Any type of meal goes into the same classification and is only 50% deductible.  The only way that it would be 100% deductible is if the employee were out of town overnight for business and turned in an expense reimbursement report, then it is 100% deductible.  The other area that would be 100% for food is if you are holding an event and it is open to the public that anyone can attend.  An example off this would be that a real estate brokers holds an open house.  They put signs out to attract people off the street to come into the open house and offer food and beverage.

Home office deduction, as an employee of your Employer or your own corporation it is NOT not deductible.  This is considered an employee business expense and since the new Trump tax law change in December 2017 EBE is no longer deductible.  The work around for corporations is that you charge your corporation a monthly rent.  You or your employer must write a check every month for office rent.  For example the rent is $500 per month.  At the end of the year a 1099 is issued by the corporation as rental income to you personally.  Then you claim it as rental income on schedule of your return.  The next step then is to compute the business use of your home.  What is the square footage of the office space in the home (by the way it has to be exclusive use, no personal use.  I get the question that I use my dining room table for business can I deduct that.  And the answer is answered with a question do you ever use the dining room for Thanksgiving, Christmas etc.???  If the answer is yes then it is not exclusive use and is NOT deductible.  Once you have determined the square footage of the home office area then you divide that by the total square footage of the entire home.  Example office 200 sq ft total home 4,000 sq ft equals 5%.  Then once the percentage is established then you go through and add up all the expenses associated with the home and then take 5%.  Expenses include mortgage interest, property taxes, insurance, utilities, gardner, pool man, pest control, maid service etc.

I am asked all the time what can I deduct for Auto expense as a business deduction.  Can I write off actual expenses?  The answer is yes BUT then we have to ask the question is the vehicle 100% business use?  In most cases this is not the case.  There maybe 75% business and 25% personal use.  In order to determine this you must keep a daily log of business miles and then at the end of the year take to total business miles and divide it into the total miles of the vehicle for the year.  That determines the business percentage and then you apply that percentage against all the operating expenses of the vehicle (you must maintain receipts for all of the expenses).  This includes gas, maintenance, insurance, payments, etc., and that then is your deduction amount.  The other option is that you can take the business miles driven times the Government Standard rate (for 2024 is .67 cents per mile) and use that as a deduction.  This amount is considered to include all the items above plus depreciation.

Barter Income is income and technically should be claimed as income, and in this case is also deductible if it is business related.

Newlyweds and the recently divorced should ensure the name on their tax return matches the name registered with the Social Security Administration (SSA). A mismatch could unexpectedly increase a tax bill or reduce the size of any refund.
For recently married taxpayers, the tax scenario begins when the bride says “I do.” If she takes her husband’s last name, but doesn’t tell the SSA about the name change, complications may arise. For example, if the couple files a joint tax return with the bride’s new name, the IRS computers will not be able to match the new name with the Social Security number.
After a divorce, a woman who had taken her husband’s name and made that change known to the SSA should contact the SSA if she goes back to her previous name.

Please contact us if you need help understanding which deductions and tax credits you are entitled to. We are always available to assist you.

1. Qualified charities. You can only deduct gifts you give to qualified charities. Give us a call if you’re not sure if the group you give to is a qualified organization. Remember that you can deduct donations you give to churches, synagogues, temples, mosques and government agencies.

2. Monetary donations. Gifts of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. You must have a bank record or a written statement from the charity to deduct any gift of money on your tax return. This is true regardless of the amount of the gift. The statement must show the name of the charity and the date and amount of the contribution. Bank records include canceled checks, or bank, credit union and credit card statements. If you give by payroll deductions, you should retain a pay stub, a Form W-2 wage statement or other document from your employer. It must show the total amount withheld for charity, along with the pledge card showing the name of the charity.

3. Household goods. Household items include furniture, furnishings, electronics, appliances and linens. If you donate clothing and household items to charity they generally must be in at least good used condition to claim a tax deduction. If you claim a deduction of over $500 for an item it doesn’t have to meet this standard if you include a qualified appraisal of the item with your tax return.
4. Records required. You must get an acknowledgment from a charity for each deductible donation (either money or property) of $250 or more. Additional rules apply to the statement for gifts of that amount. This statement is in addition to the records required for deducting cash gifts. However, one statement with all of the required information may meet both requirements.

