SWARTZ RETSON & CO

Payroll Tax Cut Extended to the End of 2012; Revised Payroll Tax Form Now Available to Employers

2012-03-01T15:43:00.001-08:00

WASHINGTON — The Internal Revenue Service today released revised Form 941 enabling employers to properly report the newly-extended payroll tax cut benefiting nearly 160 million workers.

Under the Middle Class Tax Relief and Job Creation Act of 2012, workers will continue to receive larger paychecks for the rest of this year based on a lower social security tax withholding rate of 4.2 percent, which is two percentage points less than the 6.2 percent rate in effect prior to 2011. This reduced rate, originally in effect for all of 2011, was extended through the end of February by the Temporary Payroll Tax Cut Continuation Act of 2011, enacted Dec. 23.

No action is required by workers to continue receiving the payroll tax cut. As before, the lower rate will have no effect on workers’ future Social Security benefits. The reduction in revenues to the Social Security Trust Fund will be made up by transfers from the General Fund.

Self-employed individuals will also benefit from a comparable rate reduction in the social security portion of the self-employment tax from 12.4 percent to 10.4 percent. For 2012, the social security tax applies to the first $110,100 of wages and net self-employment income received by an individual.

The new law also repeals the two-percent recapture tax included in the December legislation that effectively capped at $18,350 the amount of wages eligible for the payroll tax cut. As a result, the now repealed recapture tax does not apply.

The IRS will issue additional guidance, as needed, to implement the newly-extended payroll tax cut, and any further updates will be posted on IRS.gov.

New Reporting Requirements for Credit Card and Third Party Network Payments - Part 2

2012-02-16T06:27:00.000-08:00

Merchant card and third party network payers, as “payment settlement entities” (PSEs) are now required to report to IRS

proceeds of payment card and third party network transactions (PC/TPN transactions) on Form 1099-K. Part 1 of this Fax

Alert outlined some challenges for companies which will now be required to segregate these payments on their tax

returns. Below is more information related to 1099-K and the new business reporting requirements.

1. Debit card transactions, cash advances, convenience checks and payments to related parties are not included in the

definition of “payment card” transactions and are therefore excluded from 1099-K reporting.

2. IRS has determined that transactions reported on Form 1099-K are not to also be reported on Form 1099-MISC, if

applicable. For example, credit card payments to an individual subcontractor would not be included on a 1099-MISC

issued by the payer. Such payments should be reported to IRS via Form 1099-K issued from the PSE that handled

the payment. Payments by check or cash are still reported on Form 1099-MISC. Companies or individuals receiving

Form(s) 1099-K should verify that payments received by PC/TPN are not duplicated on Form(s) 1099-MISC.

3. Form 1099-K includes PC/TPN transactions by month to accommodate fiscal year businesses. Since Forms 1099-K are issued for calendar years (due to payees by January 31st of the following year), the PC/TPN transactions fiscal year businesses will report on their tax returns will be reported to IRS on two years' Forms 1099-K. Many fiscal year businesses will not have the luxury of matching their records to Forms1099-K prior to filing their tax returns. making good record-keeping paramount.

4. Credit card charges will be included in the gross amount reported on Form 1099-K even if the PSE remits funds net of

its fee.

5. There is an exception for de minimis third party network payments. Third party network payments are required to be

reported on Form 1099-K only if i) payments exceed $20,000, or ii) the aggregate number of TPN transactions

exceeds 200. However, TPN transactions no matter what size or number are still required to be segregated (with

payment card transactions) on business tax returns beginning with 2012 returns.

6. There is no de minimis exception for payment card transactions; all such transactions are to be reported both on

Form 1099-K and segregated on business tax returns starting with 2012.

7. Business income tax returns affected by the new reporting rules include Forms 1120, 1120S, 1065, 1040 Schedules C,

E, and F.

8. It does not appear that non-profit organizations will have reporting requirements regarding PC/TPN transactions,

although non-profits will receive Forms 1099-K if they engage in qualifying transactions.

9. Backup withholding, where 28% of any payment is withheld and remitted to IRS as federal income tax withholding,

will apply after December 31, 2012 if a taxpayer does not furnish its TIN (taxpayer identification number) to a PSE.

