Archive for June, 2011

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Jun

Proposed Michigan Tax Would Raise Insurance Premiums for Consumers

Categories: Business, Individuals, Tax Tips & Alerts, Tax Tips & Alerts

Tags: healthcare, insurance, Michigan Tax Law, michigan taxes, taxes

Michigan lawmakers have proposed a state tax on healthcare claims that would help fund medical care for low-income residents, according to a Detroit News report.

The tax is expected to cost some insurers and employers millions of dollars a year and lead to higher insurance premiums to consumers. Manufacturers and hospitals have come into conflict over the proposed tax, as manufacturers say the tax would halt new hiring and reduce employee benefits and hospitals say they could lose workers if the tax is defeated and Medicaid funding is cut.

Michigan’s 2012 budget, signed by Gov. Rick Snyder on Tuesday, depends on the passage of a 1 percent claims tax to fund Medicaid, which provides healthcare coverage to approximately 1.9 million Michigan residents. The tax would replace a 6 percent use tax that health maintenance organizations currently pay. The current tax does not affect consumers.

The current 6 percent use tax has been endangered by the federal government’s pending decision to disallow its use for federal matching funds. The proposed tax would shift responsibility for paying $400 million towards Medicaid from 14 Medicaid health plans to every health insurer and self-funded employer plan, according to the report.

Read the Detroit News report on Michigan Medicaid. By: Rachel Fields

Jun

Mileage Rate to $0.555

Categories: Business, Individuals, Planning & Strategies, Tax Tips & Alerts, Tax Tips & Alerts

Tags: inrease IRS Mileage Rate, mileage rate

Comments: No

To reflect the recent increase in gas prices, the IRS raised the standard mileage rates for the last six months of the year. The rate will increase to 55.5 cents per mile for business miles driven from 7/1/11 through 12/31/11, a 4.5 cent per mile increase from the rate in effect for the first six months of 2011 [see Rev. Proc. 2010-51 (2010-51 IRB 883) ].

The rate for computing deductible medical or moving expenses will also increase by 4.5 cents per mile to 23.5 cents per mile, up from 19 cents per mile for the first six months of 2011. The rate for providing services for a charity is set by statute, and remains at 14 cents per mile.

Jun

Tax Tips for Summer Workers

Categories: Individuals, Tax Tips & Alerts

Tags: children employment, income taxes, IRA, kiddie tax

Comments: 1

The outlook for summer jobs for young people remains cloudy. Although the unemployment rate of 17.3% for workers ages 16 to 24 was down slightly in May compared with the 18% rate of a year ago, it was still far higher than the prerecession level of 9.9% in May 2007, according to the Department of Labor.

The good news, for those who can find—or invent—jobs for themselves this summer, is that Uncle Sam’s tax rules may offer opportunities for savings.

The most favored young workers are children under 18 who are hired by parents to work for sole proprietorships or husband-and-wife partnerships. Both the children and the parents can skip Social Security or Medicare tax on the child’s pay, which this year comes to 13.3%. There is no limit on this exemption, and the workers also aren’t liable for federal unemployment tax.

What’s more, the business owner can take a deduction for the child’s pay, and the teen usually won’t owe taxes on income up to the standard deduction, which is $5,800 for individuals this year. Total tax-free income swells to $10,800 if the child puts the next $5,000 of pay into a tax-deductible individual retirement account, says Don Williamson, a tax expert with American University’s Kogod Tax Center in Washington. Mr. Williamson has helped several families take advantage of this boon.

There are ground rules, of course. Compensation has to be fair enough to escape an Internal Revenue Service agent’s scrutiny, so be prepared to provide examples of comparable pay. But if Junior has whiz-bang skills in Web design or programming, he or she can be paid at the going rate or a bit more.

Summer workers who are older or who can’t work for a family business may reap other tax benefits. But there are traps for the unwary. Here are tips from tax experts:

• Know your status. Young workers often don’t know whether they are employees or independent contractors, says Robert Gard, an Atlanta-area CPA with Gard & LaFreniere LLC. There’s a big difference: Unlike employees, contractors don’t have income or payroll taxes withheld, so they (or their parents) may have an unpleasant surprise when a 1099 form arrives and taxes are due the following spring. While income taxes don’t usually kick in until $5,800, the payroll-tax threshold is $400.

Mr. Gard and others also suggest independent contractors track deductible expenses such as mileage or uniforms while working, because they can be hard to reconstruct later.