5. Year-end gifts. You can deduct contributions in the year you make them. If you charge your gift to a credit card before the end of the year it will count for 2014. This is true even if you don’t pay the credit card bill until 2015. Also, a check will count for 2014 as long as you mail it in 2014. Special rules apply if you give a car, boat or airplane to charity. For more information about this and other questions about charitable giving, please contact our office.

Please contact us if you need help understanding which deductions and tax credits you are entitled to. We are always available to assist you.

Is Your Social Security Benefits Taxable?
Some people must pay taxes on part of their Social Security benefits. Others find that their benefits aren’t taxable. If you get Social Security, we can help you determine if some – or all – of your benefits are taxable. Here are five tips about how Social Security affects your taxes:
1. If you receive these benefits in 2014, you should receive a Form SSA-1099, Social Security Benefit Statement, showing the amount.
2. If Social Security was your only source of income in 2014, your benefits may not be taxable. You also may not need to file a federal income tax return next spring.
3. If you get income from other sources, then you may have to pay taxes on some of your benefits.
4. Your income and filing status affect whether you must pay taxes on your Social Security.
5. A quick way to find out if any of your benefits may be taxable is to add one-half of your Social Security benefits to all your other income, including any tax-exempt interest. Next, compare this total to the base amounts below. If your total is more than the base amount for your filing status, then some of your benefits may be taxable. The three base amounts are:
$25,000 – for single, head of household, qualifying widow or widower with a dependent child or married individuals filing separately who did not live with their spouse at any time during the year
$32,000 – for married couples filing jointly
$0 – for married persons filing separately who lived together at any time during the year

Please contact us if you need help understanding which deductions and tax credits you are entitled to. We are always available to assist you.

Dear Client:

As we have previously reported to you there is an annual requirement to post an up to date Labor Laws Poster if you have any employees. There are fines and citations that apply for not complying with the law. In the pass we have taken orders and pre-ordered them through the Chamber of Commerce. This year we discovered that Costco Wholesale is selling them for $29.99 This is a link to their website http://www.costco.com/Labor-Law-Posters-With-1-Year-Update-Service-Included.product.11269612.html so that you can order online. Or you can call 800-955-2292 to order. Be sure to specify Federal & California Labor Law Poster. Please order early to make sure you are in compliance
Sincerely,
Bill Slattery, E.A.

It’s sort of funny that, as important as insurance is, no one likes to talk about it. Many people find it boring or confusing. They might even consider it scary when the subject of life insurance or disability comes up, since no one wants to think about dying or being permanently disabled. It may not be a pleasant topic to discuss, but it’s a necessary one.

The good news is that once you have coverage in place, you can rest a lot easier. The purpose of insurance is to transfer risk. If something bad happens, the insurance company, who has assumed that risk, will cover a percentage of the cost.

Getting all your bases covered, though, can be a little challenging. There are different insurance needs for different people in different stages of life. Plus, you have to keep up with monthly premiums, co-pays, staying in network, and updating your plans. So how do you know what you need and when? To answer that, here are seven must-have types of insurance policies.

1. Homeowner’s/Renter’s

If a fire, tornado or other disaster damages your home or your possessions, this insurance will cover your house and material belongings. It’s a good idea to log your possessions (you can take pictures of them) in case you need to make a claim. If you have homeowner’s insurance, be sure that you have guaranteed replacement cost.

2. Auto

Never drive around uninsured—not just because it’s against the law, but also because the average loss per claim on cars is around $4,200. Imagine having to pay that kind of money out of pocket! The best auto insurance to have is adequate liability coverage. Liability is insurance that covers anything that you caused in an accident, from damage to the car to the health of the humans on the other end. Another popular type of coverage is collision, which pays for your car if it’s damaged or destroyed in a wreck. To save money, you can drop your collision or raise your deductible. Just make sure you have enough money in your emergency fund to cover the damages to your car or to replace your car if it’s totaled. Read More: How Much Car Insurance Do You Really Need?

3. Health

We can’t stress enough how vital health insurance is. If you don’t have it and need to go to the hospital, you’ll be paying those medical bills for years, maybe even decades. Depending on your health concern, you could be talking about hundreds of thousands of dollars here. Never go without it—that’s just asking for trouble! Check out the various options that are available to determine which one best fits you and your family.

4. Disability

Many companies offer great rates on long-term disability insurance to their employees. Make sure 65% of your current income is covered and try to buy insurance that pays if you can’t perform the job that is required of you. You will still need to be fed and cared for, but you won’t be able to generate an income. As far as short-term disability insurance is concerned, don’t buy it. If you become unable to work for, say, 90 days, a fully funded emergency fund will cover your needs there.

