ON VACATION
Postings will resume on July 27th
Wednesday, July 15, 2009
Tuesday, July 14, 2009
QUOTE OF THE WEEK
"I have learned that to be with those
I like is enough."
I like is enough."
Walt Whitman, American poet
HEALTH CARE REFORM - WHAT'S HAPPENING IN WASHINGTON?
I see that you were on a round table on health care reform. I own a small business and I am concerned about being able to afford any additional expenses. Don’t they know in Washington that these are tough times? Can you tell me what is happening in Washington?
Wanda
Wanda, there are several proposals going on in Washington. The plan seems to be changing daily. President Obama wanted this passed by August 8th but the latest is that there are too many unanswered questions. I just sent out an email warning people that the government wants to take away some of our tax benefits to fund health care reform. In my opinion, if you make more of your hard-earned money subject to tax this is just a tax increase.
Here is what I know. Unfortunately, they are using the tax code as an enforcement tool, not just to raise money to offset the costs of reform. “Play or pay” is the plan that is most talked about. People would have to buy basic coverage and employers offer insurance or face a big fee. Both the House and Senate agree that is the way to make a requirement for universal coverage stick.
Many people are in opposition to this approach so there are battles ahead on the details. The biggest fight involves employer penalties.
House Democrats would threaten firms with an excise tax…8% of payroll if they fail to fund 65% of the insurance premium for an employee’s family coverage and 72.5% for singles. Smalls companies with payrolls of less than $250,000 would be exempt for the time being.
Even though small companies would be exempt, it is going to put them at a competitive disadvantage in attempting to hire and keep good employees.
Senate health lawmakers lean toward a different approach. They would impose a flat fee of $750 a year per full-time employee and $375 for each part-time worker from firms that don’t pay at least 60% of worker premiums for basic coverage. The requirement wouldn’t apply to small companies with fewer than 25 employees.
A third competing plan from Senate tax writers would give firms a pass if enough of their workers were able to buy insurance in the open market and didn’t take government sponsored coverage.
We will just have to wait and see what happens. Hopefully they are not so hung up on getting this passed by August 8th that they at least read the bill. It appears that the key is getting businesses to accept a mandate. If companies that are paying high health insurance believe health care reform will yield significant cost savings, they will go along with the plan.
But lawmakers will walk a tightrope trying to get the penalty just right. Set it too high and business support will evaporate. A penalty that is set too low could prompt many companies to pay it and ditch the hassle of insuring employees. That could leave the government stuck covering a slew of newly uninsured workers. If this were the case, we would have socialized medicine.
As someone recently said, “we will have our health care with the attitude of the IRS and the efficiency of the post office.”
Larry Kopsa CPA
Wanda
Wanda, there are several proposals going on in Washington. The plan seems to be changing daily. President Obama wanted this passed by August 8th but the latest is that there are too many unanswered questions. I just sent out an email warning people that the government wants to take away some of our tax benefits to fund health care reform. In my opinion, if you make more of your hard-earned money subject to tax this is just a tax increase.
Here is what I know. Unfortunately, they are using the tax code as an enforcement tool, not just to raise money to offset the costs of reform. “Play or pay” is the plan that is most talked about. People would have to buy basic coverage and employers offer insurance or face a big fee. Both the House and Senate agree that is the way to make a requirement for universal coverage stick.
Many people are in opposition to this approach so there are battles ahead on the details. The biggest fight involves employer penalties.
House Democrats would threaten firms with an excise tax…8% of payroll if they fail to fund 65% of the insurance premium for an employee’s family coverage and 72.5% for singles. Smalls companies with payrolls of less than $250,000 would be exempt for the time being.
Even though small companies would be exempt, it is going to put them at a competitive disadvantage in attempting to hire and keep good employees.
Senate health lawmakers lean toward a different approach. They would impose a flat fee of $750 a year per full-time employee and $375 for each part-time worker from firms that don’t pay at least 60% of worker premiums for basic coverage. The requirement wouldn’t apply to small companies with fewer than 25 employees.
A third competing plan from Senate tax writers would give firms a pass if enough of their workers were able to buy insurance in the open market and didn’t take government sponsored coverage.
