In 2013, Various Tax Benefits Increase Due to Inflation Adjustments
WASHINGTON — For tax year 2013, the Internal Revenue Service announced today
annual inflation adjustments for more than two dozen tax provisions.
The annual exclusion for gifts rises to $14,000 for
2013, up from $13,000 for 2012.
The amount used to reduce the net unearned income
reported on a child’s tax return subject to the “kiddie tax,” is $1,000,
up from $950 for 2012.
The foreign earned income exclusion rises to $97,600,
up from $95,100 in 2012.
Details on these inflation adjustments and others such as the low-income
housing credit, the dollar limits for high-deductible health plans and other
amounts can be found in Revenue Procedure 2012-41, which will be published in
Internal Revenue Bulletin 2012-45 on
Nov. 5, 2012.
IRS Announces 2013 Pension Plan Limitations:
WASHINGTON — The Internal Revenue Service today announced cost of living
adjustments affecting dollar limitations for pension plans and other
retirement-related items for Tax Year 2013. In general, many of the
pension plan limitations will change for 2013 because the increase in the
cost-of-living index met the statutory thresholds that trigger their adjustment.
However, other limitations will remain unchanged because the increase in the
index did not meet the statutory thresholds that trigger their adjustment.
Highlights include:
The elective deferral (contribution) limit for
employees who participate in 401(k), 403(b), most 457 plans, and the
federal government’s Thrift Savings Plan is increased from $17,000 to
$17,500.
The catch-up contribution limit for employees aged 50
and over who participate in 401(k), 403(b), most 457 plans, and the
federal government’s Thrift Savings Plan remains unchanged at $5,500.
The deduction for taxpayers making contributions to a
traditional IRA is phased out for singles and heads of household who are
covered by a workplace retirement plan and have modified adjusted gross
incomes (AGI) between $59,000 and $69,000, up from $58,000 and $68,000 in
2012. For married couples filing jointly, in which the spouse who
makes the IRA contribution is covered by a workplace retirement plan, the
income phase-out range is $95,000 to $115,000, up from $92,000 to
$112,000. For an IRA contributor who is not covered by a workplace
retirement plan and is married to someone who is covered, the deduction is
phased out if the couple’s income is between $178,000 and $188,000, up
from $173,000 and $183,000.
The AGI phase-out range for taxpayers making
contributions to a Roth IRA is $178,000 to $188,000 for married couples
filing jointly, up from $173,000 to $183,000 in 2012. For singles
and heads of household, the income phase-out range is $112,000 to $127,000,
up from $110,000 to $125,000. For a married individual filing a
separate return who is covered by a retirement plan at work, the phase-out
range remains $0 to $10,000.
The AGI limit for the saver’s credit (also known as the
retirement savings contribution credit) for low- and moderate-income
workers is $59,000 for married couples filing jointly, up from $57,500 in
2012; $44,250 for heads of household, up from $43,125; and $29,500 for
married individuals filing separately and for singles, up from $28,750.
Below are details on both the unchanged and adjusted limitations.
Section 415 of the Internal Revenue Code provides for dollar limitations on
benefits and contributions under qualified retirement plans. Section
415(d) requires that the Commissioner annually adjust these limits for cost of
living increases. Other limitations applicable to deferred compensation
plans are also affected by these adjustments under Section 415. Under
Section 415(d), the adjustments are to be made pursuant to adjustment
procedures which are similar to those used to adjust benefit amounts under
Section 215(i)(2)(A) of the Social Security Act.
The limitations that are adjusted by reference to Section 415(d) generally
will change for 2013 because the increase in the cost-of-living index met the
statutory thresholds that trigger their adjustment. For example, the
limitation under Section 402(g)(1) on the exclusion for elective deferrals
described in Section 402(g)(3) is increased from $17,000 to $17,500 for 2013.
This limitation affects elective deferrals to Section 401(k) plans, Section
403(b) plans, and the Federal Government’s Thrift Savings Plan.