5. Long-term care

Once you hit 60 years old, you need long-term care insurance. “Need” is the key word here. In 2012, the average cost of a private room in a nursing home was more than $90,000 a year. That can crack and scramble a nest egg in a heartbeat. You may not be at this stage of life yet, but your parents could be, so make sure they get it. Or you may be footing the bill. Read More: How to Talk to Your Parents About Money

6. Identity theft

This could happen when someone steals your driver’s license or in a big data breach at a big chain store. Whatever the case, it’s a smart move to protect yourself with the right theft protection. Make sure your insurance includes restoration services that assign a qualified counselor to clean up the mess. Get identity theft protection through Zander Insurance.

7. Life

You need life insurance. Don’t do anything else until you and your family are covered! Never, ever get whole life insurance. Always go with term life because it is affordable for just about anyone and doesn’t include a bunch of rip-off fees. Plus, you can let the policy expire after you build up your retirement savings rather than being stuck with it forever. Sadly, about 39% of U.S. adults don’t have life insurance. Don’t be one of them. If you die without life insurance, your family will be forced to cover all the burial expenses and keep earning money to live on while grieving. Get a quote now.

One Final Point to Remember

All these types of insurances are basic, not gimmicky. Stay away from gimmick policies like cancer insurance, accidental death or anything that packages your coverage and savings together (such as whole life or universal life, where the rates of return will be horrible). These policies are just a way for the seller to make extra money off you. Just worry about getting yourself covered with the proper insurances noted above—you can forget about the rest.

Taken from Dave Ramsey’s website: www.daveramsey.com

These aren’t chalkboard-squeaking, SAT-sweating, pencil-breaking numbers. These are fun numbers. You know the ones that show themselves on bills and bank accounts, the ones that make you wealthy. These are the numbers of the budget.

For 20 years, Dave’s class Financial Peace University (FPU) has taught families how to win with money by laying a solid foundation, which is—you guessed it—a budget! The 10 numbers below prove that even the most free-spirited among us can benefit from a little focus on the numbers each month.

1 – One piece of paper is all you need to make a budget. Forget the fancy spreadsheets and scientific calculators—you just need space to write everything out. Of course, if you’re a nerd and it makes you feel better, go ahead and fire up Excel or print one of Dave’s budget forms to get as detailed as you’d like.

$8,000 – Families who learn to budget in FPU report an average turnaround of $8,000 in the first 90 days. This represents $5,300 reduction in debt and $2,700 saved. Think about where you were at just three months ago. Wouldn’t it feel nice to be $8,000 ahead today?

We’d love to help you get there with Dave’s $8,000 Turnaround Giveaway, celebrating 20 years of life change through FPU. You can enter once a day through September 2!

56% – We talk about budgeting all the time, so it might sound like it’s what all the cool kids are doing. It’s not. In fact, 56% of Americans admit they don’t budget. Many of them don’t even know what they spend each month on housing, food and entertainment. Don’t be like these folks. Be weird!

Custom College Guide
0 – A zero-based budget is the key to winning with money. Give every dollar a name, on paper, on purpose before the month begins. This means your income minus your expenses should equal zero. Take control of your money by telling it what to do!

15% — Studies show people spend 15% more money when they pay with a card instead of cash. Identify budget categories where you tend to overspend. Then make a cash withdrawal for those areas and place the money in the envelope. When it’s gone, it’s gone!

3 – A kid’s budget is broken into three areas: give, save and spend. Budgeting helps kids understand the value of work and how to use their own money to make purchases and bless others. It also teaches kids to be content—a refreshing quality in today’s youth.

20 billion – The turnaround tracker is at 20 billion and counting. More than 2.5 million families have taken FPU since it launched in 1994. The tracker is a real-time calculation of the estimated turnaround that occurs each time another family signs up for FPU. While you’ve been reading this, another family likely paid off their car loan and saved $1,000!

18% – Families who use the zero-based budget save 18% more money than people who don’t. This means they’ll build an up emergency fund and pay off debt more quickly simply because they’re applying the wisdom of giving every dollar a name. If you’re smart, you do what works.

4 – The first time you budget, it’s going to hurt. The next month, you’ll still be confused. By the third month, your needs—and the ability to meet those needs— will finally start to make sense. By month four, you’ll feel like an old pro. What once took hours will eventually take just twenty minutes and might—just might—be a little fun.

