Larry, my mom and I have a joint IRA. She is 73 years old and I am 45 years old. How do we figure out how much of it is taxable to each of us?
Helen
Helen, there is a problem here. There is no such thing as a joint IRA. You need to call up your financial advisor and find out more about the account. It is possible that you’re the beneficiary of your mom’s IRA – that’s a whole other matter. If that is the case, it’s taxable to your mom during her lifetime and then it passes to you at her death. But you can’t own an IRA together during her lifetime.
Larry Kopsa CPA
Friday, April 30, 2010
Thursday, April 29, 2010
JUST FOR FUN
See what happened the year you were born by clicking on the following site:
http://www.angelfire.com/ak2/intelligencerreport/click_year.html
http://www.angelfire.com/ak2/intelligencerreport/click_year.html
IRA WITHDRAWALS
I filed an extension and am working on my 2009 tax return. Last year, I cashed in my IRA to pay off some doctor bills. I lost my job and couldn’t pay but I did have my IRA so I used that to pay. I used the whole thing. Now going through my papers I found that I got a 1099 that says that it is all taxable. Please help because I thought it was not taxed if you use it to pay the hospital. Thank you.
Al
Bad news Al. Amounts you withdraw from a traditional IRA are generally taxable in the year you withdraw them, no matter what the reason for the withdrawal.
There is more bad news. If you’re under age 59 1/2, you may be subject to a 10% additional tax plus possibly a state surtax. There are a few exceptions to the additional tax rule. This is what may have confused you. You can avoid the 10% additional tax (not the regular tax) if your IRA withdrawals are equal to or less than your deductible medical expenses. This means if you had medical expenses greater than 7.5% of your adjusted gross income (the number at the bottom of page one of your return).
But there’s no exception for medical expenses that would allow you to escape taxation of your entire IRA. Sorry.
Larry Kopsa CPA
Al
Bad news Al. Amounts you withdraw from a traditional IRA are generally taxable in the year you withdraw them, no matter what the reason for the withdrawal.
There is more bad news. If you’re under age 59 1/2, you may be subject to a 10% additional tax plus possibly a state surtax. There are a few exceptions to the additional tax rule. This is what may have confused you. You can avoid the 10% additional tax (not the regular tax) if your IRA withdrawals are equal to or less than your deductible medical expenses. This means if you had medical expenses greater than 7.5% of your adjusted gross income (the number at the bottom of page one of your return).
But there’s no exception for medical expenses that would allow you to escape taxation of your entire IRA. Sorry.
Larry Kopsa CPA
Wednesday, April 28, 2010
A SALON STATISTIC
According to a report by Milady, one of the premier education organizations for salons, the average price for a women's hair cut (including blow dry and styling) in the US is $38.01.
HEALTH CARE BILL PROVIDES A MORAL DILEMMA
Remember that our elected officials were told to pass the bill and then they could find out what is in it. Crazy way to create such a huge government program. We now know that in a couple of years you will be required to have health insurance. If you don’t there will be a fine that you will have to pay when you file your income tax return. The problem is that apparently there is no penalty for failing to pay this fine. Here is the wording according to Congress’s Joint Committee on Taxation:
The penalty applies to any period the individual does not maintain minimum essential coverage and is determined monthly. The penalty is assessed through the Code and accounted for as an additional amount of Federal tax owed. However, it is not subject to the enforcement provisions of subtitle F of the Code. The use of liens and seizures otherwise authorized for collection of taxes does not apply to the collection of this penalty. Non-compliance with the personal responsibility requirement to have health coverage is not subject to criminal or civil penalties under the Code and interest does not accrue for failure to pay such assessments in a timely manner.
Think about it. Without effective enforcement of the individual mandate, and with proscriptions against denying coverage on preexisting conditions, you've got yourself the potential for a pretty big moral hazard. A young person might just say, “I don’t want to pay the fine since there is no penalty and if I get sick they can’t deny coverage.” And remember… it is the IRS that has to make the determination.
Pass the bill to find out what is in it. Or what ain't.
Watch for our upcoming FREE WEBINAR on health care after we have had a chance to digest the new law.