Effective January 1, 2013, the limitation on the annual benefit under a
defined benefit plan under Section 415(b)(1)(A) is increased from $200,000 to
$205,000. For a participant who separated from service before January 1,
2013, the limitation for defined benefit plans under Section 415(b)(1)(B) is
computed by multiplying the participant's compensation limitation, as adjusted
through 2012, by 1.0170.
The limitation for defined contribution plans under Section 415(c)(1)(A) is
increased in 2013 from $50,000 to $51,000.
The Code provides that various other dollar amounts are to be adjusted at
the same time and in the same manner as the dollar limitation of Section
415(b)(1)(A). After taking into account the applicable rounding rules,
the amounts for 2013 are as follows:
The limitation under Section 402(g)(1) on the exclusion for elective
deferrals described in Section 402(g)(3) is increased from $17,000 to $17,500.
The annual compensation limit under Sections 401(a)(17), 404(l),
408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $250,000 to $255,000.
The dollar limitation under Section 416(i)(1)(A)(i) concerning the
definition of key employee in a top-heavy plan remains unchanged at $165,000.
The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum
account balance in an employee stock ownership plan subject to a 5 year
distribution period is increased from $1,015,000 to $1,035,000, while the
dollar amount used to determine the lengthening of the 5 year distribution
period is increased from $200,000 to $205,000.
The limitation used in the definition of highly compensated employee under
Section 414(q)(1)(B) remains unchanged at $115,000.
The dollar limitation under Section 414(v)(2)(B)(i) for catch-up
contributions to an applicable employer plan other than a plan described in
Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains
unchanged at $5,500. The dollar limitation under Section 414(v)(2)(B)(ii)
for catch-up contributions to an applicable employer plan described in Section
401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged
at $2,500.
The annual compensation limitation under Section 401(a)(17) for eligible
participants in certain governmental plans that, under the plan as in effect on
July 1, 1993, allowed cost of living adjustments to the compensation limitation
under the plan under Section 401(a)(17) to be taken into account, is increased
from $375,000 to $380,000.
The compensation amount under Section 408(k)(2)(C) regarding simplified
employee pensions (SEPs) remains unchanged at $550.
The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts
is increased from $11,500 to $12,000.
The limitation on deferrals under Section 457(e)(15) concerning deferred
compensation plans of state and local governments and tax-exempt organizations
is increased from $17,000 to $17,500.
The compensation amount under Section 1.61 21(f)(5)(i) of the Income Tax
Regulations concerning the definition of “control employee” for fringe benefit
valuation purposes remains unchanged at $100,000. The compensation amount
under Section 1.61 21(f)(5)(iii) remains unchanged at $205,000.
The Code also provides that several pension-related amounts are to be
adjusted using the cost-of-living adjustment under Section 1(f)(3). After
taking the applicable rounding rules into account, the amounts for 2013 are as
follows:
The adjusted gross income limitation under Section 25B(b)(1)(A) for
determining the retirement savings contribution credit for married taxpayers
filing a joint return is increased from $34,500 to $35,500; the limitation
under Section 25B(b)(1)(B) is increased from $37,500 to $38,500; and the
limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D), is increased from
$57,500 to $59,000.
The adjusted gross income limitation under Section 25B(b)(1)(A) for
determining the retirement savings contribution credit for taxpayers filing as
head of household is increased from $25,875 to $26,625; the limitation under
Section 25B(b)(1)(B) is increased from $28,125 to $28,875; and the limitation
under Sections 25B(b)(1)(C) and 25B(b)(1)(D), is increased from $43,125 to
$44,250.
The adjusted gross income limitation under Section 25B(b)(1)(A) for
determining the retirement savings contribution credit for all other taxpayers
is increased from $17,250 to $17,750; the limitation under Section 25B(b)(1)(B)
is increased from $18,750 to $19,250; and the limitation under Sections
25B(b)(1)(C) and 25B(b)(1)(D), is increased from $28,750 to $29,500.
The deductible amount under Section 219(b)(5)(A) for an individual making
qualified retirement contributions is increased from $5,000 to $5,500.