312 – Dave and Sharon Ramsey filed for bankruptcy in September 1988. As a result, they made big changes to how they handled their money. Dave and Sharon began budgeting immediately and the budgeting continues today. They’ve completed 312 budgets so far. Yes , Dave and Sharon still complete a budget each month—and that means you should too.

Budgeting really is the secret to winning with money. Start now or refine your current budget with our free Guide to Budgeting or search for an FPU class in your area.

How has budgeting changed your life? How has it helped you reach a goal that seemed unattainable?

From Dave Ramsey Blog: www.daveramsey.com/blog/10-numbers-revolutionize-budget

INDUSTRY

From 2017 investors will be able to compare more easily how much companies from all parts of the world earn, under the first common global revenue rule. The FASB and IASB have published a joint standard on how companies report revenue from contracts with customers. The amount of revenue recognised should not change, but when a company is allowed to recognise it will be. FASB Chairman Michael Golden called it “a milestone” in financial reporting, and the Center for Audit Quality’s Cindy Fornelli said it was a “welcome development”. PwC’s Dusty Stallings commented that the new standard “will result in changes for most every company”, though the telecoms, construction, real estate and software industries are the most likely to be affected; McGladrey partner Brian Marshall said such firms will likely relish the change, due to it being less restrictive than the standard it replaces.
Accounting Today CPA Practice Advisor Journal of Accountancy Reuters Boston Globe

GASB approves new post-employment benefit proposals
The Government Accounting Standards Board (GASB) has approved new proposals that will require greater transparency in state and local government reporting on post-employment benefits. The proposals require governments to assign a liability for them on the face of a financial statement. The drafts of the provision will be made available by the GASB in mid-June.
Journal of Accountancy

SOX compliance proving a major challenge
A new survey from Protiviti has found that companies are facing huge challenges in their efforts to fully comply with the Sarbanes-Oxley Act. Over 600 audit executives were questioned, and 48% reported they had yet to apply the new COSO Framework to their key internal controls. Furthermore, 47% said that the PCAOB’s inspection reports of external auditors, which found deficiencies in audits of internal controls, were a key driver of changes to their compliance programs.
MarketWatch

TAX

Ways and Means to approve depreciation incentive
The House Ways and Means Committee is likely to approve a proposal later today, H.R. 4718, to indefinitely extend a tax incentive dating back to the end of George W. Bush’s presidency. The $287bn bonus depreciation tax cut allows companies to deduct an additional 50% of the cost of investments in the first year, on top of the regular depreciation schedule. The Congressional Research Service has found that it would cut the effective tax rate on tractor purchases from 27% to 15%. Matthew Shapiro, an economics professor at the University of Michigan, described it as a “useful policy for short-run stimulus”, though others see it as quite limited and unlikely in itself to lead to increased demand for a service.
BusinessWeek

California mulls film, corporate tax bills
The California State Assembly has approved new legislation that will extend big budget features and most one-hour TV shows’ eligiblity for tax incentives. The state’s current program provides $100m a year for tax credits, well short of the provisions offered by states such as New York. The new proposals would raise the current $75m cap, while expanding it to include premium cable, network and Internet dramas. The legislation now heads to the state Senate, which yesterday rejected a bill that would tie the corporate tax rate to executive compensation, reducing it for companies where CEO pay is less than 100 times that of the median worker.
Variety ABC News

D.C. Council passes raft of new tax provisions
The D.C. Council has approved a tax package providing District residents with their first major tax cuts since 1999. To be phased in over five years, it includes the creation of a 6.5% tax rate for middle-income residents making between $40,000 and $60,000 annually, and an increase of the city’s estate tax from $1m to $5.25m. However, under a budget proposal that won initial approval yesterday, health clubs would be among the businesses required to start collecting a 5.75% sales tax from January 1st – a measure that proved extremely unpopular when first floated four years ago.
Washington Times Washington Post

“Millionaire’s Tax” question moves closer to Illinois ballot
Illinois’ Senate Executive Committee has approved a measure on a non-binding resolution to put the “millionaire’s tax” on the November ballot. HB3816 would ask voters if the state constitution should be amended to add a 3% levy to annual incomes of more than $1m, in order to generate money for education programs.
Fox2Now

