Tips & Tidbits Please click on a topic below to be directed to that section of the page: Several Key 2012 Employment and Tax Figures are Released Many Tax Benefits and Limits set to Change in 2012 Three Percent Withholding Repeal is Signed into Law 2012 Pension and Retirement Plan Limits Announced Filing Relief Granted for Estates The Proposed American Jobs Act Federal Unemployment Rate to Decrease, Effective July 1st IRS Increases Standard Mileage Rate, Starting July 1st 3% Federal Withholding on Governmental Contracts Delayed Until 2013 Florida Corporate Tax Exemption Increase - Keeping Repeal Efforts Alive Notice to Employers Regarding Florida Minimum Wage Repeal of 1099 Rules Consumer Alert - Misleading Notices Being Sent Regarding Annual Reports and Minutes IRS Issues Standard Mileage Rates for 2011 2011 Florida Unemployment Compensation Tax Rates The Era of Paper Payroll Tax Deposits Ending IRS Posts Guidance Providing Relief to Homeowners Affected by "Chinese" Drywall Current Scams and Phishing Sites Posing as the IRS Small Business Health Care Tax Credit for Small Employers Worker Verification Rule Here...Ready or Not Certain Computer Technology Purchases Allowed for 529 Plans Tax Credit for First Four Years of College Improves on Current Education Credits Energy-Efficient Home Improvements Can Save At Tax Time Annual Gift Limit Increased Justice Department Sets Tax Fraud Priority Several Key 2012 Employment and Tax Figures are Released The IRS has recently released several key wage related figures and amounts.  The social security wage base will increase from $106,800 in 2011 to $110,100 for 2012.  You can defer more income by contributing elective deferrals to qualified retirement plans.  The elective deferral amount for 401(k), 403(b), and most 457 plans will increase from $16,500 to $17,000 in 2012.  The maximum defined contribution plan limit increases $1,000 to $50,000.  However, the SIMPLE plan elective deferral and over 50 catch-up amounts remain unchanged. Other amounts such as the deduction for each personal exemption will increase by $100 to $3,800, while the standard deduction amounts will also increase.  The deduction will be $11,900 for married couples filing jointly, $5,950 for singles and separate filers and $8,700 for heads of household.  The basis exclusion from estate tax will be 5,120,000 but the annual gift tax exclusion will remain at $13,000.         Back to top Many Tax Benefits and Limits Set to Change in 2012 Here is a summary of some of the changes to expect for the 2012 tax year The personal and dependent exemption amount goes to $3,800. The new standard deduction amounts will be $11,900 for married couples, $5,950 for singles and married individuals filing separately, and $8,700 for heads of household. There is also a widening or expansion of the marginal tax brackets.  That is you would be able to have more income before hitting the next higher bracket or rate. The foreign earned income deduction rises to $95,100 for US citizens living and working in a foreign country. The Medical Savings Accounts (MSA) annual deductible amounts increase to $3,150 for self-only coverage and $6,300 for family coverage. There will be an increase in the income limit before the phase out of items such as the student loan deduction and lifetime learning credit. The basic exclusion from estate tax amount is increased to $5,120,000 from $5,000,000.  However, the annual exclusion for gifts will remain at $13,000.      Back to top Three Percent Withholding Repeal is Signed into Law On November 21, 2011 President Obama signed the Three Percent Withholding Repeal and Job Creation Act.  This act effectively repeals the mandatory three percent withholding requirement placed on payments to governmental vendors.  The law had been hotly debated and the start date had been delayed until 2013.  The new law also expands tax incentives to encourage employers to hire military veterans by providing credits of up to $9,600 for employers who hire veterans looking for work.  The Returning Heroes Tax Credit provides for a credit of up to $2,400 per employee for hiring veterans looking for work for less than six months and up to $5,600 for hiring veterans looking for work for more than six months.  The Wounded Warriors Tax Credit provides for a credit of up to $9,600 per employee for hiring veterans with service-connected disabilities who have been looking for work for more than six months.  The estimated $12.8 billion cost of this act will be at least partially offset by modifying the calculation of modified adjusted gross income (MAGI) for determining eligibility for certain federal health care programs and delaying scheduled reductions in fees for VA mortgage applications.      Back to top 2012 Pension and Retirement Plan Limits Announced On October 20, 2011 the IRS announced the retirement plan limits for the 2012 tax year.  