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Posts Tagged ‘tax changes’

In Light of Data Center Tax News, Cornerstone 360 Shares Important Tax Information for Kansas City Businesses Filing in 2012

Friday, February 3rd, 2012

Data Centers have been in the news recently as many legislators, company executives and lobbyists are pushing to get important tax exemptions and incentives for the companies and structures. Not only would these tax breaks encourage growth in the industry, but it would also have the potential to create local jobs while lowering the overhead costs of running the data centers.

The most recent news featured a proposed bill for Missouri, highlighted in this article from CBS St. Louis, which would require a minimum capital investment and the creation of at least 30 jobs in order for a data center to qualify for major tax breaks. Also seeking a data center tax break this month was Facebook, whose Oregon facility was subject to a huge tax bill that has since been reduced. If local and federal governments approve cutting these tax bills for data centers, local economies will more easily enter into a stable and prosperous position for future growth.

We know the data center industry isn’t the only one looking for tax assistance around this time of year. So, we recently met up with some of our friends at Cornerstone 360, who were more than happy to share some highlights and changes to the tax code to share with our clients and other businesses in Kansas City.

The IRS has been busy creating new rules, expanding old ones and letting others lapse. Below are some highlights that will affect the most people. If you have any questions about the items or if you are looking for some tax advice, please feel free to contact us at Cornerstone 360 any time. Our contact information is at the end of this issue.

Tax Highlights for 2011/2012

Payroll Tax Cut Extension
House and Senate leaders agreed to end their stalemate over extending the payroll tax break. Under the agreement, for the first two months of 2012, a 4.2% Social Security tax would continue to apply to workers’ pay (10.4% OASDI tax for self-employment income).

However, the agreement calls for new language to be inserted into the tax relief bill to prevent a potential payroll tax problem for employers. According to information provided by the House Ways & Means Committee, the revision would allow employers to withhold employee payroll taxes at 4.2% (instead of 6.2%) on all wages paid during the two-month extension period. If an employee’s wages during the first two months of 2012 exceed $18,350 and the payroll tax reduction is not extended for the remainder of 2012, an amount equal to 2% of those excess wages would ultimately be recaptured on the worker’s individual tax return for 2012.

Capital Gains
Congress extended the favorable rates of 15% for long term assets (0% for those individuals in the 10% or 15% brackets).

401(k) Contribution Limits to Increase in 2012
The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan is increased from $16,500 to $17,000.

The catch-up contribution limit for those aged 50 and over remains unchanged at $5,500.

IRS Releases 2012 Standard Mileage Rates
The 2012 business mileage rate will continue to be 55.5 cents for business miles driven, the same as the adjusted mid-year rate.

Beginning Jan. 1, 2012, the rate for medical or moving purposes will be 23 cents and the rate for miles driven in service of charitable organizations will be 14 cents per mile, according to the IRS in a recent news release (IR-2011-116).

Due Date for 2011 Tax Returns is April 17, 2012
The due date for individuals (and partnerships) is April 17th this year. Once again, there is a Washington D.C. holiday on Monday, April 16th that is pushing the federal due date back another day. Kansas and Missouri are following the federal deadline.

New Form 8949 (for individual tax returns)
All capital asset transactions are now to be reported on the new Form 8949 with Schedule D. For sales of securities, your broker should have basis on the Form 1099-B you receive. We must now report your security sales based on the distinction of 1) sales with basis shown by broker, 2) sales without basis shown by broker, 3) sales not shown on Form 1099-B, and 4) sales with no Form 1099-B issued. A separate Form 8949 is required for each type.

Net self-employment income
Self-employed health insurance premiums no longer reduce self-employment income for purposes of calculating self-employment taxes. If you are self-employed and your spouse works for you, give us a call. We can discuss some alternatives.

Equipment Purchases
If you purchase equipment, you may make a “Section 179 election,” which allows you to expense (i.e., currently deduct) otherwise depreciable business property. For 2011, you may elect to expense up to $500,000 of equipment costs if the asset was placed in service during 2011. Note that for assets placed in service in 2011, taxpayers can expense all of their business equipment purchases under a provision giving taxpayers 100% bonus depreciation.

