FROM FORBES.COM -
If your income is too high, you can’t contribute directly to a Roth individual retirement account, but you can get one in a backdoor way. Step 1: Open a traditional IRA (in your case, it’s nondeductible). Step 2: Convert it to a Roth IRA. Is it worth it? “It’s a no-brainer if you have the cash to do it,” says Kevin Huston, an enrolled agent in Asheville, N.C. who has clients both young and old doing it to shore up their retirement savings. “It especially makes sense for people who are younger because they have all these years of tax-free growth,” he says.
Basically, you get an extra $5,000 (or $6,000 if you’re 50 or older) each year that grows in the Roth IRA income-tax free. That’s $10,000 (or $12,000) a year for a married couple. Repeat each year, and you can amass a nice retirement kitty. The audience for backdoor Roths is a niche, appealing to those earning too much to contribute to Roths directly but not so much that the extra tax savings doesn’t seem worth the effort. Vanguard says that “backdoor Roth” contributions represented about 2 percent of traditional IRA contributions in 2010. That’s the year that income restrictions were lifted, and anyone—regardless of income—could convert a traditional IRA to a Roth, leading to a boomlet of Roth conversions.
Why go through the hoops of getting money into a Roth IRA? They are an amazing deal, especially for folks looking long-term and expecting higher tax rates in the future. With a Roth IRA you don’t ever have to take money out, and when you do start taking money out, it’s all income-tax-free, including the earnings. By contrast, with a traditional IRA, earnings grow tax-deferred, you have to start taking required mandatory distributions the year after you turn 70.5, and distributions count as income. A Roth can help keep your tax bite down in retirement. (Ideally you want a mix of taxable, tax-deferred and tax-free accounts to draw from in retirement.)
A Roth IRA also has other benefits. Medicare premiums are based on income, so by keeping your income down, you’ll pay a lower premium. And if you leave a Roth account to a child, he or she will have to take money out each year, but there will be no income tax hit. (Inheriting a $100,000 Roth IRA is a whole lot better than inheriting a $100,000 traditional IRA; the higher your beneficiary’s tax bracket, the bigger the savings).
Here’s how the strategy is helping a couple in their 40s build their nest egg. The wife’s in marketing with a pharmaceutical company, and the husband is a stay-at-home dad. First, she’s maxing out on her company pre-tax 401(k) plan contributions—putting away the full $17,000 for 2012—her employer doesn’t offer a Roth 401(k) option. The couple told their tax advisor Huston they want to save more, but they can’t contribute to Roth IRAs directly because her income is nearly $200,000 a year. (Once your modified adjusted gross income is $183,000 for a couple filing jointly or $125,000 for singles, no Roth IRA contributions are allowed).
But they can each contribute to a traditional IRA. They don’t get a deduction because of the wife’s high income, so it’s called a nondeductible IRA. She puts away $5,000, and he puts away $5,000 (his IRA is based on her earning and called a nondeductible spousal IRA; otherwise you have to have earned income to contribute to an IRA). Then they convert the IRAs into Roth IRAs. That sounds complicated but you can do it online, and it’s almost as easy as transferring money from checking to savings. You pay income tax the next April only on any earnings accrued between the time you contributed to the nondeductible IRA and converted to a Roth.
There’s one big caveat to the backdoor Roth: the pro rata rule. When you calculate the taxes due on a conversion, you have to take into account all your IRA assets, not just the new $5,000 nondeductible IRA. For example, if you have a traditional IRA with $95,000 of money from a 401(k) rollover (the $95,000 contributions were made on a pre-tax basis), and you make a $5,000 nondeductible contribution to a new IRA, the conversion would be 95% taxable.
So when might it make sense to skip this whole exercise? Ronald Finkelstein, a CPA and lawyer with Marcum in Melville, N.Y., said he personally makes nondeductible IRA contributions each year and has considered doing a Roth conversion but passed because he has accumulated a large sum in a traditional IRA he opened 30 years ago when he had a newspaper route. Plus, he may retire to Florida, so paying the New York state tax bite wouldn’t make sense. “You have to do the calculations,” he warns.
