Written by: Keith Frame, CPA
In late 2012, Governor Snyder signed legislation which begins the phase-out of Michigan’s Personal Property Tax. This is the tax businesses have historically paid on the cost of equipment and other personal property used in their business. This tax is considered a tax on investment and thus tends to reduce the amount of investment. In addition, since many surrounding States have already reduced or eliminated their personal property taxes, the change in the law has been seen as necessary for competitive purposes.
Beginning January 1, 2014, Public Act 402 exempts all commercial and industrial personal property owned by a single taxpayer and contained within a local tax collecting unit, if the true cash value is less than $80,000 or the total taxable value of the industrial and commercial personal property is less than $40,000. The exemption is not based on the value of each individual piece of personal property, nor is it based on the total value of all personal property within the State. As a result, a taxpayer could have a chain of 10 stores, each with $35,000 of taxable value at each location, but located in 10 different tax collecting units. Although the taxpayer’s total personal property would have a taxable value of $350,000, all of the property would be exempt because within each tax collecting unit, the taxable value of the property is less than $40,000. Taxpayers must file Form 5076 – Affidavit of Exemption each year by February 20, in order to receive the exemption. It appears that if a business qualifies for the exemption but does not file the Affidavit, the business will still be subject to the tax. It is imperative that the exemption form is filed timely.
Beginning January 1, 2016, all new business personal property, all personal property purchased between 2013 and 2015, and all personal property purchased before 2006 will be exempt from the personal property tax. Any personal property purchased between 2006 and 2012 will become exempt from the personal property tax once the property is 10 years old (i.e. equipment purchased in 2006 will be tax exempt in 2017).
These changes in the law still require business owners to record, classify and categorize assets for purposes of determining if they do, in fact, qualify for the exemption. A business that qualifies for the exemption in one year, may not qualify in a subsequent year if additional personal property is placed in service.
The Professionals at Robert F. Murray & Co. CPAs can help with any questions you have.
The Social Security Administration has announced that the wage base for computing the Social Security tax (OASDI) in 2014 increases to $117,000 from $113,700, which was the wage base for 2013. The $3,300 increase, which is about 2.9%, is due to an increase in average total wages.
The Federal Insurance Contributions Act (FICA) imposes two taxes on employers, employees, and self-employed workers—one for Old Age, Survivors and Disability Insurance (OASDI; commonly known as the Social Security tax), and the other for Hospital Insurance (HI; commonly known as the Medicare tax).
For 2014, the FICA tax rate for employers is 7.65% each—6.2% for OASDI and 1.45% for HI. For 2014, an employee pays:
(a) 6.2% Social Security tax on the first $117,000 of wages (maximum tax is $7,254.00 [6.2% of $117,000]), plus
(b) 1.45% Medicare tax on the first $200,000 of wages ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return), plus
(c) 2.35% Medicare tax (regular 1.45% Medicare tax + 0.9% additional Medicare tax) on all wages in excess of $200,000 ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return). (Code Sec. 3101(b)(2))
For 2014, the self-employment tax imposed on self-employed people is:
There is a maximum amount of compensation subject to the OASDI tax, but no maximum for HI.
Written by: Michael Riley, CPA
On August 29th, the IRS issued guidance stating that same-sex couples married in jurisdictions that recognize same-sex marriage will be treated as married for federal tax purposes—regardless of where they reside.
The IRS ruling goes a step further than the Supreme Court’s decision in United States v. Windsor, which requires same-sex marriage to be recognized federally only if it’s recognized by the couple’s state of residence.
Essentially, the IRS ruling treats all legally recognized marriages identically for tax purposes. Married same-sex couples will be considered married in all federal tax obligations in which marital status is a factor, including:
- Filing status,
- Personal and dependent exemptions,
- Tax-advantaged treatment of certain employee benefits,
- IRA contribution limits,
- Child tax credit claims, and
- Gift and estate tax provisions (marital deductions and exemption portability).
Many couples will benefit from married filing status with substantial tax advantages, but in some situations couples will be subject to the “marriage penalty.” This term commonly refers to the situation created when both spouses have healthy amounts of taxable income, and they can owe a larger combined federal income tax bill than if the two individuals filed as single taxpayers.
The IRS ruling requires same-sex spouses whose marriages are recognized at the federal level to change their tax filing status from single to married, generally beginning with the 2013 tax year.
Plan for the Changes
Same-sex married couples should evaluate how changing their filing status to “married” will affect their 2013 tax liability and take steps before year-end to maximize tax-saving opportunities and minimize any negative consequences. Couples should also determine whether they can receive a tax refund if they file amended returns as a married couple for previous years. Additionally, couples need to review their estate plans and determine whether any changes are warranted to take advantage of the federal gift and estate tax benefits available to married couples.
Written by: Gene S. Smith, CPA
There are several reasons to outsource your payroll. Payroll is a burden of operational work that has no direct contribution to the core business. Small businesses in particular find payroll to be a burden because it is hard to keep up with regulatory issues, software is costly, precious staff time is redirected to non productive work and it is difficult to keep pay among employees confidential.
If your business is shopping for an outside payroll service, here are a few key points to focus on:
1) Reputation – Hire a company that has a verifiable track record of accuracy and trustworthiness. Regardless of the fact a third party is processing your payroll, you, the business owner is ultimately responsible for the timeliness of payroll tax deposits and reporting.