• Pay attention to the W-4 form. If the worker is an employee whose total earnings for the year won’t incur income taxes, he or she should file a W-4 form claiming exemption for withholding. That avoids having to file a return to reclaim tax payments the following year. Appropriate payroll taxes will still be withheld.

• Take advantage of IRA options. Workers may contribute earned income up to $5,000 to traditional or Roth IRAs, which offer tax-free growth. Contributions to a traditional IRA are tax-deductible but withdrawals are taxable, whereas Roth contributions aren’t deductible but withdrawals are often tax-free. Given that young workers usually have low tax rates, a Roth IRA is often the better long-term deal.

Experts say funding an IRA can be a terrific gift by a loved one to a young worker. “It provides tax shelter and teaches something about savings as well,” says Joe Kristan of Roth & Co. in Des Moines, Iowa. Deborah Fox, of Fox College Funding in San Diego, says that for financial-aid purposes, a gift used by a young worker to fund an IRA is considered student income in the year it is given. After that, IRA assets are off-limits.

• Keep “kiddie tax” effects in mind. “Unearned” income such as interest, dividends or capital gains greater than $1,900 received by children is often taxed at the parents’ rate, and this can continue up to age 24 if the child is a full-time student. But this provision doesn’t apply if the child is between 18 and 24 and has earnings that are more than half of his or her support.

In addition, a child liable for this tax who also earns income must file a separate tax return. If the child has no earnings from work, the parents often have the option of claiming the income on their own returns.

Experts say it often is better to file a separate return for the child anyway, because that avoids raising the parents’ adjusted gross income, which can clip other benefits.

• Know the rules on paying children for work at home. What if Junior can’t find a summer job but you want to pay him or her to paint the house or do other work? According to IRS spokesman Eric Smith, there is a break here for children under 21: No federal payroll taxes or unemployment taxes are due on the payments.

Here the parent can’t take a deduction for the pay, as would be possible if the child were working in the parent’s trade or business, but the child could skip income tax at least up to the standard deduction and would be eligible for an IRA. For more information, especially about required recordkeeping, consult a tax professional or see IRS Publication 15.

Source: WSJ Laura Saunders http://online.wsj.com/article/SB10001424052702304563104576363440324562466.html?mod=WSJ_Taxes_MoreHeadlines#printMode

Jun

Tips for Solving the Cost-Basis Mystery

Categories: Individuals, Planning & Strategies

Tags: cost basis, gifted stock, investment value

Comments: No

That old gift of stock from a parent or Uncle Jerry can create a tax headache when the time comes to sell it.

Capital-gains tax due when someone sells a gift of stock is generally based on what the original owner paid for the shares, as well as events such as mergers, spinoffs and stock splits that occurred at the company in the years since (the calculation is a little different if the stock is sold at a loss). That original basis, though, is often lost in the mists of time.

Every tax adviser has a war story about how hard it can be to track down basis from a gift, especially if the shares were purchased a long time ago or issued by a company with a tangled corporate lineage. It is up to the owner of the stock to keep track now, but brokers will have to start reporting basis on Internal Revenue Service Form 1099-B next year.

Inherited shares don’t cause such angst; in these cases, basis is based on the value of the stock at the time the person who bequeathed it died. A taxpayer or adviser can find that on an estate tax return or research what the stock was worth on that date. Starting next year, brokers generally will be required to determine the value of the stock on the date of death if the estate doesn’t not provide it, and report the value on Form 1099-B.

Good Detective Work

To solve a cost-basis mystery for a gift of stock, start by going back to the family archives and looking for the original investment statements. Anyone who comes from a long line of pack rats may have an advantage.

Without access to the original paperwork, however, “you can really be hard-pressed” to find the information you need, says James H. Guarino, a partner at Boston-area accounting and consulting firm MFA – Moody, Famiglietti & Andronico LLP.

Adam R. Gorlovsky-Schepp, a certified public accountant at Boston-based Raphael and Raphael LLP, suggests heading to the local library for clues. Grab a Wall Street Journal from the year shown on the stock certificate and find the old stock symbol for the company, he says.

The original price of the shares is just one piece of the puzzle. Mergers or spinoffs that caused stock splits have to be taken into account, too. Aunt Sadie may have paid $10 for a share of Acme Inc. way back when, but its basis will be one-fifth of that after a five-for-one stock split leaves her with five shares for her initial one, explains Stevie Conlon, senior director and tax counsel at Wolters Kluwer Financial Services. AT&T stock presents the king of all cost-basis riddles with the complicated history of the telephone company and its “Baby Bells,” the seven regional companies broken off from the old AT&T in 1984.