But sometimes it can still make sense for folks, even older folks, with big traditional IRAs, to do the backdoor Roth. Another Huston client, a 68-year-old builder, does them as part of a holistic plan to get more of his net worth into tax-free accounts so he and his wife (and grandchildren) will have the accounts to tap as part of a tax diversification strategy. He just did a $6,000 backdoor Roth for the third year in a row. At the end of each calendar year, Huston and he look at his income and decide how much to convert from his traditional IRA too (one year it was $50,000; one year $25,000), keeping in mind what would push him into a higher tax bracket.
There’s still time to make an IRA contribution for calendar year 2011 through April 17, 2012. You can double up and make your 2012 contribution too. How long should you wait to convert? “It’s a grey area,” says Robert Keebler, a CPA in Green Bay, Wisc. He suggests a waiting period of six months, although other advisors say to convert the next day to limit the tax bite on the conversion.
Saturday, January 21, 2012
Sunday, December 18, 2011
Charity and Your Tax Bill.
FROM THE SIMPLEDOLLAR.COM
Charitable donations do provide a reduction in your taxes, but it’s not the huge reduction that many people often think they are or expect that they are.
To understand the benefit that charitable donations give to your taxes, first you have to understand how income taxes work. This is something that many people surprisingly misunderstand.
When you earn ordinary income from working at a job, you have to pay income taxes on it. We all know that, of course. What many people don’t quite understand is how the amount you pay is calculated.
Let’s say you are a single person earning $50,000 this year. To figure out how much taxes you have to pay, you have to look at the income tax rate table. For 2011, it looks like this for single people (there’s a different table for married couples):
For income between $0 and $8,500, you pay 10% in taxes.
For income between $8,500 and $34,500, you pay 15% in taxes.
For income between $34,500 and $83,600, you pay 25% in taxes.
For income between $83,600 and $174,400, you pay 28% in taxes.
For income between $174,400 and $379,150, you pay 33% in taxes.
For income over $379,150, you pay 35% in taxes.
So, as I mentioned, we’re looking at a single person who makes $50,000 a year.
For the first $8,500 of that (the $0 to $8,500 bracket), that person has to pay 10% of the income in taxes. That’s $850 for this bracket (that’s 10% of $8,500).
For the next $26,000 of that (the $8,500 to $34,500 bracket), that person has to pay 15% of the income in taxes. That’s $3,900 for this bracket (15% of $26,000).
For the rest of his pay ($15,500), that person is in the $34,500 to $83,600 bracket, which means that person has to pay 25% of that portion of his income in taxes. That’s $3,875 for this bracket (25% of $15,500).
To figure up the person’s total tax bill, they simply add together those pieces, which totals $8,625. This person will owe $8,625 on their taxes this year.
Now, how can a person lower that amount? The most common way is through deductions. The government gives out standard deductions each year on a person’s taxes. For 2011, that amount is $5,800 for a single person. How that works is that you simply subtract that deduction from the total amount of income the person earned for the year. So, this person’s income for tax purposes is actually $44,200.
So, let’s look at this person’s actual taxes after their standard deduction.
For the first $8,500 of that (the $0 to $8,500 bracket), that person has to pay 10% of the income in taxes. That’s $850 for this bracket (that’s 10% of $8,500).
For the next $26,000 of that (the $8,500 to $34,500 bracket), that person has to pay 15% of the income in taxes. That’s $3,900 for this bracket (15% of $26,000).
For the rest of his pay ($9,700), that person is in the $34,500 to $83,600 bracket, which means that person has to pay 25% of that portion of his income in taxes. That’s $2,425 for this bracket (25% of $9,700).
To figure up the person’s total tax bill, they simply add together those pieces, which totals $7,175. This person will owe $7,175 on their taxes this year.
So, that person’s standard deduction on their taxes actually saved him $1,450. The standard deduction may be $5,800, but it only saved the guy $1,450 because the deduction just reduces his total income for the year in terms of taxes.