Larry Kopsa CPA
The penalty applies to any period the individual does not maintain minimum essential coverage and is determined monthly. The penalty is assessed through the Code and accounted for as an additional amount of Federal tax owed. However, it is not subject to the enforcement provisions of subtitle F of the Code. The use of liens and seizures otherwise authorized for collection of taxes does not apply to the collection of this penalty. Non-compliance with the personal responsibility requirement to have health coverage is not subject to criminal or civil penalties under the Code and interest does not accrue for failure to pay such assessments in a timely manner.
Think about it. Without effective enforcement of the individual mandate, and with proscriptions against denying coverage on preexisting conditions, you've got yourself the potential for a pretty big moral hazard. A young person might just say, “I don’t want to pay the fine since there is no penalty and if I get sick they can’t deny coverage.” And remember… it is the IRS that has to make the determination.
Pass the bill to find out what is in it. Or what ain't.
Watch for our upcoming FREE WEBINAR on health care after we have had a chance to digest the new law.
Larry Kopsa CPA
Tuesday, April 27, 2010
INFORMATION ON THE NEW HIRE ACT
There is more going on in Washington than the Health Care debate. The President recently signed into law the “Hiring Incentives to Restore Employment Act of 2010”. The centerpiece of this Act is a payroll tax holiday and up-to-$1,000 tax credit for businesses that hire unemployed workers. As I mentioned in another blog entry, the HIRE Act also includes a one-year extension of the enhanced small business expensing option which is referred to as Section 179 deduction. Both of these provisions are extremely important to many businesses.
Here is an overview of two key tax changes affecting business in the recently enacted Hiring Incentives to Restore Employment (HIRE) Act. Please email if you have any questions.
Payroll tax holiday and up-to-$1,000 credit for employers who hire unemployed workers. To help stimulate the hiring of workers by the private sector, the new law exempts any private-sector employer that hires a worker who had been unemployed for at least 60 days from having to pay the employer's 6.2% share of the Social Security payroll tax on that employee for the remainder of 2010. As an additional incentive, for any qualifying worker hired under this initiative that the employer keeps on payroll for a continuous 52 weeks, the employer is eligible for an additional non-refundable tax credit of up to $1,000 after the 52-week threshold is reached, to be taken on their 2011 tax return. In order to be eligible, the employee's pay in the second 26-week period must be at least 80% of the pay in the first 26-week period.
Workers hired after the date of introduction of the legislation (Feb. 3, 2010) are eligible for the payroll tax forgiveness and the retention bonus, but only wages paid after March 18 receive the exemption for payroll taxes. Some additional features of the new hiring incentive include:
• The tax benefit of the new incentive is immediate. It puts money into a business' cash flow immediately, since the tax is simply not collected in the first place.
• The tax benefit generally applies only to private-sector employment, including nonprofit organizations—public sector jobs are generally not eligible for either benefit. However, employment by a public higher education institution qualifies.
• There is no minimum weekly number of hours that the new employee must work for the employer to be eligible, and there is no limit on the dollar amount of payroll taxes per employer that may be forgiven.
• For workers that would otherwise be eligible for the Work Opportunity Tax Credit (i.e., another type of employment tax credit), the employer must select one benefit or the other for 2010. There is no double dipping.
• An employer can't claim the new tax breaks for hiring family members.
• A worker who replaces another employee who performed the same job for the employer isn't eligible for the benefit, unless the prior employee left the job voluntarily or for cause.
• For the hiring to qualify, the new hire must sign an affidavit, under penalties of perjury, stating that he or she hasn't been employed for more than 40 hours during the 60-day period ending on the date the employment begins.
• The incentive isn't biased towards either low-wage or high-wage workers. Under the measure, a business saves 6.2% on both a $40,000 worker and a $90,000 worker.
• The payroll tax holiday doesn't apply with respect to wages paid during the first calendar quarter of 2010, but the amount by which the Social Security payroll tax would have been reduced under the payroll tax holiday provision during the first calendar quarter is applied against the tax imposed on the employer for the second calendar quarter of 2010.
• The Act creates a similar new set of rules allowing a payroll tax holiday for railroad retirement tax purposes.
