QUESTION- PAYROLL TAX CHANGE FOR EMPLOYER

Larry,

You sent out Blog info on the Payroll Tax change from 2010 to 2011 (6.2 down to 4.2) Will this change the employer contribution as well?

Thanks
Lisa


Lisa-

No the employer contribution stays the same.

Happy Holidays,
Larry Kopsa CPA

WEBINAR TO KEEP YOU INFORMED- NEW TAX LAW

Join us for a Webinar on December 28

7:00pm CST

(5:00pm PST/6:00pm MST/8:00pm EST)

Larry Kopsa CPA will take you through the synopsis of the various components that are in the new tax laws. December 31st is right around the corner and you may need to readjust your year-end tax planning because of these new laws. As always Kopsa Otte is here to keep you informed!

Reserve Your Webinar Seat Now at:
https://www1.gotomeeting.com/register/245365497

Here’s a list of the items Larry will be covering:

Federal Estate Tax. 35% – the lowest since 1931 – on estates over $5 million per person. It’s effectively a repeal for most Americans since, with a little bit of decent estate planning, a married couple can pass $10 million to their heirs without being subject to the tax.

Individual Income Tax Rates. The same rates created as 2010. We have avoided a 3% hike – for a family making $50,000 that means you’ve avoided a $1,500 bump in tax for 2011.

Alternative Minimum Tax (AMT). We got our patch for two years. No word on 2012 and beyond.

Capital Gains Rates. Top rate for long-term gains stays at 15%.

Dividends. Same story as on capital gains rates: current rates are extended.

Payroll Tax “Holiday.” It’s a one year (just one, not two like much of the other provisions) cut in Social Security taxes for workers. For 2011, you’ll pay in 4.2% on the first $106,800 of wages rather than 6.2%. That means a 2% cut so that a worker earning $50,000 would pay $1,000 less in 2011. But only for 2011.

Child Tax Credit. The child tax credit had been bumped under Bush to $1,000 per child with a $3,000 earned income floor to make it refundable. That will stand for the next two years.

Earned Income Tax Credit (EITC). The EITC is probably the most controversial of the tax credits. It cost taxpayers $42.9 billion in 2008. The EITC base remains the same as for 2010.

American Opportunity Tax Credit (AOTC). The modified version of the Hope Credit allowed a slightly bigger credit ($2,500 versus $1,800) for students pursuing a degree.

State and Local Sales Tax Deduction. The option to deduct sales and local sales taxes on your federal income tax return – even if you don’t itemize – ended in 2009 has been reinstated for 2010 and 2011.

Transfers of IRAs to Charities. The option to allow those taxpayers over the age of 70-1/2 to roll their IRAs directly to charity.

So that’s the summary of what’s in the tax deal. The regulations are not yet out. More information as it becomes available.

HOW THE WORLD ECONOMY HAS CHANGED - I FOUND THIS VERY INTERESTING

The presenter uses graphics to show how the world economy has changed since the 1800's. Well worth the five minutes it takes to view.

http://www.youtube.com/watch?v=jbkSRLYSojo

MORTGAGE RATES GOING UP

Freddie Mac reported a fourth consecutive week of increases in fixed-rate mortgages. The average rate on 30-year fixed-rate loans has increased to 4.61%, up from 4.46% the previous week. Lenders were offering 15-year-fixed rate mortgages at an average of 3.96%, up from 3.81% the week prior. Here is an article from the Los Angeles Times.

http://r.smartbrief.com/resp/AaxcvscgyzeUuwnwajaoyAalQqlZ?format=standard

UNEMPLOYMENT TAX UP 34% IN 2010

According to estimates from the U.S. Department of Labor, Unemployment Insurance (UI) rates across all 50 states increased an average of 34% as a percent of total wages from 2009 to 2010. States with the largest increases from 2009 to 2010 included Florida, Hawaii, Idaho, Kansas, Maryland, Nebraska and Texas. According to UWC, this increase is the beginning of a trend that will push most state UI contribution rates even higher in 2011 and 2012. States borrowing federal funds to pay unemployment compensation risk the highest increases. The data can be found at http://workforcesecurity.doleta.gov/unemploy/avg_employ.asp

L'Oréal USA ACQUIRES PEEL'S SALON SERVICE

As you may have heard, L’Oréal USA, the world’s largest beauty company, has announced the acquisition of the operations of Peel’s Salon Services. Peel’s, headquartered in Omaha, NE, will become part of SalonCentric, the professional products distribution operation of L’Oréal USA.

Peel’s is a fourth generation business. Founded in 1937 as a small barber-only supply store in Hutchinson, KS. Peel's has grown to a business with revenues of over $100 million, 57 professional-only stores, over 90 sales consultants and more than 500 employees. In addition to warehouse and office operations in Kansas, Colorado, and Nebraska, Peel’s also has a distribution center in Nebraska, which will provide a logistical hub for SalonCentric in the U.S.

“We are very pleased to welcome Peel’s to SalonCentric,” says Paul Sharnsky, president of SalonCentric. “There is a sharing of common values in both our businesses, including a passion for hairdressers and the salon industry as well as a longstanding commitment to this business. This acquisition will provide SalonCentric with the opportunity to fully serve professional hairdressers in the mid-U.S. as Peel’s territory includes North and South Dakota, Wyoming, Oklahoma, Montana, Colorado, Nebraska, Kansas, Iowa, New Mexico, Minnesota and Missouri.” This latest development, consistent with the strategic intent of all the distributorship acquisitions, provides SalonCentric with a distribution territory covering the vast majority of the United States.