The applicable dollar amount under Section 219(g)(3)(B)(i) for determining
the deductible amount of an IRA contribution for taxpayers who are active
participants filing a joint return or as a qualifying widow(er) is increased
from $92,000 to $95,000. The applicable dollar amount under Section
219(g)(3)(B)(ii) for all other taxpayers (other than married taxpayers filing
separate returns) is increased from $58,000 to $59,000. The applicable
dollar amount under Section 219(g)(7)(A) for a taxpayer who is not an active
participant but whose spouse is an active participant is increased from
$173,000 to $178,000.
The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(I) for
determining the maximum Roth IRA contribution for married taxpayers filing a
joint return or for taxpayers filing as a qualifying widow(er) is increased
from $173,000 to $178,000. The adjusted gross income limitation under
Section 408A(c)(3)(B)(ii)(II) for all other taxpayers (other than married
taxpayers filing separate returns) is increased from $110,000 to $112,000.
The dollar amount under Section 430(c)(7)(D)(i)(II) used to determine excess
employee compensation with respect to a single-employer defined benefit pension
plan for which the special election under Section 430(c)(2)(D) has been made is
increased from $1,039,000 to $1,066,000.
Wednesday, September 19, 2012
Business Taxes
The form of business you operate determines what taxes you must pay and how you pay them. The following are the four general types of business taxes.
All businesses except partnerships must file an annual income tax return. Partnerships file an information return. The form you use depends on how your business is organized. Refer to Business Structures to find out which returns you must file based on the business entity established.
The federal income tax is a pay-as-you-go tax. You must pay the tax as you earn or receive income during the year. An employee usually has income tax withheld from his or her pay. If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. If you are not required to make estimated tax payments, you may pay any tax due when you file your return. For additional information refer to Publication 583.
Estimated tax
Generally, you must pay taxes on income, including self-employment tax (discussed next), by making regular payments of estimated tax during the year. For additional information, refer toEstimated Taxes.
Self-Employment Tax
Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. Your payments of SE tax contribute to your coverage under the social security system. Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits.
Generally, you must pay SE tax and file Schedule SE (Form 1040) if either of the following applies.
If your net earnings from self-employment were $400 or more.
If you work for a church or a qualified church-controlled organization (other than as a minister or member of a religious order) that elected an exemption from social security and Medicare taxes, you are subject to SE tax if you receive $108.28 or more in wages from the church or organization.
Note: There are Special Rules and Exceptions for aliens, fishing crew members, notary public, State or local government employees, foreign government or international organization employees, etc. For additional information, refer to Self-Employment Tax.
Employment Taxes
When you have employees, you as the employer have certain employment tax responsibilities that you must pay and forms you must file. Employment taxes include the following:
This section describes the excise taxes you may have to pay and the forms you have to file if you do any of the following.
Manufacture or sell certain products.
Operate certain kinds of businesses.
Use various kinds of equipment, facilities, or products.
Receive payment for certain services.
Form 720 - The federal excise taxes reported on Form 720 (PDF), consist of several broad categories of taxes, including the following.
Environmental taxes.
Communications and air transportation taxes.
Fuel taxes.
Tax on the first retail sale of heavy trucks, trailers, and tractors.
Manufacturers taxes on the sale or use of a variety of different articles
Form 2290 - There is a federal excise tax on certain trucks, truck tractors, and buses used on public highways. The tax applies to vehicles having a taxable gross weight of 55,000 pounds or more. Report the tax on Form 2290 (PDF). For additional information, see the instructions for Form 2290 .
Form 730 - If you are in the business of accepting wagers or conducting a wagering pool or lottery, you may be liable for the federal excise tax on wagering. Use Form 730 (PDF), to figure the tax on the wagers you receive.
Form 11-C - Use Form 11-C, Occupational Tax and Registration Return for Wagering, to register for any wagering activity and to pay the federal occupational tax on wagering. Excise Tax has several general excise tax programs. One of the major components of the excise program is motor fuel. For additional information, refer to Excise Taxes.
Thursday, September 6, 2012
Small Business Health Care Tax Credit for Small Employers
What You Need to Know about the Small Business Health Care Tax Credit
How will the credit make a difference for you?
