Fiscal Cliff Tax Act

Summarized from an AICPA article by Paul Bonner and Alistair M. Nevius

With some modifications targeting the wealthiest Americans with higher taxes, the American Taxpayer Relief Act  permanently extends provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), and Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA). It also permanently takes care of Congress’s perennial job of “patching” the alternative minimum tax (AMT). It  temporarily extends many other tax provisions that had lapsed at midnight on Dec. 31 and others that had expired a year earlier.

Among the tax items not addressed by the act was the temporary lower 4.2% rate for employees’ portion of the Social Security payroll tax, which was not extended and has reverted to 6.2%.

Here are the act’s main tax features:

Individual tax rates – All the individual marginal tax rates under EGTRRA and JGTRRA are retained (10%, 15%, 25%, 28%, 33%, and 35%). A new top rate of 39.6% is imposed on taxable income over $400,000 for single filers, $425,000 for head-of-household filers, and $450,000 for married taxpayers filing jointly.

Phaseout of itemized deductions and personal exemptions – phaseout is reinstated at a higher threshold of $250,000 for single taxpayers, $275,000 for heads of household, and $300,000 for married taxpayers filing jointly.

Capital gains and dividends – 20% rate applies to capital gains and dividends for individuals above the top income tax bracket threshold; the 15% rate is retained for taxpayers in the middle brackets. The zero rate is retained for taxpayers in the 10% and 15% brackets.

Alternative minimum tax – exemption amount permanently indexed for inflation. For 2012, the exemption amounts are $78,750 for married taxpayers filing jointly and $50,600 for single filers.

Estate and gift tax – exclusion amount is retained at $5 million indexed for inflation ($5.12 million in 2012), but the top tax rate increases from 35% to 40% effective Jan. 1, 2013. The estate tax “portability” election was made permanent by the act.

Permanent extensions of various temporary tax provisions

  • Marriage filing jointly penalty relief
  • The liberalized child and dependent care credit rules
  • Expanded adoption credit and adoption-assistance program amounts
  • The higher contribution amount to Coverdell education savings accounts
  • The employer-provided child care credit
  • Others (see original AICPA article)

Individual credits expired at the end of 2012

The American opportunity tax credit for qualified tuition and other expenses of higher education was extended through 2017 as well as enhanced provisions of the child tax credit under and the earned income tax credit. In addition, the bill permanently extends a rule excluding from taxable income refunds from certain federal and federally assisted programs.

Individual provisions expired at the end of 2011

The act also extended through 2013 a number of temporary individual tax provisions, most of which expired at the end of 2011:

  • Deduction for educator expenses
  • Exclusion of discharge of qualified principal residence indebtedness
  • Mortgage insurance premiums treated as qualified residence interest
  • Deduction of state and local general sales taxes
  • Special rule for contributions of capital gain real property made for conservation purposes
  • Above-the-line deduction for qualified tuition and related expenses
  • Tax-free distributions from individual retirement plans for charitable purposes
  • Others (see original AICPA article)

Business tax extenders through 2013

  • Credit for increasing R & D activities including modification for more inclusion
  • Increased expensing amounts under Sec. 179
  • 50% first-year bonus depreciation
  • Work opportunity tax credit
  • Enhanced charitable deduction for contributions of food inventory
  • Temporary exclusion of 100% of gain on certain small business stock
  • Basis adjustment to stock of S corporations making charitable contributions of property
  • Reduction in S corporation recognition period for built-in gains tax
  • Fifteen-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements
  • Others (see original AICPA article)

Energy tax extenders extended through 2013

  • Credit for energy-efficient existing homes, new homes and appliances
  • Alternative fuels excise tax credits
  • Incentives for biodiesel and renewable diesel
  • Others (see original AICPA article)

New taxes – took effect Jan. 1 as a result of 2010’s health care reform legislation.

Additional hospital insurance tax on high-income taxpayers –employee portion of Medicare withholding which is normally 1.45% of wages, is increased by 0.9% on combined wages that exceed the $250,000 threshold amount for joint or surviving spouse filers and $200,000 for single filers.

For self-employed taxpayers, the same additional hospital insurance tax applies to the hospital insurance portion of SECA tax on self-employment income in excess of the threshold amount.

