Cantrell CPA Services, LLC

The HIRE Act Payroll Tax Credit - It's Not Too Late to Claim Your Credit for 2010

On March 18, 2010, the Hiring Incentives to Restore Employment (HIRE) Act was enacted.  This legislation provided for two payroll tax credits related to the employer portion of the social security tax for qualified new employees hired between February 3, 2010, and January 1, 2011.  As we come to the close of the fourth quarter of 2010, now is the time to make sure that you have claimed the credit on all qualifying employees on your quarterly payroll tax returns (Form 941's) for the year.  It's not too late to claim the credit for the entire year.  In this post, I will provide details on the credits in the HIRE Act and how you can claim those credits.  

There are two credits in the ACT.  The first credit is a payroll tax credit on the employer portion of the social security tax (6.2% of the first $106,800 of wages for 2010) on wages for certain qualifying employees hired after February 3, 2010, and before January 1, 2011.  The second credit is available for employers who retain these qualifying employees for a continuous 52 week period.

The first credit is known as the payroll tax exemption and here are the details:

• Credit for the full employer portion of social security taxes on the qualifying employees.
• A qualifying employee:
  • Was unemployed or employed for 40 hours or less during the 60 day period prior to hiring.
  • Was not replacing another employee unless the other employee left employment voluntarily (quit) or was terminated for reasonable cause.
  • Includes employees straight out of school with no prior work experience or otherwise meeting the unemployment requirement above.
  • Does not include the hiring of family members or owners of a small business.  
  • Be careful with bringing contract labor type employees on payroll for this credit.  This will define those types of employees as always employees subject to withholding and payroll taxes from now on.  You can't just hire them for the credit and then reclassify them later as contract labor.
• Employees must sign a Form W-11 (http://www.irs.gov/pub/irs-pdf/fw11.pdf )prior to the date that the credit is claimed.  However, there is no requirement that a Form W-11 be signed prior to the date of qualifying wages.  Therefore, you can get your W-11's signed now and claim the credit for the past quarters after the signatures are obtained.
• The credit is claimed on the quarterly Form 941.  If you receive late Form W-11's you can file amended Form 941-X's ( http://www.irs.gov/pub/irs-pdf/f941x.pdf ) to claim the credit for those prior quarters.
• A Box 12 code has been added to report the qualifying wages for the HIRE Act employees on the 2010 Form W-2.  So you need to take care of this before the end of the year so you can have all the paperwork done for the 4th quarter and year-end tax payroll tax reports.

The second credit is know as the Business Credit for Retention of Certain Newly Hired Individuals:

• Claimed for the same HIRE act employees as the payroll tax exemption.
• The credit is calculated as the lesser of $1,000 or 6.2% of the wages paid by the employer to these employees.
• Credit can only be claimed after the employees noted above have been retained for a continuous 52 week period from the date of hire.
• The wages of these employees for the second 26 weeks of their employment must be at least 80% of their wages from their first 26 weeks of employment.
• The earliest date to claim the credit will be 2011 (at least 52 weeks from the beginning date of February 3, 2010).
• The credit is claimed on the employers 2011 income tax return.
• This credit is in addition to the payroll tax exemption above.  You get the first credit for hiring them and the second for retention.  It isn't an "either-or" situation.

So contact your payroll tax preparers and make sure that steps will be taken to get all the necessary information for these credits by year-end.  The first step is to identify the qualifying employees and then get their signatures on the Form W-11's.  Then you can amend those prior quarters and get your refunds now.  Good luck!

Update on the AMT

In my last post, I discussed the impact on taxpayers for 2010 if Congress failed to alter the income level at which the Alternative Minimum Tax would apply.  No action on this issue was taken up by Congress prior to the election; so we have been waiting patiently to see what happens now that November 2nd has come and gone.  It is estimated that 2.1 million taxpayers could be impacted (always negatively) by the AMT unless the income thresholds were increased.

Well, we finally have some good news.  In a letter signed by both Democratic and Republican lawmakers addressed to the IRS, Congress is promising to once again approve a one-year correction to the AMT to avoid the potential tax carnage it could cause.  The AMT is sort of like the evil alter-ego of the regular tax code.  Just when you think you've paid all you should, out jumps the dreaded AMT to add a little more.  

The whole problem with these thresholds is that the original legislation didn't have any sort of cost of living adjustment.  But, rather than put some form of permanent cost of living adjustment going forward, Congress just pushes it down the road one year at a time.  So, we will be having this same discussion a year from now I'm sure.