2) Services – Make sure the vendor offers the services that you need at a price that is within your budget. For example, if you require direct deposit, make sure that vendor is set up with the proper banking credentials to handle that. If you want your employees to receive their W-2’s on their hand held device at year-end, make sure the vendor has the technology to deliver W-2’s in that manner.
3) Operating Procedures – How do you want to deliver your information to the vendor? Will hours be reported by phone, fax, web based portal, or some other means? Make sure the vendor is adaptable with how you will be providing the information.
4) Price – Low cost payroll services are often misleading, luring you in with low monthly base fees, only to pile on additional charges over the course of the contract. Make sure all fees are clearly stated in your contract and only work with a vendor that demonstrates transparency.
Payroll Chimp, LLC (a Robert F. Murray CPA’s Company) is a new name for an old service that has been providing payroll processing for many years. Please contact us to see how we can take the payroll monkey off your back.
Written by: Annette Clark, CPA
Do you use a Flexible Spending Account? If so have you reviewed your year to date spending compared to your annual deferral? Plan now to use up those deferred funds so that you don’t lose them. Maybe you have already incurred the costs and you just need to submit the receipts for reimbursement. Do it now! FSA accounts are use it or lose it. Don’t get to the end of December and think how am I going to use that now or where are those receipts.
Do you have an AFLAC policy that pays you a wellness benefit? If so schedule those checkup’s now to make sure you can get that mammogram or other test work done before the end of the year. If you already had your checkup dig out that receipt and submit it.
Plan to enjoy the holidays by having your paperwork done early.
Written by: Paul B. Murray, CPA/ABV, CFF
With the Baby Boomers approaching retirement age we are often asked when should I start drawing my social security benefits? With most choices in life today this is not a simple question. There are a few overriding, non-financial factors that you should consider first:
Complicated decision? Yes. We can help. See the links below to help in your decision making. What seems to be true, especially today, GOVERNMENT WEBSITES ARE NOT VERY USER FRIENDLY but this site includes more information then you probably need. The AARP site is much more user friendly. After you have perused the sites call us for assistance.
Written by: Tina Powell, CPA
The IRS may question taxpayers regarding whether an activity is a business or a hobby. If the activity is not engaged in for profit, it is subject to the hobby loss rules.
If an activity is deemed to be a hobby, its income is reported as “other income” on line 21 of Form 1040 and its deductible expenses are limited to the amount of income it generates, subject to a threshold of 2% of adjusted gross income (AGI) as a miscellaneous itemized deduction reported on Schedule A.
Every situation is unique, and no single factor or pattern is conclusive. All the facts and circumstances must be considered. Below are nine factors that aid in determining if an activity is engaged in for profit.
1. How the taxpayer carries on the activity. The taxpayer should maintain a separate bank account, keep records and books and act like a business.
2. The taxpayer’s expertise. A business operator should have extensive knowledge of his or her profession or activity. They should show that he or she has studied acceptable business methods and has sought advice from experts.
3. The taxpayer’s time and effort in carrying out the activity. How much time and effort is devoted to it on a continual basis?
4. An expectation that assets used in an activity, such as land, may appreciate in value. The tax code allows appreciation to be considered in lieu of current profits.
5. The taxpayer’s success in other activities. Even if the taxpayer’s activity is currently unprofitable, it may be for-profit if the taxpayer has been able to convert other activities from unprofitable to profitable in the past, especially ones similar to the current activity.
6. The taxpayer’s history of income or losses from the activity. Although the economy may cause fluctuations, sustained earnings indicate a for-profit activity. The tax code states that if an activity has net income 3 of the last 5 years, the activity is generally presumed to be for-profit.
7. The relative amounts of the profits and losses. The amount of profit in relation to the taxpayer’s investment may provide useful criteria in determining the taxpayer’s intent.
8. The taxpayer’s financial status. Although other substantial sources of income to the taxpayer do not preclude an activity from being for-profit, they may indicate the activity is a hobby.
9. Whether the activity provides recreation or involves “personal motives.” Operating an activity like a janitorial cleaning services which includes mopping floors and scrubbing bathrooms lacks recreational appeal, unlike owning horses to ride on your 40 acre farm.
This blog was based on an article written by Robert Gard, CPA from the October 2013 Journal of Accountancy.
Written by: Scot Smith, CPA
The IRS announced on Tuesday October 22, 2013 a delay of one or two weeks in the start of the 2014 filing season as a result of the 16-day government shutdown to allow adequate time for the IRS to prepare and test systems. The return filing start date was originally going to be January 21, 2014, but the IRS said it will now start accepting 2013 individual tax returns no earlier than January 28 and no later than February 4. The IRS says it hopes to shorten the delay and will announce the official start date in December.
The government shutdown came at an inopportune time of year. Most of the work the IRS does to program, test, and deploy its return processing systems is done in the fall. “The adjustment to the start of the filing season provides us the necessary time to program, test, and validate our systems so that we can provide a smooth filing and refund process for the nation’s taxpayers,” Danny Werfel, the acting IRS commissioner, said in a news release. “We want the public and tax professionals to know about the delay well in advance so they can prepare for a later start of the filing season.”
Despite the delay in the beginning of filing season, the IRS also reiterated that the April 15 tax return filing and payment deadline is statutory and cannot be changed by the IRS.
RFM sends this annual letter and worksheets to our clients every fall to help them comply with the tax requirements of providing automobiles to employees for business use. There are other methods to value the taxable benefit of employer-provided autos but the “Lease Value” method is generally the simplest to apply.
Click here for the letter and worksheets.