1 IN 5 AMERICANS ARE DEPENDENT ON THE GOVERNMENT

The Heritage Foundation just reported that 21.8% of Americans or 67.3 million are subsidized by the government. 

PAYROLL TAX CUT EXTENDED TO THE END OF THE YEAR

WASHINGTON — The Internal Revenue Service today released revised Form 941 enabling employers to properly report the newly-extended payroll tax cut benefiting nearly 160 million workers.

Under the Middle Class Tax Relief and Job Creation Act of 2012, enacted yesterday, workers will continue to receive larger paychecks for the rest of this year based on a lower social security tax withholding rate of 4.2 percent, which is two percentage points less than the 6.2 percent rate in effect prior to 2011. This reduced rate, originally in effect for all of 2011, was extended through the end of February by the Temporary Payroll Tax Cut Continuation Act of 2011, enacted Dec. 23.

No action is required by workers to continue receiving the payroll tax cut. As before, the lower rate will have no effect on workers’ future Social Security benefits.  The reduction in revenues to the Social Security Trust Fund will be made up by transfers from the General Fund.

Self-employed individuals will also benefit from a comparable rate reduction in the social security portion of the self-employment tax from 12.4 percent to 10.4 percent. For 2012, the social security tax applies to the first $110,100 of wages and net self-employment income received by an individual.

The new law also repeals the two-percent recapture tax included in the December legislation that effectively capped at $18,350 the amount of wages eligible for the payroll tax cut. As a result, the now repealed recapture tax does not apply.

The IRS will issue additional guidance, as needed, to implement the newly-extended payroll tax cut, and any further updates will be posted on IRS.gov.

1099 QUESTION

Q: I have a question on 1099 forms. There are a couple people looking for their 1099’s from the place where we work, but they have never prepared them in the past. Do they need to?

A: Here are the 1099 rules:

·         First of all, all businesses are required to file 1099’s to a person or a business (that is not incorporated) for any services that are provided of $600 or greater during the calendar year. 

·         Also, the same would be true for a business paying rent to a person or a business that was not incorporated. 

Starting this year the IRS has added additional questions to all tax returns. 

They are:

1.    Are you required to file form(s) 1099’s?                   yes or no

2.    If yes, are you or will you be filing form(s) 1099’s?  yes or no

These are questions that we will need to answer every year on all returns. 

I must warn you, if you should be chosen for audit they will be looking to make sure that you filed your 1099’s.  The fine for not filing is really high.  They can fine the business $250 per 1099 that was not filed.  So for example, if a business was required to prepare 10 1099’s and did not and the auditor goes back 3 years (and the same number of 1099’s were required then),  they could actually access $2500 (10 x $250)  x 3 years or $7500 in penalties just for not filing 1099’s.

Also, it is recommended that anybody you pay as a contractor or anybody for any type of service, you are required to have the contractor / person fill out a Form W-9 and sign.  This is basically paperwork that says you do not have to withhold backup withholding.  It would be a good practice to obtain these forms and keep in your permanent records.  You do not have to file them with the IRS. 

The following is a link to the IRS website, where you can download and print the form W-9.

If you have any questions, please feel free to contact us. 

CALCULATING MILEAGE RATES

Q: Somebody told me that the mileage rate for 2011 was 51 cents per mile and then my college son who took a tax class last semester said it was 55 cents.  Who is right?  Am I getting my monies worth for all the tuition I am paying?

A:  I don’t know what grade your son received in the tax class.  I teach an income tax at our local college one semester a year.  I teach so I can say that I am a “professor emeritus,” whatever that means.  Anyway, if he would have taken my class I would be disappointed because he is wrong.

Here is the deal.  If you used an auto for business travel last year and claim the standard mileage deduction, be sure to pay attention to when you took the trips. High gasoline prices in 2011 prompted the IRS to increase the deduction rate at midyear.

The mileage rate for business use of a vehicle was 51 cents per mile from Jan. 1, 2011, through June 30, 2011. On July 1, 2011, the rate increased to 55.5 cents a mile.

This type of tax deduction change is why good tax record keeping is so important.

CHANGES IN THE TAX CODE

Several years ago one of my son’s said that he was thinking about becoming an accountant.  I told him that it was a good profession and listed the advantages and disadvantages.  One of the advantages was that you have to keep learning because things keep changing all the time. 

Here is an example:
I just read a report stating that there have been 4,428 changes have been made to the 3.8 million-word code over the past 10 years, including an estimated 579 changes in 2010 alone.  See why the tax structure is so confusing?  That is why Kopsa Otte spends thousands of dollars and hundreds of hours each year reeducating ourselves.

