How will working during retirement affect my retirement benefits?

Many retirees choose to continue working when they retire. Some people are forced to continue working to meet their financial needs and some choose to work as part of their retirement lifestyle. Regardless of the reason you continue to work during retirement you should understand how continuing to work affects your retirement benefits, such as Social Security, pension plans, health care and other retirement plans.

Social Security benefits

It’s important to know that income you earn after you start receiving Social Security may affect the amount of your benefit check. Luckily, if you haven’t reached full retirement age you don’t need to worry about your benefits being reduced from additional earned income (except for taxes discussed below). Full retirement age is 65 to 67, depending on when you were born. At full retirement age you can earn as much as you want without reducing the benefit, but if you haven’t reached your full retirement age your benefits may be reduced by your earnings. Your benefits are reduced by $1 for every $2 dollars you earn over the “earnings limit”. In the year you reach your full retirement age benefits are reduced by $1 for every $3 dollars you earn over a higher special earnings limit until the month you reach full retirement age. Sound complicated? It can be; so make sure you consult with your financial professional if you are thinking about working and receiving Social Security. Social Security generally takes into account income items such as wages and self-employment earnings. Income from items like IRAs, investments, annuities and pensions generally won’t reduce your benefit.

On the plus side your Social Security monthly benefit is based on lifetime earnings. This is your primary insurance amount (PIA). Every year your PIA is recalculated, which means any new earnings might increase your benefit. Consequently, continuing to work could increase your future Social Security retirement benefits. The trick may be to analyze your possible reduction in benefits from working vs. potential increase along with the net cash flow your lifestyle ultimately requires.

Social Security taxation

Generally Social Security benefits are not subject to federal income tax, unless you have too much additional income! Unfortunately, any taxable income or tax-exempt interest is generally part of a formula that determines how much of your benefits are taxable. This will affect you no matter how old you are. Even taxable distributions from your IRA through required minimum distributions can cause your Social Security benefits to be taxable. This is another area that you should consult with your financial professional on. There are income thresholds you can try to stay under to limit the amount of tax your pay on your Social Security benefits. You can be a vastly more tax efficient retiree if your income planning takes the Social Security tax rules into consideration.

How will working affect my pension?

In normal situations your pension benefit is what it is. You can receive a salary from an employer and still receive your pension benefits from your prior employer, but if you still work for your original employer past retirement age or you retire and later return to work for that employer, it may impact your pension benefits and options.

Some plans may suspend your pension benefit if you work beyond your normal retirement date, while others may allow you to still receive your benefit. Some plans increase your computed benefit while your pension is suspended because you are working and some plans may limit this increase in benefits computed. A common practice is for the employer to allow for a phased retirement option. This allows the employee to work part-time while receiving all or part of their pension benefit. The important lesson to recognize is that there are different options an employer can take and you should discuss them with your plan administrator before making any hasty decisions.

Working after 70 1/2 may also open the door to contributing to a Roth IRA if you have earned income, or deferring required minimum distributions if your employer offers an active 401k plan.

Health benefits

Some people consider working part-time during retirement to retain medical coverage. Normally employers require a minimum number of hours to be eligible for medical benefits and some will offer benefits for part-time workers. Working part-time may be a good option for you if health benefits are offered, but what if they aren’t? If they don’t offer benefits for your part-time work you may be eligible for COBRA or you may need to look for private insurance. COBRA is usually available for 18 months after a qualifying event (such as a loss of coverage because you decreased to part-time). Of course, COBRA may be expensive with an additional 2% administration fee charged and it’s not available to employers with fewer than 20 employees. Private insurance can also be very pricy. When you turn 65 you will be eligible for Medicare benefits. Make sure to contact the SSA office around 3 months before your 65th birthday to discuss those options. Being late can be costly!

Working during retirement can have great benefits. Some people feel they will be healthier by staying mentally and physically active. You may enjoy the social benefits of continuing to work. Even if your income affects your other retirement benefits, the additional income should help your retirement savings last longer overall. Proper consideration of your benefits are still essential to being a tax-efficient retiree and a retiree who gets the most out of their retirement benefits. Considerations vary far beyond the scope of what was just discussed. Make sure to sit down with your financial professional and create a proper plan when you decide to work during retirement.

