Tag: Taxes

  • 5 Social Security tax truths

    1. Social Security tax can be a big number if you’re an employee

    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

  • Tax Deductions for Your New Addition

    Did you have a baby this year? If so, congratulations on the little tax deduction!
    Just kidding – congratulations on the addition to your family!
    While you’re probably a little groggy still, kudos to you for thinking about your taxes when most can barely think at all.
    Fortunately, along with your new baby, your family is now eligible for new tax deductions as well. Don’t overlook the tax advantages that come when you add a new member to your family.
    Tax Benefits for Having Children
    First, you receive another exemption when you have a child. Each exemption you have represents a deduction of $3,900 for 2013.
    So, a new child means that your income is reduced by the exemption amount. While this isn’t as valuable as a tax credit, it is still worthwhile, since a smaller income means a smaller tax liability.
    You might also be eligible to claim the Earned Income Tax Credit. Parents that meet certain income requirements and have children can claim the EITC, which is a tax refundable credit.
    Another possible tax benefit is the Child Tax Credit. This is a credit worth up to $1,000 for each child under the age of 17. Because it’s a credit, it represents a dollar for dollar reduction of your tax bill.
    Not everyone is eligible for the Child Tax Credit and eligibility is based on adjusted gross income. For 2013, the phaseout for the credit begins at $110,000 for those filing jointly and $75,000 for those filing as single (married filing separately begin phasing out at $55,000).
    It’s also possible to claim the Child and Dependent Care Tax Credit. This credit allows you to claim qualified child care costs as deductions.
    There is still a phaseout with this credit too, so you might not be eligible if your income is above a threshold. You can also check to see if there is a Dependent Care Account offered by your employer. Money contributed to this account is tax deductible, and it can be used to pay child care expenses.
    If you adopted, there is a generous tax credit for those who wish to adopt. The Adoption Tax Credit is refundable, and it can help offset the costs incurred as you adopted your new addition.
    There are phaseouts for this credit as well, but they are much higher than the phaseouts for the other tax deductions and credits. If you adopted, you must look into this credit.
    Finally, remember to get a Social Security Number. In order to claim any of these tax advantages as a result of adding a child to your family, you will need a Social Security number.
    If your baby is new, you need to apply for a Social Security Number. If you are taking over the care of a child and are eligible to claim the exemption or the Dependent Care Credit, you need to make sure you know his or her Social Security number.
    Bringing a child into your family is a big step — and one that is very rewarding on an emotional level. However, your new bundle of joy also comes with some financial advantages to go with the financial costs.
    While most of them simply offset some of your costs, others can actually be extremely beneficial so it’s important to look into them.
    And get some sleep!

    Taken from Turbo Tax Blog

  • Tax Tips for Extension Filers

    Autumn is upon us, and if you chose to file a tax extension this year, October 15 is your target date…your zero hour…your deadline. Your six-month grace period is coming to an end.
    If it feels as though the past few months have flown by, don’t fret, there is still time to submit your tax return without incurring any additional penalties or interest. We’ve compiled a short list of last-minute tax tips for you extension filers needing to get your returns filed with the IRS by October 15th.

    Electronic vs. Paper
    It may come as a small surprise, but October 15th is the tax deadline for electronically filing your tax return. You are still eligible to file a paper tax return after October 15th, but you will incur those nasty interest charges and late penalties.
    The best decision you could make at this point is to go ahead and e-file your tax return by the 15th. By doing so you will remain within your six-month grace period. There’s no sense in giving the IRS a reason to take more than you owe.

    Double Check Personal Information
    This is it – your last chance to make sure everything contained within your tax return is true and accurate. There are no additional extensions after October 15th.
    Don’t panic, but don’t forget to review your personal information. Make sure your name, birthday, address, and social security information is correct. Also include all W-2s and 1099s, when entering your information.

    IRAs
    October 15th is also the final deadline to fund your SEP-IRA if you requested an automatic extension. If you’ve forgotten about this little deadline, you still have time to make some deposits. Just remember to update your tax paperwork after you’ve funded these accounts, because, although it’s 2013, you’re actually funding your accounts for the 2012 tax year.

    Preparing for the Future
    It’s easy to get stuck in a rut, especially when that rut is filing for a tax extension year after year. Let’s face it, when you file your taxes in October, the last thing you want to think about is preparing for next year’s taxes. But no matter how much you want to forget about taxes, April is always right around the corner.
    Let this be an encouragement for you to get organized this year. The middle of November is a great time to begin gathering your thoughts and your records for the upcoming tax season. And if you would like to save more on your 2013 taxes, use this time to make some year-end financial maneuvers to get yourself in a better position for next year.

    Blog taken from Turbotax

  • The Government Shutdown and Your Taxes

    The Government Shutdown and Your Taxes IRS Update:

    The government shutdown that took place on October 1 left everyone with questions about how the shutdown will impact them.
    If you are one of the taxpayers that filed an extension, you may be wondering if the shutdown impacts filing your taxes.
    Don’t worry. We have you covered and have answers to your burning questions:

    Should I still file my extended tax return in light of the shutdown?
    Yes, you still need to file your tax return by the October 15th extended deadline. E-filing your return is the fastest way to have your tax return processed. Returns filed by mail will not be processed until after the shutdown is over. Acknowledgements will be issued by the IRS for e-filed accepted tax returns.

    You said paper filed returns will not be processed, but I have to mail mine. Will it be considered timely filed?
    Yes, although paper tax returns will not be processed until after the shut down is over, the postal service will still post mark your paper filed return. Any tax return postmarked by the due date will be considered filed on time by the IRS.

