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What The Fiscal Cliff Means For Your Taxes

After tense negotiations—with a lot of publicity and the threat of deadlock and S & P credit downgrades—the terms of a fiscal cliff resolution have finally been successfully negotiated.

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The major tax provisions are as follows:

• The income tax rate increases to 39.6% (up from 35%) for individuals making more than $400,000 a year ($450,000 for joint filers; $425,000 for heads of household);

• The two-percentage-point reduction in payroll taxes for Old Age, Survivors and Disability Insurance (OASDI) tax, commonly known as the Social Security tax, will be allowed to expire;

• The higher exemption amounts for alternative minimum tax (AMT)—the so-called “patch”—are made permanent, resulting an estimated 30 million taxpayers escaping being subject to the AMT;

• Dividends and capital gains are taxed at 20% (up from 15%) for individuals making at least $400,000 ($450,000 for joint returns);

• The Personal Exemption Phaseout (PEP), which had previously been suspended, is reinstated with a starting threshold of $300,000 for joint filers and a surviving spouse, $275,000 for heads of household, $250,000 for single filers, and $150,000 (one-half of the otherwise applicable amount for joint filers) for married taxpayers filing separately. Under the phaseout, the total amount of exemptions that can be claimed by a taxpayer subject to the limitation is reduced by 2% for each $2,500 (or portion thereof) by which the taxpayer’s adjusted gross income (AGI) exceeds the applicable threshold;

• The “Pease“ limitation on deductions, which had previously been suspended, is reinstated with a threshold of $300,000 for joint filers and a surviving spouse, $275,000 for heads of household, $250,000 for single filers, and $150,000 (one-half of the otherwise applicable amount for joint filers) for married taxpayers filing separately. Thus, for taxpayers subject to the “Pease” limitation, the total amount of their itemized deductions is reduced by 3% of the amount by which the taxpayer’s AGI exceeds the threshold amount, with the reduction not to exceed 80% of the otherwise allowable itemized deductions;

• For estate, gift, and generation-skipping transfer (GST) tax purposes, for individuals dying and gifts made after 2012, there is a $5 million exemption (adjusted for inflation), and the top estate, gift and GST rate is permanently increased from 35% to 40%;

• Tax credits for businesses, including the Code Sec. 41 research credit and the Code Sec. 199 domestic production activities deduction, are generally extended through the end of 2013;

• A number of individual tax provisions have been retroactively extended through 2013. In addition, there is a five-year extension of credits that were enhanced as part of the stimulus, including the college tuition credit, the Code Sec. 32 earned income tax credit, and the Code Sec. 24 child tax credit;

• Various energy credits are also extended.

• Other nontax provisions in the bill include a “doc fix,” which stops a 27% reduction in payments to Medicare doctors scheduled to go into effect. Spending cuts as offsets to accomplish this. Unemployment benefits, which were set to expire at the end of 2012, are extended for the long-term unemployed through the end of 2013

For more details please contact us. The information contained within this website is provided for informational purposes only and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional accountant.

 

CPA Deerfield Beach

 

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Safe Harbor Accounting celebrates moving to a new location.

CPA Firm moves to a new building with added space to better serve customers.

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Lighthouse Point, Florida- Safe Harbor Accounting rejoices as it anticipates moving to a new 4300 square foot building on Federal Highway. Peter Rudolph, CPA has purchased a building.

The move comes after several months of tense conferences with the seller. Mr. Rudolph negotiated an advantageous credit facility with BBT Bank.

We are partnering with a computer consulting company as a vendor and tenant. The company Total Computer Communications Group offers an extensive suite of network engineering and cloud computing services.

The new address is 2670 North Federal Highway Lighthouse Point Florida 33064. Safe Harbor Accounting will begin moving this weekend. The open house will be soon.

Safe Harbor Accounting offers tax planning and preparation, reviews and compilations, estate and trust tax preparation, payroll services, financial planning, financial forecasts and projections.