Medicare tax on investment income. Sec. 1411 imposes a tax on individuals equal to 3.8% of the lesser of the individual’s net investment income for the year or the amount the individual’s modified adjusted gross income (AGI) exceeds a threshold amount. For estates and trusts, the tax equals 3.8% of the lesser of undistributed net investment income or AGI over the dollar amount at which the highest trust and estate tax bracket begins.

For married individuals filing a joint return and surviving spouses, the threshold amount is $250,000 and it is $200,000 for singles and head of households.

Net investment income means investment income reduced by allowable deductions. Investment income includes income from interest, dividends, annuities, royalties, and rents, and net gain from disposition of property, other than such income derived in the ordinary course of a trade or business.

Medical care itemized deduction threshold –threshold for the itemized deduction for unreimbursed medical expenses has increased from 7.5% of AGI to 10% of AGI. There is an exemption from the 10% floor for taxpayers turning 65 in the years 2013–2016.

Health flexible spending arrangement. Effective for cafeteria plan years beginning after Dec. 31, 2012, the maximum annual amount of salary reduction contributions that an employee may elect to have made to a flexible spending arrangement is $2,500.

Posted in Tax | Comments Off on Fiscal Cliff Tax Act

12 Tasks to Finish Before Noon

Summarized from an article by Jada A. Graves, U.S. News and World Report.

A recent study published in an American Psychological Association journal, Emotion, suggests that early birds are generally happier than night owls.

Self-professed “morning people” reported feeling happier and healthier than  night owls. Researchers hypothesize that one of the reasons could be because society caters to a morning person’s schedule.

Those who like rising with the sun are also the most productive employees in the office.  Take note of the tasks these high-functioning, productive, and more awake employees have completed before lunch:

1. Make a work to-do list the day before.  The opportune time to plan a day’s tasks is the night before. If you make your to-do schedule in the morning, you will lose office time writing it. Doing it the night before will also help you sleep better.

2. Get a full night’s rest. Lack of sleep affects your concentration level, and therefore, your productivity. Most health experts advise getting a  minimum eight hours of shut-eye each night.

3. Avoid hitting snooze. Petitioning for nine more minutes, then nine more, then another nine is a slippery slope that leads to falling back asleep and falling behind on your morning prep.  Ultimately it also leads to lateness. Set your alarm clock a little bit earlier and get out of bed on the first alarm.

4. Exercise. Schedule your Pilates class for the a.m. instead of after work. Exercise improves mood and energy levels and there have been studies done on employees who’ve exercised before work or during the work day.  Those employees have been found to have better time-management skills, an improved mental sharpness and be more patient with their peers.

5. Practice a morning ritual. Institute a morning routine aside from your exercise routine.  Whether you opt to meditate, read the newspaper, or surf the Web, it’s important to have that quiet time with just you.

6. Eat breakfast. Food provides the fuel you’ll need to concentrate, and breakfast is particularly important since it recharges you after you’ve fasted all night. Try munching on something light  and healthy in the morning, and avoid processed carbs that could zap your energy.

7. Arrive at the office on time. If you’re not a new employee, then you’ve already figured out the length of your average commute.  Allot a safe amount of time to make it to work on schedule.

8. Check in with the boss and/or employees. If your closest work associates aren’t productive, then neither are you. Good workers set priorities that align with their company’s goals, and they’re transparent about their progress.

9. Tackle the big projects first. You can dive right into work upon arriving in the office, since you made your to-do list the night before. Start with the hardest tasks.  Don’t jump into meaningless projects when you’re at your mental peak for the day.

10. Avoid morning meetings. If you have any say on meeting times, schedule them in the afternoon.  You should use your prime skills during the morning which is most productive time of the day. Scheduling morning meetings could rob employees of their peak performance, and ultimately cost the company.

The exception to this is if your meeting is the most important task of the day. Sometimes you have to schedule a crucial meeting, or a client meeting, in which case you’d want to plan for a time when employees are at their peak.

11. Allot time for following up on messages. Discern between mindless email/voicemail checking and conducting important business. Checking your inbox every couple of minutes takes time away from important tasks. Instead, set a schedule to check and respond to email in increments.  Consider doing so at the top of each hour, to ensure that clients and colleagues receive prompt responses from you.