Charitable giving works exactly the same way. Every dollar you donate to a registered charity becomes a deduction on your taxes, just like a standard deduction.
Let’s say the person above donates $5,000 to his church (a 10% tithe) and $500 to Doctors Without Borders and another $500 to L’arche Tahoma Hope. That’s a total of $6,000 in charitable donations.
So, this person makes $50,000 a year. From that, he can subtract his standard deduction ($5,800) and he can also subtract his charitable donations ($6,000). This means that his taxable income – the amount he pays on his federal income taxes – is $38,200. Let’s look at his taxes now.
For the first $8,500 of that (the $0 to $8,500 bracket), that person has to pay 10% of the income in taxes. That’s $850 for this bracket (that’s 10% of $8,500).
For the next $26,000 of that (the $8,500 to $34,500 bracket), that person has to pay 15% of the income in taxes. That’s $3,900 for this bracket (15% of $26,000).
For the rest of his pay ($3,700), that person is in the $34,500 to $83,600 bracket, which means that person has to pay 25% of that portion of his income in taxes. That’s $925 for this bracket (25% of $9,700).
To figure up the person’s total tax bill, they simply add together those pieces, which totals $5,675. This person will owe $5,675 on their taxes this year.
In other words, this person’s $6,000 charitable contribution saved them $1,500 on their taxes. That’s because the person was in the 25% tax bracket before the donation and in the 25% tax bracket after the donation, which means that they essentially saved 25% of their donation on their taxes. (Sometimes, a donation will drop you to a lower tax bracket, which is fine.)
So, charitable donations are a great thing and they do offer some tax savings, but you don’t save $1 for every dollar you donate. Instead, you often reduce your tax bill roughly a quarter or so for every dollar you donate. That’s still a great little bonus.
Hopefully that clears things up for you!
Charitable donations do provide a reduction in your taxes, but it’s not the huge reduction that many people often think they are or expect that they are.
To understand the benefit that charitable donations give to your taxes, first you have to understand how income taxes work. This is something that many people surprisingly misunderstand.
When you earn ordinary income from working at a job, you have to pay income taxes on it. We all know that, of course. What many people don’t quite understand is how the amount you pay is calculated.
Let’s say you are a single person earning $50,000 this year. To figure out how much taxes you have to pay, you have to look at the income tax rate table. For 2011, it looks like this for single people (there’s a different table for married couples):
For income between $0 and $8,500, you pay 10% in taxes.
For income between $8,500 and $34,500, you pay 15% in taxes.
For income between $34,500 and $83,600, you pay 25% in taxes.
For income between $83,600 and $174,400, you pay 28% in taxes.
For income between $174,400 and $379,150, you pay 33% in taxes.
For income over $379,150, you pay 35% in taxes.
So, as I mentioned, we’re looking at a single person who makes $50,000 a year.
For the first $8,500 of that (the $0 to $8,500 bracket), that person has to pay 10% of the income in taxes. That’s $850 for this bracket (that’s 10% of $8,500).
For the next $26,000 of that (the $8,500 to $34,500 bracket), that person has to pay 15% of the income in taxes. That’s $3,900 for this bracket (15% of $26,000).
For the rest of his pay ($15,500), that person is in the $34,500 to $83,600 bracket, which means that person has to pay 25% of that portion of his income in taxes. That’s $3,875 for this bracket (25% of $15,500).
To figure up the person’s total tax bill, they simply add together those pieces, which totals $8,625. This person will owe $8,625 on their taxes this year.
Now, how can a person lower that amount? The most common way is through deductions. The government gives out standard deductions each year on a person’s taxes. For 2011, that amount is $5,800 for a single person. How that works is that you simply subtract that deduction from the total amount of income the person earned for the year. So, this person’s income for tax purposes is actually $44,200.
So, let’s look at this person’s actual taxes after their standard deduction.
For the first $8,500 of that (the $0 to $8,500 bracket), that person has to pay 10% of the income in taxes. That’s $850 for this bracket (that’s 10% of $8,500).