For tax years 2010 through 2013, the maximum credit is 35 percent for
small business employers and 25 percent for small tax-exempt employers
such as charities. An enhanced version of the credit will be effective
beginning Jan. 1, 2014. Additional information about the enhanced
version will be added to IRS.gov as it becomes available. In general, on
Jan. 1, 2014, the rate will increase to 50 percent and 35 percent,
respectively.
Here’s what this means for you. If you pay $50,000 a year toward
workers’ health care premiums – and if you qualify for a 15 percent
credit, you save … $7,500. If you save $7,500 a year from tax year 2010
through 2013, that’s total savings of $30,000. If, in 2014, you qualify
for a slightly larger credit, say 20 percent, your savings go from
$7,500 a year to $12,000 a year.
Even if you are a small business employer who did not owe tax during
the year, you can carry the credit back or forward to other tax years.
Also, since the amount of the health insurance premium payments are more
than the total credit, eligible small businesses can still claim a
business expense deduction for the premiums in excess of the credit.
That’s both a credit and a deduction for employee premium payments.
There is good news for small tax-exempt employers too. The credit is
refundable, so even if you have no taxable income, you may be eligible
to receive the credit as a refund so long as it does not exceed your
income tax withholding and Medicare tax liability.
And finally, if you can benefit from the credit this year but forgot
to claim it on your tax return there’s still time to file an amended
return.
Can you claim the credit?
Now that you know how the credit can make a difference for your business, let’s determine if you can claim it.
To be eligible, you must cover at least 50 percent of the cost of
single (not family) health care coverage for each of your employees. You
must also have fewer than 25 full-time equivalent employees (FTEs).
Those employees must have average wages of less than $50,000 a year.
Let us break it down for you even more.
You are probably wondering: what IS a full-time equivalent
employee. Basically, two half-time workers count as one full-timer. Here
is an example, 20 half-time employees are equivalent to 10 full-time
workers. That makes the number of FTEs 10 not 20.
Now let’s talk about average wages. Say you pay total wages of
$200,000 and have 10 FTEs. To figure average wages you divide $200,000
by 10 – the number of FTEs – and the result is your average wage. The
average wage would be $20,000.
Also, the amount of the credit you receive works on a sliding scale.
The smaller the business or charity, the bigger the credit. So if you
have more than 10 FTEs or if the average wage is more than $25,000, the
amount of the credit you receive will be less.
If you need assistance determining if your small business or tax exempt organization qualifies for the credit, call us at The Business Hub at 510-432-2891 or 510-366-2824 or via email at taxservice@biznesshub.com
How do you claim the credit?
You must use Form 8941, Credit for Small Employer Health Insurance Premiums, to calculate the credit.
If you are a small business, include the amount as part of the general business credit on your income tax return.
If you are a tax-exempt organization, include the amount on line 44f of the Form 990-T,
Exempt Organization Business Income Tax Return. You must file the Form
990-T in order to claim the credit, even if you don't ordinarily do so.
Don’t forget … if you are a small business employer you may be able
to carry the credit back or forward. And if you are a tax-exempt
employer, you may be eligible for a refundable credit.
Wednesday, September 5, 2012
Prepare for Earthquakes, Disasters by Safeguarding Tax Records
Internal Revenue Service encourages individuals and businesses to
safeguard themselves against natural disasters by taking a few simple
steps.
Create a Backup Set of Records Electronically
Taxpayers should keep a set of backup records in a safe place. The backup should be stored away from the original set.
Keeping a backup set of records –– including, for example, bank
statements, tax returns, insurance policies, etc. –– is easier now that
many financial institutions provide statements and documents
electronically, and much financial information is available on the
Internet. Even if the original records are provided only on paper, they
can be scanned into an electronic format. With documents in electronic
form, taxpayers can download them to a backup storage device, like an
external hard drive, or burn them to a CD or DVD.
Document Valuables
Another step a taxpayer can take to prepare for disaster is to
photograph or videotape the contents of his or her home, especially
items of higher value. The IRS has a disaster loss workbook, Publication 584, which can help taxpayers compile a room-by-room list of belongings.
A photographic record can help an individual prove the market value
of items for insurance and casualty loss claims. Photos should be stored
with a friend or family member who lives outside the area.