FIRMS

AAM honours marketing efforts
The Association for Accounting Marketing handed out over 40 awards for marketing achievement to accounting firms at a ceremony last week. Among the winners were Berdon (branding), Rehman (recruitment) and WithumSmith+Brown (multimedia).
Accounting Today

BDO Seidman ties up with Unanet
The BDO Seidman Alliance has inked a deal with software firm Unanet to use its Professional Services Automation package, enabling all BDO members to make use of its Project Management, Project Accounting and Invoicing and Revenue Recognition capabilities.
Digital Journal

H&R Block CEO sees pay drop in 2013
William Cobb, CEO of Kansas City-based H&R Block, is revealed to have taken a 37.52% pay cut last year, taking his overall compensation from $11,952,965 to $7,467,976.
Kansas City Business Journal

ECONOMY

U.S. retail sales up slightly
National chain store sales edged up 0.7% in the first three weeks of May from the comparable period in April, according to the latest Johnson Redbook Sales Index. Seasonally-adjusted sales increased 3.8% year-on-year. The International Council of Shopping Centers, meanwhile, reports that sales fell 1.2% in the week ending May 24th; chief economist Michael Niemira said the decline was due, in part, “the increased number of Americans traveling this past holiday weekend”.
Wall Street Journal Wall Street Journal

CORPORATE

Prosecutors seek stay in Cohen case
Federal prosecutors have written to the judge overseeing the SEC’s action against Steven A. Cohen, requesting an extension of a stay pending the outcome of a separate appeal involving two former hedge fund managers. Mr Cohen’s former hedge fund, SAC Capital, has pleaded guilty to insider trading.
New York Times

INTERNATIONAL

US offshore profits based in just 12 haven countries
U.S. corporations have informed the IRS that 54% of their offshore profits are earned in 12 tax haven countries – and that when combined only account for 4% of economic output among all the countries in which American firms do business. However, doubt has been cast on these claims, with Citizens for Tax Justice (CTJ) claiming that subsidiary profits in Bermuda of $94bn in 2010 far outweigh the country’s $6bn GDP that year. CTJ also suggests that U.S. companies in Ireland earned profits that amounted to 42% of Irish national GDP.
Accounting Today International Business Times

OTHER

Woo Hah! Busta owes IRS a check
Rapper Busta Rhymes reportedly owes the IRS over $780,000 in back taxes, failing to make payments of $611,000 in 2008 and $178,000 in 2012.
Complex

TAX

The Supreme Court announced yesterday it will hear Maryland v. Wynne, a case that reportedly could result in the revision of tax laws across the country. The case is based on the extent to which a state may tax income earned by a resident in another state; at present Maryland allows residents to deduct this, but it doesn’t apply to the “piggyback tax” collected by the state on behalf of counties and municipalities. In the original case, the Maryland Court of Appeals ruled in favor of Brian and Karen Wynne, who were prevented from deducting $84,000 they had paid in income taxes to other states from the income used to calculate their county tax bill.
Wall Street Journal Washington Post Huffington Post

Top tax official steps down after Credit Suisse victory
Just days after securing a $2.6bn settlement and guilty plea from Credit Suisse on charges that it helped wealthy Americans avoid taxes, Kathryn Keneally has announced she will be leaving the Justice Department next week. The Assistant Attorney General for the Tax Division since 2012, Ms Keneally leaves with a 95% record of decisions in the department’s favour. In a statement, she said simply that she is looking forward to returning to her home in New York.
Reuters Law 360 Main Justice

Senate challenged on tax debt measure
The National Conference of CPA Practitioners (NCCPAP) has challenged a Senate proposal to revive a discontinued program allowing private contractors to collect unpaid tax debts on behalf of the IRS. In common with the IRS Oversight Board, National Taxpayer Advocate Nina Olson and IRS Commissioner John Koskinen, the NCCPAP opposes the section of the EXPIRE Act that allows collection agencies; its Tax Policy Committee chair Steven Mankowski said that only “screened and vetted” agents should be able to represent the federal government in tax issues. Tax attorney Terence E. Smolev adds that the Taxpayer Advocate Service, which helps taxpayers in emergency situations, would not have oversight of private collection agencies.
Accounting Today Newsday

