Archive for March, 2012

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Mar

Worker Classification Issues…The Battle is Still Being Waged

Categories: Business

Tags: independent contractor, VCSP, voluntary classification program, worker classification

Written by: Michael P. Riley, CPA
Worker classification cases have been a bone of contention for the IRS for many decades and still are. Businesses that hire workers as independent contractors save money on federal and state employment taxes. Determining whether a worker should be treated as an employee or as an independent contractor depends upon a “facts-and-circumstances” test revolving around a common-law test to whether the service recipient has the right to DIRECT AND CONTROL how the worker performs the services provided.

In September of 2011, the IRS issued Announcement 2011-64 establishing a new voluntary classification program (VCSP). This program will provide partial relief from federal employment taxes for eligible taxpayers that agree to prospectively treat workers as employees.

Under the VCSP, taxpayers may voluntarily reclassify workers as employees for federal income tax purposes. To become eligible for the VCSP the taxpayer must:

Have filed all required Form 1099’s for the workers for the past three years.
Not currently be under audit by the IRS, the DOL or a state agency concerning worker classification issues.

If the taxpayer or entity is interested in applying for the VCSP, the taxpayer should complete Form 8952 at least sixty (60) days before it wants to start treating the workers as employees. Taxpayers accepted into the VCSP will pay an amount that equates to 10% of the employment tax liability due on compensation paid to the reclassified workers for the past year.

In addition, in September of 2011, the Department of Labor and Hour Division will now share information or data with the IRS related to DOL investigations involving employment tax compliance. In return, the IRS will evaluate these referrals provided by the DOL and share that information with State and Local Taxing agencies.

For more information regarding worker classification issues please contact one of our professionals at Robert F Murray and Company.

Mar

Use Your Tax Refund Wisely

Categories: Individuals

Tags: reduce debt, smart money management, tax refund

Comments: No

If you are one of the millions that receive a sizable tax refund every year, why not use the extra money to help out your personal balance sheet. Here are some ideas for your refund that will be more beneficial than just spending it on whatever…

Use the cash to pay down your debt. Reduce any high-interest credit card debt you may have, or pay down the principal on your mortgage.
Contribute to an IRA or a 529 plan for your children.
Want to have a vacation, set aside some of your refund for just that. Setting up a separate account helps for just that. You could even do this for your holiday shopping!
Have some smaller home improvements you want to make, use some of this money to do just that.
Have a stock you want to invest a little in, open up a brokerage account and do just that!
Do a check on your emergency fund to make sure there is enough in there in case you get laid off or hurt.
Maybe it’s time for some additional life insurance?

These and may more tips are available at kiplinger.com

Mar

The New Michigan Corporate Income Tax

Categories: Business, Michigan Business Tax

Tags: CIT, Corporate Tax, MBT, Michigan Corporate Income Tax, michigan tax

Comments: No

Written By: Tina Powell, CPA

Most of you may have heard that there is a new tax in town. Effective January 1, 2012, the Michigan Corporate Income Tax (CIT) replaces the unpopular Michigan Business Tax (MBT.) It is estimated that it will relieve 95,000 Michigan businesses from the burden of filing a business return and paying business taxes.

The CIT applies only to C corporations and entities taxed as C corporations for federal income tax purpose (for example, a limited liability company that checks-the-box to be taxed as a corporation.) A C corporation will be exempt from the CIT if its Michigan annual gross receipts are less than $350,000 or its CIT liability is less than $100. C corporations with an ownership or beneficial interest in a flow-through entity with Michigan nexus will also be subject to the CIT.

For those of you who do business in multiple states, gross receipts will be apportioned based on the ratio of Michigan sales to total sales.

The CIT is equal to 6% of the federal taxable income subject to specified additions and subtractions.

Since the CIT will apply only to C corporations, businesses that are taxed as C corporations may want to consider converting to an S corporation or another type of “pass-through” entity. This conversion could help reduce the business’s effective income tax rate, and it might also help to reduce the owner’s payroll or self-employment taxes. However, several tax and business issues should be considered before pursuing such a conversion.

A downside to the CIT is that all of the tax credits and deductions that were available under the MBT are no longer available. One exception is the small business alternative tax credit. The credit will allow qualified small businesses to pay tax at a rate of 1.8% of adjusted business income instead of 6%. This credit will be available to C corporations with gross receipts of less than $20 million and adjusted business income of $1.3 million or less, and officers’ and owners’ compensation that does not exceed $180,000 per individual. The credit will be subject to phase-out for gross receipts between $19 million and $20 million and officers’ and owners’ compensation between $160,000 and $180,000 per individual.

Another downside is that there are no provisions for the use of net operating losses incurred during years that the MBT was in effect (2008-2011.)

The MBT is gone, or is it? Actually, some businesses may have select credits available under the MBT and if they elect, they may continue to file under the MBT, rather than the CIT. But beware, if you were filing as a unitary group, and if one member of the group elects to continue to file under the MBT, ALL members must continue to file under the MBT. Additionally, the CIT retains unitary filing requirements for C corporations under common control. Unitary groups are required to file a combined return.

Fiscal-year taxpayers will have a short year for both 2011 and 2012. A fiscal-year taxpayer will likely be allowed to file its first return on April 30, 2013, the same as a calendar-year taxpayer.

Mar

Ask the Financial Planner

Categories: In The News

Tags: ask the financial planner, financial planning, public television, wcmu

Comments: No

Our very own Mike Harter will be hosting the Ask the Financial Planner show on the CMU Public Broadcasting channel on March 29th at 7:30 p.m.