The maximum elective deferral amount for 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan rises from $16,500 in 2011 to $17,000 in 2012.  The catch-up contribution for those aged 50 and over remains at $5,500 The limitation on the annual benefit under a defined benefit (pension) plan is increased from $195,000 to $200,000 The maximum limitation for self-employed pensions (SEP) and profit-sharing plans is increased from $49,000 to $50,000. The annual compensation limit used in calculating the contribution is increased from $245,000 to $250,000. The annual SIMPLE retirement plan limitation remains unchanged at $11,500.  The catch-up contribution amount also remains at $2,500. The maximum allowed individual retirement account (IRA) contribution remains at $5,000 as does the $1,000 limit on additional catch-up contributions for those 50 and over.  However, the wage limits regarding the deductibility of contributions for active participants or spouses filing a joint return have increased. The gross income limitation for determining eligibility for making a Roth IRA contribution has increased to $110,000.  Back to top Filing Relief Granted for Estates The IRS has announced that the due date for Form 8939 Allocation of Increase in Basis for Property Acquired from a Decedent has been postponed from November 15, 2011 to January 17, 2012.  The form and instructions have yet to be released.  Estate tax returns Form 706 for estates of decedents who died between January 1, 2010 and December 16, 2010 are due September 19, 2011 but may obtain an automatic six month extension by filing Form 4868 by that date.  Estate tax returns for decedents who died between December 17, 2010 and December 31, 2010, may also receive an automatic six month extension of time by filing Form 4868 by the due date of the return (nine months after date of death).      Back to top The Proposed American Jobs Act On Thursday, September 8, 2011, President Obama presented the American Jobs Act in an address to Congress.  Click here to see the highlights of the plan.      Back to top Federal Unemployment Rate to Decrease, effective July 1st As of July 1, 2011 the .2% FUTA surtax will no longer apply.  This surtax has been a part of the FUTA calculation since 1976.  The general FUTA calculation is as follows.  The FUTA rate has been 6.2% including the surtax before the application of state unemployment tax credits.  These are usually 5.4%, leaving the .8% rate employers have been paying on the first $7,000 of wages for each employee.   Removing the .2% surtax leaves the new applicable FUTA rate employers will use to pay their FUTA tax at .6% after July 1, 2011.      Back to top IRS Increases Standard Mileage Rate, Starting July 1st Because of rising fuel costs, the Internal Revenue Service increased the standard mileage rate for business use of an automobile and for medical and moving expenses. The new optional standard mileage rates will apply to expenses incurred on or after July 1, 2011. The business rate will go up to 55.5 cents per mile and 23.5 cents for medical or moving rates.  The mileage documentation required by the IRS has not changed.  If you need an Auto and Travel Log to maintain the proper documentation, please contact us at (239) 939-2233.  We’ll be happy to send you one.     Back to top 3% Federal Withholding on Governmental Contracts Delayed Until 2013 As a means to finance several tax breaks that had been set to expire at the end of 2005, the Tax Increase Prevention Act of 2005 included a provision to impose a 3% withholding on payments made by governmental entities to vendors performing services and/or providing goods via government contracts.  This withholding tax was originally set to go into effect in 2012.  However, the IRS has delayed the implementation of this required 3% withholding tax, and it will now apply to payments made after December 31, 2012.  For existing contracts that are not materially modified, the 3% withholding will apply to payments made after December 31, 2013.  Once the requirement becomes effective, the governmental entities will be required to furnish to their payees an annual 1099-Misc form to report the payments and the withholdings.  As a result, vendors will only receive 97% of their invoiced amounts with the remaining 3% remitted to the IRS as withholding on behalf of the vendor.  While many vendors will be adversely affected by these provision,  exemptions will apply for certain payments under $10,000 as well as payments made to governmental entities or tax-exempt organizations.  In the wake of the recent repeal of the 1099 reporting requirements for corporations, bills are currently under consideration by both the House and the Senate to repeal this 3% withholding tax.  