Businessman cops $1m penalty, faces jail time
Viktor Kordash, a Russian businessman who become a U.S. citizen, has pleaded guilty to charges he failed to reveal a $1.5m offshore tax account at Swiss bank Wegelin & Co to the IRS. The account, active for almost two decades, was closed in 2010, but he failed to file mandatory Foreign Bank and Financial Accounts reports with the IRS. He has agreed to pay penalties of over $1m, and faces a five-year jail sentence. In other news Martin Lack, a former UBS banker who pleaded guilty to aiding tax evasion in February, has escaped prison and sentenced to five years of probation.
USA Today Reuters

Pro-Israel group wins right to challenge IRS
U.S. District Judge Ketanji Brown has rejected White House efforts to halt a legal challenge against the IRS from a pro-Israel group. Z Street alleges that the agency violated its First Amendment rights when it subjected its application for 501(c)(3) tax-exempt status to extra scrutiny.
Star-Telegram

INDUSTRY

FAF to look at municipal securities market
The Financial Accounting Federation plans to address the concerns raised by one of the Big Four, thought to be PwC, regarding whether entities raising capital in the municipal securities market use standards developed by the FASB or the GASB. W. Daniel Ebersole, co-chair of the FAF’s standard-setting process oversight committee said: “A primary concern was that an entity’s ownership determines whether FASB or GASB standards apply–a public versus a private college for example”. Public, non-profit and government firms are all held to different standards of transparency, making it difficult for stakeholders to compare financial statements.
Bloomberg BNA

IRS to allow suspended preparers to renew PTINs
As a result of the recent decision in IRS v. Loving that prevents the service from regulating unenrolled tax return preparers, the IRS has announced that those preparers who were sanctioned by having their PTINs blocked between August 2nd 2011 and February 11th 2014 can apply to have them reinstated.
Journal of Accountancy

FASB, IASB to issue new revenue recognition standard
The FASB and IASB are set to hold a joint conference call today at 8.00 am eastern time to announce the publication of a new standard on revenue recognition. The new standard is a convergence of both body’s existing guidance.
Compliance Week

FIRMS

Sterne Agee dumps management after initiating KPMG lawsuit
Alabama-based brokerage Sterne Agee, which last week filed a lawsuit accusing auditor KPMG of negligence, has abruptly replaced CEO Jim Holbrook Jr. with Eric Needleman.
Investment News

ECONOMY

House prices continue to rise
The S&P Case-Shiller Home Price Index released on Tuesday shows that house prices are still gaining, despite losing momentum. The report found that prices increased 0.2% in the first quarter this year from the fourth quarter of 2013. Year-on-year, prices nationwide are up 10.3%. In the year to February however, they rose 12.9%.
Wall Street Journal

INTERNATIONAL

Big Four criticised over bank audits
An annual assessment of audit quality from the UK’s accountancy watchdog has criticised KPMG, PwC, Deloitte and EY for failing to spot the oncoming of the 2007 credit crunch and subsequent economic crisis, whilst auditing the country’s big banks and building societies. The Financial Reporting Council found that audit quality “continues to fall below average”. In particular, auditors have failed to challenge banks and building societies on the insufficient money they have set aside against potential losses on their loans.
The Times of London

As an employee, your wages are hit with the 12.4% Social Security tax up to the annual wage ceiling. Half the Social Security tax bill (equal to 6.2%) is withheld from your paychecks. The other half (also 6.2%) is paid by your employer, so you never actually see that half. Unless you understand how the tax works and closely examine your pay stubs, you may be blissfully unaware of how much the Social Security tax actually costs.

The Social Security tax wage ceiling for 2013 is $113,700, and it rises to $117,000 next year. If your wages meet or exceed the ceiling for 2013, the Social Security tax hit for this year is a whopping $14,099 (12.4% x $113,700 = $14,099). Once again, half of that will come out of your paychecks, and your employer will pay the other half.

If your wages meet or exceed the ceiling for 2014, the Social Security tax hit for next year will be an even-more-whopping $14,508 (12.4% x $117,000 = $14,099).

2. It can be an even bigger number if you’re self-employed

While many employees may be blissfully unaware of the full magnitude of the Social Security tax, because they only pay half the bill, self-employed folks (sole proprietors, partners, and LLC members) know the unmitigated truth all too well. That’s because the self-employed must pay the entire 12.4% Social Security tax hit out of their own pockets, based on their net self-employment income. The fact that companies don’t owe any Social Security tax on amounts paid to independent contractors is a big reason why they often prefer to engage independent contractors instead of hiring employees.