“We wanted to be on Federal Highway.” said Peter Rudolph, CPA. The new office provides more space and conference rooms. We have a vision of a drive-up window that provides clients with a way to drop-off or pick up paperwork as well as drop box for business after hours.

Safe Harbor Accounting, is a full service CPA firm dedicated to satisfying the needs of businesses and individuals in the South Florida are. We can provide traditional tax, accounting, and audit services as well as financial planning, estate planning, business valuations, and management consulting. For more information, visit http://www.safeharboraccounting.com

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Healthcare Reform The Truth About The Rumors

Lately we have heard a lot of rumors circulating around making statements about the approaching additions to Medicare Taxes. These tax increases are supposed finance the cost of Health Care Reform. To set the record straight these are some of the issues we think clients should know about.

Rumor: Every American will experience a .9% rise in their Medicare tax starting in 2013

The truth: The employer’s share of Medicare is not changed. The tax stays constant at 1.45%. The employee’s 1.45% share of Medicare taxes may go up .9%. The additional tax for employees starts when compensation is more than $200,000 ($250,000 if married).

Rumor: Gains on the sale of your primary residence owe an additional 3.8% in Medicare Taxes.

The truth: There is an additional 3.8% Medicare tax on earnings from investments when modified gross income is higher than $200,000 ($250,000 if married) starting in 2013. Earnings on investments includes, rent, dividends, capital gains, royalties, and interest. When you sell your primary residence at a gain, the 3.8% Medicare tax may apply only to the taxable portion of the gain. To calculate the gain from the primary residence, add up all of the costs to acquire and improve the home. Then add the fees to sell the home to the purchase price. The fees to sell the house would include real estate broker and filing fees. That will calculate the gain on the sales of the residence. The third step is to apply the home sale gain exclusion to the transaction ($250,000 single or $500,000 married). Should there still be a taxable gain after the home sale exclusion, this gain maybe subject to the Medicare tax increase.

Rumor: Sell your business in 2012 since 4.7% of the business sale will be a Medicare Tax.

The truth: This is partially untrue. The law provides a literal prohibition to the supplementary 3.8% Medicare tax on gains from on the sales assets used in your business. Although, part of the sale maybe considered ordinary income, due to depreciation recapture. This ordinary income may activate the .9% Medicare tax. This extra income may cause you to be subject the additional tax on investment income mentioned above.

Rumor: There is a huge marriage penalty regarding Medicare taxes.

The truth: This Rumor is true. This legislation creates a higher tax burden for married couples. Two singles are exempt from the tax on income up to $400,000 ($200,000 each). Married couples are responsible for this tax when “aggregate” income exceeds $250,000.

We hope this clarifies some of the rumors that have been floating around. The preceding information is not intended to replace the services of a professional. Consult a CPA or an Attorney who can better understand your particular circumstances. Please contact us.

CPA Firm South Florida

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Avoiding the 10% Early Withdrawal Penalty – What every Traditional IRA owner should know

  1. Medical Insurance Premiums if Unemployed. If you have been receiving federal or state unemployment for 12 or more consecutive weeks, you may pay for medical insurance premiums from your Traditional IRA without paying the 10% early withdrawal penalty. The premiums may cover yourself, your spouse, and your dependents’ medical insurance premium.
  2. Qualified Higher Education Expenses. You may pay for tuition, books, fees, supplies, and equipment at a qualified post-secondary institution for yourself, your spouse, your child or grandchild from your Traditional IRA without paying the 10% penalty.
  3. Medical Expenses. If you need to withdraw from your IRA to fund medical expenses in excess of 7.5% of your Adjusted Gross Income you may do so penalty-free.
  4. First-Time Homebuyer Expenses. IRA distributions of up to $10,000 to help pay for the qualified acquisition costs of a first-time home avoid the early withdrawal penalty too. This is a lifetime limit per individual. A first-time homebuyer is defined by the IRS as not having an ownership interest in a principal residence for two years prior to your new home acquisition date. Even better, to qualify the home can be for you, your spouse, your child, your grandchild, your parent or even other ancestors.
  5. Conversions of Traditional IRAs to Roth IRAs. Want to convert your Traditional IRA into a Roth IRA to avoid paying taxes on future account earnings? No problem, this too is considered a qualified event to avoid the 10% penalty.
  6. You’re the Beneficiary. If you are the beneficiary of someone else’s IRA and they die, there is usually an opportunity to withdraw funds without the penalty. Plenty of caution is required in this case, because if treated incorrectly the penalty might apply.
  7. Qualified Reservist. If you were called to active duty after 9/11/2001 for more than 179 days, amounts withdrawn from your IRA during your active duty can also avoid the 10% penalty.