“The decision to sell to L’Oréal was a natural one for the family,” adds Bill Peel, president of Peel’s. “Our two companies have been linked for a very long time. Our father, Bob Peel Sr., was one of the first Redken distributors in the U.S. back in the ‘60s. About 10 years later, our company also became the first Matrix distributor in the U.S. Both Redken and Matrix are now L’Oréal brands. We’ve built our success on one simple philosophy: ‘Help the salon customer to be a better business person and you will earn all their business.’ That’s a philosophy we share with SalonCentric.”

Peel’s is the fourth acquisition for SalonCentric over the past 12 months, including CB Sullivan, Maly’s Midwest and Marshall Salon Services.

STATUS OF THE OBAMA TAX BILL COMPROMISE (AS OF 12.12.10)

This one isn’t going down without a fight. After Democrats in Congress publicly defied President Obama by refusing to endorse the tax deal he negotiated with Republicans, the measure is going to another vote. On Monday (12.13.10), the Senate will take up a procedural vote to attempt to bring the deal to the floor. In response, Democrats have threatened a filibuster. However a test vote seemed to indicate that it would be easy to get the 60 votes needed to overcome a filibuster.

The House, and especially Nancy Pelosi, remains firmly opposed to the deal as written. A caucus vote by Democrats overwhelmingly opposed the compromise package. The major source of consternation? Tinkering with the federal estate tax. Democrats felt blind-sided at the deal which not only increased the personal exemption to $5 million per taxpayer (well above the $3.5 million per taxpayer under the so-called Bush tax cuts) but slashed the tax rate to a top rate of 35%, a rate not seen since the 1930s.

So what’s next? Here’s what will probably happen (though, in all honesty, nothing would surprise me much at this point):

• The Senate will approve the deal pretty much as is with perhaps some concession on energy tax credits.
• The House will grudgingly approve most of the deal, likely tweaking the estate tax rates and exemptions, scaling them back to the 2009 levels.
• That would force the hand of Republicans in the House by giving them the option of voting down the entire deal based on the federal estate tax rates since the deal, more or less, has already given them everything else that they claimed they wanted (tax cuts for everyone, etc.).
  

Here’s a synopsis of the various components of Obama's compromise of taxes:

Federal Estate Tax. 35% – the lowest since 1931 – with estates over $5 million per person. It’s effectively a repeal for most Americans since, with a little bit of decent estate planning, a married couple can pass $10 million to their heirs without being subject to the tax.

Individual Income Tax Rates. The same rates created as 2010. If this passes we have avoided a 3% hike – for a family making $50,000, that means you’ve avoided a $1,500 bump in tax for 2011.

Alternative Minimum Tax (AMT). We got our patch. I haven’t seen the numbers but I’ve been told that it’s similar to the 2009 numbers for 2010 and 2011. No word on 2012 and beyond. We were doing a pretax for a client on Friday that owed $357 if they fix the AMT. If no fix, he owed over $9,300 in tax. He is going to be watching the news.

Capital Gains Rates. Lower capital gains always, always means heightened investments and a better economy. Always. It’s worked so far, right? Cause we have the same rates for the next two years (meaning a top rate for long-term gains of 15%).

Dividends. Same story as on capital gains rates: current rates are extended.

Payroll Tax “Holiday.” With the administrative nightmare that was the Making Work Pay Credit gone, we needed a little something else to challenge preparers and the IRS. Enter the payroll tax “holiday.” It’s a one year (just one, not two like much of the other provisions) cut in Social Security taxes for workers. For 2011, you’ll pay in 4.2% on the first $106,800 of wages rather than 6.2%. That means a 2% cut so that a worker earning $50,000 would pay $1,000 less in 2011. But only for 2011. I am glad that I am not a computer programer working on payroll tax programs. If this passes, I would be burning the midnight oil between now and January 1st rewriting computer programs.

Child Tax Credit. The child tax credit had been bumped under Bush to $1,000 per child with a $3,000 earned income floor to make it refundable. That will stand for the next two years.

Earned Income Tax Credit (EITC). The EITC is probably the most controversial of the tax credits. It cost taxpayers $42.9 billion in 2008. The EITC base remains the same as for 2010.

American Opportunity Tax Credit (AOTC). We heard all about how great this extension was from Obama, who pushed hard for the renewal. The modified version of the Hope Credit allowed a slightly bigger credit ($2,500 versus $1,800) for students pursuing a degree.

State and Local Sales Tax Deduction. The option to deduct sales and local sales taxes on your federal income tax return – even if you don’t itemize – ended in 2009. Rumor has it that the new tax deal brings the deduction option back, retroactively, so that it will apply to 2010 and 2011.

Transfers of IRAs to Charities. Also rumored to be in the plan. The option to allow those taxpayers over the age of 70-1/2 to roll their IRAs directly to charity.

So that’s the summary of what’s in the tax deal (allegedly – remember, the ink isn’t dry yet).