Financial & Tax Java

• How To Save Money For About Anything – christianpf.com
• Whats The Buzz? Tell Me What’s A Happennin’ – the wandering tax pro
• Understanding Pension Splitting Rules – Jim Yih @ retirehappyblog.ca

What to do When a Family Member Dies

Losing a family member can be a devastating and difficult experience that we are rarely prepared to deal with. As if handling the emotional difficulty isn’t hard enough, there are a variety of important financial tasks and decisions that must be made by you or the estate’s executor. With so much responsibility in such a difficult time many tasks and decisions are often forgot about. Below are some items to consider when you lose a family member.

Right away (initial tasks)

• Arrange for the funeral, burial, cremation and memorial service. Remember the decadent may have made arrangements ahead of time. Check their will or estate planning documents such as a living trust for a letter of instruction.
• Get your certified copy of the death certificate (usually provided within 24 hours of death). Have the funeral home file the certificate with the state and keep certified copies for future use.
• Locate documents such as: a living will, trust documents, deeds, titles, certificates. You may need military discharge papers to apply for future benefits as well.
• Report the death to Social Security office. Make sure to check for possible survivor benefits and return any funds received from the Social Security office for the month of death and after.
• Make a list of decadent’s assets.
• Contact the decadent’s workplace so you can collect any salary pay owed and collect belongings. Survivor benefits may be available for spouses or children.
• Contact IRA custodians and employers regarding pension plans. Make sure to review post-death distribution options and beneficiary designations.
• Locate insurance policies and contact any applicable insurance companies.
• Cancel all credit cards unless you’re named on the card and want to retain it.
• Retitle jointly held assets.

Other intermediate tasks (before 9 months)

• Notify the decadent’s creditors by mail and by placing a notice in the newspaper.
• File the will with the appropriate probate court, contact the probate court for instructions or contact an attorney for assistance.
• File applicable federal and state estate tax returns by their deadline (normally 9 months after death).

There are other tasks and items you may have to address and consider, such as changing and updating your beneficiary designations and updating your estate plan. With the emotional hardship of losing a family member it is easy to forget the most ordinary tasks you may need to perform, such as notifying their workplace or former organizations. This makes it easy to forget some of the basic financial and legal tasks. The list above doesn’t cover everything you will need to do, consider or evaluate, but it can help serve as an aid to you through a difficult process.

 Personal Finance Java

• The 4% Rule is Obsolete – www.FreeMoneyFinance.com
• Quote of the day – Social Security – allfinancialmatters.com

Tax Java

• Another Bad Tax Return Clutter Idea – mauledagain.blogspot.com
• How to minimize tax on the estate – retirehappyblog.ca

Cloud Based Bookkeeping Software for Small Businesses

It’s tax time. Which means it’s time to turn your shoebox full of receipts and bank statements into meaning information your accountant can use to prepare your tax return. Let’s face it, most small business owners do not go into business because they enjoy bookkeeping. Let’s talk about some online small business bookkeeping software options to help keep your financial records organized and relieve your bookkeeping headaches.

FreshBooks.

Cost: Free – $39.95/month

FreshBooks is a great online bookkeeping solution for small business owners. They started as an invoicing/billing service so those features are top-notch. Small business owners can send professional looking invoices, set up recurring invoices and payments, receive online payments, track employees & contractors time, and have FreshBooks automatically send reminders to your slow paying customers. They can even help small business owners manage sales taxes.

FreshBooks doesn’t stop at the invoicing and billing side. They also have an expense tracking feature to help you manage your bills, checks, and expenses. To save on data entry time, they offer the ability to import your expenses from your bank via a CSV or QBO file.

Best of all, it’s an online service meaning you have access to your financial information at anytime and from anywhere.

Outright

Cost: Free – $9.95/month

Outright is a very basic online bookkeeping software that lets you organize your small business finances. Outright is perfect for Ebay and Etsy sellers who started a small business as a hobby. It’s strictly for sole proprietors and single member LLC’s with basic bookkeeping needs. A cool feature is that Outright can link directly to your Ebay, Etsy, PayPal, bank, and credit cards, allowing you to automatically import your transactions, which eliminates the hassle of data entry. Outright will also automatically categorize your transactions, saving you even more time.

