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 As a result, the now repealed recapture tax does not apply.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.