• The credit for retaining qualifying new hires is the lesser of $1,000 or 6.2% of the wages paid by the taxpayer to the retained worker during the 52-consecutive-week period. Thus, the credit for a retained worker will be $1,000 if, disregarding rounding, the retained worker's wages during the 52-consecutive-week period exceed $16,129.03. However, the credit isn't available for pay not treated as wages under the Code (e.g., remuneration paid to domestic workers).
Extension of enhanced small business expensing. The new law gives a one-year lease on life to enhanced expensing rules, which allow qualifying businesses the option to currently deduct the cost of business machinery and equipment, instead of recovering it via depreciation over a number of years. For tax years beginning in 2010, the maximum amount that a business may expense is $250,000, and the expensing election begins to phase out when a business buys more than $800,000 of expensing-eligible assets. These dollar limits are the same as those that were in effect for 2008 and 2009. Had the HIRE Recovery Act not been passed and signed into law, these dollar limits would have dropped this year to $134,000 and $530,000 respectively.
I 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.
Larry Kopsa CPA
Here is an overview of two key tax changes affecting business in the recently enacted Hiring Incentives to Restore Employment (HIRE) Act. Please email if you have any questions.
Payroll tax holiday and up-to-$1,000 credit for employers who hire unemployed workers. To help stimulate the hiring of workers by the private sector, the new law exempts any private-sector employer that hires a worker who had been unemployed for at least 60 days from having to pay the employer's 6.2% share of the Social Security payroll tax on that employee for the remainder of 2010. As an additional incentive, for any qualifying worker hired under this initiative that the employer keeps on payroll for a continuous 52 weeks, the employer is eligible for an additional non-refundable tax credit of up to $1,000 after the 52-week threshold is reached, to be taken on their 2011 tax return. In order to be eligible, the employee's pay in the second 26-week period must be at least 80% of the pay in the first 26-week period.
Workers hired after the date of introduction of the legislation (Feb. 3, 2010) are eligible for the payroll tax forgiveness and the retention bonus, but only wages paid after March 18 receive the exemption for payroll taxes. Some additional features of the new hiring incentive include:
• The tax benefit of the new incentive is immediate. It puts money into a business' cash flow immediately, since the tax is simply not collected in the first place.
• The tax benefit generally applies only to private-sector employment, including nonprofit organizations—public sector jobs are generally not eligible for either benefit. However, employment by a public higher education institution qualifies.
• There is no minimum weekly number of hours that the new employee must work for the employer to be eligible, and there is no limit on the dollar amount of payroll taxes per employer that may be forgiven.
• For workers that would otherwise be eligible for the Work Opportunity Tax Credit (i.e., another type of employment tax credit), the employer must select one benefit or the other for 2010. There is no double dipping.
• An employer can't claim the new tax breaks for hiring family members.
• A worker who replaces another employee who performed the same job for the employer isn't eligible for the benefit, unless the prior employee left the job voluntarily or for cause.
• For the hiring to qualify, the new hire must sign an affidavit, under penalties of perjury, stating that he or she hasn't been employed for more than 40 hours during the 60-day period ending on the date the employment begins.
• The incentive isn't biased towards either low-wage or high-wage workers. Under the measure, a business saves 6.2% on both a $40,000 worker and a $90,000 worker.
• The payroll tax holiday doesn't apply with respect to wages paid during the first calendar quarter of 2010, but the amount by which the Social Security payroll tax would have been reduced under the payroll tax holiday provision during the first calendar quarter is applied against the tax imposed on the employer for the second calendar quarter of 2010.
• The Act creates a similar new set of rules allowing a payroll tax holiday for railroad retirement tax purposes.
• The credit for retaining qualifying new hires is the lesser of $1,000 or 6.2% of the wages paid by the taxpayer to the retained worker during the 52-consecutive-week period. Thus, the credit for a retained worker will be $1,000 if, disregarding rounding, the retained worker's wages during the 52-consecutive-week period exceed $16,129.03. However, the credit isn't available for pay not treated as wages under the Code (e.g., remuneration paid to domestic workers).