Back to top Florida Corporate Tax Exemption Increase - Keeping Repeal Efforts Alive On May 5, 2011, the Florida Legislature passed a bill that would increase the annual corporate tax exemption to $25,000.  Florida currently imposes a 5.5% income tax on corporations doing business in the state.  Generally the State computes this tax based on the corporation’s federal taxable income less an annual exemption, currently set at $5,000.  Governor Rick Scott has been pushing for the repeal of the Florida corporate income tax and an increased exemption will be a vital step in the right direction towards a phase out.  Under the proposed exemption, a considerable number of small Florida businesses currently on this tax roll would no longer be liable for the tax and larger businesses, still subject to the tax, will also benefit from the same $1,100 in tax savings, a clear victory for repeal supporters.  Although this bill is still pending action by the Governor, approval is expected.  Once enacted, corporations may start to take advantage of this significant enhancement to the longstanding $5,000 exemption for all tax years beginning in 2011.  Back to top Notice to Employers Regarding Florida Minimum Wage Effective June 1, 2011, Florida's revised minimum wage will be $7.31 per hour for all hours worked in Florida. Employers must pay their employees a wage not less than the amount of the hourly state minimum wage for all hours worked in Florida. The definitions of “employer,” “employee,” and “wage” for state purposes are the same as those established under the federal Fair Labor Standards Act (FLSA). For “tipped employees” meeting eligibility requirements for the tip credit under FLSA, employers must pay a direct hourly wage of $4.29 as of June 1, 2011. More information and a copy of the Florida Minimum Wage poster may be downloaded from the Agency for Workforce Innovation's website at www.floridajobs.org/workforce/posters.html. Back to top Repeal of 1099 Rules On April 14, the President signed into law the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 (“The 1099 Act”). This law repeals both the expanded Form 1099 information reporting requirements mandated by last year’s health care legislation and also the 1099 reporting requirements imposed on taxpayers who receive rental income enacted as part of last year’s Small Business Jobs Act.  So in effect, the 1099 reporting rules continue unchanged from what they were in 2010. Individuals receiving rental income from real estate will not necessarily be considered to be engaged in a trade or business of renting property, but will be in the same position as if the expanded information reporting requirements had never been enacted.  Back to top   Consumer Alert - Misleading Notices Being Sent Regarding Annual Reports and Minutes Two private companies are currently sending misleading notices to Florida businesses.  Arvitas, LLC is offering to file annual reports with the Department of State at an inflated fee, not offering additional services other than what is available to the public on www.sunbiz.org.  Compliance Services (not to be confused with the Florida corporation, Compliance Services, Inc.) is requesting that "Annual Minutes" (not to be confused with the Florida Division of Corporation's Annual Report) and a fee of $125 be sent to them for filing when an entity's annual minutes are not required to be sent to any agency and simply kept on file by the business entity itself.  Please visit www.sunbiz.org for full details   Back to top IRS Issues Standard Mileage Rates for 2011 The Internal Revenue Service issued the 2011 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.  Click here to view the rates and get additional information.  Back to top 2011 Florida Unemployment Compensation Tax Rates Because the State of Florida borrowed money from the Federal Government to pay out UC claims over the past few years, the business owners will be assessed a proportionate assessment to repay the Federal loan by mid 2011.  Click here to view the Florida Department of Revenue's 2011 Unemployment Compensation Tax Rates Fact Sheet.  Back to top The Era of Paper Payroll Tax Deposits Ending Beginning in 2011 you will no longer be able to make your federal tax deposits at the bank using the paper coupons. The U.S. Department of the Treasury has mandated that all future deposits and payments be made using the Electronic Federal Tax Payment System (EFTPS). You should have recently received this notification from the Treasury along with instructions for completing the EFTPS sign-up. You will need the routing and bank account numbers of the account that you use to pay the required payments. If you do not begin making payments using EFTPS you could be subject to a 10% penalty. The notification will also give information on making the payments using the telephone or online and set-up only takes a few minutes.  