For 2013, the Social Security tax self-employment income ceiling is $113,700 (same as the wage ceiling for employees). So if your self-employment income for this year is $113,700 or more, you owe the $14,099 maximum Social Security tax hit (12.4% x $113,700 = $13,243).

For 2014, the Social Security tax self-employment income ceiling is $117,000 (same as the wage ceiling for employees). So if your self-employment income for next year is $117,000 or more, you will owe the $14,508 maximum Social Security tax hit (12.4% x $117,000 = $14,508).

3. There’s a disconnect between Social Security tax and benefits

While the Social Security tax ceiling increased by 2.9% from 2013 to 2014, recipients’ benefits only increased by 1.5%. This strange phenomenon has occurred in many years and it’s just one more thing to not like about the Social Security tax.

4. The tax ceiling keeps going up

The Social Security Administration’s latest projections (issued in June of this year) for the Social Security tax ceilings for 2015 and beyond are listed below. However, the actual ceilings will probably be higher because the number for 2014 was already underestimated by $1,500. Here are the projected ceilings.

Year Projected Social Security Tax Ceiling
2015 $118,500
2016 123,600
2017 130,500
2018 137,700
2019 144,900
2020 152,100
2021 159,000
2022 165,600
If these numbers pan out, the maximum Social Security tax hit on wages or self-employment income in 2022 would be a whopping $20,534 (12.4% x $165,600). And that’s assuming our beloved Congress doesn’t increase the tax rate, which could easily happen. I think there’s also a chance that the ceiling will be increased beyond the numbers you see here or even entirely removed in an attempt to put the system on a sounder financial footing. If there’s no ceiling, you would owe Social Security tax on every dollar of wages or self-employment income up to infinity.

5. There’s no account with your name on it and insolvency is looming

Some people think the government has set up an account with their name on it to hold the money to pay for their future Social Security benefits. After all, that must be where all the Social Security taxes on people’s wages and self-employment income go. Right? Wrong! There are no individual accounts. All you actually have is a promise from the government, for what it’s worth.

Meanwhile, the Social Security Administration’s most recent report on the system’s financial status (dated May 31, 2013) projects insolvency in 2033. In that year, the program is projected to only have enough revenue from the Social Security tax to pay about 77% of the promised benefits, and the percentage will continue to fall in later years. (Source: Congressional Research Service study dated Oct. 10, 2013.) If you think Obamacare is a political quagmire, just wait until the politicians are forced to get serious about fixing Social Security.

The Bottom Line

It’s not a pretty picture. The Social Security tax hit on many folks will continue to go up (maybe way up), and the odds of actually receiving the benefits you’ve been promised are diminishing. The truth hurts.

By Bill Bischoff at www.marketwatch.com

Income Tax Rates Are Unchanged for All but Higher-Income Individuals

For most individuals, the federal income-tax rates for this year are the same as last year: 10%, 15%, 25%, 28%, 33%, and 35%. However, the American Taxpayer Relief Act (ATRA), passed at the beginning of this year, increased the maximum rate to 39.6%. That rate only affects singles with taxable income above $400,000, married joint-filing couples with income above $450,000, and heads of households with income above $425,000. For 2014, the tax bracket cutoffs are slightly higher, as shown in the table at the end of this column.

Capital Gain and Dividend Tax Rates Are Unchanged for All But Higher-Income Individuals

The federal income-tax rates on long-term capital gains and dividends for this year are also the same as last year for most individuals: either 0% or 15%. However, the ATRA raised the maximum rate to 20% for singles with taxable income above $400,000, married joint-filing couples with income above $450,000, and heads of households with income above $425,000. For 2014, the thresholds for the 20% maximum rate will be $406,750, $457,600, and $432,200, respectively. Folks with taxable income below these levels will pay a 15% federal rate on long-term gains and dividends or 0% for gains and dividends that would otherwise fall within the 10% or 15% brackets (see the tables at the end of this column for the 10% and 15% brackets).

Two New Medicare Surtaxes for Higher-Income Individuals

The 2010 Obamacare legislation included two new Medicare surtaxes that kicked in this year. The new 0.9% surtax hits salary and self-employment income collected by higher-income folks. The new 3.8% surtax hits net investment income collected by higher income folks.

The 0.9% Surtax: The new 0.9% Medicare surtax is charged on salary and/or net self-employment income above $200,000 for an unmarried individual and salary and/or net self-employment income above $250,000 for a married joint-filing couple.