In 2012, the dollar amounts for §179 expensing are scheduled to be $139,000. In 2012, the bonus depreciation amount is scheduled to be reduced to 50%.

IRS Areas of Interest
Over the years, we see what the IRS is interested in as it relates to your taxes. Areas that pique their curiosity are areas such as large charitable donations, the office in home deduction, rental losses, deducting business meals, travel/entertainment, and claiming your auto in your business. Some other areas of interest are: businesses that are really hobbies, and of late, the IRS is very interested in whether you have a foreign bank account.

All of the above are valid when documented properly. Always keep your documentation, receipts, and other information that will back up any claim of deduction you may have.

Independent contractor or employee?
We have also seen an uptick in inquiries regarding whether Form 1099s were issued properly – with stiff penalties if they weren’t. If you paid more than $600 for services to any person, sole proprietor, partnership or LLC, in 2011, you should be issuing a Form 1099. A good rule of thumb is to always collect a Form W-9 from anyone requesting payment from you. If you hold payment until they return the W-9, then you have a better shot of getting all of the required information for your files in the event of an audit – and audits have been on the rise. Consult your tax advisor.

The IRS is also interested in finding out whether you are properly reporting people working for you – are they outside contractors or should they actually be employees? The IRS looks to a 20 part test to see if someone should be an employee or an independent contractor. Some things to think about are: 1) Does the worker receive instructions on where, when and how to perform the work? 2) Does the employer pay for workers expenses, or supply the tools and materials? 3) Are there set working hours? 4) Is there a contract? 5) Is there a right to quit? An employee can generally quit at any time without incurring a liability. An independent contractor is usually responsible for satisfactory completion of the job and is usually legally obligated to make good on their commitment. As you can see, there are lots of things to consider when determining the status of someone working for you. Please consult with your tax advisor.

IRS may be interested in your Quickbooks/Peachtree files
IRS agents are starting to request Quickbooks and Peachtree backup files from businesses under audit. The taxpayer must provide electronic records upon request. From these electronic records, the IRS can look at dates of transactions/entries, the person who performed the entries, and subsequent changes to the entries in an attempt to uncover errors or weaknesses. At this time, the software companies have not released an “audit copy” as an alternative to a full back up file. You might work with your accountant to ensure you have adequate books and records that would hold up under audit.

State Tax Credit Opportunity
Missouri and Kansas residents with incomes exceeding $200,000 should strongly consider purchasing state tax credits to cover their state income tax liabilities. Missouri tax credits, such as the Low Income Housing Tax Credit or the Historic Preservation Credit, can typically be purchased for 89-92 cents on the dollar. Area banks typically act as brokers. Kansas Angel Investor Tax Credits can typically be purchased for around 80 cents on the dollar, generally acquired from an out-of-state investor in a qualified high-tech Kansas company. Email Jim Zenk at Cornerstone CPA Group, PA with any questions: JimZ@cornerstonecpas.com.

About Cornerstone CPA Group, PA
Cornerstone is a public accounting firm in Overland Park, Kansas. For nearly three decades, Cornerstone has advised small businesses and individuals in the Kansas City area. Whether you need help with your individual tax situation, assistance getting your business off the ground, accounting department outsourcing, or sophisticated tax advice from a seasoned CPA, Cornerstone can help. www.cornerstonecpas.com

Please feel free to contact Jennifer Magyar at Jennifer@cornerstonecpas.com or Jim Zenk at jimz@cornerstonecpas.com.

Tags: 2012 tax changes, 2012 tax info, Cornerstone 360, Cornerstone CPA Group, Filing business taxes, filing tax returns, kansas city businesses, Kansas City tax info, tax advice, tax changes, tax help
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Posts Tagged ‘tax changes’

In Light of Data Center Tax News, Cornerstone 360 Shares Important Tax Information for Kansas City Businesses Filing in 2012

Friday, February 3rd, 2012