Prescott Accounting « Schutte & Hilgendorf

Are my Social Security Benefits Taxable?

We get a lot of clients that ask us when their Social Security Benefits become taxable. The following information is provided bythe Social Security Administration and clearly explains when your Social Security Benefits become taxable. This is also available by

CLICKING HERE

Should you need assistance or have questions about your Social Security Benefits and their taxability, contact Schutte & Hilgendorf, CPAs, providing tax planning and preparation, auditing, accounting and QuickBooks consulting to the greater Yavapai County. Call us at 928-778-0079 or email at info@prescottaccountants.com

Some people have to pay federal income taxes on their Social Security benefits. This usually happens only if you have other substantial income (such as wages, self-employment, interest, dividends and other taxable income that must be reported on your tax return) in addition to your benefits.

No one pays federal income tax on more than 85 percent of his or her Social Security benefits based on Internal Revenue Service (IRS) rules. If you:

file a federal tax return as an “individual” and your combined income* is
- between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
- more than $34,000, up to 85 percent of your benefits may be taxable.
file a joint return, and you and your spouse have a combined income* that is
- between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits
- more than $44,000, up to 85 percent of your benefits may be taxable.
are married and file a separate tax return, you probably will pay taxes on your benefits.

*Note:

Your adjusted gross income

+ Nontaxable interest

+ ½ of your Social Security benefits
= Your “combined income“

Each January you will receive a Social Security Benefit Statement (Form SSA-1099) showing the amount of benefits you received in the previous year. You can use this Benefit Statement when you complete your federal income tax return to find out if your benefits are subject to tax.

If you do have to pay taxes on your Social Security benefits, you can make quarterly estimated tax payments to the IRS or choose to have federal taxes withheld from your benefits.

For more information about taxation of benefits, see IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits.

Questions and Answers for the Additional Medicare Tax – Effective January 1, 2013

The following link will take you to questions and answers that will provide employers and payroll service providers information that will help them as they prepare to implement the Additional Medicare Tax which goes into effect in 2013. The Additional Medicare Tax applies to individuals’ wages, other compensation, and self-employment income over certain thresholds; employers are responsible for withholding the tax on wages and other compensation in certain circumstances. The IRS has prepared these questions and answers to assist employers and payroll service providers in adapting systems and processes that may be impacted.

Click on the link below to be taken to the IRS Q&A:

Questions and Answers for the Additional Medicare Tax - From the IRS

For further tax planning considerations and questions, contact Schutte & Hilgendorf, pllc – CPAs. We offer free initial consultations. Schutte & Hilgendorf, pllc – CPA’s, is a full service public accounting firm providing tax planning, preparation, audit, accounting, and QuickBooks consulting to individuals, small businesses, non-profits, and homeowners associations in the Prescott and greater Yavapai County area. Call us at 928-778-0079 or visit www.prescottaccountants.com

IRS Net Investment Income Tax – Effective January 1, 2013 – FAQs

The Net Investment Income Tax is imposed by section 1411 of the Internal Revenue Code (IRC). The NIIT applies at a rate of 3.8 percent to certain net investment income of individuals, estates and trusts that have income above the statutory threshold amounts. The Net Investment Income Tax goes into effect on Jan. 1, 2013.

For more information directly from the IRS, click on the link below for a FAQ page.

3.8% NET INVESTMENT INCOME TAX – EFFECTIVE 2013 – FAQS

A Summary of the American Taxpayer Relief Act of 2012

Provided by Professional Education Services, LP. :

For further information or questions, contact Schutte & Hilgendorf, pllc – CPAs. We offer free initial consultations. Schutte & Hilgendorf, pllc – CPA’s, is a full service public accounting firm providing tax planning, preparation, audit, accounting, and QuickBooks consulting to individuals, small businesses, non-profits, and homeowners associations in the Prescott and greater Yavapai County area. Call us at 928-778-0079 or visit www.prescottaccountants.com

Summary of the American Taxpayer Relief Act of 2012

On January 2, 2013 President Barack Obama signed into law the American Taxpayer Relief Act of 2012. Passage of this Act averted the so-called “fiscal cliff” and made “permanent” changes to the tax code. As with all Congressional legislation, however, no change is truly permanent so readers should understand that any of the components of the legislation could be changed in the future.
In a nutshell, the American Taxpayer Relief Act of 2012 extended specific provisions of two major Bush-era tax bills, the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs Growth Tax Relief Reconciliation Act of 2003. A compromise measure, the Act gives permanence to the lower rate of much of the Bush tax cuts, while retaining the higher tax rate at upper income levels that became effective on January 1 as a result of the expiration of the Bush tax cuts.