The 3.8% Surtax: If your modified adjusted gross income (MAGI) exceeds $200,000 if you are unmarried or $250,000 if you are married and file jointly, all or part of your net investment income can be hit with the new 3.8% Medicare surtax. The definition of investment income includes long-term capital gains, dividends, interest and a host of other items. The 3.8% surtax applies to the lesser of your net investment income or the amount by which your MAGI exceeds the applicable threshold. MAGI means “regular” adjusted gross income (AGI), from the last line on page 1 of your Form 1040, increased by certain tax-exempt income from outside the U.S. which you probably don’t have. See my earlier columns for some advice on how to minimize or avoid the 3.8% surtax: How to avoid new 3.8% tax on investment income and Tips for avoiding 3.8% investment income tax

Strategy: Time Investment Gains and Losses for Tax Savings

As you evaluate investments held in your taxable brokerage firm accounts, carefully consider the tax impact of selling appreciated securities (currently worth more than you paid for them). For most people, the federal income-tax rate on long-term capital gains is still much lower than the rate on short-term gains. For that reason, it often makes sense to hold appreciated securities for at least a year and a day before selling in order to qualify for the lower long-term capital gains rate.

Selling some loser securities (currently worth less than you paid for them) before year-end can be a tax-smart move. The resulting capital losses will offset capital gains that you racked up earlier this year, including high-taxed short-term gains from securities that you owned for one year or less. This year’s maximum federal rate on short-term gains is 39.6%, and the new 3.8% Medicare surtax may apply too — which can result in a combined federal rate as high as 43.4%. Ouch! But you don’t have to worry about paying a high rate on short-term gains that you’ve successfully sheltered with capital losses. You’ll pay 0% on those gains, and 0% is good!

If your capital losses for this year exceed your capital gains, you’ll have a net capital loss for 2013. You can use it to shelter up to $3,000 of this year’s high-taxed ordinary income from salaries, bonuses, self-employment, and so forth ($1,500 if you’re married and file separately). Any excess net capital loss is carried over to 2014 and beyond until you use it up. So it won’t go to waste. In fact, selling enough loser securities to create a bigger net capital loss to carry over to next year and beyond might make perfect sense. You can use it to shelter both future short-term gains and future long-term gains that might otherwise be taxed at higher rates than those that apply this year.

Strategy: Set Up Loved Ones to Pay 0% Rate on Investment Income

The federal income-tax rate on this year’s long-term capital gains and dividends is still 0% for gains and dividends that fall within the 10% or 15% rate brackets (see the table at the end of this column for the brackets). While your income may be too high to take advantage of the 0% rate, you probably have loved ones who can benefit. Consider giving them some appreciated stock or mutual fund shares. They can sell the shares and pay 0% federal income tax on the resulting long-term gains. Remember: the gains will be long-term as long as your ownership period plus the gift recipient’s ownership period equals at least a year and a day. Giving away dividend-paying stocks is another tax-smart idea. As long as the dividends fall within the gift recipient’s 10% or 15% rate bracket, they too will qualify for the 0% federal rate.

Warning: If your gift recipient is under age 24, the Kiddie Tax rules could potentially cause some of his or her capital gains and dividends to be taxed at the parent’s higher rates. That would defeat the purpose. Contact your tax adviser if you have questions about how the Kiddie Tax works.

Strategy: Convert Traditional IRA into Roth Account

The best scenario for the Roth conversion deal is when you expect to be in the same or higher tax bracket during retirement. While some higher tax rates have already kicked in for this year, there’s certainly no guarantee that more tax hikes are not in our future.

Of course, there is a current tax cost for doing a Roth conversion. That’s because the conversion is treated as a taxable liquidation of your traditional IRA followed by a non-deductible contribution to the new Roth account. Here’s the advantage: after the conversion, all the income and gains that accumulate in your Roth account, and all your withdrawals, will be federal-income-tax-free — assuming you only take qualified withdrawals. Qualified withdrawals are those taken after: (1) you’ve had at least one Roth account open for more than five years and (2) you’ve reached age 59 1/2. With qualified withdrawals, you avoid having to pay higher tax rates that may exist during your retirement years. Put another way, the current tax hit from a Roth conversion is unwelcome, but it could be a very reasonable price to pay for the future tax savings. But please talk to your tax pro before pulling the trigger on a conversion. There are lots of variables to consider.

Information taken from www.marketwatch.com