2010 Tax Changes - A Heads-Up Before Year-End

As we come racing towards the end of 2010, it's time for all of us to do a little tax planning before New Years Day.  To help with that, I have put together a quick list of some of the tax changes for 2010 and a peak at some of the changes that come into effect in 2011.  With a month and a half left in the year, we have some time to take care of any loose ends for tax purposes so here we go:

• The American Opportunity Credit - This credit replaces the Hope credit from prior years.  It provides up to a $2,500 per student per year credit for all four years of college.  The nice thing about this credit versus what we've seen in the past is that is includes the cost of books and not just tuition.  If the credit exceeds your income tax liability for 2010, then 40% it will be refundable anyway.
• 401(k) Contribution Limits - The maximum employee contribution to a 401(k) plan for 2010 is $16,500.  However, employees that are age 50 or older can contribute an additional $5,500 for a total for them of $22,000.
• Alternative Minimum Tax - The exemption level for alternative minimum tax drops to $45,000 for a married couple and $33,750 for single filers for 2010.  Relief from the lower AMT limits was passed for 2009 but hasn't been addressed yet by Congress.  Hopefully, this will be taken care of in the lame duck session.  But, if it isn't addressed, many taxpayers are going to find themselves victims of AMT.  In general, there are certain tax benefits that are allowed under the regular tax calculation that are not allowed or are reduced in the AMT tax calculation.  Also, you income, if AMT applies is taxed at 26% for income up to $175,000 and 28% for income over $175,000.  AMT doesn't use the standard graduated rate schedules with rates from 10% up to 35%.  When tax is calculated for AMT purposes, it is compared to the regular tax calculation and you pay the higher amount. 
• Sales Tax on Vehicles - For 2010, sales tax on the purchase of a vehicle can no longer be taken in addition to the standard deduction if a taxpayer does not itemize.  For 2009, a taxpayer could deduct the sales tax attributable to the first $49,500 of the cost of a vehicle even if they did not itemize.  However, the one year tax relief disappears this year.
• The Estate Tax ("Death Tax") - The estate tax is completely repealed for 2010.  However, if a person happens to live an extra month or two into 2011, the tax will revert to 50% for estate values over $1 million dollars.  
• Increased Depreciation for Equipment Purchases - The Small Business Jobs and Credit Act of 2010 provided for bonus depreciation of 50% of the cost of qualified small business equipment and other fixed assets purchased and put into service in 2010.  Taxpayers who purchase equipment in a few specific categories may also be allowed to actually deduct the full cost of the equipment up to $500,000.  These types of equipment may qualify:
  •  
    • Construction
    • Manufacturing
    • Medical
    • Agriculture
    • Office and Technology Equipment
    • Trucks
    • Trailers
    • Printing Presses
    • Corporate Aircraft
• Residential Energy Tax Credits - For 2010 there is a 30% tax credit for the cost of certain qualifying energy efficient home improvements.  The credit is capped at $1,500 combined for 2009 and 2010.  http://www.energystar.gov/index.cfm?c=tax_credits.tx_index provides a great list of the property allowable in each category.  For 2011, the credit reverts to 10% and the cap is reduced to $500.

This is a quick taste of some of the most important changes.  Now is a great time to get in touch with your tax preparer and see if this will impact you and what information you need to be getting together before year end.  Good luck this tax season!

Meeting With a Tax Preparer - Podcast Episode 6

Annually many taxpayers gather up all their receipts, tax forms, and questions and haul them to the tax preparer to turn them into State and Federal tax returns.  However, there is often a lot of confusion on how to best accumulate this information to make the process as smooth as possible.  Also, the more efficient the process, the cheaper the preparation fees.  In this episode I give some suggestions on how to accumulate and provide the information in a way that will make it faster and easier for the preparer.  

I provide some ideas on how to organize your tax forms.  I prepare explanations on what self-employment tax is and how it is calculated.  I explain the methods and required documentation for deducting vehicle expenses for a small business.  I give some ideas on information that should accompany your tax forms that you can provide for the preparer instead of pay them to get it themselves.  I also try to explain the different ways tax preparers bill for their services and what you can do to lower your fees.

Just like Christmas is just around the corner, tax season is lurking just beyond there.  So what better time than now to start thinking about making it the easiest one of your life.  Thanks to all and good luck!