By the way, my son decided to open a Arby’s restaurant.  Roast beef does not change every year.

IRS RELEASES THE DIRTY DOZEN TAX SCAMS FOR 2012

Please check out the latest tax scams issued by the IRS: READ MORE

FEDERAL SUBSIDIES FUEL COLLEGE COSTS

Dr Gross is a professor of economics at Creighton University in Omaha, Nebraska.  He publishes a monthly Economic Trends Newsletter.  I found his comments regarding education costs quite interesting.  Note that at the end he asks at the end of the article if the government is creating another housing type bubble by their legislative actions?  

Federal Subsidies Fuel College Costs  Up 5 Times Inflation Rate

Since 1981, U.S. Bureau of Labor Statistics data show college tuition and fees have soared by 714.3 percent while all other items consumed by the average household increased by a more moderate 141.0 percent.

Reacting to this shocking trend, President Obama, in his State of the Union address, threatened higher educational institutes with sanctions if they continued to boost tuition at this alarming rate. Contrary to the President's rhetoric, the federal government, by increasing federal financial assistance by almost 20 percent since 2009, has been one of the chief culprits allowing colleges to shift a large share of rising costs to the taxpayer.

Moreover, the President boosted the federal "bailout" or subsidization of higher education by: 

1. Allowing borrowers to cap their student loan payments at 10 percent of discretionary income and waiving any loan balance remaining after 20 years.
2. Doubling the number of work-study jobs available.
3. Implementing the American Opportunity Tax Credit which provides up to $10,000 for four years of college. 
4. Asking Congress to subsidize record low student loan interest rates.  

Despite rapidly rising federal support, colleges have increased the share of courses taught by part-time faculty to 49 percent in 2009 from 34 percent in 1981. Furthermore, colleges raised average faculty salaries by a scant 2.7 percent per year over the past six years.  

During this same period of time, the growth rate in outlays for student services (e.g. athletics, counseling) was almost double that of expenditures for instruction.  

Data show that colleges have used federal government support to underwrite a disproportionate growth in funds for non-academic spending and a sharp increase in tuition and fees.There is a strong correlation over time between student and parent loan availability and rapidly rising tuitions.  

Similar to housing, the federal government is putting air in another bubble - this time it is higher education.  

LATEST ON THE PAYROLL TAX CUTS

(The Hill) -- TheHill.com reports House Speaker John Boehner said yesterday "that lawmakers have 'an agreement in principle' to extend the payroll tax cuts, unemployment benefits and the Medicare 'doc fix,' but cautioned that 'there are a lot of details that have yet to be worked out.'"  GOP leaders hope for "a House vote by the end of the week," but "some rank-and-file Republicans have decried the idea of adding $100 billion to the deficit."

To read more on this article: CLICK HERE

NEW HSA AMOUNTS FOR 2012

Here are the new HSA contribution limits for 2012:

• Contribution limit ~
• Family: $6,250
• Self: $3,100
• Catch up if over 55 ~
• Family: $1,000
• Self: $1,000
• Minimum deductible ~
• Family: $2,400
• Self: $1,200
• Max out of pocket ~
• Family: $12,000
• Self: $6,050

The catch up contribution can only be made by individuals who are at least 55 and are not yet enrolled in Medicare. Remember that starting in 2011 because of Obama Care over-the-counter medicines may not be reimbursed thru HSA.

MY DAD WAS WRONG

I remember when I was a high school student my dad told me that I had a choice as I selected a career.  I could work for the private sector or I could work for the government.  He said that the government workers were pretty much guaranteed that they would not lose their job and they had a really good pension plan but that was offset by the fact that they were not paid as well. 

Little did he know how things would change.  Now they have job security, a good pension and are paid better.

TheHill.com reports that "the Congressional Budget Office found Monday that federal workers are compensated 16% more than comparable private-sector workers on average. ... For those with only a high-school degree, workers earned 21% more and were given benefits worth 72% more than in the private sector."  For federal workers with a college degree, "wages were about the same but benefits were 46% better in the government."  According to the story, "President Obama's 2013 budget request, due to be sent to Congress on Feb. 13, will ask for a 0.5% cost-of-living raise for workers."

