Archive for December, 2011

Payroll Tax Cut Temporarily Extended into 2012

Nearly 160 million workers will benefit from the extension of the reduced payroll tax rate that has been in effect for 2011. The Temporary Payroll Tax Cut Continuation Act of 2011 temporarily extends the two percentage point payroll tax cut for employees, continuing the reduction of their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid through Feb. 29, 2012. This reduced Social Security withholding will have no effect on employees’ future Social Security benefits.

Employers and payroll companies will handle the withholding changes, so workers should not need to take any additional action.  Under the terms negotiated by Congress, the law also includes a new “recapture” provision, which applies only to those employees who receive more than $18,350 in wages during the two-month period (the Social Security wage base for 2012 is $110,100, and $18,350 represents two months of the full-year  amount). This provision imposes an additional income tax on these higher-income employees in an amount equal to 2 percent of the amount of wages they receive during the two-month period in excess of $18,350 (and not greater than $110,100).

This additional recapture tax is an add-on to income tax liability that the employee would otherwise pay for 2012 and is not subject to reduction by credits or deductions.  The recapture tax would be payable in 2013 when the employee files his or her income tax return for the 2012 tax year. With the possibility of a full-year extension of the payroll tax cut being discussed for 2012, the IRS will closely monitor the situation in case future legislation changes the recapture provision.


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Tips for Year-End Giving

If you made charitable contributions to a qualified organization, it may help lower your tax bill.  Here are some tips to help ensure your contributions pay off on your tax return.

To get a tax deduction, you must give to a qualified organization. You cannot take a deduction for contributions made to specific individuals, political organizations or candidates; you must file Form 1040 and itemize the deduction on Schedule A.

A key thing to remember is, if you receive a benefit in connection with your contribution — such as dinner at a gala, merchandise, tickets to a ball game or other goods and services — then you can only deduct the amount that exceeds the fair market value of the benefit you received. For instance, if you make a contribution of $75 or more, the charitable organization should tell you the fair market value of any merchandise or other benefits you receive.

Another key thing to remember is regardless of the amount, to deduct a contribution of cash, check or other monetary gift, you must maintain:  a bank record, payroll deduction records, or a written communication from the organization containing the name of the organization, the date of the contribution and amount of the contribution.

If your total deduction for all noncash contributions for the year is over $500, you must complete and attach IRS Form 8283, Noncash Charitable Contributions, to your return.  If you donate an item or a group of similar items valued at more than $5,000, you must alsocomplete Section B of Form 8283, which generally requires an appraisal by a qualified appraiser.

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IRS Announces 2012 Standard Mileage Rates

The Internal Revenue Service has 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:

  • 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

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.

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If you made your home more energy efficient this year, you may be eligible for a non-refundable personal tax credit.  Improvements such as insulation, energy exterior doors and windows, water heaters, furnaces and air conditioners could get you up to $500, of which only $200 may be used for windows.  The home must be an existing home and your main residence.

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 extended the tax credits for improvements through 2011, but at lower levels.  The credit for 2011 is 10 percent of the cost of the improvements – up to $500.  The credit is limited to a smaller amount for some improvements.

The credit also has a $500 lifetime limit.  This means that, if you received any tax credits for improvements from 2006 through 2010, those tax credits count towards your lifetime limit.  Since these tax credits are non-refundable tax credits, you can’t get more back in tax credits than you pay in federal income tax.

For more information on the energy-efficient products, visit the U.S. Department of Energy’s Energy Star Website.  Keep in mind that not all Energy Star products qualify for the tax incentive.

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Welcome to Ferguson and Associates, LLC 

This blog was created to provide valuable information to individuals who have an interest in new tax law regulations.  The 2011 tax filing period is almost upon us.  Our goal is to make you aware of the new regulations that may have an effect on your 2011 income taxes.  We will be posting updates on a wide range of tax topics, so be sure to check back regularly.

We welcome your comments on this blog.

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