    Will the IRS shutdown exclude me from late filing penalties if I don’t file by October 15?
    No, the IRS still requires that you file your tax return by the extended deadline.

    I owe money on my 2012 taxes, what should I do?
    You should submit the balance owed electronically when you e-file your taxes. Payments received will still be posted to your account.
    If you have a previous balance due, you should submit the payment as you normally do.

    Will the government shutdown affect my tax refund?
    If you e-file your tax return, the IRS will still process your tax return as it normally would. If you are due a tax refund, it will be issued when the shutdown is over.

    Can I still check the status of my tax refund?
    If your tax return was processed before the shutdown, you can use “IRS Where’s My Refund?” to check the status of your tax refund. If you e-filed your tax return after the shutdown your e-filed tax return will be processed, however you will not be able to check the status of your refund until after the shutdown is over.

    Article by Turbo Tax Lisa Lewis
    @TURBOTAX

  • Tax Changes in Congress’ Fiscal Cliff Legislation

    Here is a summary of the provisions included in the bill –

    Tax rates beginning January 1, 2013

    A top rate of 39.6% (up from 35%) will be imposed on individuals making more than $400,000 a year, $425,000 for head of household, and $450,000 for married filing joint.

    2% Social Security reduction gone

    AMT permanently patched

    A permanent AMT patch, adjusted for inflation, will be made retroactive to 2012.
    Fiscal Cliff Legislation
    Dividends and capital gains

    The maximum capital gains tax will rise from 15% to 20% for individuals taxed at the 39.6% rates (those making $400,000, $425,000, or $450,000 depending on filing status, as noted above).

    Itemized deduction and personal exemption phase-outs

    The Pease itemized deduction phase-out is reinstated, and personal exemption phase-out will be reinstated, but with different AGI starting thresholds (adjusted for inflation): $300,000 for married filing joint, $275,000 for head of household, and $250,000 for single.

    Estate tax

    The estate tax regime will continue to provide an inflation-adjusted $5 million exemption (effectively $10 million for married couples) but will be applied at a higher 40% rate (up from 35% in 2012).

    Personal tax credits

    The $1,000 Child Tax Credit, the enhanced Earned Income Tax Credit, and the enhanced American Opportunity Tax Credit will all be extended through 2017.

    Other personal deductions and exclusions

    The following deductions and exclusions are extended through 2013:

    • Discharge of qualified principal residence exclusion;
    • $250 above-the-line teacher deduction;
    • Mortgage insurance premiums treated as residence interest;
    • Deduction for state and local taxes;
    • Above-the-line deduction for tuition; and
    • IRA-to-charity exclusion (plus special provisions allowing transfers made in January 2013 to be treated as made in 2012).

    Business provisions

    • The Research Credit and the production tax credits, among others, will be extended through 2013;
    • 15-year depreciation and §179 expensing allowed on qualified real property through 2013;
    • Work Opportunity Credit extended through 2013;
    • Bonus depreciation extended through 2013; and
    • The §179 deduction limitation is $500,000 for 2012 and 2013.

    Here is a summary of the provisions included in the bill –

    Tax rates beginning January 1, 2013

    A top rate of 39.6% (up from 35%) will be imposed on individuals making more than $400,000 a year, $425,000 for head of household, and $450,000 for married filing joint.

    2% Social Security reduction gone

    AMT permanently patched

    A permanent AMT patch, adjusted for inflation, will be made retroactive to 2012.
    Fiscal Cliff Legislation
    Dividends and capital gains

    The maximum capital gains tax will rise from 15% to 20% for individuals taxed at the 39.6% rates (those making $400,000, $425,000, or $450,000 depending on filing status, as noted above).

    Deducción detallada y exención personal eliminaciones graduales

    El Pease deducción detallada eliminación se restablezca, y se restablecerá la exención personal de eliminación, pero con diferentes AGI umbrales de partida (ajustado por inflación): $ 300.000 para articular casado, $ 275,000 para el cabeza de familia, y de $ 250.000 para una sola.

    Impuesto de propiedad

    El régimen del impuesto sobre el patrimonio seguirá proporcionando una inflación ajustada por $ 5.000.000 exención (de hecho, $ 10 millones para las parejas casadas), sino que se aplica a una tasa superior al 40% (frente al 35% en 2012).

    Las deducciones personales

    El Crédito Tributario por Hijos $ 1000, el Crédito Tributario por Ingreso del Trabajo mejorada, y el Crédito de la Oportunidad Americana mejorado todos serán extendidos hasta el 2017.

    Otras deducciones personales y exclusiones

    Los siguientes deducciones y exclusiones se extienden hasta el 2013:

    • Aprobación de la gestión de la exclusión residencia principal calificada;
    • $ 250 deducción maestro por encima de la línea;
    • Primas de seguro hipotecario considerarán interés residencia;
    • Deducción por impuestos estatales y locales;
    • Deducción por Encima de la línea de la matrícula, y
    • Exclusión (más disposiciones especiales que permiten las transferencias realizadas en enero de 2013 para ser tratados como hizo en 2012) IRA a la caridad.

    Disposiciones negocios

    • El Crédito de Investigación y los créditos fiscales a la producción, entre otros, se extenderán hasta el 2013;
    • 15 años de amortización y § 179 por gastos permitidos en bienes raíces calificado hasta el 2013;
    • Crédito de la Oportunidad de Trabajo extendió hasta el año 2013;
    • Bonus depreciación extendió hasta el 2013, y
    • El § 179 limitación de la deducción es de $ 500.000 para 2012 y 2013.