A. MAJOR TAX PROVISIONS

The following is a summary of some of the major tax provisions of the Act:

1. Individual Income Tax Rates

The American Taxpayer Relief Act of 2012 retains the 10%, 15%, 25%, 28%, and 33% income tax brackets. The 35% tax bracket ends at $400,000 for single filers. Above this threshold, there’s a new 39.6% tax bracket. Thresholds for the new 39.6% bracket for 2013 will be:

Married Filing Jointly: $450,000 of taxable income;
Qualifying Widow(er): $450,000 of taxable income;
Head of Household: $425,000 of taxable income;
Single: $400,000 of taxable income; and
Married Filing Separately: $225,000 of taxable income.

2. Capital Gains Rate

The American Taxpayer Relief Act of 2012 retains the 0% and 15% tax rates on qualified dividends and long-term capital gains, and adds a new 20% tax rate that would apply to taxpayers who fall within the new 39.6% tax bracket. Which capital gains tax rate will apply depends on what tax bracket a person is in. The new capital gains tax rates for 2013 and future years will be:

0% applies to capital gains income if a person is in the 10% and 15% tax brackets;
15% applies to capital gains income if a person is in the 25%, 28%, 33%, or 35% tax brackets; and
20% applies to capital gains income if a person is in the 39.6% tax bracket.

3. Alternative Minimum Tax

The American Taxpayer Relief Act of 2012 provides the following AMT exemption amounts for 2012, and provides that these amounts will be indexed for inflation annually:

Married Filing Jointly: $78,750;
Qualifying Widow(er): $78,750;
Single: $50,600;
Head of Household: $50,600; and
Married Filing Separately: $39,375.

4. Estate Tax Rates

The American Taxpayer Relief Act extends the $5 million exclusion. The new top tax rate for estates is 40%.
5. Pease Limitation
The American Taxpayer Relief Act resulted in reinstatement of the so-called “Pease Limitation” that caps the amount of itemized deductions high income earners are able to take. Under the new law, itemized deductions are limited for the following taxpayers:

$300,000 for married couples and surviving spouses;
$275,000 for heads of household;
$250,000 for unmarried taxpayers; and
$150,000 for married taxpayers filing separately.

These levels will be adjusted for inflation after 2013.

6. Personal Exemption Phaseout

The American Taxpayer Relief Act also phases out the amount of the personal exemption high earners are entitled to take. The total amount of exemptions a taxpayer may take is reduced under the new law by two percent for each $2,500 or portion thereof over which the taxpayer’s adjusted gross income exceeds specific levels, i.e., $300,000 for married couples and surviving spouses.

B. MISCELLANEOUS PROVISIONS
The Act contains numerous other provisions relating to both tax deductions and tax credits, including the following:

The student loan interest deduction is permanently extended. The American Taxpayer Relief Act eliminates the rule that the deduction can be claimed only during the first 60 months of repayment;
Mortgage insurance premiums will continue to be deductible as part of the mortgage interest deduction through the end of 2013;
The sales taxes deduction, in lieu of a deduction for state income taxes, is temporarily extended through the end of 2013;
The charitable deduction for contributing real property for qualified conservation purposes is temporarily extended through the end of 2013;
The above-the-line tuition and fees deduction is temporarily extended through the end of 2013;
The child tax credit remains unchanged and is permanently extended. The maximum amount of the child tax credit is $1,000, and the credit is partially refundable. However, the provision that reduces the earnings threshold for the refundable portion of the child tax credit to $3,000 will expire at the end of 2017;
The dependent care tax credit remains unchanged and is permanently extended. Daycare expenses up to $3,000 for one child and $6,000 for two or more children qualify for the tax credit, and these amounts are not indexed for inflation;
The adoption credit is permanently extended. The credit is worth up to $10,000 (indexed for inflation); and
The American opportunity tax credit is extended temporarily through the end of 2017.
The American Taxpayer Relief Act also allows the two-year old payroll tax cut to expire, meaning employees will see immediate reductions in their paychecks.