Update Emergency Plans
Emergency plans should be reviewed annually. Personal and business
situations change over time as do preparedness needs. When employers
hire new employees or when a company or organization changes functions,
plans should be updated accordingly and employees should be informed of
the changes.
Check on Fiduciary Bonds
Employers who use payroll service providers should ask the provider
if it has a fiduciary bond in place. The bond could protect the employer
in the event of default by the payroll service provider.
Friday, August 31, 2012
Job Search Expenses Can be Tax Deductible
Summertime is the season that often leads to major life decisions,
such as buying a home, moving or a job change. If you are looking for a
new job that is in the same line of work, you may be able to deduct some
of your job hunting expenses on your federal income tax return.
Here are seven things the IRS wants you to know about deducting costs related to your job search:
To qualify for a deduction, your expenses must
be spent on a job search in your current occupation. You may not deduct
expenses you incur while looking for a job in a new occupation.
You can deduct employment and outplacement agency fees you pay while
looking for a job in your present occupation. If your employer pays you
back in a later year for employment agency fees, you must include the
amount you received in your gross income, up to the amount of your tax
benefit in the earlier year.
You can deduct amounts you spend for preparing and mailing copies of
your resume to prospective employers as long as you are looking for a
new job in your present occupation.
If you travel to look for a new job in your present occupation, you
may be able to deduct travel expenses to and from the area to which you traveled. You can only deduct the travel expenses if the trip is
primarily to look for a new job. The amount of time you spend on
personal activity unrelated to your job search compared to the amount of
time you spend looking for work is important in determining whether the
trip is primarily personal or is primarily to look for a new job.
You cannot deduct your job search expenses if there was a
substantial break between the end of your last job and the time you
begin looking for a new one.
You cannot deduct job search expenses if you are looking for a job for the first time.
In order to be deductible, the amount that you
spend for job search expenses, combined with other miscellaneous
expenses, must exceed a certain threshold. To determine your deduction,
use Schedule A, Itemized Deductions. Job search expenses are claimed as a
miscellaneous itemized deduction. The amount of your miscellaneous
deduction that exceeds two percent of your adjusted gross income is
deductible.
For more information about job search expenses, contact The Business Hub www.biznesshub.com or by calling 510-432-2891 or 510-366-2824, and see how we can help you save on taxes.
IRS Announces 2012 Standard Mileage Rates, Most Rates Are the Same as in July
The Internal Revenue Service today issued the 2012
optional standard mileage rates used to calculate the deductible costs
of operating an automobile for business, charitable, medical or moving
purposes.
Beginning on Jan. 1, 2012, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
55.5 cents per mile for business miles driven
23 cents per mile driven for medical or moving purposes
14 cents per mile driven in service of charitable organizations
The rate for business miles driven is unchanged from the mid-year
adjustment that became effective on July 1, 2011. The medical and moving
rate has been reduced by 0.5 cents per mile.
The standard mileage rate for business is based on an annual study of
the fixed and variable costs of operating an automobile. The rate for
medical and moving purposes is based on the variable costs as determined
by the same study. Independent contractor Runzheimer International
conducted the study.
Taxpayers always have the option of calculating the actual costs of
using their vehicle rather than using the standard mileage rates.
A taxpayer may not use the business standard mileage rate for a
vehicle after using any depreciation method under the Modified
Accelerated Cost Recovery System (MACRS) or after claiming a Section 179
deduction for that vehicle. In addition, the business standard mileage
rate cannot be used for more than four vehicles used simultaneously.
These and other requirements for a taxpayer to use a standard mileage
rate to calculate the amount of a deductible business, moving, medical
or charitable expense are in Rev. Proc. 2010-51. Notice 2012-01 contains
the standard mileage rates, the amount a taxpayer must use in
calculating reductions to basis for depreciation taken under the
business standard mileage rate, and the maximum standard automobile cost
that a taxpayer may use in computing the allowance under a fixed and
variable rate plan. Related Item:IR-2011-104, In 2012, Many Tax Benefits Increase Due to Inflation Adjustments