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Who pays "enough"
in taxes? | |
A recent poll by the Pew Research Center revealed that 58% of those surveyed felt the rich don't pay enough in taxes. 26% said the rich pay their fair share, and 8% said the rich pay too much.
According to the Tax Policy Center, a nonpartisan group that studies tax issues, the wealthy do, in fact, pay a significant portion of taxes collected. Households earning over $1 million a year total 0.3% of all taxpayers; yet they pay 20% of all federal taxes (income, payroll, and estate taxes). Households earning $50,000 to $75,000 a year, a group totaling 12% of taxpayers, pay 9% of federal taxes. About 46% of households pay no federal income tax though they do pay payroll and other taxes. |
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Home Office Deductions | |
Generally a taxpayer may not deduct expenses connected to his/her personal residence; other than qualified mortgage interest, casualty losses and real estate taxes. However both self-employed taxpayers and employees may deduct a portion of what would otherwise be non-deductible personal expenses (utilities, insurance, maintenance, etc.) if they can establish that the home office is their principal place of business of the taxpayer's trade of business.
Home office deductions will be allowed if the home office is used exclusively for business on a regular basis and is:
- Used to meet with patients, clients or customers in the normal course of the business
- A separate structure which is not attached to the dwelling unit, or
- The taxpayer's "principal place of business"
If the home office is used to meet with customers it may qualify as a home office. Returning phone calls and talking to customers on the phone does not meet this requirement. If the taxpayer has another principal place of business but meets with clients in the home office on a regular basis, the home office can still qualify.
If the home office is in a separate structure and not attached to the dwelling unit, it need not be the principal place of business or a place where the taxpayer meets with customers to qualify.
A comparative analysis test is used to determine if the home office is a "principal place of business". This analysis compares the importance of the activities performed in the home office versus the importance of activities performed in other locations. The home office qualifies if the most vital activities of the business are performed in the home office.
The term "principal place of business" also includes a place of business which is used by the taxpayer for the administrative or management activities of any trade or business of the taxpayer if there is no other fixed location of such trade or business where the taxpayer conducts substantial administrative or management activities.
Many expenses that would otherwise be considered personal and non-deductible may be converted to partially deductible once the taxpayer has met the above qualifications.
- Indirect expenses are those connected with the home in general and are not specifically for the office space. These expenses must be allocated based on a percentage of square footage. Examples include mortgage interest, taxes, insurance, and utilities.
- Direct expenses incurred that improve or benefit just the home office space are 100% deductible.
The home office deduction is limited to the net profit of the activity after deducting all other expenses of the activity.
Employees may take a deduction for a home office if, in addition to the above mentioned qualifications, the home office is being used for the convenience of the employer.
Submitted by: Lisa Geist, CPA
Nohre & Co., S.C. |
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Common Estate Planning Mistakes | |
An anticipated jump in federal estate taxes next year has prompted many people to take a second look at their estate plans. If Congress takes no action, the maximum estate tax rate will jump from 35% to 55% in 2013.
Following are five common, and potentially costly, mistakes to watch out for:
Not updating your estate plan - Experts recommend that you review your estate plan every three to five years to make sure it reflects changes in your family and financial circumstances, as well as changes in the law.
Review your will and other estate-related documents after each life changing event. Or, any substantial change in your finances; whether it is because of a stock market decline, a job change, or retirement. Beneficiary designations in retirement plans, for example, don't automatically transfer when you roll over your 401(k), open an IRA, or switch from a traditional IRA to a Roth IRA.
It's also important for your estate plan to take into consideration potential future changes to estate laws. The potential decline in federal estate tax exemptions from $5 million this year to $1 million next year could affect your tax liability and may influence how and when you distribute your assets.
Ignoring conflicts between your estate plan and other beneficiary designations - If your will states that your home and retirement account go to your current husband, but your ex-husband's name is on the deed and your 401(k) plan, there's a problem. The deed and the beneficiary designation will likely trump what's in your will.
Unless your property titles, for both real estate and other assets, and beneficiary designations are consistent with your trust or will, they may not be subject to those expressed wishes.
Not specifying who inherits your estate and how - Say, for example, you planned on dividing your assets equally among your three children. But your son predeceases you. Unless your will states that each child's branch of the family gets an equal share, or that your son's share of your assets should be distributed to his own children, your two daughters will inherit everything when you are gone.
Even if your will makes clear that your son's children should inherit, you may not want them to receive the assets outright if they are minors. Should their shares be placed in a trust? You may want to discuss this with your family or lawyer.
