Wednesday, November 2, 2011

Social Security Base Limit Changes for 2012

On October 19, 2011, the Social Security Administration announced that the 2012 Social Security contribution and benefit base will be $110,100. This is an increase of $3,300 from the base of $106,800 which has been in effect the last three years. The Social Security Old-Age, Survivors, and Disability Insurance (OASDI) program sets an annual maximum limit (called the contribution and benefit base) on the amount of earnings subject to the Social Security OASDI tax. Employers must deduct Social Security taxes from their employees’ pay and contribute to Social Security taxes themselves on total OASDI-covered wages paid to each employee, up to the annual OASDI contribution limit. The OASDI limit typically changes each year with changes in the national average wage index.

The limit for Medicare remains the same at unlimited wages or earnings.

If you have any questions, please feel free to contact the office.

Monday, September 26, 2011

Sale of a Home and Effect on your Taxes

SALE OF HOME - If you have a gain from the sale of your main home, you may qualify to exclude all or part of that gain from your income. Here are ten tips from the IRS to keep in mind when selling your home.

1) In general, you are eligible to exclude the gain from income if you have owned and used your home as your main home for two years out of the five years prior to the date of its sale.

2) If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).

3) You are not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home.

4) If you can exclude all of the gain, you do not need to report the sale on your tax return. If the Title Company reported the sale on Form 1099-S, then you should report the sale on your tax return to avoid later correspondence from the IRS.

5) If you have a gain that cannot be excluded, it is taxable. You must report it on Form 1040, Schedule D, Capital Gains and Losses.

6) You cannot deduct a loss from the sale of your main home.

7) Worksheets are included in Publication 523, Selling Your Home, to help you figure the adjusted basis of the home you sold, the gain (or loss) on the sale, and the gain that you can exclude.

8) If you have more than one home, you can exclude a gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time. If you have a home with non-qualified use (use not as a primary residence after 2009), there are additional calculations that must be made to determine how much gain may be taxable on that sale.

9) If you received the first-time homebuyer credit and within 36 months of the date of purchase, the property is no longer used as your principal residence, you are required to repay the credit. Repayment of the full credit is due with the income tax return for the year the home ceased to be your principal residence, using Form 5405, First-Time Homebuyer Credit and Repayment of the Credit. The full amount of the credit is reflected as additional tax on that year’s tax return.

10) When you move, be sure to update your address with the IRS and the U.S. Postal Service to ensure you receive refunds or correspondence from the IRS. Use Form 8822, Change of Address, to notify the IRS of your address change.

Arizona State Charitable Tax Credits

It's not too early or to late to plan for 2011 taxes, below are some steps you can take to reduce your Arizona tax liability. Arizona offers several tax credits:

1) Credit for contributions to Private School Tuition Organization. You may receive up to $500 ($1,000 MFJ) in state tax credit by contributing to one of the many private schools or tuition organizations in the state. To see more information and find a list of qualifying organizations, click here: School Tuition Organizations for Individual Donations

2) Credit for Donations to the Military Family Relief Fund. Make a cash contribution of $200, ($400 if MFJ) and support our AZ Military Families in need. Visit the Arizona Department of Veteran Services website for more information.

3) Credit for Contributions Made or Fees Paid to a Public School. Make a cash contribution of $200, ($400 if MFJ) to an AZ Public School (K - 12th grade). Help support your local school or find a school that can use the financial assistance. You can search for schools by name on the AZ Department of Education website.

4) Credit for Contributions to Organizations That Provide Assistance to the Working Poor. Make a cash contribution of $200, ($400 if MFJ) to a qualified charitable organization. For more information and to find a list of current qualified organizations, click here. You must itemize on your Arizona individual tax return to claim this credit.

By choosing the above listed credit options, you can designate where your money is directed.

A few notes about these credits:
- may also qualify as charitable donations on the Federal tax return.
- the credits are non-refundable, meaning it will reduce your tax liability by the amount of the credit and any excess credit will not be refunded to the taxpayer.

If you have questions, you can contact the office and we can provide answers to your questions. The phone number is 602.494.7641.