For the next $26,000 of that (the $8,500 to $34,500 bracket), that person has to pay 15% of the income in taxes. That’s $3,900 for this bracket (15% of $26,000).
For the rest of his pay ($9,700), that person is in the $34,500 to $83,600 bracket, which means that person has to pay 25% of that portion of his income in taxes. That’s $2,425 for this bracket (25% of $9,700).
To figure up the person’s total tax bill, they simply add together those pieces, which totals $7,175. This person will owe $7,175 on their taxes this year.
So, that person’s standard deduction on their taxes actually saved him $1,450. The standard deduction may be $5,800, but it only saved the guy $1,450 because the deduction just reduces his total income for the year in terms of taxes.
Charitable giving works exactly the same way. Every dollar you donate to a registered charity becomes a deduction on your taxes, just like a standard deduction.
Let’s say the person above donates $5,000 to his church (a 10% tithe) and $500 to Doctors Without Borders and another $500 to L’arche Tahoma Hope. That’s a total of $6,000 in charitable donations.
So, this person makes $50,000 a year. From that, he can subtract his standard deduction ($5,800) and he can also subtract his charitable donations ($6,000). This means that his taxable income – the amount he pays on his federal income taxes – is $38,200. Let’s look at his taxes now.
For the first $8,500 of that (the $0 to $8,500 bracket), that person has to pay 10% of the income in taxes. That’s $850 for this bracket (that’s 10% of $8,500).
For the next $26,000 of that (the $8,500 to $34,500 bracket), that person has to pay 15% of the income in taxes. That’s $3,900 for this bracket (15% of $26,000).
For the rest of his pay ($3,700), that person is in the $34,500 to $83,600 bracket, which means that person has to pay 25% of that portion of his income in taxes. That’s $925 for this bracket (25% of $9,700).
To figure up the person’s total tax bill, they simply add together those pieces, which totals $5,675. This person will owe $5,675 on their taxes this year.
In other words, this person’s $6,000 charitable contribution saved them $1,500 on their taxes. That’s because the person was in the 25% tax bracket before the donation and in the 25% tax bracket after the donation, which means that they essentially saved 25% of their donation on their taxes. (Sometimes, a donation will drop you to a lower tax bracket, which is fine.)
So, charitable donations are a great thing and they do offer some tax savings, but you don’t save $1 for every dollar you donate. Instead, you often reduce your tax bill roughly a quarter or so for every dollar you donate. That’s still a great little bonus.
Hopefully that clears things up for you!
10 tips worth remembering for year-end tax planning
The window of opportunity for many tax-saving moves closes on Dec. 31. So set aside time with your tax professional to evaluate your situation now, while there’s still time to affect your bottom line for the current tax year. With that in mind, here are 10 things to consider as the curtain closes on 2011.
1. Deferring income to 2012 means postponing taxes. Consider opportunities you might have to defer income to 2012. You might be able to delay a year-end bonus, for example. If you’re able to push what would have been 2011 income into 2012, you may be able to put off paying income tax on the deferred dollars until next year.
2. Paying deductible expenses sooner may help you in 2011. Does it make sense for you to accelerate deductions into 2011? If you itemize deductions, it might help your 2011 bottom line to pay deductible expenses like medical costs, qualifying interest, and state and local taxes before the end of the year, instead of waiting until 2012.
3. Income tax rates will remain the same in 2012. The same six federal income tax rates that apply in 2011 will apply in 2012. So, depending upon your income, you’ll fall into the 10 percent, 15 percent, 25 percent, 28 percent, 33 percent or 35 percent bracket. As in 2011, long-term capital gains and qualifying dividends will continue to be taxed at a maximum rate of 15 percent in 2012. If you are in the 10 percent or 15 percent tax bracket, a special 0 percent tax rate will generally continue to apply.
4. Is AMT a factor?If you’re subject to the Alternative Minimum Tax, special rules apply. For example, the AMT rules can effectively disallow a number of itemized deductions, making it a potentially significant consideration when it comes to year-end planning. You’re more likely to be subject to AMT if you claim a large number of personal exemptions, deductible medical expenses, state and local taxes, and miscellaneous itemized deductions.
