Financial Tips – Tax Due Dates for November 2010

Posted by Bruce Mc on Nov 9, 2010 in Information | 0 comments

Make Gifts to Minimize Estate Taxes
If your estate planning indicates a potential estate tax liability, consider making gifts before year-end to minimize estate taxes. Example: You can give away $13,000 a year ($26,000 if you are married and your spouse elects to participate) to each of a number of donees free of gift tax, thereby reducing your estate tax liability.

Year-End Tax Review Meeting
Estimate your taxes due for the year, and consult with us on the steps you should take before year-end to minimize negative tax consequences.

Review October’s Budget vs. Actuals
Compare October income and expenditures with your budget. Make adjustments as appropriate to your November expenditures. Make sure you have invested your planned savings amount for October.

Tax Due Dates

 AnytimeEmployers – Income Tax Withholding. Ask employees whose withholding allowances will be different in 2011 to fill out a new Form W-4.Employers – Social Security, Medicare, and withheld income tax. File Form 941 for the third quarter of 2010. This due date applies only if you deposited the tax for the quarter in full and on time.Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in October. 

Employers – Earned Income Credit. Ask each eligible employee who wants to receive advance payments of earned income credit during 2011 to fill out a Form W-5. A new Form W-5 must be filled out each year before payments are made.  

 November 10 - Employees who work for tips – If you received $20 or more in tips during October, report them to your employer. You can use Form 4070.  

 November 15 - Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in October.  

Expanded Adoption Credit

If you adopted a child this year, you may be eligible for this credit. Make sure you contact us early, though. To claim this tax relief, we must file a paper return, which means your refund will be slower than if you could file electronically.

Social Security and Medicare (FICA) Taxes

Posted by Bruce Mc on Sep 16, 2010 in Accounting, Bookeeping, Employee, Payroll service | 0 comments

Social Security and Medicare (FICA) Taxes

The Federal Insurance Contributions Act (FICA) is a federal law that requires you to withhold two separate taxes from the wages you pay your employees: a social security tax and a Medicare tax. The law also requires you to pay the employer’s portion of these taxes. Unless you have employees who receive tips, the employer’s portion will be the same as the amount that you’re required to withhold from your employees’ wages.

Each of the FICA taxes is imposed at a single flat rate. Currently, the social security tax rate for employees is 6.2 percent and the Medicare tax rate is 1.45 percent. The taxes are unaffected by the number of withholding exemptions an employee may have claimed for income tax withholding purposes. You simply multiply an employee’s gross wage payment by the applicable tax rate to determine how much you must withhold and how much you must pay.

Let’s assume you have one employee, to whom you pay gross wages of $500 every two weeks. You must withhold from each paycheck $31.00 in social security taxes ($500 x 6.2%) and $7.25 in Medicare taxes ($500 x. 1.45%). You will also owe equal amounts ($31.00 in social security and $7.25 in Medicare) as the employer’s portion of the taxes. In other words, each $500 wage payment will create a combined FICA tax liability of $76.50.

The social security tax is subject to a dollar limit, which is adjusted annually for inflation. For 2010, your obligation to withhold and to pay the social security tax for an employee ends once you’ve paid that employee total wages of $106,800.

However, there is no ceiling on the Medicare tax. You must continue to withhold and to pay the Medicare tax regardless of how much you pay an employee.

For 2010 only, you may be exempt from the employer’s 6.2 percent portion of the social security tax with respect to any employee hired after February 3, 2010 if that new employee was unemployed (or was not employed for more than 40 hours) during the 60-day period leading up to the date you hire him or her. This exemption is provided by the provisions of the HIRE Act enacted by Congress on March 17, 2010. Check the IRS website for information on this special tax exemption.

If you have more questions feel free to contact me.

If you feel you need payroll services please see my web page Payroll or Online Payroll. if you have payroll questions please contact us here: payroll@lrtaxprep.com.

Are You sure you are Having Enough Withheld?

Posted by Bruce Mc on Nov 24, 2008 in Filling Status, Form 1040 Information, Re post, Tax Preparation | 2 comments

How are you supposed to know? This is a re-post for your tax planning needs. A few easy steps and some light planning can help you figure this out.