In all, the bill included $600 billion over ten years in new tax revenue. The Act did not permanently address the spending cuts that were set to take effect if the legislation had not passed. Rather, it merely extended by two months the time Congress has to reduce spending or have the so-called “sequestration” law take effect that will have a major impact on federal spending.

If you have questions related to any of the above, call Schutte & Hilgendorf, pllc – CPA’s for more information and a free initial consultation. Schutte & Hilgendorf, pllc – CPA’s, is a full service public accounting firm providing tax planning, preparation, audit, accounting, and QuickBooks consulting to individuals, small businesses, non-profits, and homeowners associations in the Prescott and greater Yavapai County area. Call us at 928-778-0079 or visit www.prescottaccountants.com

IRS/DOL Crackdown on Independent Contractor vs. Employee

IRS/DOL Crackdown

If you classify any workers as “independent contractors”—or have plans to do so—2013 is the year to make sure you get that classification correct.

Below is Topic 762 - Independent Contractor vs. Employee provided by irs.gov to help in identifying which classification a worker falls:

To determine whether a worker is an independent contractor or an employee under common law, you must examine the relationship between the worker and the business. All evidence of control and independence in this relationship should be considered. The facts that provide this evidence fall into three categories – Behavioral Control, Financial Control, and the Type of Relationship.

Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done, through instructions, training, or other means.

Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job. This includes:

The extent to which the worker has unreimbursed business expenses
The extent of the worker’s investment in the facilities used in performing services
The extent to which the worker makes his or her services available to the relevant market
How the business pays the worker, and
The extent to which the worker can realize a profit or incur a loss

Type of Relationship covers facts that show how the parties perceive their relationship. This includes:

Written contracts describing the relationship the parties intended to create
The extent to which the worker is available to perform services for other, similar businesses
Whether the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay
The permanency of the relationship, and
The extent to which services performed by the worker are a key aspect of the regular business of the company

For more information, refer to Publication 15-A (PDF), Employer’s Supplemental Tax Guide, or Publication 1779 (PDF), Independent Contractor or Employee. If you want the IRS to determine whether a specific individual is an independent contractor or an employee, file Form SS-8 (PDF), Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.

Contact Schutte & Hilgendorf with your questions related to independent contractor vs. employee. Schutte & Hilgendorf, CPAs, is a full service public accounting firm providing tax planning, preparation, audit, accounting, and QuickBooks consulting to individuals and small business in the Prescott and greater Yavapai County area. Call us at 928-778-0079 or visit www.prescottaccountants.com

Things to Remember about Charitable Giving

All giving is valuable to those in need, but from a tax perspective, not all giving is rewarded with a tax write-off. Here is what you need to keep in mind:

1. YOU MUST ITEMIZE FOR FEDERAL FILING TO DEDUCT CHARITABLE GIVING. You can be as generous as you want, but a tax deduction is limited to those who itemize personal deductions and forego the standard deduction amount.

2. DEDUCTIONS ARE ALLOWED ONLY FOR IRS-APPROVED CHARITIES. You cannot claim a deduction for money you give directly to individuals. Check to see that a charity is IRS-approved at www.irs.gov/Charities-&-Non-Profits/Search-for-Charities.

3. ANNUAL DEDUCTIONS ARE LIMITED WITH RESPECT TO ADJUSTED GROSS INCOME. You cannot deduct cash donations in excesss of 50% of your adjusted gross income. Unused deductions can be carried forward for up to 5 years.

4. DEDUCTIONS REQUIRE SUBSTANTIATION. Your word or even a canceled check isn’t good enough. If you donate $250 or more, you must obtain a written acknowledgment from the organization, specifying your gift and stating that no goods or services were received in exchange. Special rules apply for donations of vehicles.

5. SOME GIFTS REQUIRE APPRAISALS. If you donate property valued at more than $5,000, you need a qualified appraisal. This must be done by someone who has the credentials to be a qualified appraiser.

6. DEDUCTIONS OF APPRECIATED PROPERTY PROVIDE A DOUBLE TAX BENEFIT. If you donate appreciated property that you have owned for more than a year, such as stock, you can deduct the value of the property on the date of the gift. What’s more, you don’t have to report any capital gain on the appreciation; it effectively becomes tax free to you.