To read more of this article: READ MORE

GOOD TIMES FOR U.S. FARM ECONOMY

(Nebraska Radio Network) -- NebraskaRadioNetwork.com reports that Jason Henderson, Vice President of the Federal Reserve Bank of Kansas City, "believes the agricultural economy should stay in a growth period for at least another year."  Henderson credits high commodity prices, "the low value of the dollar, which is supporting U.S. agricultural exports overseas," as well as "growing incomes in global markets, especially developing countries."

To read more about this article: READ MORE

DIMINISHED DEPRECIATION INCENTIVES

To help a struggling economy, Congress has been using two incentives to encourage businesses to expend for capital equipment. Through 2011, new equipment (but not used) qualified for a 100% bonus depreciation deduction. But for calendar year 2012, the first-year bonus percentage drops to 50%, and for 2013 there is no bonus percentage. The 100% incentive for 2011 required that the asset must have been both legally acquired and placed in service by December 31, 2011.

The long-standing Section 179 first-year depreciation deduction was $500,000 for tax years beginning in 2011. But for a tax year beginning in 2012, this deduction is only $139,000. This first-year incentive deduction applies to both new and used assets, and is claimed before applying the 50% bonus for 2012.

As an illustration, assume that a farmer acquires $339,000 of various items of machinery and equipment during 2012. Up to $139,000 of Section 179 expense can be claimed, and that should be applied to used items rather than new equipment. That leaves the remaining $200,000 of cost to which the 50% bonus is applied for another $100,000 deduction (assuming this remaining $200,000 is all new equipment eligible for the percentage bonus). The remaining $100,000 is subject to the normal seven-year depreciation schedule. So, for this example under 2012 rules, there is $239,000 of first year deductions on total costs of $339,000.

The bonus depreciation provision applies to new acquisitions of assets that have a 20-year or shorter depreciation period. Consequently, farm machine sheds and shops, which are 20-year assets, qualify for bonus depreciation. If completed and placed in service during 2012, bonus depreciation applies to 50% of the cost with the remaining 50% depreciated over 20 years (1/2 year for the first year).

But note: There are some commentators that think that the President and Congress will go back to the $500,000 and 100% rules of 2011. I am watching for the upcoming debate on the 2% payroll tax for a hint of what Washington will do.

DEADLINE COMING UP FOR FLEX PLANS

A deadline for many flex plan participants is coming up.  The 2011 set-asides must be used by March 15 if the plan uses IRS’ 2½-month grace period.  Any funds left over are forfeited. The deadline for other FSAs was Dec. 31, 2011.

Remember that after this year, the ceiling on FSA set-asides will drop to $2,500.

FARMERS WATCH OUT FOR UNEMPLOYMENT TAX

Because of the excellent numbers, many of the owners of farm corporations paid high wages commodity wages in the fourth quarter of 2011.  In many cases the wages reported in this quarter can easily exceed $20,000.

This becomes a problem.  When cash and commodity wages reported for any quarter exceed $20,000, the corporation is subject to paying Nebraska Unemployment taxes (SUTA) (federal unemployment is based soley on cash wages so most farm corporations are not subject to federal unemployment). 

If you paid over $20,000 of cash and commodity wages in any quarter don’t forget you are now required to register with the State Department of Labor and file state unemployment tax returns quarterly.

THE IRS WARNS OF REFUND DELAYS

Last week the Internal Revenue Service warned that tax refunds could be delayed a week this tax season because of new anti-fraud safeguards.

“The IRS has opened its filing season successfully this month, and refunds have started going out to many taxpayers,” the agency said in an email to tax professionals. “As with the start of any tax season, there are system validations that occur requiring some fine-tuning of our systems. As part of this, some taxpayers will receive refunds approximately one week later than initial projections they may have received, but these are still in line with historical refund delivery times.”

The IRS noted that the one-week delay is related to the fine-tuning of IRS systems to adjust for new safeguards that were put in place this tax season to provide for stronger protection against tax refund fraud. The agency has come under heavy criticism for the increasing number of identity theft cases related to tax refunds, and it recently added more stringent measures.

The IRS said it is providing additional screening for fraud this year before issuing refunds, but the vast majority of taxpayers can still continue to expect to receive their refunds in a timely fashion.

The IRS also noted that the refund time frames provided by the “Where’s My Refund” tool on its Web site are projected time frames and are subject to revision. “Many different factors can affect the timing of the refund after the IRS receives the return for processing,” said the agency. “The IRS apologizes for any inconvenience caused by the revised refund dates.”

The IRS promised that the delay only affects some early filers, and taxpayers whose returns were accepted by the IRS on or after January 26 would not experience the delay.