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Tax Talk

S Corporations – Paying Reasonable Wages to Shareholders

Friday, February 22, 2013

One of the most common questions we get with S Corporations is: What do I need to pay myself in payroll? Or can I take distributions only?  The answer is you must pay yourself a reasonable wage through payroll according to your industry and then you can take distributions.  If you don’t pay yourself a reasonable wage you could be subjecting yourself to be audited.  If you get audited the IRS can then claim all payments made to you as wages, which then result in you paying back payroll taxes, penalties and interest to the amount of years the IRS decides to audit you for.

Don’t let this happen to you. We find most often that S Corporation shareholders only take distributions.  Our firm can help you estimate what your reasonable wage will be along with tax planning for the future of your company.

When should I get my REFUND for 2013?

Saturday, February 02, 2013

Due to all the changes Congress made in January, this has now set the IRS back.  Not only could we not start e-filing until 01/30/13 for Individuals, but Corporations are not able to be e-filed until 02/04/13.  This has also changed when you should receive your refund.  Those who are claiming the higher education credits may not see their refunds until the end of February. 

Registered Tax Return Preparers (RTRP)

Tuesday, January 22, 2013

On January 18, 2013 a judge ruled that Congress never gave the IRS the authority to license tax preparers. Which means the Registered Tax Return Preparers (RTRP) requirement may come to an end.  From this judge’s ruling thousands of unlicensed tax preparers will be able to continue to prepare taxes without any guidance.   It will really come down to, do you want someone who is knowledgeable of the federal tax laws and is required to have continuing education to prepare your income tax returns or do you want to hire someone that is not?  Many states require you to carry a license to prepare taxes; unfortunately the state of Texas is not a state that requires this. 

Change in E-File Start Date 01/30/2013

Wednesday, January 09, 2013
UPDATE: Change in E-file start date, it has moved from 01/22/13 to 01/30/13 due to all the tax law changes that took place on 01/1/2013. Even with this change April 15 is still the last day to file your return, unless you go on extension.

2013 Passed Tax Legislation

Tuesday, January 08, 2013
Here is a brief synopsis of the recently passed tax legislation:
Tax Changes for 2012 & 2013
1. The Alternative Minimum Tax (AMT) has been permanently indexed for inflation, thereby avoiding the annual legislation
2. Bonus Depreciation on business assets has been extended through 12/31/13. Bonus Depreciation allows a business to deduct up to 50% of the cost of an asset in the 1st year.
3. Long TerCapital Gains and qualified dividends tax rates are kept at 15% for individuals with income up to $400,000 and families up to income of $450,000. The rate rises to 23% of income exceeds those thresholds.
4. Debt forgiveness on residence exclusion is extended for 1 year. Debt forgiven in conjunction with the foreclosure of a principal residence will be considered nontaxable.
5. Certain depreciation provisions are retroactively extended through 2014. These include 15-yr cost recovery of leasehold improvements (including restaurant & retail). Section 179 property and provisions also extended through 2014.
6. Earned Income Credits phaseout limits and credit amounts revert back to lower levels. This means that more taxpayers will qualify for the EIC and a higher benefit will be paid.
7. The first $5.12MM of one’s estate can be transferred to heirs tax-free. The tax rate on amounts exceeding this threshold increase from 35% to 40%. 
8. Income above $400,000 for individuals and $450,000 for families will be taxed at a rate of 39.6%; increasing from 35%
9. Mortgage Insurance premiums will again be deductible as an itemized deduction for 2012 through 2013. Certain income limitations will also apply.
10. The rules that phased out itemized deductions that existed prior to 2011 are reinstated for tax years beginning 1/1/13. During 2011 and 2012 there was no phase out of itemized deductions for higher earners.
11. There is a phase-out of personal exemptions for individual making more than $250,000 and families making more than $300,000. 
12. The state sales tax deduction was reinstated for 2012 and extended to 2013.
13. The 2% “payroll tax holiday” provision was allowed to lapse effective 1/1/13.
14. The $1,000 child tax credit and the $2,500 American Opportunity college tuition credits have been extended for 5 years.
15. The $250 deduction for AGI for Teachers’ classroom expenses was reinstated.
16. The college tuition deduction was revived for 2012 and continues through 2013.

Household Income Threshold

Friday, December 21, 2012

President Obama and Congress are talking about changing the household income threshold from $250,000 to $400,000.

This plan would not increase taxes on the middle class but increase taxes on higher income families making over $400,000 per year.

The Fiscal Cliff

Tuesday, December 18, 2012

As we approach the end of 2012, Congress and the President have begun to address the looming “fiscal cliff”. The expiration of the Bush tax cuts and mandatory spending cuts are on the negotiating table. This makes it difficult for taxpayers to plan for the future. A likely scenario could be that the top two income tax rate tiers will go up to 36% and 39.6% (from 33% and 35% for 2012). This could havoc with traditional year-end tax planning strategies such as deferring income or accelerating expenses that many taxpayers employ. For some, it might make sense to defer expenses into 2013 or accelerate income into 2012 so that they might lower taxable income in 2013 (that could be taxed at a higher rate). Until we know results of the negotiations, it is probably best to follow the news stories as they become available.

With the negotiations likely to run up to December 31st, the IRS has released a statement cautioning taxpayers that there may be a delay in the start of the 2013 filing season. Any changes in tax laws require the IRS to reprogram their return processing systems and make any changes to tax forms.

Health Care Act Provisions

Friday, December 14, 2012

Starting in 2013, the Health Care Act imposes a 62.1% increase in the employee portion of the Medicare payroll tax (the hospital insurance tax part of FICA). It will go from 1.45% to 2.35% on AGI over $200,000 (single); $250,000 (married filing jointly or surviving spouse); and $125,000 for married persons filing separately.

In addition, the Health Care Act imposes a 3....8% tax (often termed as "unearned income Medicare contribution") on investment income for taxpayers with mAGI over $250,000 (married filing jointly) or $200,000 (single). There is also the all-new definition of what is considered an investment income: in addition to interest, dividends, and capital gains this new form of "penalty" applies to royalties, rents, annuity distributions, and gross income from passive activities as so defined under Sec 469 passive loss rules.

And as if the above mentioned was not enough, the floor for IRC 213 medical expense deduction will increase from current 7.5% to 10% of AGI for regular income tax purposes (there is an exception: taxpayers over age 65 by the end of the tax year).

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