Writing an inflexible estate plan - A rigid estate plan cannot adapt to changes in the law or family circumstances. If your plan was designed to take advantage of certain tax criteria, and those laws change, you want to make sure your heirs can amend it.
Letting emotions guide your choice of an executor - If your beloved eldest son, a high-powered attorney, doesn't get along with his five siblings and vehemently disagrees with your end-of-life directives, he may not be the best person to choose as executor or surrogate health care decision-maker.
Our fiduciaries don't need to be experts in tax law; they just need to be smart enough to know when to go get help and where to go to get help. |
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WI Tax Collections Higher Than Expected |
MADISON, Wis. (AP) -- Tax collections for Wisconsin's fiscal year that ended in June were nearly 1 percent higher than projected.
The state Department of Revenue released the preliminary data in September. It showed that tax collections were up 4.7 percent from the previous year and were 0.9 percent, or nearly $127 million, above the estimate made in May.
Department of Administration Secretary Mike Huebsch says the numbers are encouraging, but state agencies need to be fiscally responsible while preparing budget requests for the next two years.
Final numbers showing how much money was actually spent will be published in an annual report released in October.
Gov. Scott Walker will introduce his next two-year budget early next year for the Legislature to consider and pass likely sometime in the summer.
Source: Gray Television Group, Inc. |
| Know the Tax Difference Between Alimony and Child Support | |
Divorce is a sad experience for all concerned. The last thing you want to think about is taxes, but tax issues are important. If you fail to negotiate your divorce settlement with taxes in mind, you may regret it for years to come. One important tax issue is whether you call support payments alimony or child support.
Alimony is taxable; child support is not. Alimony or separate maintenance payments are payments made by one spouse to help support the other. Generally, alimony payments are deductible by the person paying them, and they are taxable income to the person receiving them. Child support payments, on the other hand, are neither deductible by the payer nor income to the recipient. So what's best tax-wise depends on whether you are the payer or the recipient of the payments.
Negotiate with taxes in mind. Alimony can sometimes lead to combined tax savings. If the spouse making the payments is in a higher tax bracket than the recipient, the value of the tax deduction will be greater than the taxes owed. Both parties may be able to share the benefit if the value of this tax saving is anticipated when payments are negotiated.
Avoid this tax trap. Beware of trying to disguise child support or property transfers as alimony just to gain the tax deduction. The IRS can disallow the tax deduction in such cases.
Call us if you would like tax planning assistance during your divorce process. We can work with your attorney to help you make informed choices that take taxes into account. |
Employers Try to Manage Rising Health Costs | |
A survey of 440 midsize and large businesses conducted by Towers Watson says the cost of health care will likely increase 5.9% in 2012. Next year the increase will be somewhat lower at 5.3%.
With such large increases for employee health benefits, companies are looking for ways to cut costs, including increasing the percentage of premiums employees pay and reducing spouse and dependent coverage.
Other cost-control changes employers plan for 2013 include adopting health plans such as health savings accounts and health reimbursement accounts and offering telemedicine consultations.
The survey showed that 88% of companies plan to continue offering health care benefits, considering it necessary to attract and retain the best employees. |
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Develop an Early-warning System for Problem Accounts |
If you extend credit to your customers, some losses are inevitable. So unless you are willing to forgo the credit part of your sales, you have to figure out ways to control your bad debt losses.
Once you have extended credit to a customer, you have a stake in continuing the relationship even if you suspect there might be trouble a-brewing. You don't want to crack down on a good customer too hard too soon; yet you don't want to be "taken" by a debtor who has become unable or unwilling to pay. The problem is distinguishing between slow pay (which is bad enough) and no pay.
What you need is an early-warning system to detect a credit problem in the making, so you can stop additional sales to that customer and begin collection procedures in earnest. Here are some of the tell-tale signs that point to an account that is turning sour.
- The debtor has begun paying erratically, settling up on smaller invoices while larger ones just get older, at the same time disputing specifications or terms.
- The debtor fails to return your phone calls or shows unusual annoyance at your inquiries.
- Your requests for information, such as updated financial statements, are ignored.
- The debtor places jumbo orders and presses you for a higher credit limit.
- Despite the problems you are having, the debtor tries to coax you into providing a good credit report to another supplier.
- You get word that the debtor's credit rating has been downgraded.