7. CASH DONATIONS MADE BY YEAR-END ARE DEDUCTIBLE NOW EVEN IF RECEIVED IN THE NEW YEAR. If you mail a check to the charity on December 31, it is deductible on your 2012 return, even though the charity does not receive the gift until 2013. Also, you can charge a donation to a credit card; you can take the deduction in 2012 even if you pay the credit card bill in 2013.

8. OUT OF POCKET EXPENSES ARE DEDUCTIBLE. If you spend any money helping a charity, you can deduct those if you have substantiation. The value of your time volunteered to a charity, however, is NOT deductible. The mileage on your vehicle for driving to volunteer IS deductible at the rate of $0.14 a mile. Be sure to keep a record of the mileage, including the date and purpose of each charitable trip.

These tips are brought to you by Schutte & Hilgendorf, PLLC, CPA’s, a Prescott firm serving the greater Yavapai County, providing audit, accounting, bookkeeping, tax preparaton and planning, Quickbooks accounting and setup, to individuals and small businesses. Contact us for a free consultation at (928) 778-0079.

2012 BUSINESS Tax Update and Tips

November 29, 2012

As 2012 comes to a close, we wish you all SEASONS GREETINGS from Schutte & Hilgendorf, and thank you for your loyalty to our firm and for your referrals. We wish you all the best for your business and family in 2013.

We encourage you to have our firm calculate the expected taxable income or loss of your business and determine if there is anything that can be done to reduce any tax liability for 2012. This is important if your business net income is significantly different from 2011.

We also take this opportunity to pass on some tax information that will affect (or could affect) your business in 2012 and 2013.

DEPRECIATION

Section 179 Deduction- In 2012, your business can deduct up to $139,000 of Section 179 property placed in service during the year, subject to certain limitations. Section 179 property is tangible personal property for use in your business, but does not include land or buildings. TIP – it is advantageous to time equipment purchases in the last half of the year – your cash flow is increased and you get the same benefit in depreciation for the year whether you purchase in January or December.

As current laws are written, for 2013, Section 179 deduction will be limited to $25,000. If you are anticipating any large equipment purchases in the near future, it may be wise to make those purchases in 2012. Vehicles have their own special limits – depending on the type of vehicle.

Bonus depreciation – A 50% additional first-year depreciation deduction is available for qualified property placed in service in 2012. As of right now, this is set to go away in 2013.

HEALTH INSURANCE CREDIT

If your small business qualifies, you may be eligible for a tax credit for providing health insurance coverage for your employees. The rules are a complex, so if you may be considering this, please contact us.

WORK OPPORTUNITY CREDIT

For 2012, this credit is available only in the case of qualified veterans that your business hires by 12/31/12. This is set to expire in 2013.

BUSINESS MILEAGE RATES

Mileage rate for business for 2012 is 55.5 cents per mile. The IRS has announced this rate is going up to 56.5 cents for 2013.

MINIMUM WAGE INCREASE FOR ARIZONA

As of January 1, 2013, the minimum wage increases to $7.80 per hour. This must be met for all hourly employees, except for certain tipped employees.

1099-K

If you accept credit card payments for services, the credit card issuers will be issuing 1099-K’s to you in January for payments received in 2012. While the IRS has relaxed some rules they originally imposed, they will be watching that total revenues reported for tax purposes are equal to or above the amount reported on the 1099-K’s. We will require you bring those forms to us that you receive so we can verify revenue reported. This will avert future notices from the IRS of unreported income.

W-9’s

We also recently sent those of you that it might apply to, a letter requesting you get a W-9 completed from all your vendors. This also is to avert IRS notices. The IRS is increasing its enforcement of having these completed forms on file.

HIRE YOUR SPOUSE AND SET UP A HSA

Health Savings Accounts can be a big benefit not only for the health insurance benefits, but also as a deduction for your business. If your spouse is not employed outside the home or does not have an employer health plan to take advantage of there are options for you.

ADVERTISING TIP

Studies have shown in this electronic age, very few people consult the Yellow Pages for business referrals. Spend that money on a website and use more social media to advertise to get more “bang for your buck”.

As each business is unique, this is only a brief review of some tax savings ideas. If you think any of these tips can be beneficial or required for your business, give us a call or email to discuss in more detail. Visit our website often www.prescottaccountants.com for more articles and tips posted regularly.

