South Tampa Accounting

Having Your Parents Care For You Child

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Created on Thursday, 09 May 2013 12:12

Written by Justin

Is Granny a Nanny or Not?

Many families, when confronted with the need for child care or elder care turn to family members rather than strangers to care for their loved ones. The logic being, if I have to pay someone to provide care I would rather it be a family member who would benefit from the additional income.

Household help that earns more than $1,800 in a tax year is subject to what is referred to as the “Nanny Tax” and must be put on payroll. The IRS has a special form expressly for household help, Form H to report household payroll. Household employers are required to file W-2s for their employees along with their annual W-3 Summary Report.

These rules apply whether the nanny in question is an adult from across town as well as the college student who lives next door. However, the IRS makes exceptions to this rule for your parents if any of the following conditions apply:

• Your child is under 18 or
• Has a physical or mental condition that requires the personal care of an adult for at least 4 continuous weeks in a quarter
• You are divorced and not remarried
• You are a widow or widower
• Your spouse has a physical or mental condition that prevents them from caring for your child for at least 4 continuous weeks in a quarter

The bottom line is that in most cases Granny is not a Nanny as far as the IRS is concerned and you are not required to put your parents on the payroll even if you are paying them for their time. However, they should be aware that the money you pay them is taxable income.

Granny or Grandpa’s income should be reported to the IRS on her 1040 even though they do not receive a W-2 and are not subject to self-employment tax. The income is taxable as ordinary income and if the amount is substantial enough, they should make quarterly estimated tax payments in order to cover the amount due and not have a tax bill hanging over their head come April 15^th.

Congressional Inaction Wreaks Havoc on Accounting Profession

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Created on Thursday, 07 February 2013 02:53

Written by Justin

Accounting and financial advisors in the Tampa Bay area and throughout the country have once again been pushed to the limits of their patience by Congress and their inability to compromise. From South Tampa to Clearwater and beyond, the issue for accountants is not one of right or left but one of right and wrong. It is not acceptable to hold our client’s hostage to endless political maneuvering.

The failure of the Congress to act in a timely, decisive and committed manner has a trickle down affect on accountants’ and financial planners’ ability to make sound recommendations to our clients because our hands have been tied by uncertainty. All too often I am forced to tell a client that the advice I am offering may only good for today, as the law might change tomorrow.

Stimulating our economy requires investment and investment requires planning. The bottom line for many small businesses throughout South Tampa and Clearwater is that they haven’t been able to make longer term decisions due to the lack of certainty about tax code changes. If knowledge is power then lack of knowledge is weakness. Accountants and financial planners have been placed in a position of weakness through no fault of our own by the inaction of Congress.

Businesses and investors are not the only ones affected by the endless delays. Every taxpayer in America regardless of income or locale will be affected by the behavior of their own elected officials. Thanks to the delays in Congress the IRS has delayed the opening of E-Filing this year until January 30^th, the latest date in recent memory. This move forces accountants to compress tax filing season even further and delays tax refunds for an as yet undetermined period.

Accountants and financial planners aren’t typically professionals who complain. We take pride in our deliberate nature and ability to provide clear and reasoned advice based on facts. The facts we rely on are the tax laws and policies of the IRS and when the future of those laws is uncertain our ability to advise is compromised. As professionals who are trained to be clear and concise and understand the tax laws and regulations, we are placed at a disadvantage that can be very challenging to say the least.

American Taxpayer Relief Act - Review of Tax Changes For 2013

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Created on Thursday, 24 January 2013 01:29

Written by Justin

Now that Congress has made some decisions on 2013 taxes, let’s take some time to review what has changed for individuals and businesses throughout the greater South Tampa and Clearwater area.

First, as everyone has noticed, the employee portion of the Social Security payroll tax has increased. The temporary lowering of the rate to 4.2% has not been extended and has reverted to 6.2%. Employers and bookkeepers should expect some questions from employees about the sudden change in take home pay.

Changes For Individuals

EGTRRA and JGTRRA collectively known as the Bush tax cuts expired at midnight on December 31 and the marginal rates of 10%, 15%, 25%, 28% 33% and 35% were retained and made permanent. A new top rate of 39.6% was added and applies to taxable income over $400,000 for those who file single, $425,000 for those file as head of household, $450,000 for married taxpayers who file a joint return and $225,000 for each spouse for married couples who file separately.

