The IRS today announced standard mileage rates for 2012 (IR-2011-116):
The rate for business miles is the same as the last half of 2011.
http://www.irs.gov/newsroom/article/0,,id=248482,00.html
The social security wage base will increase from $106,800 in 2011 to $110,100 in 2012. As in prior years, there is no limit to the wages subject to the Medicare tax, so all covered wages are subject to the 1.45% tax. The FICA tax rate, which is the combined social security tax rate of 6.2% (4.2% on the employee portion in 2011) and the Medicare tax rate of 1.45%, is normally 7.65%, while the self-employment tax rate is normally 15.3% (13.3% in 2011). The threshold for coverage for domestic employees will be $1,800 in 2012.
The deadline for undoing a 2010 Roth IRA conversion is October 17, 2011.
Many individuals did Roth IRA conversions because of the media hype that surrounded them in calendar year 2010. Others did conversions for solid reasons, but those reasons have unwound in a declining market.
If the value of your Roth IRA today is less than the value of the account when you did the actual conversion, then you should contact us to determine if a recharacterization should be considered before it is too late.
IRS announces increase in mileage rates
After hinting in May that there would be no mid-year change in standard mileage rates, this morning the IRS announced significant increases in both the business mileage rate and the medical or moving expense rate. (Announcement 2011-40)
Effective July 1, 2011, the business rate increases from 51 cents per mile to 55.5 cents. The medical or moving expense rate increases from 19 cents to 23.5 cents. The charitable rate remains at 14 cents.
The Senate just passed H.R. 4, which will (if signed by the President) repeal the expanded Form 1099 information reporting requirements that apply to:
The bill now goes to the President, who is expected to sign.
With the enactment of the Small Business Jobs Act of 2010 last year, we want to alert you to the new information reporting requirements relating to rental property.
As of January 1, 2011, if you receive rental income, the law requires you to report total payments of $600 or more in a year to a vendor for services (such as, plumbing, lawn maintenance, rental management, accounting, etc.).
Currently, there are several exceptions to the reporting requirement:
(1) payments to corporations;
(2) payments made using debit or credit cards;
(3) payments made to purchase goods;
(4) payments to multiple vendors when the total amount to any single vendor is less than $600; and
(5) non-deductible payments made in connection with your personal-use property. You may also avoid the reporting requirement if you received rental income of not more than a “minimal amount.”
Unfortunately, as of the date of this post, the Treasury Department has not told us what qualifies as a minimal amount.
If you think that the new reporting requirements may apply to you, we recommend that you begin gathering the required information before making any payments to vendors.
Accordingly, we have outlined a four-step process for you to consider:
1) Obtain your own Employer Identification Number (EIN) to report on a Form 1099-MISC, Miscellaneous Income. Although an EIN is not required by the Internal Revenue Service (IRS), we strongly recommend that to reduce identify theft risk you use an EIN as opposed to your Social Security Number (SSN). You can go to IRS.gov and apply online for an EIN. On the website, click on “Apply for an EIN Online,” then scroll to the bottom of the page and click on “Apply Online Now.” You will then click “Begin Application.” Follow the steps on the website to request an EIN and make certain that you print the page indicating your EIN when it is provided to you. If you have any questions, please call us to walk you through the process. (The link for the application is https://sa1.www4.irs.gov/modiein/individual/index.jsp.)
If your rental property is already in an entity such as a limited liability company (LLC) that has its own EIN, you do not need to obtain another one. Also, you do not need to obtain a separate EIN if you already have one for a business you own as a sole proprietor. However, you will need to obtain a new EIN, even if you already have one, if the other business you own is a disregarded limited liability company, partnership, or corporation.
2) Obtain information from the vendor. We recommend that you begin to collect the relevant information on vendors as soon as possible. Each vendor should complete a copy of the enclosed Form W-9, Request for Taxpayer Identification Number and Certification, to provide you with its:
The vendor must also certify that information provided is accurate, they are not subject to backup withholding and they are a U.S. citizen (or other eligible U.S. person).
We recommend that you obtain the required information before you send any payment to a vendor. Note that the “vendor” is the business to whom you issue payment. If you are issuing a check or paying cash to an entity, the Form W-9 should report the entity’s information. If an employee renders the service but you issue payment to the employer, you do not need any personal information from the employee. However, many times sole proprietors render services personally and can sign the form.
3) Keep detailed accounting records during the year. In order to track which vendors you paid $600 or more to during the year, you will need to keep more detailed records than in prior years. For example, you will need to record how much of a payment to a vendor is related to services as opposed to the purchase of goods. In addition, you should only note the amount paid to a service provider in connection with the rental activity (i.e., you should exclude any payment or portion of a payment made in connection with your personal-use property, such as your personal residence).
4) Submit Form 1099 before it is due. A separate Form 1099-MISC will be required for each vendor. Generally, you need to provide “Copy B” of the Form 1099-MISC to the vendor by January 31, 2012 and file “Copy A” with the IRS by February 29, 2012. Unlike most tax forms which you can download from the IRS website and use, Form 1099-MISC must be obtained in hard copy from the IRS to file as it is a special type of scannable form. We recommend that you contact us in early January 2012 so we can assist you with the filing procedures and instructions.
Finally, we want to alert you that the rules will change next year. As of January 1, 2012, you will need to report payments for the purchase of goods (as well as payments for services) if the total amounts are $600 or more in a year. Also, starting next year, payments to corporations for goods or services will need to be reported on the Form 1099-MISC.
If you have any questions regarding your reporting requirements or any other matter, please call us.
Here is a summary of some important changes to federal payroll tax laws and figures, that are effective Jan. 1, 2011.
Withholding Tax. New federal withholding tables have been issued. An annual federal withholding allowance is now valued at $3,700 (previously, $3,650).