To find a corporate genealogical tree that lists events that affect cost basis, look on the Internet. Some companies even have cost-basis calculators on their websites as part of their shareholder services.

Many CPA firms also use software programs to help them calculate adjusted basis. In preparing tax returns for clients, firms typically will research changes to basis “and not charge, so you may not even know,” says Melissa Labant, of the American Institute of CPAs.

These programs can be excellent, providing the entire history of a security and breaking out how basis was adjusted each time a merger or other event occurred, she says.

No matter how you get there, create a paper trail in case the IRS questions a tax return.

This Could Keep

A copy of the check used to buy the shares, or an original bank statement showing the amount paid for the shares, could help in those cases. A stock certificate is good to have but doesn’t show what the owner paid for the shares.

The IRS hasn’t challenged many of his clients on cost basis, says Mr. Guarino. That may change once brokers have to start reporting it. Then, the IRS can easily match basis reported on a Form 1099-B with that shown on a tax return.

The lesson for anyone thinking about making a gift of stock: Give cost-basis information along with it.

Without it, recipients could end up with a lot of detective work to do and a big tax bill if the trail runs cold, especially if they err on the side of caution and pay what they estimate the biggest likely tax bill would be.

Source: WSJ – Arden Dale http://online.wsj.com/article/SB10001424052748703730804576317274277347548.html?mod=WSJ_Taxes_MoreHeadlines

Jun

Create a Digital Archive of Tax Documents

Categories: Individuals, Tax Tips & Alerts

Tags: confidentiality, digital archive, identity theft

Comments: No

If you resolved to tackle your tax return early this year (rather than the night of April 14), you might be going through your documents now. And you might be looking at the stack of documents from past years and wondering when you can toss them.

It’s a good idea to hang on to your tax returns forever, but you usually can toss supporting documents three years after you file a return. For more, see What to Toss, What to Keep by Laura Cohn in the February issue of Kiplinger’s Personal Finance. Laura also writes that you can create a digital archive of crucial records. Here are her tips:

One way to clear the decks: Go completely paperless by going digital. Electronic records are as legally valid as the original paper ones, so you can create PDFs or scan and save crucial documents.
Start with your tax return. Tax software includes a function that converts your return to a PDF. If you use an account-ant, he or she may be willing to convert it, encrypt it and provide you with a password to unlock the file. Some accounting firms let their clients access their returns online.

If you can’t create PDFs, you can scan records — such as mortgage documents, property-tax statements and thank-you letters from charities — and save them. And to stem the onslaught of paper, sign up for online banking and bill paying, including electronic delivery of your bills.

Your bank statements will reside on the bank’s Web site, although you may have to sign up to access them. The same goes for many credit-card issuers’ statements. If your bank or credit-card company keeps statements online for less than three years and you need them for tax purposes, you may need to print them, scan them and back them up.
Photo images of your records are memory hogs, so store them on an external hard drive (about $100). Be sure to keep key records in at least two places — on a hard drive as well as backed up on a CD or even at a Web site. Otherwise, if your computer crashes, your dream of having less paper could turn into a nightmare.

Source: Cameron Huddleston http://www.kiplinger.com/printstory.php?pid=19190

Jun

Two Key Tax Tips

Categories: Individuals, Tax Tips & Alerts

Tags: tax filing, Tax Tips, withholding

Comments: No

Two mistakes that many people make when it comes to tax returns are not filing on time if they cannot afford to pay and withholding too much. Here’s some tips on how to avoide each of these mistakes.

Jun

America’s Silliest Taxes

Categories: In The News

Tags: taxes

Comments: No

Let’s take a break from the usual news, to reflect on some of America’s strangest taxes.

Arkansas: Body Piercing Tax

The state spells out which services are subject to the 6% state sales tax. Among them: body piercing, gutter cleaning and pet grooming.

California: Deals for Ottoman Empire Victims

If you were persecuted between 1915 and 1923, you get a tax exemption. If your troubles came in 1924 or later, however, there’s no break.

Hawaii: Deductions Grow On Trees

Grab a $3,000 deduction if your tree was approved by an arborist advisory committee and you get the right notarial stamp.

Maryland: Oyster Break

Maybe the clam and mussel people didn’t make sufficient campaign donations? The aquaculture float credit is available for people harvesting oysters, but not other shellfish.