Annuity Distributions. There is also a way to avoid the 10% early withdrawal penalty if the distributions “are part of a series of substantially equal payments over your life (or your life expectancy)”. This option is complicated and must use an IRS-approved distribution method to qualify.

Some Final Thoughts.

  • Remember, the above ideas help you avoid an early withdrawal penalty for funds taken out of your Traditional IRA prior to reaching the age of 59 ½. After this age, there is no early-withdrawal penalty. The penalty is also waived if you become permanently or totally disabled or use the funds to pay an IRS tax levy.
  • While the above events allow you to avoid the 10% early withdrawal penalty you will still need to pay the income tax due on the withdrawn funds.
  • While generally the same, the 10% early withdrawal penalty rules are slightly different for defined contribution plans like 401(k)s and other types of IRAs.
  • Before taking any action, call to have your situation reviewed. It is almost always better to keep funding your Traditional IRA until you retire.

The preceding information is not intended to replace the services of a professional. Consult a CPA or an Attorney who can better understand your particular circumstances. Please contact us.

South Florida CPA Firm

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Summer “Tax School” is in Session. Concepts for Parents of Children Getting a Job This Summer

Summer break is here and there are no more classes. The kids still have one more class, Tax Education. Now you can play teacher and educate your children that taxes are deducted from their paychecks.

Here are a few tips.

· Government regulations require employees that start a new job to complete a Form W-4, Employee’s Withholding Allowance Certificate. Employers use the W-4 form to calculate the amount of Federal Tax to deduct from an employee’s salary. Generally, if the child is your dependent and expects to earn less than $3,700 this year there will be no Federal Tax Liability only Social Security should be deducted. To be exempt from having Federal Taxes deducted there are two conditions. First there was no tax due last year and all Federal Tax was refunded. Second this year the child expects a full refund of all federal income tax withheld because they expect to have no tax liability.

· The work may be as a valet, waitress, or a bellhop. Tip income is taxable for Social Security and Federal Taxes.

· Some young people take work doing errands, lawn cutting, babysitting, and etc. The IRS considers this Self Employment. When someone works for themselves, and no taxes are deducted by the employer they are considered the employer and employee for Social Security purposes. The tax term is Self-Employed. This form of income can cause higher than expected tax bills.

· The employment taxes from being self employed start when the net profit is more than $400, which is a very low number. Self-employment taxes are currently 13.3% of profits.

For example your child earns $3,700 doing paper delivery.

End of year Federal Tax – $0 – Self-Employment Tax – $492

Form 1040, Schedule SE, is the form the Self-Employment Tax is calculated on.

There are unique rules for children under 18 who deliver newspapers. Newspaper delivery is automatically considered self-employed by the IRS not considering age; if the following conditions are present:

You are in the business of delivering newspapers.

Compensation is associated to sales different from the number of hours worked.

There is a written contract that has language the worker is not considered an employee for taxes.

Children under 18 that deliver newspapers are generally exempt from Self Employment Taxes.

The preceding information is not intended to replace the services of a professional. Consult a CPA or an Attorney who can better understand your particular circumstances. Please contact us.