Extension of enhanced small business expensing. The new law gives a one-year lease on life to enhanced expensing rules, which allow qualifying businesses the option to currently deduct the cost of business machinery and equipment, instead of recovering it via depreciation over a number of years. For tax years beginning in 2010, the maximum amount that a business may expense is $250,000, and the expensing election begins to phase out when a business buys more than $800,000 of expensing-eligible assets. These dollar limits are the same as those that were in effect for 2008 and 2009. Had the HIRE Recovery Act not been passed and signed into law, these dollar limits would have dropped this year to $134,000 and $530,000 respectively.
I 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.
Larry Kopsa CPA
SALON/SPA PERFORMANCE INDEX
The Professional Beauty Association (PBA) just announced their Quarterly Salon/Spa Performance Index (SSPI) for the fourth quarter of 2009. The index rose for the third consecutive quarter to 102.6 up from 101.9 in the third quarter. The increase was driven by improvement in service sales and customer visits. Retail sales are still lagging from the prior year. Salon and spa owners are optimistic about 2010 with 72% expecting higher sales.
PBA is a great organization. All salons should belong. Check out their website at http://www.probeautyassociation.org.
PBA is a great organization. All salons should belong. Check out their website at http://www.probeautyassociation.org.
QUOTE OF THE WEEK
"Even the early Chinese understood the value of mentoring.
A single conversation across the table with a wise man is worth a month's study of books."
--Chinese proverb
A single conversation across the table with a wise man is worth a month's study of books."
--Chinese proverb
Monday, April 26, 2010
TAX CREDITS
Over the years the government has put so many tax credits in the tax law that it is hard to keep track of all of them. Here is a cool tool that you can use to make sure that you have not missed any credits. http://www.whitehouse.gov/recovery/tax-saving-tool
Friday, April 23, 2010
SENATOR JOHANNS EXPLAINS HEALTH CARE LEGISLATION
Senator Johanns has a good video explaining in 4 minutes how the health care bill will pass through Congress. I thought you might be interested. Clients seem to be asking what next.
Click here to view: Status of Health Care Legislation
Click here to view: Status of Health Care Legislation
Wednesday, April 21, 2010
HEALTH CARE REFORM ACT - A FEW KEY TAX CHANGES
The following is a letter we sent to our clients regarding the recently passed Health Care Reform Act:
RE: Health Care Reform is Also Tax Reform
As I am sure you are aware, Congress just passed the massive Health Care Reform Act. You may not know that the bill includes many tax law changes that the Congressional Budget Office says the IRS will need $10 billion and 17,000 new employees to enforce its share of the new rules? It's true! Here are just a few key tax changes:
• Starting this year, certain small businesses with fewer than 10 employees will get a 35% credit for the cost of providing employee health benefits.
• Starting in 2011, employers will have to report the value of health benefits on Form W-2.
• The penalty tax for Health Savings Account distributions not used for health care expenses doubles, to 20%. This will discourage using HSAs for supplemental retirement savings.
• Starting in 2013, the 7.5% floor for deducting medical and dental expenses climbs to 10% (unless you or your spouse are 65 or older, in which case it remains at 7.5% until 2016).
• Healthcare flexible spending account contributions are capped at $2,500 per year.
• Starting in 2014, businesses with more than 50 employees will have to offer health benefits or pay a penalty of $2,000 per employee.
The reconciliation bill that accompanied the act includes one more unwelcome change. Currently, the Medicare tax is limited to 2.9% of earned income. The reconciliation bill raises that tax by 0.9% of earned income above $200,000 (individuals) or $250,000 (families). It also adds a 3.8% "Unearned Income Medicare Contribution" on investment income (interest, dividends, annuities, royalties, capital gains, and rents) for taxpayers with Adjusted Gross Incomes above those same thresholds. Those new taxes would take effect in 2013.
The complete bill is 1,018 pages long! So it's going to take some time to analyze. But we'll pay close attention and keep you informed as details become available. Watch our website for our upcoming FREE Health Care Reform Webinar. You may also check out our Small Business Health Care Tax Credit Savings Worksheet on our webite. In the meantime, if you have any questions, be sure to call us at 1.800.975.4829.
It is a pleasure serving you.