5. Consider IRA and retirement plan contributions. Employer-sponsored retirement plans like 401(k) plans and traditional IRAs (if you qualify to make deductible contributions) present an opportunity to contribute funds on a pre-tax basis, reducing your 2011 taxable income. Contributions that you make to a Roth IRA (assuming you meet the income requirements) aren’t deductible, so there’s no tax benefit for 2011. However, qualified distributions are free from federal income tax. The window to make 2011 contributions to your employer plan closes at the end of the year, but you can generally make 2011 contributions to your IRA up to April 17, 2012.
6. Special distribution requirements kick in at age 70½. Once you reach age 70½, you’re generally required to start taking required minimum distributions from any traditional IRAs or employer-sponsored retirement plans you own. It’s important to make withdrawals by the date required. The penalty is steep for failing to do so: 50 percent of the amount that should have been distributed. Barring additional legislation, 2011 will be the last year to take advantage of a provision allowing individuals age 70½ or older to make qualified charitable distributions of up to $100,000 from an IRA directly to a qualified charity (these charitable distributions are excluded from your income and count toward satisfying any RMDs that you would otherwise have to take from your IRA for 2011).
7. Depreciation and expense limits will drop for business owners and the self-employed. If you’re a small-business owner or are self-employed, you’re allowed a first-year depreciation deduction of 100 percent of the cost of qualifying property acquired and placed in service during 2011; this “bonus” first-year additional deprecation deduction will drop to 50 percent for property acquired and placed in service during 2012.
8. Deductions for energy-efficient home improvements will end. This is the last year you’ll be able to claim a credit for energy-efficient home improvements (up to 10 percent of the cost of qualifying property). There’s a lifetime credit cap of $500 ($200 for windows). So, if you’ve claimed the credit in the past, you’re entitled only to the difference between the current cap and the amount you’ve already claimed.
9. Other expiring provisions. Barring additional legislation, this is the last year that you’ll be able to elect to deduct state and local general tax in lieu of state and local income tax, if you itemize deductions. This also will be the last year for both the above-the-line deduction for qualified higher education expenses, and the above-the-line deduction for up to $250 of out-of-pocket classroom expenses paid by education professionals.
10. Get help. Making effective year-end moves requires a solid understanding of the rules that are in effect for both 2011 and 2012. It also requires a comprehensive grasp of your overall financial situation. A financial professional can help you evaluate potential opportunities and can keep you apprised of any last-minute legislative changes. Your tax professional can also prepare a projection to estimate your tax liability.
1. Deferring income to 2012 means postponing taxes. Consider opportunities you might have to defer income to 2012. You might be able to delay a year-end bonus, for example. If you’re able to push what would have been 2011 income into 2012, you may be able to put off paying income tax on the deferred dollars until next year.
2. Paying deductible expenses sooner may help you in 2011. Does it make sense for you to accelerate deductions into 2011? If you itemize deductions, it might help your 2011 bottom line to pay deductible expenses like medical costs, qualifying interest, and state and local taxes before the end of the year, instead of waiting until 2012.
3. Income tax rates will remain the same in 2012. The same six federal income tax rates that apply in 2011 will apply in 2012. So, depending upon your income, you’ll fall into the 10 percent, 15 percent, 25 percent, 28 percent, 33 percent or 35 percent bracket. As in 2011, long-term capital gains and qualifying dividends will continue to be taxed at a maximum rate of 15 percent in 2012. If you are in the 10 percent or 15 percent tax bracket, a special 0 percent tax rate will generally continue to apply.
4. Is AMT a factor?If you’re subject to the Alternative Minimum Tax, special rules apply. For example, the AMT rules can effectively disallow a number of itemized deductions, making it a potentially significant consideration when it comes to year-end planning. You’re more likely to be subject to AMT if you claim a large number of personal exemptions, deductible medical expenses, state and local taxes, and miscellaneous itemized deductions.