The Social Security withholding tax rate on wages earned by employees has been temporarily lowered from 6.2% to 4.2% for one year, effective with wages earned beginning Jan. 1, 2011. The IRS is advising employers to implement the 4.2% employee Social Security rate as soon as possible, but no later than Jan. 31, 2011. The maximum benefit that a worker will receive from the tax rate reduction is $2,136 (i.e., $106,800 Social Security wage base × 2%). Employers will continue to pay Social Security taxes at a 6.2% rate.
Employers must make all federal tax deposits (FTDs) by electronic funds transfer (EFT), effective Jan. 1, 2011. FTDs can no longer be made on paper tax deposit coupons (Forms 8109 and 8109-B).
Employees may no longer receive the “Making Work Pay” credit in 2011. This refundable income tax credit was available to individuals below a certain income tax level on their 2009 and 2010 personal income tax returns. Employees received the credit incrementally through a reduction in the amount withheld from their paychecks.
Employees may no longer choose to get part of the earned income credit (EIC) in advance with their paycheck (known as the “advance earned income credit”). The IRS is advising employees with income tax withholding in 2011 who expect to be eligible for the EIC to consider reducing their withholding in order to receive a portion of the credit throughout the year.
Fringe Benefits. Effective Jan. 1, 2011, the standard mileage rate for computing the deductible cost of operating a car (including vans, pickups, or panel trucks) for business use is 51 cents per mile (previously, 50 cents per mile).
An employee may exclude up to $230 a month for qualified parking expenses in 2011, and up to $230 a month for the combined value of transit passes and transportation in a commuter highway vehicle.
The maximum amount that can be excluded from an employee’s gross income in connection with the adoption by the employee of a child (whether or not he or she has special needs) is limited to $13,360 in 2011.
Pension Plan Limitations. The maximum amount that an employee may elect to defer to an IRC §401(k) cash or deferred compensation plan continues to be $16,500 in the 2011 tax year. The maximum amount that an employee/participant may elect to defer to a savings incentive match plan for employees (SIMPLE plan) is still $11,500. The limitation on total annual contributions to defined contribution plans is $49,000 (unchanged from 2010). The annual benefit limit for defined benefit plans remains at $195,000. The limitation on deferrals for IRC §457 deferred compensation plans of state and local governments and tax-exempt organizations remains at $16,500. The limitation used in the definition of a highly compensated employee is still $110,000 (unchanged from 2010).
The maximum aggregate annual contribution that can be made to a health savings account remains at $3,050 for self-only coverage and $6,150 for family coverage in 2011.
The employee compensation amount used in the definition of “control employee” for purposes of the auto commuting valuation rule continues to be $195,000 in 2011. The compensation amount used in the definition of company officers who are ineligible for the commuting valuation rule is still $95,000 in 2011.
Federal Minimum Wage Rate. The federal minimum wage rate is still $7.25 per hour in 2011.
The recently enacted “Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010” is a sweeping tax package that includes, among many other items, an extension of the Bush-era tax cuts for two years, estate tax relief, a two-year “patch” of the alternative minimum tax (AMT), a two-percentage-point cut in employee-paid payroll taxes and in self-employment tax for 2011, new incentives to invest in machinery and equipment, and a host of retroactively resuscitated and extended tax breaks for individuals and businesses.
Here’s a look at the key elements of the package:
• The current, favorable income tax rates will be retained for two years (2011 and 2012), with a top tax of 35% on ordinary income and 15% on qualified dividends and long-term capital gains.
• Employees and self-employed workers get a reduction of two percentage points in Social Security tax in 2011, bringing the rate down from 6.2% to 4.2% for employees, and from 12.4% to 10.4% for the self-employed.
• A two-year AMT “patch” for 2010 and 2011 provides a modest increase in AMT exemption amounts and allows personal nonrefundable credits to offset AMT as well as regular tax.
• Key tax credits for working families that were enacted or expanded in the American Recovery and Reinvestment Act of 2009 are retained. For example, the new law extends for two years (a) the $1,000 child tax credit (and maintains its expanded refundability), and (b) the American Opportunity tax credit for higher education, and its partial refundability.
• Two crackdowns on deductions for higher-income people have been deferred. For 2011 and 2012, higher-income individuals will not face a reduction in their itemized deductions or a phase-out of personal exemptions.
• Businesses can write off 100% of their new equipment and machinery purchases in the placed-in-service year, effective for property placed in service after September 8, 2010 and through December 31, 2011. For property placed in service in 2012, the new law provides for 50% additional first-year depreciation.
• Many of the popular tax breaks that went off the books at the end of 2009 have been retroactively reinstated for 2010 and extended through the end of 2011. Among many others, the retroactively reinstated and extended individual and business provisions include the election to take an itemized deduction for state and local general sales taxes instead of the itemized deduction for state and local income taxes; the $250 above-the-line deduction for certain expenses of elementary and secondary school teachers; and the research credit. The credit for making energy-saving improvements for a home has been extended for one year, through 2011, but much tougher rules apply after 2010.
• After a one-year hiatus, the estate tax will be reinstated for 2011 and 2012, with a top rate of 35% and a step-up in basis. The exemption amount will be $5 million per individual in 2011 and will be indexed to inflation in following years. Estates of people who died in 2010 can choose to follow either 2010′s or 2011′s rules.
We hope this information is helpful. If you would like more details about these provisions or any other aspect of the new law, please do not hesitate to email or call us.
The Internal Revenue Service today issued the 2011 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on Jan. 1, 2011, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study.
A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for any vehicle used for hire or for more than four vehicles used simultaneously.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
Revenue Procedure 2010-51 contains additional details regarding the standard mileage rates.