Minnesota: Toke Tax

Before lighting a joint, you’re supposed to pick up a tax stamp: $3.50 per gram. Lots of other states have marijuana taxes, but not a whole lot of money is collected.

New Jersey: Helping Families

You get a break if you spend more than $35.64 on family leave insurance. A $37 outlay on this worthy cause, for example, would land you $1.36.

New Mexico: If you Are Old and Dependent…

…you don’t do well here. The tax exemption for those 100 and older is explicitly denied to people who can be claimed as dependents.

New York: Haunted House Tax

Musical comedies, operas and chamber music are exempt from the sales tax. But not a Halloween show with music, if the admission charge exceeds 10 cents.

Oregon: Single Amputees Need Not Apply

Some legislator wanted to help the disabled. What a guy! The resulting statute gives a $50 credit to double amputees.

Seattle: Death Tax

If you die in Seattle, you owe the city $50. And if you don’t pay, something bad could happen to you.

South Carolina: Aid for Deceased Deer

You get $50 off your taxes if your deer carcass helps the needy.

U.S.: A Special Deal for Employees

The IRS gives you a break on employee expenses, and here’s the simple version of the form, 2106-EZ. The catch: You have to figure out the instructions, which include this Orwellian line: “An expense does not have to be required to be considered necessary.”

U.S.: Take That, Sewer Pipe Lobbyists!

People mining sagger clay (used in pottery) get the same generous 14% federal depletion allowance accorded to people extracting clam shells, oyster shells and spodumene (never mind what that is). But if your clay shows up in sewer pipes, then you get only 7-1/2%.

Utah: Prudes versus Nudes

This state levies a 10% excise on establishments using exotic dancers.

Source: Forbes.com http://blogs.forbes.com/baldwin/2011/02/08/americas-silliest-taxes/?partner=yahoo

Jun

How Changes in Michigan Tax Law Affect Michigan Retirees

Categories: Individuals, Tax Tips & Alerts, Tax Updates

Tags: IRA, Michigan Tax Law, pension, retiree, retirement

Comments: No

A new law governing how retirement income will be taxed starting in 2012 sets up a three-tier system, depending on a retiree’s age. All three tiers avoid taxing Social Security income and military pensions. For couples, the age of the older spouse applies. Here’s how the system works:

• Residents born before 1946 will continue to get the same tax breaks they have now. Public pensions will not be taxed. Income from private pensions, 401(k)s and IRAs will not be taxed on amounts up to $45,120 for single filers and $90,240 for joint filers. This will affect about 480,000 tax returns.

• Residents born between Jan. 1, 1946, and Dec. 31, 1952, will have all retirement income liable to tax, whether it’s from a public or private pension, 401(k) or IRA. Exemptions can be claimed for up to $20,000 for a single filer and up to $45,000 for joint filers. Above those levels, retirement income will be taxed at the state income tax rate of 4.35 percent. When these residents turn 67, the $20,000/$40,000 exemption applies to all income, not just retirement income. If household resources exceed $75,000 for a single return or $150,000 for a joint return, the $20,000/$40,000 exemption is eliminated. The exemption also is eliminated if a taxpayer claims a deduction for a military or railroad pension. This will affect about 230,000 returns.

• Residents born after 1952 will see all retirement income taxed as regular income until they turn 67, at which point they’ll qualify for a senior income exemption of $20,000 for single filers and $40,000 for joint filers on all income. If household resources exceed $75,000 for a single return or $150,000 for a joint return, the $20,000/$40,000 exemption is eliminated. A taxpayer can forgo the $20,000/$40,000 exemption and instead deduct 100 percent of Social Security income. A taxpayer claiming the $20,000/$40,000 exemption can’t claim the deduction for Social Security or the standard personal exemption. This will affect about 150,000 returns.

Sources: Senate Fiscal Agency, Treasury Department

For the full article, see Kathy Barks Hoffmann, “Michigan pension tax change takes toll on retirees; Critics say it’s a shift to help big business”, Lansing State Journal, June 6, 2011.

Jun

Michigan Tax Amnesty- Expires June 30th!!

Categories: Business, Individuals, Michigan Business Tax, Planning & Strategies, Tax Tips & Alerts, Tax Updates

Tags: michigan tax, tax amnesty, tax penalties

Comments: No

The Michigan Tax Amnesty program provides a 45-day window for taxpayers to settle tax liabilities with the State, for return periods ending on or before December 31, 2009 and avoid penalty payments. Qualifying taxpayers also avoid civil and criminal penalties and prosecution by the Michigan Depatment of Treasury.