If you would like to participate by asking questions, you can do so the following ways:

1. Call in and speak to our phone volunteers from 7:30pm-8pm during our live program toll-free at 1-800-727-9268

2. Email the producer, Courtney Brooks, before the show at brook2c@cmich.edu

3. Tweet the production crew at @WCMU_AskThe

Visit http://www.wcmu.org/tv/askthe.html for more information!

Mar

IRA Donations to Charity

Categories: Individuals

Tags: charity donation, IRA donation, minimum distribution, RMD, tax break

Comments: No

If you are planning on giving all or part of your required minimum distribution from your IRA to a charity this year, you may want to hold off until toward the end of the year as Congress has not reauthorized the law that allows this tax break. The law that allows people over 70 1/2 to make a tax free transfer of up to $100,000 directly from their IRA to a charity has not been passed for 2012, but Congress typically does not reauthorize tax breaks until toward the end of the year.

If this is something you are interested in, please be aware that the money must be transferred directly from the IRA to the charity. If you take the cash out now, you will have to add those monies to your gross income. Keeping it out of your adjusted gross income will help many people stay below the income limit for other tax breaks and avoid the Medicare high-income surcharge.

For more information about RMD’s see Rules for Required IRA Distributions.

Kiplinger.com

Mar

When It Sounds Too Good To Be True…

Categories: Individuals, Tax Tips & Alerts

Tags: elderly taxes, income taxes, tax laws, tax scams, taxes

Comments: No

Written by: Paul B. Murray, CPA, ABV, CFF

Unscrupulous tax preparers are luring unsuspecting senior citizens into filing claims for fraudulent tax refunds the IRS announced. The scam involves convincing both tax filers and those with little or no income who are not required to file that they are entitled to federal refunds. Their claims are based on false and misleading information often citing nonexistent rules and regulations or “buzz words” that may sound convincing to someone with limited knowledge of the tax code. It’s understandable with the numerous tax rebates, refundable credits, stimulus programs and the ever changing tax laws that an individual may be confused and susceptible to such scams. The IRS provided a list of situations that should be considered an immediate red flag warning to individuals, including the following:

Fictitious claims for refunds or rebates based on false statements of entitlement to tax credits.
Unfamiliar for-profit tax services selling refund and credit schemes to the membership of local churches.
Internet solicitations that direct individuals to toll-free numbers and then solicit social security numbers.
Homemade flyers and brochures implying credits or refunds are available without proof of eligibility.
Offers of free money with no documentation required.
Promises of refunds for “Low Income – No Documents Tax Returns.”
Claims for the expired Economic Recovery Credit Program or for economic stimulus payments.
Unsolicited offers to prepare a return and split the refund.
Unfamiliar return preparation firms soliciting business from cities outside of the normal business or commuting area.

The IRS cautions taxpayers to choose wisely when selecting a tax preparer. Ask friends and family for a referral, check web sites, community activity and how long the firm has been in business.

We realize that most of our readers wouldn’t fall prey to such scams but if you have elderly friends, family or neighbors remind them:

When It Sounds Too Good To Be True……………..

Mar

Higher Education Tax Benefits

Categories: Individuals, Planning & Strategies

Tags: education credits, education deductions, tuition credits, tuition deductions

Comments: No

Written by: Melinda Long, CPA

There are plenty of times we are asked about which education credit is most beneficial for a client to use. Below is a short list of various credits in the order of the biggest credit to smallest.

American Opportunity Credit – Receive a credit up to $2,500 PER STUDENT per year. Fees to include are tuition and fees, books and supplies.
Lifetime Learning Credit – Credit up to $2,000 PER TAXPAYER per year. Only tuition and fees can be used to calculate this credit.
Tuition and Fees Deduction – Deduction of up to $4,000 per taxpayer. Only tuition and fees can be used to calculate this deduction.
Qualified Scholarship- Amount is excluded from gross income. Tuition, fees, books and supplies are used to calculate this amount.
Qualified Tution Program – Tax-free earnings. Can use the funds from this 529 plan for tuition, fees, books, supplies, room and board.
Coverdell ESA- Tax-free earnings. Can use the funds from this ESA for tutition, fees, books, supplies, room and board.

For adjusted gross income phaseouts and a more indepth explaination of these credits/deductions, visit the Tax Benefits for Education page on the IRS.gov website.

Mar

Are we Settling for Less?

Categories: Point of View

Tags: financial markets, market commentary, market trends

Comments: No

Written by: Michael E. Harter, CPA/PFS, CFP®

Making consistent money in the financial markets has been challenging to say the least since the 2008 meltdown.

Interest rates returns continue to plummet as rates remain at historical lows in an effort to revive the economy. New money from maturing CD’s and bonds are met with nearly non-existent returns. The stock market looks to build momentum as companies are showing stronger balance sheets, amble cash and leaner cost structures. However events such as the European debt crisis and our own debt ceiling showdown this past summer keep pushing the markets down. Now the gas prices have taken center stage to wear down consumer confidence.

Instead of becoming outraged about current events, we accept what is given to us and say “Well at least I did not lose any money”? Since when did we become so passive or accepting of mediocrity?

We should be engaged in dialogue with policy makers and regulators to get out of the way and stop putting in gimmicks and artificial barriers that prolong the natural process. We have fiddled with the fundamentals of our capitalistic systems to the point that they can not operate properly and efficiently. Sure, maybe the intentions had merit, but the unintended consequences need to be examined as in many cases they outweigh the short term benefits.

Too many cooks spoil the broth!

What say you?