Larry Kopsa CPA
RE: Health Care Reform is Also Tax Reform
As I am sure you are aware, Congress just passed the massive Health Care Reform Act. You may not know that the bill includes many tax law changes that the Congressional Budget Office says the IRS will need $10 billion and 17,000 new employees to enforce its share of the new rules? It's true! Here are just a few key tax changes:
• Starting this year, certain small businesses with fewer than 10 employees will get a 35% credit for the cost of providing employee health benefits.
• Starting in 2011, employers will have to report the value of health benefits on Form W-2.
• The penalty tax for Health Savings Account distributions not used for health care expenses doubles, to 20%. This will discourage using HSAs for supplemental retirement savings.
• Starting in 2013, the 7.5% floor for deducting medical and dental expenses climbs to 10% (unless you or your spouse are 65 or older, in which case it remains at 7.5% until 2016).
• Healthcare flexible spending account contributions are capped at $2,500 per year.
• Starting in 2014, businesses with more than 50 employees will have to offer health benefits or pay a penalty of $2,000 per employee.
The reconciliation bill that accompanied the act includes one more unwelcome change. Currently, the Medicare tax is limited to 2.9% of earned income. The reconciliation bill raises that tax by 0.9% of earned income above $200,000 (individuals) or $250,000 (families). It also adds a 3.8% "Unearned Income Medicare Contribution" on investment income (interest, dividends, annuities, royalties, capital gains, and rents) for taxpayers with Adjusted Gross Incomes above those same thresholds. Those new taxes would take effect in 2013.
The complete bill is 1,018 pages long! So it's going to take some time to analyze. But we'll pay close attention and keep you informed as details become available. Watch our website for our upcoming FREE Health Care Reform Webinar. You may also check out our Small Business Health Care Tax Credit Savings Worksheet on our webite. In the meantime, if you have any questions, be sure to call us at 1.800.975.4829.
It is a pleasure serving you.
Larry Kopsa CPA
A GREAT READ FOR NEW BUSINESS OWNERS
Larry, I attended your session at the ABS show in Chicago. Fantastic. It is the first time I have not fallen asleep listening to a business talk. What I am wondering is that you mentioned the name of a book that a new business owner should read and I can’t find the name. Do you remember?
Augustine
Augustine, thanks for the compliment. You made my day. I know that if I can keep my audience entertained they may just learn something. It is called “edutainment.” Here is the book that I recommended. It is also a good book for existing owners. Knowledge Is Power!
The E Myth Revisited
By Michael E. Gerber
Larry Kopsa CPA
Augustine
Augustine, thanks for the compliment. You made my day. I know that if I can keep my audience entertained they may just learn something. It is called “edutainment.” Here is the book that I recommended. It is also a good book for existing owners. Knowledge Is Power!
The E Myth Revisited
By Michael E. Gerber
Larry Kopsa CPA
Tuesday, April 20, 2010
START PLANNING NOW FOR THE NEW MEDICARE SURTAX
I have been getting queries on the Medicare surtax, which is the the key revenue raiser in the new health reform law. First, the new tax does not take effect until 2013 but now is the time to start planning. Here is how the surtax works and how it will affect your tax planning strategies.
There are actually two surtaxes in the law:
• The first is a 0.9% levy on earned income, covering wages and income from self-employment. Singles owe the 0.9% surtax once total earnings are more than $200,000 - couples…over $250,000. That makes the effective Medicare tax on earnings over the thresholds 3.8%...the usual 2.9% rate plus the 0.9% surtax. In addition, self-employed taxpayers will not be able to deduct the surtax as part of their deduction for half their SECA tax.
• The second surtax is a special 3.8% Medicare surtax on unearned income of single filers with modified adjusted gross income (AGI) over $200,000 and joint filers above $250,000. Modified AGI is AGI less any excluded foreign earned income. The surtax is levied on the smaller of the filer’s net investment income or the excess of modified AGI over the thresholds. Investment income includes interest, dividends, capital gains, annuities, royalties and passive rental income, but not tax free interest or payouts from retirement plans such as regular IRAs, Roths, profit sharing plans and defined benefit plans.
For example: A couple with $50,000 of investment income and AGI of $270,000 will pay $760 (3.8% on the $20,000 excess over $250,000.) A single taxpayer with AGI of $300,000 and $50,000 of investment income will pay an additional $1,900 (3.8% of $50,000.)