5. Consider IRA and retirement plan contributions. Employer-sponsored retirement plans like 401(k) plans and traditional IRAs (if you qualify to make deductible contributions) present an opportunity to contribute funds on a pre-tax basis, reducing your 2011 taxable income. Contributions that you make to a Roth IRA (assuming you meet the income requirements) aren’t deductible, so there’s no tax benefit for 2011. However, qualified distributions are free from federal income tax. The window to make 2011 contributions to your employer plan closes at the end of the year, but you can generally make 2011 contributions to your IRA up to April 17, 2012.
6. Special distribution requirements kick in at age 70½. Once you reach age 70½, you’re generally required to start taking required minimum distributions from any traditional IRAs or employer-sponsored retirement plans you own. It’s important to make withdrawals by the date required. The penalty is steep for failing to do so: 50 percent of the amount that should have been distributed. Barring additional legislation, 2011 will be the last year to take advantage of a provision allowing individuals age 70½ or older to make qualified charitable distributions of up to $100,000 from an IRA directly to a qualified charity (these charitable distributions are excluded from your income and count toward satisfying any RMDs that you would otherwise have to take from your IRA for 2011).
7. Depreciation and expense limits will drop for business owners and the self-employed. If you’re a small-business owner or are self-employed, you’re allowed a first-year depreciation deduction of 100 percent of the cost of qualifying property acquired and placed in service during 2011; this “bonus” first-year additional deprecation deduction will drop to 50 percent for property acquired and placed in service during 2012.
8. Deductions for energy-efficient home improvements will end. This is the last year you’ll be able to claim a credit for energy-efficient home improvements (up to 10 percent of the cost of qualifying property). There’s a lifetime credit cap of $500 ($200 for windows). So, if you’ve claimed the credit in the past, you’re entitled only to the difference between the current cap and the amount you’ve already claimed.
9. Other expiring provisions. Barring additional legislation, this is the last year that you’ll be able to elect to deduct state and local general tax in lieu of state and local income tax, if you itemize deductions. This also will be the last year for both the above-the-line deduction for qualified higher education expenses, and the above-the-line deduction for up to $250 of out-of-pocket classroom expenses paid by education professionals.
10. Get help. Making effective year-end moves requires a solid understanding of the rules that are in effect for both 2011 and 2012. It also requires a comprehensive grasp of your overall financial situation. A financial professional can help you evaluate potential opportunities and can keep you apprised of any last-minute legislative changes. Your tax professional can also prepare a projection to estimate your tax liability.
Monday, December 12, 2011
IRS Announces 2012 Standard Mileage Rates, Most Rates Are the Same as in July
The Internal Revenue Service today issued the 2012 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on Jan. 1, 2012, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.
These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical or charitable expense are in Rev. Proc. 2010-51.
Notice 2012-01 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.
Beginning on Jan. 1, 2012, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
- 55.5 cents per mile for business miles driven
- 23 cents per mile driven for medical or moving purposes
- 14 cents per mile driven in service of charitable organizations
The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.
These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical or charitable expense are in Rev. Proc. 2010-51.
Notice 2012-01 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.
Monday, October 24, 2011
Employee vs. Independent Contractor – Seven Tips for Business Owners
FROM http://www.danielstoica.com/:
Employee vs. Independent Contractor – Seven Tips for Business Owners
As a small business owner you may hire people as independent contractors or as employees. There are rules that will help you determine how to classify the people you hire. This will affect how much you pay in taxes, whether you need to withhold from your workers paychecks and what tax documents you need to file.
Here are seven things every business owner should know about hiring people as independent contractors versus hiring them as employees.
1. The IRS uses three characteristics to determine the relationship between businesses and workers:
3. If you can direct or control only the result of the work done — and not the means and methods of accomplishing the result — then your workers are probably independent contractors.
4. Employers who misclassify workers as independent contractors can end up with substantial tax bills. Additionally, they can face penalties for failing to pay employment taxes and for failing to file required tax forms.
5. Workers can avoid higher tax bills and lost benefits if they know their proper status.
6. Both employers and workers can ask the IRS to make a determination on whether a specific individual is an independent contractor or an employee by filing a Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS.