Tuesday, August 2, 2011

Arizona "Use" Tax Crack Down

What is "Use" tax and why should I care? Use tax is the equivalent of sales tax in Arizona for items purchased from online or out of state vendors in which no sales tax or a lesser amount than the Arizona rate was charged to the consumer. With the increase in online purchases, the state has had a loss of sales tax revenue.

The application of Use tax has been on the books for many years but has not been formally imposed on the general public. Many retail businesses have had a Use tax reporting requirement that is reported with their normal sales tax (TPT - transaction privilege tax) reporting.

For the 2011 tax year, the Arizona legislature has now formally cracked down on this issue for individuals by requiring reporting as part of the Arizona income tax return. Individuals will need to report the amount of purchases that had no sales tax charged and then will need to remit the amount with their tax return.

As of my writing, I am not aware of the specifics of how the Arizona Department of Revenue will implement this requirement but as more information becomes available, I will share with clients and interested parties.

Wednesday, January 12, 2011

IRA Charitable Distributions Renewed for 2010 and 2011

These release from the IRS allows for some planning opportunities for those taxpayers that have Required Minimum Distributions and that are Charitably Inclined:

Quoted from IRS Employee Plan News dated 1/12/2011 - "The qualified charitable distribution provisions were renewed for 2010 and 2011, allowing individuals age 70½ or over to exclude from gross income up to $100,000 that is paid directly from their individual retirement accounts (excluding SEP or SIMPLE IRAs) to a qualified charity. The excluded amount can be used to satisfy any required minimum distributions that the individual must otherwise receive from their IRAs for 2010 and 2011. The deadline for making a 2010 QCD is January 31, 2011. The election to treat a January 2011 QCD as having been made in 2010 is made by including the QCD on the individual’s 2010 income tax return.

To qualify as a QCD, the IRA trustee must make the distribution directly to the qualified charity. Any distributions, including any RMDs, which the IRA owner actually receives cannot qualify as QCDs. Likewise, any tax withholdings on behalf of the owner from an IRA distribution cannot qualify as QCDs.

IRA owners who have received their 2010 RMDs may not recontribute those distributions to an IRA to have them redistributed directly to a qualified charity as a QCD. However, if an IRA owner received a distribution in excess of his or her 2010 RMD, the owner can roll the excess to another or the same IRA within 60 days of receiving the distribution and then have the funds paid directly to the qualified charity as a QCD."

Monday, January 10, 2011

Mandatory Electronic Filing for Individual Tax Returns

Due to Federal law changes, Gaylor Tax Services LLC is required to electronically file all individual income tax returns with the IRS starting in 2011. This includes individual, Trust and Fiduciary income tax returns and will at this time prohibit the office from even offering to mail the tax return on behalf of you, our client.

The IRS has not provided specific provisions for how a taxpayer may opt out at this time, but there will be that opportunity once clarification is obtained.

Electronically filed returns are safe and provide efficient processing by the IRS as they do not have to manually enter the tax return and thereby avoid entry errors by IRS entry clerks.

If you have any questions please feel free to contact the office.

Monday, January 3, 2011

A Tax Holiday to Start 2011?

New law payroll tax holiday - with the recent tax changes that were signed in late December there was a pleasant "tax holiday" for earned income. For remuneration received during 2011, the 2010 Tax Relief Act reduces the employee Social Security tax rate by two percentage points to 4.2%. (Similarly, for self-employment income for tax years beginning in 2011, the combined Social Security tax rate under the SECA tax is reduced by two percentage points to 10.4%.) As a result, for 2011, employees will pay only 4.2% Social Security tax on wages up to $106,800 (and self-employeds will pay only 10.4% Social Security self-employment taxes on self-employment income up to $106,800). This translates to an increase to take home pay for the individual taxpayer of up to $2,136 for the 2011 tax year. So at a glance, this seems to be a nice benefit (I don't want to comment on politics of reducing the funding to the Social Security program by making this change but want to highlight that appears to be the ramification to this "tax holiday".)