Episode6-CantrellCPAServices

Federal Tax Withholding Problems Ahead - More Worries from the Expiring Bush Tax Cuts

Every day we seem to have more and more bad news for taxpayers regarding the coming expiration of the Bush Tax Cuts.  Another really worrisome part of the discussion that we will address today is the impact on Federal withholding tax on paychecks next year.  

The 111th Congress punted addressing any extensions of the Bush Tax Cuts until after the November 2nd election next week.  They planned either to debate the extensions in the lame duck session or pass them on to the 112th Congress next year.  The problem with this strategy is that it may offer aid to Americans for their 2011 income tax returns that are filed at the beginning of 2012, but it won't save American workers from increases in their Federal withholding on each paycheck next year until the extensions are passed.

A Bloomberg article today warned of reduced paychecks for American workers as the IRS adjusts the withholding tables for January.  The problem is that the IRS can't just wait until the Congress settles the issue and then prepare the adjustments.  They have to act now and go ahead and assume that the tax cuts are going to expire as planned.  So the IRS will start preparing the adjusted tables for submission to employers prior to January 1st.  At that point employees are going to immediately see a decrease in the amount of take home pay at every pay scale.  Bloomberg calculated that a married couple making approximately $80,000 per year could lose around $200 per semi-monthly paycheck to Federal withholding in January.  

It takes the IRS time to adjust these tables.  So, even if Congress passes the extensions around year end, it could take at least a month (or maybe two) for the new rate tables to be issued.  During that time, employees will see less cash in their pockets.  I guarantee this will result in a lot of phone calls to payroll preparers.  Most employees know what they should be receiving pretty close to the penny with each paycheck.  So when something this big happens to their net pay, they start looking for someone to blame.  Employers need to inform employees before the end of the year to expect this reduction in net pay.  This will help avoid some of the "sticker shock" when the first checks are issued.  You should explain to employees that the withholding tables may be slow to change after the tax cuts are extended.

A lot of employees live paycheck to paycheck.  This type of change will require these people to plan ahead to make sure they have adjusted their expenditures to handle whatever reduction in pay they will see.  Good luck to us all!

Healthcare Reform - What's actually in that bill?!?

In March, President Obama signed into law the Patient Protection and Affordable Care Act.  This legislation sparked a firestorm or controversy for a year before it was finally passed.  But, even as we sit here almost seven months after its passage, most Americans only have a faint idea of what is really in this bill.  In today's podcast episode, I have attempted to shine the light on a few points of interest.  I hope this will assist you in gathering the information you need to make decisions for your families and businesses.  This podcast will be available on iTunes as soon as I have completed the transfer of my feed to a different hosting service where I can get more memory and offer more podcasts at a time on iTunes.  But, until then, please enjoy right here!

Episode4-CantrellCPAServices

IRS and State of Louisiana Tax Forms

I have added sections to my sidebar for IRS and Louisiana forms that are current based on the tax calendar.  This list will be changing throughout the year.  I have always found it to be a hassle to have to track down these forms online each quarter from a variety of different sites.  I hope you find this list useful.  It's trouble enough just getting the forms filed and paid.

Also, I will be adding a page to the site to provide these common forms year round.  In addition, if there are any significant tax law changes which introduce new forms or reporting, I will try to add these forms to the list and also provide the links in the current forms sidebar list.

You will notice that some of these Forms are actually online reporting sites for various taxes.  I have included some of my favorite online reporting sites.  At times, just completing the forms on paper is easier.  Some online tax reporting sites are simply too confusing and hard to use.  However, some can really help you speed up your tax reporting to help you save time and money.

Finally, a couple of notes regarding the pdf forms for download.  All IRS forms allow you to enter data into the form and save the pdf file with the new data in them.  This is a big help when you are using the same form each quarter or month.  Each time you need to file the form, you could simply save the file with a different file name (for instance - the file "1st Qtr Form 941.pdf" could be saved the next quarter as "2nd Qtr Form 941.pdf").  Then all the name and address information from the previous form would already be entered for the current form.  It's also nice having the prior form amounts as a guide for entering the current period data.  The State of Louisiana forms allow you to enter the data in the forms.  However, you cannot save a completed form on your computer.  So after you complete the form, you need to print the form.  If you save and exit, all the data entered in the form will be lost.  But, in either case you can save time by entering the information in the form instead of having to complete the forms by hand.