We will just have to wait and see what happens. Hopefully they are not so hung up on getting this passed by August 8th that they at least read the bill. It appears that the key is getting businesses to accept a mandate. If companies that are paying high health insurance believe health care reform will yield significant cost savings, they will go along with the plan.
But lawmakers will walk a tightrope trying to get the penalty just right. Set it too high and business support will evaporate. A penalty that is set too low could prompt many companies to pay it and ditch the hassle of insuring employees. That could leave the government stuck covering a slew of newly uninsured workers. If this were the case, we would have socialized medicine.
As someone recently said, “we will have our health care with the attitude of the IRS and the efficiency of the post office.”
Larry Kopsa CPA
Monday, July 13, 2009
DONATION TO EMPLOYEE'S FAMILY
We had an unfortunate incident in our business and one of our employees passed away unexpectedly. I would like to give money to the family from my business. If I do this is it deductible?
Stan
Stan, prior to August 20, 1996, an employer could give a $5,000 benefit to the family which would not be taxable to the family and would be deductible by the company. Unfortunately, this was taken out of the tax code.
As the rules are right now, any money given to the family would be deductible by the business but would be income to the family. The money earned by the individual prior to this death would be included on his last paycheck and would be subject to normal withholding. There would be no withholding on the monies given to the family. If you should give them over $600 you would be required to prepare a 1099 at the end of the year.
It would be possible to make a gift to the individual. In this case it would not be deductible to you nor would it be income to the recipient. You can make a gift of $13,000 to any one person in any one year without filing a gift tax return. Handling of this gift would very depending on your form of organization, whether or not you are a corporation, partnership, LLC, S corporation etc.
If you have other questions about this please feel free to contact me.
Larry Kopsa CPA
Stan
Stan, prior to August 20, 1996, an employer could give a $5,000 benefit to the family which would not be taxable to the family and would be deductible by the company. Unfortunately, this was taken out of the tax code.
As the rules are right now, any money given to the family would be deductible by the business but would be income to the family. The money earned by the individual prior to this death would be included on his last paycheck and would be subject to normal withholding. There would be no withholding on the monies given to the family. If you should give them over $600 you would be required to prepare a 1099 at the end of the year.
It would be possible to make a gift to the individual. In this case it would not be deductible to you nor would it be income to the recipient. You can make a gift of $13,000 to any one person in any one year without filing a gift tax return. Handling of this gift would very depending on your form of organization, whether or not you are a corporation, partnership, LLC, S corporation etc.
If you have other questions about this please feel free to contact me.
Larry Kopsa CPA
Friday, July 10, 2009
HIRING YOUR CHILD
Larry, A while back you wrote an article in your newsletter about paying the kids during the summer. I have a teenager that is working for me and I can’t find the article. Could you send me a copy?
Brian
Brian, thanks for the question. I am sure that there are others that would be interested in this great tax planning technique. Things have changed a little since I posted the article so I will update.
Brian, thanks for the question. I am sure that there are others that would be interested in this great tax planning technique. Things have changed a little since I posted the article so I will update.
If you are self-employed, employing your children (or grandchildren) can lower your family’s overall tax bill. By paying your child wages, you effectively shift income from a higher bracket taxpayer (you) to a lower bracket one (your child). Because the income is considered "earned income" to your child (as opposed to "unearned income" like dividends and interest), it can be offset by his or her standard deduction ($5,700 for 2009). To the extent the income is taxed, a low 10% rate will generally apply to all or part of it. Thus, the family’s income tax savings can be significant since some of the income normally taxed at your rate might escape taxes entirely or be taxed at your child’s low rate.
There can also be payroll tax savings when employing your child. Wages paid to a child under the age of 18 from a parent’s sole proprietorship are exempt from social security and unemployment taxes. Thus, depending on your total self-employment earnings, your tax savings can also include up to an additional 15.3% of the amount of wages you pay to your child, since you avoid paying self-employment tax on that amount and no payroll taxes are due on the wages.