Recently IRS has admitted that it won’t likely be matching Form 1099-K amounts to tax returns for some time. Also, there are legislative stirrings to prohibit IRS from fully implementing Form 1099-K because of the excessive burden to small businesses. Stay tuned for any further developments.

Contact us at (219) 769-3616 or e-mail your questions to dvanprooyen@swartzretson.com.
SWARTZ, RETSON & CO., P.C.

New Reporting Requirements for Credit Card and Third Party Network Payments - Part 1

2012-02-02T10:14:00.000-08:00

Congress required, as part of the Housing and Economic Recovery Act of 2008, the matching of income from sales paid with credit cards or through third party networks (TPNs – Paypal, etc.) with income reported on a tax return. This requirement was an effort to reduce the tax gap, the difference between tax due and tax paid.

The result is a system that will allow IRS to match credit card and TPN receipts to a tax return. A new information report, Form 1099-K, and a new income line on business tax returns, “Merchant card and third party payments” have been created to help IRS in its efforts. Businesses which receive credit card and TPN payments will receive Forms 1099-K from each merchant or network and will report these payments – whether or not a 1099-K is received – on their 2012 tax returns.

As could be anticipated with an undertaking of this magnitude, there are wrinkles. For taxpayers whose credit card and TPN receipts do not include sales tax, employee tips, or other non-income amounts, the reporting should be straightforward, as amounts captured on Form 1099-K should already be included in taxable income. However, taxpayers, whose credit card receipts include sales tax, employee tips, or other non-income amounts, will need to track non-income amounts collected throughout the year to adjust out of income.

Although Forms 1099-K will be sent out for 2011, IRS has delayed the business tax return reporting requirements to 2012 returns.

This means that calendar year taxpayers with credit card and/or TPN sales need to consider how they will gather the information for reporting such transactions beginning January 1, 2012. It is important that taxpayers track credit card and TPN payments to be able to identify gross credit card payments and adjustments (sales tax, employee tips, etc.) for 2012 reporting.

Gross credit card collections should be reported in their own separate general ledger account. Taxpayers, whose credit card receipts include sales tax, employee tips, or other non-income amounts, will need to be able to separate or identify these reconciling items on a monthly basis from the credit card collections received.

Enhanced Work Opportunity Tax Credit (WOTC) for Hiring Qualified Veterans

2012-01-26T13:01:00.000-08:00

The tax credit for businesses that hire unemployed veterans has been enhanced now that the president has signed into law H.R. 674, the “3% Withholding Repeal and Job Creation Act.” The Act extends the qualifying period for hiring veterans, broadens the categories of veterans qualifying for the work opportunity credit, “fast-tracks” the qualification process for qualified veterans, and provides tax-exempt employers with a credit against payroll taxes for hiring qualified veterans.

The credit amount varies with how long the veterans have been unemployed.

It’s 40% of the first $14,000 of pay for veterans ($24,000 if disabled)

who have been jobless for six months or more in the year before they

were hired, and 40% of the first $6,000 of wages for veterans who have

been out of work at least four weeks but less than six months. The credit

applies for eligible veterans starting work after November 21, 2011 and before January 1, 2013. Tax exempt groups can take the credit as an offset against social security payroll taxes.

To be a “qualified” veteran, certain information must be gathered by the employer on or before the day a job offer is made. Currently, the information must submitted to your state workforce agency on Form 8850 no later

than the 28th day after the applicant begins work for you to certify that

the individual is a member of a targeted group for purposes of the work opportunity credit. Please see the Department of Labor website for the

latest requirements at http://www.doleta.gov/business/incentives/opptax.

Please call us at (219) 769-3616 with your questions or e-mail them to: bvanprooyen@swartz-retson.com.

SWARTZ, RETSON & CO., P.C.

Mark Your Calendar

2012-01-26T08:45:00.000-08:00

JANUARY

31 – Employers must furnish W-2 statements to employees. 1099 information

statements must be provided to payees. (1099B and consolidated statements must be provided by February 15.)

31 – Employers must file 2011 federal unemployment tax returns and pay any tax due.