7. You can learn more about the critical determination of a worker’s status as an Independent Contractor or Employee at IRS.gov by selecting the Small Business link. Additional resources include IRS Publication 15-A, Employer’s Supplemental Tax Guide, Publication 1779, Independent Contractor or Employee, and Publication 1976, Do You Qualify for Relief under Section 530? These publications and Form SS-8 are available on the IRS website or by calling the IRS at 800-829-3676 (800-TAX-FORM).
Employee vs. Independent Contractor – Seven Tips for Business Owners
As a small business owner you may hire people as independent contractors or as employees. There are rules that will help you determine how to classify the people you hire. This will affect how much you pay in taxes, whether you need to withhold from your workers paychecks and what tax documents you need to file.
Here are seven things every business owner should know about hiring people as independent contractors versus hiring them as employees.
1. The IRS uses three characteristics to determine the relationship between businesses and workers:
- Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.
- Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job.
- Type of Relationship factor relates to how the workers and the business owner perceive their relationship.
3. If you can direct or control only the result of the work done — and not the means and methods of accomplishing the result — then your workers are probably independent contractors.
4. Employers who misclassify workers as independent contractors can end up with substantial tax bills. Additionally, they can face penalties for failing to pay employment taxes and for failing to file required tax forms.
5. Workers can avoid higher tax bills and lost benefits if they know their proper status.
6. Both employers and workers can ask the IRS to make a determination on whether a specific individual is an independent contractor or an employee by filing a Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, with the IRS.
7. You can learn more about the critical determination of a worker’s status as an Independent Contractor or Employee at IRS.gov by selecting the Small Business link. Additional resources include IRS Publication 15-A, Employer’s Supplemental Tax Guide, Publication 1779, Independent Contractor or Employee, and Publication 1976, Do You Qualify for Relief under Section 530? These publications and Form SS-8 are available on the IRS website or by calling the IRS at 800-829-3676 (800-TAX-FORM).
Wednesday, October 19, 2011
Eight Tips To Lowering Real Estate Tax
FROM http://www.danielstoica.com/
Real estate and property taxes are different in each state and city. Nearly three-fourths of our country’s home owners pay over half of their mortgage payments to real estate taxes every year. In several states, the taxes on property and real estate make up for the fact that the state does not charge income taxes. Other states have high property taxes simply because they can take advantage of the taxpayers, at least, that is what the residents of those states claim. A real estate broker will hire someone to determine if a home has been over appraised by taking into account the number of bathrooms and bedrooms a home has, the age of the home, the quality of construction on the home, the square footage, and if there are any up-scale amenities nearby.
Many home owners overpay for their homes. Now is the time to learn about lowering real estate taxes. If you look at the American Homeowner’s Association, you will find an abundance of information about your home, such as, the number of bedrooms and bathrooms your home has, the lot size, your home’s square footage, and so much more. Following is a list of things you can do to help lower your property taxes.
1. Go to your tax assessor’s office and request a copy of your real estate tax rate card. This card will have information regarding your home and will show what improvements have been made to your property. Make sure there are no errors. If there are, get them corrected right away.
2. Don’t make any improvements on your home just before it is assessed, especially if you will need permits. Improving on your home will increase your property value, which will increase your taxes.
3. Make sure you know what home improvements will cost you in taxes. Call the tax assessor’s office to find out how much more your taxes will be if you make home improvements.
4. A beautiful and well maintained home will raise the value of your home. Try not to “beautify” your landscape too much, as it will also raise your taxes.
5. Find out how much your neighbours pay in taxes. If your home is assessed much higher than theirs, ask the assessor’s office why. You can also ask for your home to be re-assessed.
6. If the assessor comes to your home and needs to look around, let him or her. They will always use the highest rate if they cannot properly assess your property. If you have made improvements and they find out about it later, you could be penalized with higher taxes anyway.
7. When the assessor does come to your home, point out what work needs to be done. They generally take into account the improvements that have already been completed and base their rates on those. They won’t look at a cracked foundation or a roof that needs repairs. If they are able to look at the things that still need work, your taxes may be less.