Here is an example. Suppose a business person operating as a sole proprietor is in the 35% tax bracket. He hires his 17-year-old daughter to help full-time during the summer and part-time into the fall. She earns $5,350 during the year (and doesn't have earnings from other sources).
The business person saves $1,872.50 (35% of $5,350) in income taxes at no tax cost to his daughter, who can use her $5,700 standard deduction for 2009 to completely shelter her earnings. The business person could save an additional $1,400 in taxes if he could keep his daughter on the payroll for a longer period and pay her an additional $5,000. She could shelter the additional amount from tax by making a tax-deductible contribution to her own IRA.
There can also be payroll tax savings when employing your child. Wages paid to a child under the age of 18 from a parent’s sole proprietorship are exempt from social security and unemployment taxes. Thus, depending on your total self-employment earnings, your tax savings can also include up to an additional 15.3% of the amount of wages you pay to your child, since you avoid paying self-employment tax on that amount and no payroll taxes are due on the wages.
Here is an example. Suppose a business person operating as a sole proprietor is in the 35% tax bracket. He hires his 17-year-old daughter to help full-time during the summer and part-time into the fall. She earns $5,350 during the year (and doesn't have earnings from other sources).
The business person saves $1,872.50 (35% of $5,350) in income taxes at no tax cost to his daughter, who can use her $5,700 standard deduction for 2009 to completely shelter her earnings. The business person could save an additional $1,400 in taxes if he could keep his daughter on the payroll for a longer period and pay her an additional $5,000. She could shelter the additional amount from tax by making a tax-deductible contribution to her own IRA.
Employing your teenager has the side benefit of enabling him or her to make an IRA contribution. With earned income (received from your business or elsewhere), your child is eligible to make a 2009 contribution to a traditional or Roth IRA, up to the lesser of $5,000 or earned income. Generally, the Roth IRA is the better choice because although no deduction is allowed for the contribution, the earnings will never be taxed if your child does not withdraw them until at least age 59½. That’s a long time for the funds to grow. And if you choose, you can gift your child the funds to make the allowable contribution.
Before leaving this subject, it’s important to point out two things. First, you must make sure that any wages you pay your child are reasonable based on the work performed and the child’s age. Second, if your child is in college or is going to college soon, shifting income to him or her can have a detrimental impact on your family’s eligibility for need-based financial aid.
Please let me know if you need further information. It is a pleasure serving you.
Before leaving this subject, it’s important to point out two things. First, you must make sure that any wages you pay your child are reasonable based on the work performed and the child’s age. Second, if your child is in college or is going to college soon, shifting income to him or her can have a detrimental impact on your family’s eligibility for need-based financial aid.
Please let me know if you need further information. It is a pleasure serving you.
Larry Kopsa CPA
Wednesday, July 8, 2009
QUOTE OF THE WEEK
Don't go around saying the world
owes you a living. The world owes
you nothing. It was here first.
Mark Twain
owes you a living. The world owes
you nothing. It was here first.
Mark Twain
FOR YOU NUMBER JUNKIES
Being a numbers person, this caught my attention. On July 8, 2009, at five minutes and six seconds after 4 AM, the time and date will be 04:05:06 07/08/09.
This will never happen again!
Well, that particular sequence won’t, but the six figures in order come into play on November twelfth 2013 when at 9 minutes and ten seconds after 8 a.m., it will be 08:09:10 11/12/13.
Oh, wait! On the ninth of August in 2010, when the time and date will be 05:06:07 08/09/10 it happens again.
And don’t forget when it is 06:07:08 09/10/11 on the tenth of September in 2011 it will also occur.
Well, never mind—it happens every so often. So, big deal. But it’s interesting.
This will never happen again!
Well, that particular sequence won’t, but the six figures in order come into play on November twelfth 2013 when at 9 minutes and ten seconds after 8 a.m., it will be 08:09:10 11/12/13.
Oh, wait! On the ninth of August in 2010, when the time and date will be 05:06:07 08/09/10 it happens again.
And don’t forget when it is 06:07:08 09/10/11 on the tenth of September in 2011 it will also occur.
Well, never mind—it happens every so often. So, big deal. But it’s interesting.
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