Year End Reminders

With just a few days left of 2012, now is a good time to be sure you’ve done everything you need to before the year is over.  Below is a list of common items to be sure you’ve thought about before the clock strikes midnight on New Year’s Eve.

  • Be sure you’ve used up any funds in your Flexible Spending Account (FSA), or have a plan to do so in the first few months of next year if your plan allows it.
  • Consider sending in your 4th quarter state estimated tax payment early, so you can deduct it this year.
  • Make any last donations, document your giving, and gather up your donation receipts.
  • Consider making your January mortgage payment in December instead.  This will shift the interest on that payment into this year, which you can deduct this year.
  • If you’re able, be sure you’ve maxed out your retirement plan contributions for the year.

From all of us to all of you, have a safe and enjoyable New Year!

Keeping Your Best Employees

As the economy continues to show sluggish signs of improvement, more businesses, including small businesses, are seeing their employees move on to other opportunities.  This can cause a big issue of those leaving are the ones you count on to be the current and future leaders of your business.

Inc. Magazine gives some great methods to keep your best and brightest engaged and present in your organization.

Questions Remain on Business Tax Issues

As the end of the year approaches, there are a significant number of tax breaks and deductions remaining in limbo for businesses.  Congress and the President are working to resolve these and many others before the end of the year, which is now a short three weeks away.

Below are some of those most likely to affect our readers.

  • The 50% bonus depreciation allowance for new equipment expires at the end of 2012.
  • The Research and Development Tax Credit, which expired at the end of 2011.
  • The 15-year depreciable life for qualified leasehold, restaurant and retail improvements, which expired at the end of 2011.
  • The Section 179 deduction, which allowed up to $139,000 in deductions for capital equipment placed in service in 2011, will be reduced to $25,000 (plus a small inflation increase) for 2012.

These are in addition to the individual items covered in last week’s blog posting.

The acting commissioner of the IRS has warned Congress several times that failure to resolve the expired and expiring provisions by the end of the year may delay the filing of most business and individual tax returns.  Even if Congress and the President reach an agreement by year end, there may still be delays as the IRS rushes to update their computer systems, along with tax software providers.

To add to the complexity and uncertainty, most states use some form of the taxable income amount determined on the federal tax return as a starting point for state taxes.  This means once the federal tax code is determined, the states will have to scramble to adopt all, some, or none, of the new federal laws and also retool their computer systems for the changes.

We’ll be keeping up on the latest, and as always, we’re here to help you navigate the ever-changing landscape.

Fiscal Cliff Update

As we near the end of the year, there are a large number of things still in flux, mostly related to the so-called “Fiscal Cliff” of tax increases and spending cuts.  Congress and the President are negotiating to avoid the Cliff, since most believe allowing the country to “go over” would push the economy back into recession.

What does this mean to you, you might ask?  Below is a list of the benefits that are already expired for 2012 (or will expire at the end of this year) unless Congress acts to reinstate them.  This is just a partial list of the items most likely to effect the average taxpayer.

  • The 10% tax bracket for the lowest income Americans moves to 15%.
  • The highest tax bracket will move from 35% to 39.6%
  • Interest and dividends will be taxed at ordinary income tax rates, rather than a maximum tax rate of 15%
  • Capital gains will be taxed at a maximum of 20%, rather than the current maximum of 15%.
  • Nearly 26 million more Americans will pay the “Alternative Minimum Tax” or AMT, which eliminates many tax deductions otherwise available and uses only two tax rates – 26% and 28% – to calculate Federal tax.
  • Adoption benefits provided by employers to assist employees with the cost of adoption will no longer be excluded from taxable income.
  • Tax-free tuition assistance provided by employers to their employees of up to $5,250 will not be allowed.
  • The 2% reduction of the employee’s portion of Social Security will expire, essentially reducing take-home pay by 2% for those earning up to $113,700.
  • The up-to $4,000 deduction for tuition and fees will not be allowed.
  • Mortgage insurance premiums will no longer be allowed as a deduction.
  • State and local sales taxes will not be allowed as a deduction in place of state and local income taxes, a provision that effects mostly those in states with no state income tax.

We’ll keep an eye toward Washington, and when there is a resolution to the Fiscal Cliff questions, we’ll bring you a full explanation.