12. Take a mid-morning break. Get up and stretch your legs or stay seated and indulge in a little Internet surfing.  Don’t abuse this privilege. You should take 10-minute breaks occasionally. Companies that ban any kind of social media use, texting, or personal calls will find it to be detrimental.

Posted in Productivity | Comments Off on 12 Tasks to Finish Before Noon

Reconcile Your Credit Card Statements

Properly accounting for and reconciling credit card statements are good accounting practices and part of a fraud prevention and detection program.

QuickBooks will keep track of your credit card purchases much the same way that it keeps track of activity for your bank statement.

The QuckBooks credit card register columns are even aptly labeled “Charge” and “Payment”.  After your activity is recorded, you can reconcile just like you do (or should) with your bank statement.  It also makes paying and coding the payment of the credit card very easy, especially for those who chose not to payoff the full balance each month.

To setup and use credit cards in QuickBooks:

  1. Add a new account to the chart of accounts named similar to your credit card, such as “Bank of the Month Credit Card x5248”.  It will be a [Credit Card] type of account.
  2. Using the credit card register or the [Enter Credit Card Charges] form, record all transactions from actual credit card receipts by date and vendor instead of recording transactions directly from the credit card statement.  This will help you better identify fraudulent transactions. 
  3. Resist the urge to download activity from the credit card company unless you have already recorded the activity and you are using the download to “match” your transactions.
  4. Make payments on the credit card balance by simply coding the payment to the credit card account.  No other coding is necessary since the expenses are accounted for when the charge is recorded from the receipt.
  5. Reconcile the credit card statement using the QuickBooks reconcile credit card feature.  Question activity on the statement that you have not already recorded in terms of fraud or address poor bookkeeping practices or tweak policies to get credit card activity recorded in “near real time” instead of at the end of the month.

Credit card charges for cash basis taxpayers are deductible in the year they are charged, not the year they are paid for. Recording individual credit card charges in QuickBooks will properly report your deductions in the appropriate year and possibly accelerate a deduction that you would have inadvertently deferred a year.

Posted in Fraud, QuickBooks, Tax | Comments Off on Reconcile Your Credit Card Statements

Excel Custom Lists

Using lists in Excel can be very efficient.  Just type the the first item in the list in a cell, such as “Jan” and then grab the fill handle and drag to the right to complete the rest of the months.  These built-in lists (e.g., day-of-the-week, month-of-the year) cannot edited or deleted. . 

However, you can also create your own custom lists, and use them to sort or fill, especially when you find yourself entering the same sequence of name or labels each time you start an Excel worksheet.  For example, if you want to sort or fill by the following lists, you need to create a custom list, because there is no natural order.

Custom list examples:

  • High, Medium, Low
  • Dr. Sure, Dr. Able, Dr. Bill, Dr. More
  • North, South, East, and West
  • Senior Sales Manager, Regional Sales Manager, Department Sales Manager, and Sales Representative

Note:   A custom list can only contain text or text mixed with numbers. Numbers must be formatted as text.

There are two ways to create a custom list. If your custom list is short, you can type the values directly in the dialog box. If your custom list is long, you can import it from a range of cells (not shown here).

  1. Click the Microsoft Office Button Button image, and then click [Excel Options].
  2. Click the [Popular] category, and then under Top options for working with Excel, click [Edit Custom Lists].
  3. In the Custom Lists box, click [NEW LIST], and then type the entries in the List entries box, beginning with the first entry. Press [ENTER] after each entry.
  4. When the list is complete, click [Add].  The items in the list that you selected are added to the Custom lists box.
  5. Click [OK] twice.
Posted in Chip IT | Comments Off on Excel Custom Lists

Congress Votes to Repeal New 1099 Requirement

The Senate and House have approved a measure that would repeal the expanded Form 1099 reporting requirements that were part of last year’s health care law. The move has broad support because the Form 1099 rules, which are set to require businesses to report any purchases of more than $600 of goods and services from vendors in a year to the Internal Revenue Service, are expected to increase accounting costs for small businesses. The AICPA supports repeal of the expanded Form 1099 reporting requirements; however, it has asked the Treasury Department for guidance on several pressing issues if the rules are not repealed.