8. If you still believe your property taxes are too high, ask the assessor’s office how to challenge the assessment, or ask for your home to be re-assessed. There is a formal process to appealing the assessment.
Real estate and property taxes are different in each state and city. Nearly three-fourths of our country’s home owners pay over half of their mortgage payments to real estate taxes every year. In several states, the taxes on property and real estate make up for the fact that the state does not charge income taxes. Other states have high property taxes simply because they can take advantage of the taxpayers, at least, that is what the residents of those states claim. A real estate broker will hire someone to determine if a home has been over appraised by taking into account the number of bathrooms and bedrooms a home has, the age of the home, the quality of construction on the home, the square footage, and if there are any up-scale amenities nearby.
Many home owners overpay for their homes. Now is the time to learn about lowering real estate taxes. If you look at the American Homeowner’s Association, you will find an abundance of information about your home, such as, the number of bedrooms and bathrooms your home has, the lot size, your home’s square footage, and so much more. Following is a list of things you can do to help lower your property taxes.
1. Go to your tax assessor’s office and request a copy of your real estate tax rate card. This card will have information regarding your home and will show what improvements have been made to your property. Make sure there are no errors. If there are, get them corrected right away.
2. Don’t make any improvements on your home just before it is assessed, especially if you will need permits. Improving on your home will increase your property value, which will increase your taxes.
3. Make sure you know what home improvements will cost you in taxes. Call the tax assessor’s office to find out how much more your taxes will be if you make home improvements.
4. A beautiful and well maintained home will raise the value of your home. Try not to “beautify” your landscape too much, as it will also raise your taxes.
5. Find out how much your neighbours pay in taxes. If your home is assessed much higher than theirs, ask the assessor’s office why. You can also ask for your home to be re-assessed.
6. If the assessor comes to your home and needs to look around, let him or her. They will always use the highest rate if they cannot properly assess your property. If you have made improvements and they find out about it later, you could be penalized with higher taxes anyway.
7. When the assessor does come to your home, point out what work needs to be done. They generally take into account the improvements that have already been completed and base their rates on those. They won’t look at a cracked foundation or a roof that needs repairs. If they are able to look at the things that still need work, your taxes may be less.
8. If you still believe your property taxes are too high, ask the assessor’s office how to challenge the assessment, or ask for your home to be re-assessed. There is a formal process to appealing the assessment.
Wednesday, August 31, 2011
Six Wisconsin Nonprofits Will Share Office Space, and Maybe Staff As Well
From The Wisconsin State Journal -
In Madison, Community Shares of Wisconsin will open a new collaborative effort, the Center for Change Project, where nonprofits will not only share office space but will also ultimately share other back office services as well. The Wisconsin State Journal reports that six organizations comprise the initial group: the American Civil Liberties Union of Wisconsin Foundation, BadgerStat, Community Shares of Wisconsin, the League of Women Voters of Wisconsin, the Wisconsin Women's Network and the Wisconsin Nonprofits Association.
The Center for Change Project also plans to connect with local businesses. Community Shares director Crystel Anders told the State Journal that the project “goes beyond just sharing a space. It’s about eventually sharing staff and providing professional resources for nonprofits.” Groups will share printers and other equipment but eventually the goal is for them to share staff and volunteers as well.
In Madison, Community Shares of Wisconsin will open a new collaborative effort, the Center for Change Project, where nonprofits will not only share office space but will also ultimately share other back office services as well. The Wisconsin State Journal reports that six organizations comprise the initial group: the American Civil Liberties Union of Wisconsin Foundation, BadgerStat, Community Shares of Wisconsin, the League of Women Voters of Wisconsin, the Wisconsin Women's Network and the Wisconsin Nonprofits Association.
The Center for Change Project also plans to connect with local businesses. Community Shares director Crystel Anders told the State Journal that the project “goes beyond just sharing a space. It’s about eventually sharing staff and providing professional resources for nonprofits.” Groups will share printers and other equipment but eventually the goal is for them to share staff and volunteers as well.
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