may deduct capital losses up to the amount of capital gains, plus $3,000 from other income. It would be wise to check your gains and losses from investments before December 31stto decide if you should sell before year-end.
- Make a Charitable Contribution on a Credit Card
Want to reduce your 2011 taxes with a donation but don’t have money right now? As long as your credit card is billed before the end of December 31, 2011, your donation is deductible for 2011, even though the bill is not paid until 2012.