From CPA Lettter Daily

Posted in Tax | Comments Off on Congress Votes to Repeal New 1099 Requirement

Section 199 Manufacturing Deduction

If your business didn’t meet the requirements in the past to claim a manufacturing deduction or you determined that it wasn’t worth the time, maybe you should reconsider it.  One of the most compelling reasons is because the 9% deduction is now three time the original rate of 3%.

That percentage is applied to Qualified Production Activity Income or taxable income, whichever is less and limited to 50% of related W-2 wages The qualifying production activities, in general, must also be performed in the U.S.

The following lines of business may qualify:

  • Construction services, including related engineering and architectural services
  • Manufacture, production, growth or extraction of tangible personal property, computer software or sound recordings or qualified films
  • Production of electricity, natural gas or potable water

The calculation requires allocation of gross receipts between qualified and non-qualified production activities.  Then an allocation of expenses must be made.  In some circumstances, the taxpayer may qualify for the Simplified Deduction Method or the Small Business Simplified Method.

If you think you may qualify, please contact us for an in depth analysis.

Posted in Tax | Comments Off on Section 199 Manufacturing Deduction

QuickBooks 2008 and Payroll Tax Expiration

After May 31, 2011, QuickBooks (QB) will stop providing payroll tax table updates for any users on QuickBooks 2008.  This means that tax withholding and match computations with go to zero on 06/01/11 if you don’t upgrade to QB 2011.

In general, QB only supports the 3 most current versions of QB (2011, 2010 & 2009).  2008 is currently in the grace period that began in October 2010 when 2011 was officially released.

If you are not using the payroll function, then you are not required to upgrade to 2011 and you can continue to use versions prior to 2009.  However, it is generally a good idea to upgrade every few years to take advantage of improvements to the programs functionality and new features the may enhance productivity.

Posted in QuickBooks | Comments Off on QuickBooks 2008 and Payroll Tax Expiration

Medicare Part B Now Deductible as SE Health Ins.

According to page 29 of the 2010 Form 1040 Instructions, “Medicare Part B premiums can be used to figure the [Self-Employed Health Insurance] deduction”

That’s a change from 2009 Form 1040 instruction where on page 39, it stated “Medicare premiums cannot be used to figure the deduction.”

Posted in Tax | Comments Off on Medicare Part B Now Deductible as SE Health Ins.

IRS Agents Requesting QuickBooks Data File

IRS agents are being instructed to obtain a copy of the taxpayer’s QuickBooks data file for examinations. This will not be done in all examinations.  If the taxpayer refuses to provide the file, thier suspicion level would be raised and a summons to obtain the information may be issued. The agents are instructed to review only the information for the year under audit unless they decide to expand the examination to prior years.  

During a recent examination in December, the revenue agent requested a copy of the QB file and password. He told me that one of the things they will be specifically reviewing is the QB audit trail. He said they want to see if there were any significant changes to the transaction coding in the days leading up to the audit appointment (maybe beginning with the time period around the date of examination notification). Luckily for my client they had nothing to hide.  

The IRS has purchased 1,500 to 2,000 licenses from Intuit and will have one agent trained and licensed per group to assist others in the examination of taxpayers who use QuickBooks

So be reminded that beginning with QB 2006, the “audit trail is always on”. If you keep everything on the up and up, you shouldn’t have anything to worry about.

Posted in QuickBooks, Tax | Leave a comment

Excel Quick Tip: =sum() Short Cut

If you ever work in Excel, you might occasionally need to use the =sum() formula to sum a column or row of numbers-without your 10-Key 😉  If so, you’ll love adding this shortcut to your repertoire.

  1. Highlight a cell where you need an =sum() formula (that’s translated @sum() for you Lotus veterans)
  2. Press and hold [Alt] then press [+] to start the =sum() formula
  3. Excel will try to guess the range you are trying to sum.  If it is right, then simply hit enter.  Excel is a better “guesser” when the cell is directly adjacent to the cells to be summed.
  4. If Excel doesn’t get it right, then use your mouse to paint the correct range and hit [Enter] OR use your arrow keys to navigate to the beginning of the range and then press and hold down the [Shift] key to paint the range, then release shift and hit [Enter].

I use this shortcut all the time and once you get used to the idiosyncrasies of making it work for you quickly, it can be very efficient.

Posted in Chip IT | Leave a comment