What you need to know:

            If you fail to estimate your federal income tax withholding properly, it may cost you in a variety of ways. If you receive an income tax refund, it essentially means that you provided the IRS with an interest-free loan during the year. By comparison, if you owe taxes when you file your return, you may have to scramble for cash at tax time–and possibly owe interest and penalties to the IRS as well.

            When determining the correct withholding amount for your salary or wages, your objective should be to have just enough taxes withheld to prevent you from incurring penalties when your tax return is due. (You may owe some money at the time you file your return, but it shouldn’t be much.) You can accomplish this by reading and understanding IRS Publication 505 and IRS Publication 919, properly completing Form W-4 (and accompanying worksheets), and providing an updated Form W-4 to your employer when your circumstances change significantly.

Form W-4 helps you determine the proper withholding amount

Two factors determine the amount of income tax that your employer withholds from your regular pay:

1)            the amount you earn

2)            the information you provide on Form W-4.

This form asks you for three pieces of information:

1)      The number of withholding allowances you want to claim: You can claim up to the maximum number you’re entitled to, claim less than you’re entitled to, or claim zero.

2)      Whether you want taxes to be withheld at the single or married rate: The married status, which is associated with a lower withholding rate, should generally be selected only by those taxpayers who are married and file a joint return. Other people (including those who are married and file separately) should generally have taxes withheld at the higher, single rate.

3)      The additional amount (if any) you want withheld from your paycheck: This is optional; you can specify any additional amount of money you want withheld.

When both spouses work and have taxes withheld at the married rate, they sometimes end up with insufficient taxes withheld. If this happens to you, remember that you can always choose to withhold at the single rate. In addition, you can determine the proper withholding amount by completing Form W-4’s two-earner/two-job worksheet.

Complete the worksheets to claim the correct number of allowances

To understand Form W-4, you must understand allowances.

Think of allowances as cash in your pocket at the time that you receive your paycheck. The more allowances you claim, the less taxes are taken from your paycheck (and the more cash ends up in your pocket on payday).

The following factors determine your number of allowances:

1.      The number of personal and dependency exemptions that you claim on your federal income tax return

2.      The number of jobs that you work

3.      The deductions, adjustments to income, and credits that you expect to take during the year

4.      Your filing status

5.      Whether your spouse works

To claim the correct number of allowances, you should complete Form W-4’s worksheets. These include a personal allowances worksheet, a deductions and adjustments worksheet, and a two-earner/two-job worksheet. IRS Publication 505 (Tax Withholding and Estimated Tax) explains these worksheets.

Check your withholding

To avoid surprises at tax time, it’s a good idea to periodically check your withholding. If you accurately complete all Form W-4 worksheets and don’t have significant non-wage income (e.g., interest and dividends), it’s likely that your employer will withhold an amount close to the tax you’ll owe on your return. But in the following cases, accurate completion of the Form W-4 worksheets alone won’t guarantee that you’ll have the correct amount of tax withheld:

1)      When you’re married and both spouses work,

2)      If either of you start or stop working

3)      When you or your spouse are working more than one job

4)      When you have significant non-wage income, such as interest, dividends, alimony, unemployment compensation, or self-employment income, or the amount of your non-wage income changes

5)      When you’ll owe other taxes on your return, such as self-employment tax or household employment tax

6)      When you have a lifestyle change (e.g., marriage, divorce, birth or adoption of a child, new home, retirement) that affects the tax deductions or credits you may claim

7)      When there are tax law changes that affect the amount of tax you’ll owe

In these cases, IRS Publication 919 (How Do I Adjust My Tax Withholding?) can help you compare the total tax that you’ll withhold for the year with the tax that you expect to owe on your return. It can also help you determine any additional amount you may need to withhold from each paycheck to avoid owing taxes when you file your return. Alternatively, it may help you identify if you’re having too much tax withheld. If you find that you need to make changes to your withholding, you can do so at any time simply by submitting a new Form W-4 to your employer.