FEBRUARY

28 – Payers must file information returns (such as 1099s) with the IRS.*

29 – Employers must send W-2 copies to the Social Security Administration.*

MARCH

1 – Farmers and fishermen who did not make 2011 estimated tax payments must file 2011 tax returns and pay taxes in full.

15 – Deadline for calendar-year corporations to elect S status for 2012.

15 – 2011 calendar-year corporation income tax returns are due.

*April 2 if filing electronically.

SWARTZ, RETSON & CO., P.C.

Act soon to save taxes—1

2011-12-06T09:41:00.001-08:00

Want to lower your 2011 tax bill? The time for action is running
out, so consider these tax-savers now.

• You can choose to deduct sales taxes instead of local and state income
taxes. If you’re planning big ticket purchases (like a car or a boat), buy
before year-end to beef up your deductible amount of sales tax.

• If you’re a teacher, don’t overlook the deduction for up to $250 for
classroom supplies you purchase in 2011.

• Consider prepaying college tuition you’ll owe for the first semester of
2012. This year you can deduct up to $4,000 for higher education expenses.
Income limits apply.

• Max out your retirement plan contributions. You can set aside $5,000 in
an IRA ($6,000 if you’re 50 or older), $11,500 in a SIMPLE IRA ($14,000 if
you’re 50 or older), or $16,500 in a 401(k) plan ($22,000 if you’re 50 or
older).

• Establish a pension plan for your small business. You may qualify for a
tax credit of up to $500 in each of the plan’s first three years.

These possibilities for cutting your taxes are just the
starting point. Contact us at (219) 769-3616 or e-mail your
questions to tlynch@swartz-retson.com now for a review of
your 2011 tax situation and tax-saving suggestions that
will work best in your individual circumstances.
SWARTZ, RETSON & CO., P.C

Act soon to save taxes—2

2011-12-06T09:41:00.000-08:00

Want to lower your 2011 tax bill? The time for action is running
out, so consider these tax-savers now.

• Need equipment for your business? Buy and place it in service by yearend
to qualify for up to $500,000 of first-year expensing or 100% bonus
depreciation.

• Review your investments and make your year-end sell decisions, whether
to rebalance your portfolio at the lowest tax cost or to offset gains and
losses.

• If you’re charity-minded, consider giving appreciated stock that you’ve
owned for over a year. You can generally deduct the fair market value and
pay no capital gains tax on the appreciation.

• Another charitable possibility for those over 70½: Make a direct donation
of up to $100,000 from your IRA to a charity. The donation counts as part
of your required minimum distribution but isn’t included in your taxable
income.

• Install energy-saving improvements (such as insulation, doors, and
windows) in your home, and you might qualify for a tax credit of up to
$500.

These possibilities for cutting your taxes are just the
starting point. Contact us at (219) 769-3616 or e-mail your
questions to tlynch@swartz-retson.com now for a review of
your 2011 tax situation and tax-saving suggestions that
will work best in your individual circumstances.
SWARTZ, RETSON & CO., P.C.

The tax rules can provide relief when disaster strikes

2011-12-06T09:12:00.000-08:00

Hurricanes, tornadoes, earthquakes, wildfires, floods, storms. Few parts of
the country escape the risk of natural disaster. If you’re an unlucky victim,
you may receive help from insurance and federal disaster aid. But the tax
code also offers some relief. You may be able to take an itemized deduction
for part of your loss. In tax terms, it’s a “casualty loss,” and it can also apply
to events such as a car crash, a house fire, or theft. Here are the basics.

• Sudden event. The loss or damage must be due to an unexpected and
sudden event. Losses due to slow deterioration over the years, such as rot,
rust, or insect damage, don’t qualify.

• Tax deduction. Your tax deduction won’t equal your total loss. You must
subtract any insurance or other reimbursement. Then you must also deduct
$100 for each loss and 10% of your adjusted gross income.

• Basis adjustment. Your loss may also be limited by your adjusted basis
in the property. That’s generally what you paid for it, plus or minus any
improvements or previous losses.

• Disaster classification. In a widespread disaster, the area may be
classified as a “federally declared disaster area.” If that happens, you have
two choices. You can claim your casualty loss against the current year’s
taxes. Or you can amend the previous year’s return and claim your loss
against that year’s taxes. That usually generates a faster refund, but it may
change the amount of your deduction.