South Florida CPA Firm

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Pension Plans-Some Basic Selections for Smaller Companies

Starting and managing a company has its difficulties, plus in spite of the fact you are devoted to the company, the business cannot run indefinitely.Ultimately, every owner stops working; your employees will stop working and retire too. As a company owner here are some basic options to help plan for the golden years.

§401(k) – Most owners consider a §401(k) plan an option for larger companies, however this kind of retirement plan can be set up for a one owner/employee business. This is known as a Solo §401(k). A lot of clients think the company has to match employee contributions, this is not true. Matching is typical however the plan’s founders can arrange the plan to not match employee contributions. The companies that have enough money to match employee contributions usually see employee morale go higher. Participants usually elect to have a set percentage or dollar amount deducted from their paycheck. The employee limits on contributions to a retirement plan for 2012 is $17,000 for those under 50 years, and $22,500 for those over 50. §401(k)s are available in Traditional and Roth versions. A Roth or Traditional plan version permits the employee to choose between, paying taxes in the beginning or paying taxes when money is withdrawn from the account. Roth §401(k) account owners pay taxes in the beginning. Traditional §401(k) account owners pay taxes when money is withdrawn. 401(k) regulations also permit loans if the plan is setup with that option.

SEP- SEP (Simplified Employee Pensions) IRAs are an easy option for many small companies. These plans are comparatively undemanding to administrate. Participants generally cannot defer salary to the account. The company makes contributions based on a percentage of salary. Some participants in a SEP-IRA plan start additional IRAs to plan for the future. One major benefit to this plan is that a SEP-IRA can be set up after the tax year is closed. The employer contribution can be made as late as the due date (including extensions) of the company’s tax return for that year. IRS regulations do not permit loans, early withdrawals, or catch up contributions.

SIMPLE IRA – means for Savings Incentive Match for Employees. Relative to other kinds of pension plans the name “simple” is true. One downside is that the company is obligated to match employee contributions. Another thing to consider is the max contribution allowed to this type of plan is $11,500. The reporting requirements for this kind of plan are minimal.

The preceding information is not intended to replace the services of a professional. Consult a CPA or an Attorney who can better understand your particular circumstances. Please contact us.

CPA Firm

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Filed under Deductions, Payroll, Retirement Planning, Tax Planning

Remember the Child and Dependent Care Tax Credit When Making Summer Plans

During the summer many parents may be planning the time between school years for their children while they work or look for work. Safe Harbor Accounting wants to remind taxpayers that are considering their summer agenda to keep in mind a tax credit that can help them offset some day camp expenses.

  • Your child or dependent must meet certain qualifications,
  • Your daycare provider must meet certain qualifications,
  • You must have earned income,
  • The care provided must enable you to work or to look for work, and
  • You must reduce your eligible daycare expenses by any amounts provided by a dependent care benefits plan through your employer.

The Child and Dependent Care Tax Credit is available for expenses incurred during the summer and throughout the rest of the year. Here are some facts the we want you to know about the credit:

1. Children must be under age 13 in order to qualify.

2. Taxpayers may qualify for the credit, whether the childcare provider is a sitter at home or a daycare facility outside the home.

3. You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.

4. The credit is on a sliding scale in accordance with wages. The child and dependent care tax credit is worth 20% to 35% of your day care expenses. The credit is phased out to 20% as income goes higher.

5. Expenses for overnight camps or summer school/tutoring do not qualify.

6. Save receipts and paperwork as a reminder when filing your 2012 tax return. Remember to note the Employee Identification Number (EIN) of the camp as well as its location and the dates attended.

7. The cost of sending your child to an overnight camp is not considered a work-related expense.

8. A daycare program can include a wide variety of activities geared to children’s needs and interests. The cost of sending your child to a day camp may be a work-related expense, even if the camp specializes in a particular activity, such as computers or soccer.

The preceding information is not intended to replace the services of a professional. Consult a CPA or an Attorney who can better understand your particular circumstances. Please contact us CPA Firm

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