It is important to understand that the new top tax rate of 39.6% only applies to taxable income that is above your particular threshold. For example a married couple filing jointly with taxable income of $500,000 would continue to pay the old rate of 35% on the first $450,000 and would pay the new top rate of 39.6% only on the excess $50,000.

The phase-out of itemized deductions and personal exemptions was reinstated but with slightly higher thresholds. The new limits are:

Single Taxpayers       $250,000

Heads of Household  $275,000

Married Filing Jointly $300,000

The capital gains and dividends rates did not change for those with incomes below the top rates. A new rate of 20% applies to taxpayers with income above the top bracket.

The bane of accountants and tax software programmers the exemption amount for the Alternative Minimum Tax (AMT) is now permanently indexed for inflation. This means that there will no longer be a sword hanging over the heads of taxpayers each December and early January waiting for a patch. Relief from AMT for nonrefundable credits has been retained. The exemption amounts for 2012 are:

• Single Taxpayers         $50,600
• Married Filing Jointly    $78,750

The estate and gift tax exclusion limits have been retained with the taxable threshold of $5 million dollars for estates and is indexed for inflation going forward. Estates in excess of $5 million will be taxed at a top rate of 40%. The lifetime limit for gifts exempt from the federal gift tax is $1 million with a maximum rate of 55% for gifts totaling over $1 million.

A small handful of important credits that expired at the end of 2012 have been extended through 2018:

• American Opportunity Tax Credit for qualified tuition and other higher education expenses.
• Enhanced provisions for the Child Tax Credit.
• Enhanced provisions for the Earned Income Tax Credit.

Congress also made permanent a rule excluding refunds from certain federal and federally assisted programs from taxable income.

A number of the temporary provisions from the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) were made permanent and they include:

• Marriage Penalty Relief
• Child and Dependent Care Credit Rules
• Exclusion for National Health Services Corps and Armed Forces Health Professions Scholarships
• Student Loan Deductions
• Coverdell Education Savings Accounts
• Employer Provided Child Care Credit
• Special Treatment for Tax-Exempt Bonds for Education Facilities

This is not an exhaustive list of all of the provisions of the American Taxpayer Relief Act but the most important and far reaching components of the changes affecting individual taxpayers. A separate set of changes have been made that affect businesses.

Changes For Businesses

The American Taxpayer Relief Act extended a number of business tax credits through 2013 and also modified the credit for increasing research and development (Sec. 41) which had expired at the end of 2011.

The act’s business changes include more then 30 credits and deductions ranging from the American Samoa Economic Development Credit to the Election to Expense Mine Safety Equipment. While the majority of business credits that were extended do no affect South Tampa businesses some do.

Following is a partial list of some of the items that have been extended:

• Housing allowance exclusion for qualified residential rental projects.
• New markets tax credit (Sec. 45D)
• Employee wage credit for active duty military (Sec. 45P)
• Work opportunity tax credit (Sec. 51)
• 15 Year straight-line cost recovery for leasehold improvements (Sec 168(e))
• Reduction in S Corp recognition period for built-in gains tax (Sec 1374(d))
• Empowerment zone tax incentives (Sec 1391)

An important provision of the Act is Section 179 which deals with expensing asset purchases. The section allows smaller businesses to write of the full cost of the purchase of a qualifying asset rather then depreciating them over several years. Before the act was passed the limit for 2012 was $125,000 with a phased out maximum of $500,000. The amounts were due to decrease by $25,000 and $200,000 for 2013 ATRA increased these amounts that applied in 2010 and 2011, $500,000 and $2 million.

ATRA extended the leasehold-improvement, restaurant and retail property to 2012-2013. Specifically the accelerated depreciation available for qualified improvements, allowing for a shortened recovery period of 15 yeas versus 39 years making it vital for business owners considering investments in leasehold improvements do so in 2013 in the event the break is not extended again.

The Work Opportunity Credit is intended to stimulate the hiring of certain disadvantaged groups and expired at the end of 2011 for most groups with an expanded credit for qualifying veterans having expired on December 31, 2012. The act extended the credit for most groups through 2013 non-disabled veterans $5,600. and $9,600 for disabled vets.

As with the examples above many of the credits that have been extended warrant at least consideration in planning purchases and expenditures over the next year and especially beyond as the credits will be expiring. Thoughtful and informed planning is vital for businesses especially at this transitive time.