If you’re unlucky enough to suffer a casualty loss, please
contact us at (219) 769-3616 or e-mail your questions to
tlynch@swartz-retson.com. We’ll help you claim the
maximum possible tax benefit.
SWARTZ, RETSON & CO., P.C

It's Not Just About the Money

2011-10-06T13:47:00.000-07:00

Studies have consistently shown that employee compensation, although important, is
not the primary factor that makes workers stay at a company. It’s not all about the
money. In fact, some firms that provide stellar compensation packages suffer high
turnover, low morale, and dwindling market share. Others – including smaller
companies that may not offer tip-top benefit packages – maintain a loyal and
dedicated workforce that regularly contributes to the company’s success. In fact, many
studies show that happy workers provide more efficient production, better customer
service, and greater innovation. They’re also less likely to quit or call in sick.

What factors could make your company a better place to work? Here are four keys.

• Respect. Show employees that they matter by providing them with necessary
training, acknowledging outstanding work, and creating a healthy and upbeat
workplace.

• Fairness. Treat employees equitably. This applies, of course, to hiring and
promotion decisions, but might also include sharing the firm’s success through a
structured bonus plan.

• A sense of pride. Most people enjoy working with a team that accomplishes
something significant. Create this type of work environment and you’ll foster company
loyalty. Strive to make everything you do – and everyone you employ – an integral
part of the firm’s mission.

• Opportunities. No one looks forward to a dead-end job. Give your workers an
adventure to anticipate. Find ways to expand their horizons. For example, you might
provide cross-training to develop new skills or encourage innovation.
Even if you can’t offer the best compensation package on the planet, satisfied workers
can help propel your company forward. And they’ll let their talented friends know that
your company is a great place to work.

If you have any questions, please give us a call at (219) 769-3616
or e-mail your questions to dbatusic@swartz-retson.com.
SWARTZ, RETSON & CO., P.C.

Take a refresher course on saving for college the tax-smart way

2011-09-16T19:13:00.000-07:00

With tuition costs climbing ever higher, setting aside funds for college can be a formidable task. Here’s a refresher course on the various programs and tax breaks you can use to lessen the financial burden of college.

• Coverdell education savings accounts. These accounts offer several advantages over other college savings plans. First, there’s flexibility. Like an IRA, you can choose from a wide variety of investments to meet your individual needs. Also, funds in the account can be withdrawn tax-free if used for qualified education expenses such as tuition, room and board, books, even a computer. Unlike other programs, qualified expenses include costs of elementary and secondary school.

However, the maximum annual contribution for a beneficiary is $2,000 – from all sources. Also, funds must be used by age 30. If the funds are not spent on college by the time the beneficiary is 30 years old, the unspent money must be withdrawn (subject to income tax and a 10% penalty) or rolled over into another family member’s education savings account.

• Section 529 plans. If you want to put a large lump sum into a college savings account, a Section 529 plan may be your best option. In this type of account, there are no phase-out limits for high earners, and plan sponsors set maximum allowable contributions.

• Custodial accounts. With custodial accounts (Uniform Transfers to Minors Act or UTMA), you can generally invest in a wider variety of investments than with a 529 plan. The proceeds can be taken out penalty-free – even if used for something other than education. The biggest potential disadvantage is that you gift the funds irrevocably to the child. At a certain age, your child controls the account and could spend the funds on a sports car instead of college.

• American opportunity credit. With this credit you reduce your taxes dollar for dollar for education expenses incurred during four years of college. The credit has an annual limit of $2,500 per student.

• Lifetime learning credit. The limit for this credit is $2,000 per tax return, and qualified expenses include tuition, fees, and books for both undergraduate and graduate programs. You’re limited to using only one credit (American opportunity or lifetime learning) per student.

• Other options. Roth IRAs and U.S. savings bonds are additional options worth considering. You may also qualify for an interest deduction on education loans.

If you need help reviewing the options that best fit your situation,give us a call at (219) 769-3616 or e-mail your questions to tlynch@swartz-retson.com.