Any one of these hints of trouble can be the handwriting on the wall. Two or more and it's time to crack down. Take a firm stand; turn up the heat on your collection efforts with this debtor, and make no more sales unless they're cash on delivery. |
Take Credit to Help Pay College Costs | |
From 2008 to 2010, the average tuition at four-year public universities rose 15%, and in 2011 total student loans topped $1 trillion. Those statistics are no surprise to parents and students trying to pay for a college education.
The IRS recently issued a reminder that the tax law offers some education tax benefits that can help offset some college costs for students and parents.
The education credits include the American Opportunity Credit and the Lifetime Learning Credit.
The American Opportunity Credit can be up to $2,500 per eligible student and is available for the first four years of study at an eligible institution. Up to 40% of the credit is refundable. For 2012, the credit begins to be phased out once adjusted gross income reaches $80,000 for singles and $160,000 for couples.
The maximum Lifetime Learning Credit is $2,000, and there is no limit on the number of years you can claim the credit for an eligible student. The income phase-out for this credit begins at $52,000 for singles and $104,000 for couples.
Only one type of credit per student can be claimed in the same year. However, if you pay college expenses for more than one student in the same year, you can choose to take credits on a per-student, per-year basis. You can, for example, take the American Opportunity Credit for one student and the Lifetime Learning Credit for the other student.
The IRS reminder also mentions the tax deduction available for student loan interest of up to $2,500. |
Insuring Your Teen Driver: How to Control the Cost | |
Your child is approaching 16 years old and for the past several years, he or she has reminded you (daily, it seems) of this inevitability. You, on the other hand, have been trying to expunge the thought that a teenager -- a teenager! -- will soon be driving one of your vehicles.
Of course, there's at least one good reason for putting this thought out of your mind: the near certainty that your insurance premiums will spike upward when your son or daughter starts driving. Insurance companies can marshal an impressive array of statistics showing that the younger the driver, the greater the risk. In fact, teen drivers account for almost 13% of fatal accidents and the crash rate for 16-year-old drivers is nearly three times as high as for 19-year-olds. From an insurance company's perspective, insuring a teenager increases the risk of having to pay claims. To compensate for this higher risk, insurers charge higher premiums -- sometimes 50% to 200% higher.
When it's time to insure your teen driver, here are five ideas for keeping car insurance premiums under control:
Add the new driver to your policy - Unless your driving record isn't stellar or all your cars are new and expensive, it's generally cheaper to add a son or daughter to an existing policy.
Assign the cheapest car to the teen - By linking the teen driver to your least expensive car, the insurer's risk is mitigated, which should result in lower premiums. Just make sure your son or daughter uses the assigned vehicle exclusively.
Require good grades - Many insurers provide discounts for students who maintain a "B" average or better, a policy some parents have leveraged to good effect: "keep your grades up or the car stays in the garage".
Opt for a higher deductible - The higher the deductible, the more you pay out of pocket if there's an accident. If you have the financial wherewithal to cover the cost of fender benders, your premiums can be lowered by as much as 35% by, say, increasing your deductible from $500 to $2,000.
Keep adequate liability coverage - Some people try to lower premiums by decreasing liability coverage. Bad idea. Remember, teen drivers are high risk. They're more likely than adults to involve other drivers in accidents. Without sufficient liability coverage, you could end up pulling money out of retirement savings to cover another driver's hospital bills. |
| Calendar Updates | |
Major Tax Deadlines
Reminders
For October 2012
Businesses are required to make federal tax deposits on dates determined by various factors that differ from business to business.
Payroll tax deposits: Employers generally must deposit Form 941 payroll taxes (income tax withheld from employees' pay and both the employer's and employees' share of social security taxes) on either a monthly or semiweekly deposit schedule. There are exceptions if you owe $100,000 or more on any day during a deposit period, if you owe $2,500 or less for the calendar quarter, or if your estimated annual liability is $1,000 or less.
Monthly depositors are required to deposit payroll taxes accumulated within a calendar month by the fifteenth of the following month.
Semiweekly depositors generally must deposit payroll taxes on Wednesdays or Fridays, depending on when wages are paid.
For more information on tax deadlines that apply to you or your business, contact your Nohre & Co. Account Manager. |
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This newsletter is designed to present information on business and tax matters in general terms and is not intended to be used as a basis for specific action without obtaining further advice. Please contact your Nohre Account Manager @ 715.834.2225 or 800.960.2225.
Editor: Deb Stange, Nohre & Co., S.C.
Please forward comments to nohre@nohre.com
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