2011 Tax Deadlines and MD Changes
January 6, 2011 | 
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There are some important changes and deadlines affecting the 3.5 million taxpayers working on their 2010 income tax returns you should be aware of:
- Filing deadline is April 18th, 2011, not April 15th. Due to the celebration of Emancipation Day by Washington DC on April 15, 2011, personal income tax returns are due the following Monday.
- Splitting your Direct Deposit. This year, you can deposit portions of your refund into multiple accounts by using Form 588.
- Local Tax Rate Increase. For the tax year 2011, Baltimore City has increased the local tax rate to 3.20%
- Increased Pension Exclusion. This year, Maryland’s maximum pension exclusion (available to qualifying tax payers 65 or older), increased from $24,500 to $26,000.
These are just a few. Make sure you consult with your tax advisor and are aware of 2011 deadlines and changes.
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Summary of Dec. 6 Tax Cuts Compromise
December 7, 2010 | Subscribe to our RSS Feed
President Obama and Republican leaders reached a compromise on December 6th regarding expiring tax cuts. Here are some highlights that might be relevant to you.
- The Bush-era tax cuts have been extended for two years. This includes an extension of the current 15% rate on capital gains (which was scheduled to increase to 20%).
- The employee share of the social security tax has been temporarily reduced (for 1 year) to 4.2% on earned income up to $106,800. Earned income up to that cap is subject to a 12.4% “social security” tax which is split between the employer and the employee; each contributing 6.2% (this 12.4% is also paid by self-employed workers). Under the deal, the employee’s portion of the tax will be cut to 4.2% for 1 year. There is no reduction in the employer’s share.
- The estate tax has a 2-year fix under which the exemption amount has been increased to $5 million (it had been $3.5 million under the old rules that expired at the end of 2009) and the top rate will be 35% (rather than the 55% scheduled to kick in on January 1st).
- Continuation of increased expensing write-off for newly acquired depreciable property. As a result of the tax legislation passed in September for property acquired in 2010 and 2011, a taxpayer can write-off in the year of purchase (rather than over a multi-year period), up to $500,000 for newly-acquired property. The expensing allowance was set to drop back to $25,000 beginning in 2012.
- Alternative minimum tax relief for approximately 22 million taxpayers. The details on this AMT relief also haven’t been published but this is probably being done by raising the AMT “exclusion amount” so that middle class taxpayers aren’t caught in this tax trap which was intended to catch high income taxpayers with a lot of itemized deductions.
This “deal” still has to get through the Senate where many Democrats and Republicans alike are unhappy with the compromise. In the meantime, this summary at least tells you where we stand at this point!
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IRS Scam Alert
October 25, 2010 | Subscribe to our RSS Feed
The IRS has issued a warning about a fraudulent scheme targeting Electronic Federal Tax Payment System (EFTPS) users. The scheme uses an e-mail claiming that the user’s tax payment was rejected and directs the user to a website for additional information. The website contains malware that will attempt to infect the user’s computer.
The IRS does not initiate taxpayer communications through e-mail. If anyone receives a message claiming to be from the IRS or EFTPS, do not reply to the sender, access links on the site or submit any information to them. Report and identify this or other phishing, e-mail scams and bogus IRS websites by forwarding the e-mail or URL information to the IRS at phishing@irs.gov.
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tammy.schneider@glassjacobson.com
2010 Strategy- Pay Dividends to C Corp Shareholders This Year
September 20, 2010 | Subscribe to our RSS Feed
Congress has a lot of tax issues to resolve in these four short pre-election weeks, including the fate of the expired and reappearing estate tax and the expiring Bush tax cuts.
While there has been no formal legislation passed, it seems that tax rates for wealthy taxpayers (those earning $250,000 or more, $200,000 or more if single) will increase sooner rather than later- in all likelihood, sometime next year. The wild cards, of course, are the economy and the November elections. A continued lackluster economy could give Congress cause to extend the Bush tax cuts even for the wealthy, at least temporarily, as could a turnover of the Senate or House—only time will tell.
If you believe that tax rates for wealthy taxpayers will be going north, it may be time to consider throwing out some traditional strategies and doing just the opposite. For example, instead of deferring income and accelerating deduction, this year wealthy taxpayers may well want to accelerate income to take advantage of the current low rates and defer deductions to offset future income that will be taxed at higher rates. C corporations may want to consider making nondeductible dividend distributions this year.
Dividends paid from C corporations to shareholders during 2010 will be taxed under today’s favorable federal rate structure. In contrast, distributions received in 2011 or later are currently scheduled (absent a law change) to be taxed at much higher rates—up to 39.6% in 2011 when the Bush tax cuts are set to expire and up to 43.4% in 2013 when the 3.8% net investment income surtax under the Health Care Act is set to kick in.
Bottom-line: high-income individuals who own closely held companies should consult with their CPA to decide if the potential tax savings from declaring and paying dividends before the end of 2010 make sense in the long run.
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5 Tax Tips for the Recently Married
August 24, 2010 | Subscribe to our RSS Feed
If you recently got married or are planning a wedding, there are some important steps you need to take to avoid stress at tax time. Here are five tips from the IRS for newlyweds to keep in mind.
1. Notify the Social Security Administration Report any name change to the Social Security Administration, so your name and Social Security Number will match when you file your next tax return. Informing the SSA of a name change is quite simple. File a Form SS-5, Application for a Social Security Card, at your local SSA office. The form is available on SSA’s website at www.socialsecurity.gov, by calling 800-772-1213 or at local offices.
2. Notify the IRS If you have a new address you should notify the IRS by sending Form 8822, Change of Address. You may download Form 8822 from IRS.gov or order it by calling 800–TAX–FORM (800–829–3676).
3. Notify the U.S.Postal Service You should also notify the U.S. Postal Service when you move so it can forward any IRS correspondence.
4. Notify Your Employer Report any name and address changes to your employer(s) to make sure you receive your Form W-2, Wage and Tax Statement, after the end of the year.
5. Check Your Withholding If both you and your spouse work, your combined income may place you in a higher tax bracket. You can use the IRS Withholding Calculator available on IRS.gov to assist you in determining the correct amount of withholding needed for your new filing status. The IRS Withholding Calculator will even provide you with a new Form W-4, Employee’s Withholding Allowance Certificate, you can print out and give to your employer so they can withhold the correct amount from your pay.
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