Tax Amnesty is available for individual or business taxpayers who have tax liabilities for eligible taxes for return periods ending on or before December 31, 2009. This includes:

Underreported tax liabilities
Non-reported tax liabilities
Overstated deductions, credits, or exemptions
Failure to file Michigan tax returns
Delinquent payment of past due taxes
Taxpayers who have received a final tax due notice

Individuals and business taxpayers are not eligible for Tax Amnesty if they are:

The subject of a current tax-related Court of Claims case or criminal investigation
Eligible to enter into a Voluntary Disclosure agreement with the State

Qualifying taxes and interest, which are paid under the Tax Amnesty program, will have penalty waived, and the Department will not pursue criminal prosecution relating to taxes paid under Tax Amnesty.

A taxpayer who is eligible for Tax Amnesty and who does NOT apply for Tax Amnesty during the Tax Amnesty period is liable for any tax, accumulated interest, and penalty due. Civil penalties will not be waived and criminal prosecution may be sought.

Jun

New Michigan Tax Law Changes

Categories: In The News, Michigan Business Tax, Tax Tips & Alerts, Tax Tips & Alerts, Tax Updates

Tags: Corporate Tax, MBT, Michigan, pension, Snyder, tax law

Comments: 4

photo credit: mbowlersr

On May 25, 2011, Governor Rick Snyder signed and eight-bill package in an effort to make Michigan more competitive economically as well as to bring fairness and simplicity to Michigan’s current tax structure. These new laws become effective January 1, 2012.

Snyder is quoted as saying, “The current tax system is riddled with inequities that are hostile to job growth. Eliminating these longstanding barriers will level the playing field for taxpayers, encourage entrepreneurship and spur more investment in Michigan. Working in conjunction with other reforms such as a balanced state budget and refocused economic development strategies, the overhaul of our tax structure lets job providers nationwide know that Michigan is the place to be.”

Some of the changes for individual taxpayers are:

The current income tax rate of 4.35% will remain in effect until January 1, 2013. At that time, it will be lowered to 4.25%. In the Great Lakes states, only Indiana’s flat rate of 3.4% is lower.
A three-tiered system will determine whether retirement income is taxed.
- Taxpayers born before 1946 will continue to receive the current retirement income exemptions as well as the personal exemption, Social Security exemption and the exemption for dividends, interest and capital gains.
- Taxpayers born between 1946 and 1952 will have a $20,000 single and $40,000 joint retirement income exemption in addition to the Social Security exemption and personal exemption until age 67. After attaining age 67, the taxpayer will receive a $20,000 single and $40,000 joint exemption against all income in addition to Social Security and personal exemptions.
- For individuals born after 1952 there will be no deduction allowed for retirement income. Once they reach age 67, the individual can elect to deduct $20,000 single and $40,000 joint against income. This exemption can be taken instead of the Social Security and personal exemptions if it is more beneficial to the filer.
The current personal exemption is fixed at $3,700 through 2012, after that it will be adjusted annually for inflation. This personal exemption will be phased out for single taxpayers with household income between $75,000 and $100,000 and married couples filing jointly with household income between $150,000 and $200,000.
Military pensions will continue to be exempt.
The Michigan Earned Income Tax Credit would be reduced from 20% of the federal credit to 6%.
Political contributions are no longer deductible.
An individual born after 1945 can no longer deduct a portion of interest, dividends and capital gains received.
Non-refundable credits like the public contribution credit, the homeless/food bank credit, the city income tax credit, the vehicle donation credit, the college tuition credit and the community foundation credit (which is a very popular contribution in Midland as well as Mount Pleasant) have been eliminated.

Some of the changes for business taxpayers are:

The Michigan Business Tax will be replaced with a 6% Corporate Income Tax. This will only apply to companies that file as “C” corporations effective January 1, 2012. This means that nearly 100,000 small businesses will no longer have to file returns. Companies with apportioned gross receipts of less than $350,000 will not be required to file a return.
The apportionment factor provided by the Multistate Tax Compact is eliminated. Income will be apportioned to Michigan based on the ratio of Michigan sales to total sales.
If a company wishes to take advantage of previously issued certified credits, they may choose to continue to file under the MBT Act as opposed to the new corporate tax act to utilize the credits enumerated. Some of these certified credits are: Brownfield Redevelopment, Historic Preservation, Battery, Film and Michigan Economic Growth and Authority.

If you would like further information regarding the changes, please contact us at 800-448-0257 or 877-299-8334.