HAPPY HOLIDAYS

Schutte & Hilgendorf, PLLC

(928)778-0079

loish@prescottaccountants.com

2012 INDIVIDUAL TAX UPDATE AND TIPS

November 29, 2012

We are in the time of year for “Seasons”:

THANKSGIVING – When we express Gratitude for our Clients; their Loyalty and Referrals

RELIGIOUS HOLIDAYS – When we wish everyone and their families “Happy Holidays”,”Merry Christmas” and extend our wishes for Peace and Joy

NEW YEARS – When we wish everyone a Happy New Year filled with Success and Happiness

TAX SEASON – This one isn’t as fun as the above, but a necessary part of life in America. The following is an update on how we can try and make this easier for everyone, some tips to reduce your tax liability and update you on the changes for the 2012 income taxes and possible coming changes for 2013.

First – the tax provisions that expired at the end of 2011 and are no longer available for this tax year:

Deduction of expenses for school teachers
Tuition and fees deduction
Deduction for state and local sales tax – no deduction of the sales tax for new vehicles
Credit for non-business energy property

Next – the tax provisions set to expire on December 31, 2012 (pending Congressional action):

The “Bush Tax Cuts” which include

Lower tax rates on ordinary income, capital gains and qualified dividends
No phase-out for itemized deductions and exemptions
Marriage penalty relief (tax brackets, standard deduction)
Increases to the following benefits – child tax credit, dependent care credit, earned income credit, American opportunity credit, and adoption credit.

The 2% payroll tax cut for employees

WHAT’S NEW- 2013 This is part of the Health Care law and is not part of the Income Tax negotiations going on in Washington DC now:

A new .9% tax on earned income and a 3.8% tax on investment income for those with income of at least $200,000(single)/$250,000(married).

WHAT TO DO

While we don’t know yet what the final 2013 tax rates will be, it may make sense to accelerate income/deductions into the 2012 tax year to take advantage of lower rates now. These may include:

. Selling stocks or other assets that have a taxable gain

Taking qualified IRA distributions this year rather than next year, if you are 59 1/2 (some exceptions apply to this age qualification)

Accelerating medical deductions into 2012 if you are under age 65. The threshold increases from 7.5% to 10% of AGI for those under age 65 in 2013.
If you own a traditional IRA or SEP IRA, convert it to a Roth IRA, and recognize the conversion income this year.
Consider delaying some deductible expenditures until 2013 to lower your taxable income, such as, paying for property taxes in 2013, or delaying sizable, out of pocket medical procedures until 2013 (if you won’t make the 2012 threshold anyway.

OTHER TAX SAVING TIPS

If you expect to owe taxes this year and you receive a paycheck, increase your Federal withholding for the rest of the year rather that make an estimated tax payment – this will reduce the chance of an underpayment penalty.

State Tax Credits- The credits for Arizona are still in effect for 2012 and a new one has been added:

Working Poor Credit -$250 (single) $400 (married)
Public School Credit – $250 (single) $400 (married)
School Tuition Credit – $503 (single) $1,006 (married) – NOTE slight increase
For 2012, an individual may claim an additional credit for making a donation to a School Tuition Organization if the amount contributed is greater than the maximum amount that can be claimed for the original STO credit. The additional maximum is $500 (single) and $1,000 (married).

As with all charitable contributions, you must have a receipt from the organization documenting the donation – the amount, date, and statement that you received no tangible benefit from the gift. The IRS is much more stringent in requiring these documents and we will ask for them during our tax interview.

This is not intended to be an all inclusive review, but to give you food for thoughton your individual tax situations and to encourage you to call or email us ifyou have questions regarding your situation before the year ends.

See you all soon

Schutte & Hilgendorf, PLLC

(928) 778-0079

loish@prescottaccountants.com

Record Retention

We at Schutte & Hilgendorf field a lot of questions regarding record retention. “How long should I keep my receipts? ” How long should I keep my prior year tax returns?” The answer is not as clear cut as you would hope. We found the following helpful article in a web search provided by www.lifeorganizers.com. It thoroghly addresses these questions for most individuals.

Click here : Record Retention

Should you have additional questions or need tax or accounting advice, give us a call. Schutte & Hilgendorf is a full service CPA firm, providing auditing, accounting and tax services for individuals, small businesses, non-profits and homeowners associations throughout Yavapai County and Northern Arizona. Call us at 928-778-0079 or email info@prescottaccountants.com

Schutte & Hilgendorf – Prescott CPAs

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