www.eftps.com   Back to top IRS Posts Guidance Providing Relief to Homeowners Affected by "Chinese" Drywall The IRS has posted Revenue Procedure 2010-36 to give insight and guidance as to how to handle the costs associated with the remediation of corrosive drywall. The IRS states in the procedure that the amounts paid are a casualty loss and may be taken as such on your tax return in the year paid. This is a simplification of the loss computation which is usually based on the decrease in fair market value. The loss may also be limited if there is a pending claim for reimbursement and there are some specifics regarding the replacement of appliances that are covered in the guidance. If you are affected by corrosive drywall you should seek advice from a tax professional. Back to top   Current Scams and Phishing Sites Posing as the IRS There is a fraud risk you need to be aware of.  It is related to the Electronic Federal Tax Payment System.  For details, please click here.  Back to top   Small Business Health Care Tax Credit for Small Employers Millions of small employers received postcards from the IRS beginning in April that alerted them to the new Small Business Health Care Tax Credit and encouraged them to check their eligibility. Even if you didn't receive a postcard, your business still may be eligible. Read more about this effort by clicking here. Back to top   Worker Verification Rule Here…Ready or Not Effective September 8, 2009, a rule goes into effect requiring federal contractors to use the E-Verify system to screen applicants for illegal immigrant status. E-Verify is administered by the U.S. Department of Homeland Security and is used to check the immigration status of both the current and prospective employees. There is legislation pending in Congress that would expand this requirement to all employers.  Back to top Certain Computer Technology Purchases Allowed for 529 Plans Computer Technology is added to the list of college expenses (tuition, books, etc.) that can be paid for by a qualified tuition program (QTP), commonly referred to as a 529 plan. For 2009 and 2010, the law expands the definition of qualified higher education expenses to include expenses for computer technology and equipment or Internet access and related services to be used by the designated beneficiary of the QTP while enrolled at an eligible educational institution. Software designed for sports, games or hobbies generally does not qualify.  Back to top   Tax Credit for First Four Years of College Improves on Current Education Credits The American opportunity credit is designed to help parents and students pay part of the cost of the first four years of college. The new credit modifies the existing Hope credit for tax years 2009 and 2010, making it available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. Tuition, related fees, books and other required course materials generally qualify. Many of those eligible will qualify for the maximum annual credit of $2,500 per student.  Back to top   Energy-Efficient Home Improvements Can Save At Tax Time The credit for non-business energy property is increased for homeowners who make qualified energy-efficient improvements to existing homes. The law increases the rate to 30 percent of the cost for all qualifying improvements and raises the maximum credit limit to a total of $1,500 for improvements placed in service in 2009 and 2010. Qualifying improvements include the addition of insulation, energy-efficient exterior windows and energy-efficient heating and air conditioning systems.  Back to top   Annual Gift Limit Increased The annual gift tax exclusion amount increased to $13,000 for 2009 and remains the same for 2010. You may give relatives or others up to $13,000 each without gift tax consequences.  Back to top   Justice Department Sets Tax Fraud Priority The Justice Department has set employment tax fraud as a leading enforcement priority. This will undoubtedly rear more payroll tax audits and IRS enforcement as well as increased penalties, and even tax liens. This will make proper payroll compliance even more important.  Back to top  Independent Member:   Facebook                      LinkedIn                  Twitter   Telephone:  (239)939-2233                       Email:  accting@hughessnell.com FAX:  (239)939-0554 1470 Royal Palm Square Boulevard Fort Myers, FL 33919  IRS Circular 230 Disclosure:  In order to ensure compliance with IRS Circular 230, we must inform you that any U.S. tax advice contained in this transmission and any attachments hereto is not intended or written to be used and may not be used by any person for the purpose of (i) avoiding any penalty that may be imposed by the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matter(s) addressed herein. 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