Note the effect on capital gains and dividends. The maximum rate on both is currently 15%. If Congress adopts Obama’s budget plan to let the top rate rise to 20% for taxpayers, the surtax would effectively bump it to 23.8%. However, if Congress lets dividends be taxed as ordinary income again and sets the top rate at 39.6%, the surtax makes the maximum rate 43.4%, nearly triple the current levy. Add to that state taxes and you are well over a 50% tax rate.
Larry Kopsa CPA
There are actually two surtaxes in the law:
• The first is a 0.9% levy on earned income, covering wages and income from self-employment. Singles owe the 0.9% surtax once total earnings are more than $200,000 - couples…over $250,000. That makes the effective Medicare tax on earnings over the thresholds 3.8%...the usual 2.9% rate plus the 0.9% surtax. In addition, self-employed taxpayers will not be able to deduct the surtax as part of their deduction for half their SECA tax.
• The second surtax is a special 3.8% Medicare surtax on unearned income of single filers with modified adjusted gross income (AGI) over $200,000 and joint filers above $250,000. Modified AGI is AGI less any excluded foreign earned income. The surtax is levied on the smaller of the filer’s net investment income or the excess of modified AGI over the thresholds. Investment income includes interest, dividends, capital gains, annuities, royalties and passive rental income, but not tax free interest or payouts from retirement plans such as regular IRAs, Roths, profit sharing plans and defined benefit plans.
For example: A couple with $50,000 of investment income and AGI of $270,000 will pay $760 (3.8% on the $20,000 excess over $250,000.) A single taxpayer with AGI of $300,000 and $50,000 of investment income will pay an additional $1,900 (3.8% of $50,000.)
Note the effect on capital gains and dividends. The maximum rate on both is currently 15%. If Congress adopts Obama’s budget plan to let the top rate rise to 20% for taxpayers, the surtax would effectively bump it to 23.8%. However, if Congress lets dividends be taxed as ordinary income again and sets the top rate at 39.6%, the surtax makes the maximum rate 43.4%, nearly triple the current levy. Add to that state taxes and you are well over a 50% tax rate.
Larry Kopsa CPA
Monday, April 19, 2010
NEW HIRING TAX INCENTIVE
As you probably know, the HIRE Act provided a new tax incentive if you hired a person that had been unemployed for 60 days. Now the IRS has issued a new form 941 to allow for the new law. Below is their announcement.
http://www.irs.gov/newsroom/article/0,,id=221036,00.html
http://www.irs.gov/newsroom/article/0,,id=221036,00.html
QUOTE OF THE WEEK
"Nearly all men can stand adversity,
but if you want to test a man’s character,
give him power."
Abraham Lincoln
Abraham Lincoln
Saturday, April 10, 2010
APRIL 15TH IS FAST APPROACHING – HERE IS THE SCOOP ON THE IRS PENALTIES
The tax filing deadline is approaching. If you don’t file your return and pay your tax by the due date you may have to pay a penalty. Here are nine things the IRS wants you to know about the two different penalties you may face if you do not pay or file on time.
1. If you do not file by the deadline, you might face a failure-to-file penalty.
2. If you do not pay by the due date, you could face a failure-to-pay penalty.
3. The failure-to-file penalty is generally more than the failure-to-pay penalty. So if you cannot pay all the taxes you owe, you should still file your tax return and explore other payment options in the meantime.
4. The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes.
5. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
6. You will have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes.
7. If you filed an extension and you paid at least 90 percent of your actual tax liability by the due date, you will not be faced with a failure-to-pay penalty if the remaining balance is paid by the extended due date.
8. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty. However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax.
9. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.
1. If you do not file by the deadline, you might face a failure-to-file penalty.
2. If you do not pay by the due date, you could face a failure-to-pay penalty.
3. The failure-to-file penalty is generally more than the failure-to-pay penalty. So if you cannot pay all the taxes you owe, you should still file your tax return and explore other payment options in the meantime.
4. The penalty for filing late is usually 5 percent of the unpaid taxes for each month or part of a month that a return is late. This penalty will not exceed 25 percent of your unpaid taxes.
5. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.
6. You will have to pay a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes for each month or part of a month after the due date that the taxes are not paid. This penalty can be as much as 25 percent of your unpaid taxes.
7. If you filed an extension and you paid at least 90 percent of your actual tax liability by the due date, you will not be faced with a failure-to-pay penalty if the remaining balance is paid by the extended due date.
8. If both the failure-to-file penalty and the failure-to-pay penalty apply in any month, the 5 percent failure-to-file penalty is reduced by the failure-to-pay penalty. However, if you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100% of the unpaid tax.
9. You will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.
Monday, April 5, 2010
ARE GIFTS TAXABLE?
I Hope You Can Help Me Out-
I had a person help me prepare my tax return this year and they told me that the $3,000 gift that I received from my Aunt is taxable. Usually I get a refund and because of this $3,000 I owe taxes. Is this right?
Heather
Heather, I suggest that you run from that tax preparer. True gifts that you receive from individuals are not taxable events. There might be some circumstances that I don’t understand. For example, if the person gave you something that you sold, there might be some tax ramifications but a true gift is not taxable. Can you imagine the havoc that Santa Clause would cause when he made Christmas gifts? Run from that preparer and find someone competent to prepare your tax return.
Larry Kopsa CPA
I had a person help me prepare my tax return this year and they told me that the $3,000 gift that I received from my Aunt is taxable. Usually I get a refund and because of this $3,000 I owe taxes. Is this right?
Heather
Heather, I suggest that you run from that tax preparer. True gifts that you receive from individuals are not taxable events. There might be some circumstances that I don’t understand. For example, if the person gave you something that you sold, there might be some tax ramifications but a true gift is not taxable. Can you imagine the havoc that Santa Clause would cause when he made Christmas gifts? Run from that preparer and find someone competent to prepare your tax return.
Larry Kopsa CPA
Thursday, April 1, 2010
UNEMPLOYMENT MAP - REVISITED
Larry,
You recently sent out an unemployment calendar showing how unemployment has increased over the last year or so. I can’t seem to find it. Could you reprint. Thanks - August
August, here it is. Be careful, it is pretty depressing.
Unemployment Map
You recently sent out an unemployment calendar showing how unemployment has increased over the last year or so. I can’t seem to find it. Could you reprint. Thanks - August
August, here it is. Be careful, it is pretty depressing.
Unemployment Map
WASHINGTON REFORMS HEALTH CARE AND TAXES
Sunday's night's health care bill will go down as one of those once-in-a-generation accomplishments. I'm not here to debate the merits of the bill - historians will still be doing that decades from now. But it's important to point out some important tax changes included in the bill and the companion "reconciliation" bill now before the Senate. (Just how important are they? Well, the Congressional Budget Office says the IRS will need $10 billion and 17,000 new employees to enforce its share of the new rules!)
Here are some of the key tax provisions:
• Starting immediately, certain small businesses with less than 10 employees will get a 35% credit for the cost of providing employee health benefits.
• Starting in 2011, employers will have to report the value of health benefits on Form W2.
• The penalty tax for Health Savings Account distributions not used for health care expenses doubles from 10% to 20%. This will discourage using HSAs for supplemental retirement savings.
• Starting in 2013, the 7.5% floor for deducting medical and dental expenses climbs to 10% (unless you or your spouse are 65 or older, in which case it remains at 7.5% until 2016).
• Healthcare flexible spending account contributions are capped at $2,500 per year.
• Starting in 2014, businesses with more than 50 employees will have to offer health benefits or pay a penalty of $750/employee.
The reconciliation bill includes one more unwelcome surprise.
• Currently, the Medicare tax is limited to 2.9% of earned income (earned income is income from wages and self employment like business, partnership and LLC income). The reconciliation bill imposes an additional Medicare tax of 0.9% on earned income above $200,000 (individuals) or $250,000 (families).
• It also adds a 3.8% "Unearned Income Medicare Contribution" on investment income - specifically, interest, dividends, annuities, royalties, capital gains, and rents - for taxpayers with Adjusted Gross Income above those same thresholds. Those new levies would take effect in 2013.
The complete bill is 1,018 pages, so it's going to take some time to analyze. But we'll be paying close attention as details become available. In the meantime, email us with any questions.
