2011 “Stretch Drive” Tax Guide
Year-End Tax Moves to Consider
Provided by Peter Miralles, CFP®CIMA®CLU
How would you like to save hundreds or even thousands on your 2011 federal tax return?
Some year-end moves might allow you to do just that.
The fourth quarter of 2011 is passing by quickly and taxpayers now find themselves in the “stretch drive”, with just a few weeks left to make those moves that could help them address tax issues this year and next.
Here is a list of some year-end tax moves to consider, and a few items you might want to review before 2011 ends.
Of course, you should consult a qualified tax or financial professional before taking any action.
________________________________________________________
Part 3 of 3 … a few tax cautions, concerns, and news items that you should know about.
1 Most Americans are looking at a tax hike next year.
The Social Security tax rate for employees will reset from 4.2% to 6.2% in 2012 unless Congress prolongs the current payroll tax holiday. In 2011, that 2% cut meant as much as $2,136 in savings to a wage earner, as earnings up to $106,800 were subject to payroll tax. In 2012, the maximum taxable earnings amount for Social Security increases to $110,100 from $106,800.13
The 2011 payroll tax holiday replaced the Making Work Pay credit, which is not available for your 2011 federal return.14
2 The IRS just announced that more than 2 million taxpayers erroneously claimed the American Opportunity Tax Credit on their 2010 returns.
It estimates that 52% of these returns were prepared by paid tax preparers. Around 2.1 million taxpayers may have received about $3.2 billion in refunds by claiming the credit without proper supporting documentation or eligibility. The IRS expects the magnitude of this error to increase upon further analysis.15
3 Don’t forget that the IRS defines your household help as employees.
If you have paid a maid, au pair, or other domestic employee more than $1,700 in 2011, you are defined as an employer by the IRS and you are looking at the “nanny tax”. You are going to pay three taxes and maybe as many as five. You will owe FICA and FUTA taxes (Social Security, Medicare and federal unemployment taxes) and possibly state disability tax and state unemployment tax.
You must report federal employment taxes for household employees on Form 1040, Schedule H. You must also get an EIN (Employer ID Number) and give the household employee a W-2 form. IRS Publication 926 (the Household Employer’s Tax Guide) spells things out in detail. SmartMoney.com has a useful “nanny tax” calculator: www.smartmoney.com/personal-finance/taxes/the-nanny-tax-9560/16
If your nanny, maid or domestic employee was actually your spouse or your parent, a child of yours younger than 21, or a minor whose principal occupation is not domestic employment, you aren’t subject to such taxes even if you have paid that person more than $1,700 for their services in 2011.16
4 Double-check that you won’t be hit with a) AMT or b) taxes on Social Security income.
The 2011 AMT exemption amounts are:
- $48,450 for single filers
- $74,450 for married couples filing jointly
- $37,225 for married couples filing separately
Of course, phase-outs apply for higher-income taxpayers. If you are subject to the AMT, the present AMT tax rates are 26% and 28%.3
As for taxes on your Social Security benefits, you want to try to avoid going over the provisional income limits for 2011. You can figure out if you might be subject to such taxes by using the Social Security Benefits Worksheet in the instruction booklets for IRS Form 1040 and Form 1040A or Worksheet 34-1 in IRS Publication 915.
For 2011, here are the limits (you’ll still need to use the above worksheets to determine if you’ll exceed them):
- Single person: up to 50% of your SSI can be taxed if your provisional income is greater than $25,000, and up to 85% of your SSI can be taxed if your provisional income exceeds $34,000.
- Married/head of household: up to 50% of your SSI can be taxed if your provisional income is greater than $32,000, and up to 85% of your SSI can be taxed if your provisional income exceeds $44,000.17
5 Finally, the onerous 1099 reporting requirement for small businesses for 2012 has been repealed.
It happened back in April, if you didn’t hear about it. This means that small businesses, self-employed individuals and independent contractors will NOT have to file 1099 forms with the IRS next year on payments of $600 or more made to service providers.18
________________________________________________________________
Peter Miralles is a Representative with Cambridge Investment Research and may be reached at http://awc2.com/, 678-680-5300 or info@awc2.com.
________________________________________________________________
This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such.
This Special Report is not intended as a guide for the preparation of tax returns. The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Peter Miralles nor MarketingLibrary.net, Inc. to recipients. No information herein was intended or written to be used by readers for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions. Readers are cautioned that this material may not be applicable to, or suitable for, their specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. Readers are encouraged to consult with professional advisors for advice concerning specific matters before making any decision. Peter Miralles and MarketingLibrary.net, Inc. disclaim any responsibility for positions taken by taxpayers in their individual cases or for any misunderstanding on the part of readers. Peter Miralles and MarketingLibrary.net, Inc. assume no obligation to inform readers of any changes in tax laws or other factors that could affect the information contained herein.
Citations.
1 www.irs.gov/newsroom/article/0,,id=229975,00.html [10/28/10]
2 www.nolo.com/legal-encyclopedia/reduce-estate-tax-by-gifts-30095.html [11/8/11]
3 www.dentbaker.com/LinkClick.aspx?fileticket=5gZQwSHvjwQ%3d&tabid=36 [2011]
4 turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/The-Gift-Tax/INF12036.html [1/27/11]
5 www.ctphilanthropy.org/s_ccp/bin.asp?CID=14889&DID=45124&DOC=FILE.PDF [12/17/10]
6 www.taxact.com/tax-information/articles/2011/cut-your-taxes-with-these-year-end-moves.asp [11/10/11]
7 money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/2011/11/08/time-for-tax-loss-harvesting.html [11/8/10]
8 www.irs.gov/newsroom/article/0,,id=106182,00.html [2/10/11]
9 money.cnn.com/2011/01/17/smallbusiness/small_business_new_tax_credits/ [1/17/11]
10 journalofaccountancy.com/Web/20113750.htm [1/14/11]
11 www.blackenterprise.com/2011/10/05/10-year-end-small-biz-tax-tips/ [10/5/11]
12 www.irs.gov/irs/article/0,,id=186056,00.html [6/08]
13 www.investmentnews.com/article/20111023/REG/310239992 [10/23/11]
14 www.walletpop.com/2011/01/19/dont-forget-about-the-making-work-pay-credit/ [1/19/11]
15 www.advisorone.com/2011/10/25/taxpayers-get-billions-in-erroneous-education-tax [10/25/11]
16 www.smartmoney.com/personal-finance/taxes/the-nanny-tax-9560/ [1/25/11]
17 house.leg.state.mn.us/hrd/issinfo/sstaxes.htm [2/11]
18 www.whitehouse.gov/blog/2011/04/14/repealing-1099-reporting-requirement-big-win-small-business [4/11/11]