Larry Kopsa CPA
Here are some of the key tax provisions:
• Starting immediately, certain small businesses with less than 10 employees will get a 35% credit for the cost of providing employee health benefits.
• Starting in 2011, employers will have to report the value of health benefits on Form W2.
• The penalty tax for Health Savings Account distributions not used for health care expenses doubles from 10% to 20%. This will discourage using HSAs for supplemental retirement savings.
• Starting in 2013, the 7.5% floor for deducting medical and dental expenses climbs to 10% (unless you or your spouse are 65 or older, in which case it remains at 7.5% until 2016).
• Healthcare flexible spending account contributions are capped at $2,500 per year.
• Starting in 2014, businesses with more than 50 employees will have to offer health benefits or pay a penalty of $750/employee.
The reconciliation bill includes one more unwelcome surprise.
• Currently, the Medicare tax is limited to 2.9% of earned income (earned income is income from wages and self employment like business, partnership and LLC income). The reconciliation bill imposes an additional Medicare tax of 0.9% on earned income above $200,000 (individuals) or $250,000 (families).
• It also adds a 3.8% "Unearned Income Medicare Contribution" on investment income - specifically, interest, dividends, annuities, royalties, capital gains, and rents - for taxpayers with Adjusted Gross Income above those same thresholds. Those new levies would take effect in 2013.
The complete bill is 1,018 pages, so it's going to take some time to analyze. But we'll be paying close attention as details become available. In the meantime, email us with any questions.
Larry Kopsa CPA
I DON’T HAVE THE MONEY TO PAY MY TAXES
Help!!!! I just found out that I owe over $4,000 to the IRS. I don’t have that kind of money. Should I just not file till I can get the money together or should I just leave the country?
Owen
Owen, I have some fairly good news for you. First of all, you should file your return. There is a severe penalty for failure to file your return by the due date. As a matter of fact, if you don’t pay you will get hit with a double penalty. Along with the failure to file you will get a failure to pay penalty. You could extend your return to October 15th but this is just an extension of time to file, not to pay so there still would be some penalties.
The fairly good news is that you can apply for an installment agreement. Since you owe less than $25,000 it is automatically accepted by the IRS. Pay what you can and then the installment agreement will allow you to pay any remaining balance in monthly installments. Since you owe less than $25,000 you may apply for a payment plan using the Online Payment Agreement application or just attach Form 9465, Installment Agreement Request, to the front of your return. You’ll need to list the amount of your proposed monthly payment and the date you wish to make your payment each month. The IRS charges $105 for setting up the agreement, or $52 if the payments are deducted directly from your bank account.
You will be required to pay interest plus a late payment penalty on the unpaid taxes for each month or part of a month after the due date that the tax is not paid, but at least you will not have to leave the country.
Remember that you also need to start planning for 2010 taxes.
Larry Kopsa CPA
Owen
Owen, I have some fairly good news for you. First of all, you should file your return. There is a severe penalty for failure to file your return by the due date. As a matter of fact, if you don’t pay you will get hit with a double penalty. Along with the failure to file you will get a failure to pay penalty. You could extend your return to October 15th but this is just an extension of time to file, not to pay so there still would be some penalties.
The fairly good news is that you can apply for an installment agreement. Since you owe less than $25,000 it is automatically accepted by the IRS. Pay what you can and then the installment agreement will allow you to pay any remaining balance in monthly installments. Since you owe less than $25,000 you may apply for a payment plan using the Online Payment Agreement application or just attach Form 9465, Installment Agreement Request, to the front of your return. You’ll need to list the amount of your proposed monthly payment and the date you wish to make your payment each month. The IRS charges $105 for setting up the agreement, or $52 if the payments are deducted directly from your bank account.
You will be required to pay interest plus a late payment penalty on the unpaid taxes for each month or part of a month after the due date that the tax is not paid, but at least you will not have to leave the country.
Remember that you also need to start planning for 2010 taxes.
Larry Kopsa CPA
NEW TAX REFUND
The following is an important message regarding tax refunds from the Internal Revenue Service.
NEW TAX REFUND
NEW TAX REFUND
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