Outright offers useful financial reporting tools section that even provides business owners with the ability to put their financial data into graphs for visuals on how your business is doing. Outright also helps small business owners understand taxes by helping track sales tax, tools to calculate your estimated quarterly tax payments, and tools to assist with figuring out your annual taxes.

The biggest drawback is the lack of an invoicing feature and there is no ability to track your accounts payable (bills due in the future).

Overall, Outright is a better solution than using a spreadsheet or your bank statement to track your business finances. It’s a great solution for mompreneurs and other small business owners selling their hobbies on Ebay and Etsy.

Wave Accounting

Cost: Free

For a brand new online accounting service that just launched about a year ago, I was really impressed with what Wave Accounting has to offer small businesses! From the start, you can set up your account to fit your specific industry. Just like the other packages, Wave has invoicing and billing features, allowing small business owners to track money owed from their customers, offers users an expense center to record your bills and expenses, and allows you to keep track of your bills due. Wave Accounting also has a very useful reports section that allows you to run financial statements (including a balance sheet!), Sales Tax reports, income by customers, expenses by vendors, and you can track your gains/losses on foreign currency exchanges. Similar to the other accounting packages out there, they also allow you to connect your bank and credit card accounts to automatically download your banking transactions, eliminating the need for data entry.

There are a couple of features that really stand out. First, your dashboard has a lot of great financial information about your business shown in graphs, providing the busy small business owner with a quick and useful glance at their finances. Secondly, Wave Accounting also has a separate tab to track your personal finances. Lastly, they are getting ready to launch a payroll service in the US, which will allow small business owners the opportunity to streamline their bookkeeping and payroll.

The biggest downfall is that Wave Accounting is not set up with any merchant processors, so your customers are not able to pay your invoices online. However, they do integrate with FreshBooks, so you could always use FreshBooks for your invoicing needs, if accepting payments online is important to your business.

Overall, I think Wave Accounting offers small businesses with a great way to manage their accounting, at a very affordable price (free)!

Xero.

Cost: free trial, $19-$39/month

If your business is looking for a full accounting package with lots of bells and whistles, Xero is the tool for you! They are one of the few online accounting services that really offer all the accounting tools that small and mid-sized businesses need. They offer a couple different packages, allowing their accounting services to grow with your business! As with the other services discussed above, Xero can handle your invoicing/billing functions, can track your expenses, has good financial reporting tools, offers the ability to link with your bank accounts, credit card accounts, and PayPal accounts for effortless downloading. They also can automatically code your entries, saving business owners even more time!

What sets the bar high for Xero is their additional features! Businesses can track their fixed assets and depreciation and they also offer inventory tracking. To really customize your accounting solution, Xero has an impressive list of add-on’s. Some of the add-on’s include payroll, to job tracking, to time tracking tools, to point of sale features, e-commerce, etc.

Their detailed dashboard is a perfect tool for small-mid sized business owners. You can quickly see your bank balances, receivables, and check out the bills that will be due soon.

If you’re looking for an online system to replace QuickBooks or that offers the usefulness you’re used to with QuickBooks, Xero is definitely an accounting package worth considering. Since it’s online, your software is always up-do-date and you can access your finances from any mobile device!

QuickBooks Online

Cost: free trial, $12.95-$63.16/month

Intuit’s QuickBooks products are the most commonly used accounting solutions for small and mid-sized businesses. Intuit sells a great accounting product and offers various packages to fit the individual needs of your business. A big plus to QuickBooks Online is you can start small and then expand your packages as your business grows. Their online bookkeeping software includes all of the standard bookkeeping and accounting tools that the other services listed above offer (invoicing, expense tracking, financial reporting, dashboards, tracking sales tax, etc).

The biggest downfall to QuickBooks online is that the online banking feature is not offered with the basic package. So you find yourself quickly upgrading to the higher packages. Another downfall is that the Online version is not as robust as the desktop version that most businesses are used to working with. However, creating software to work online is very different from the standard desktop model. I give props to Intuit for moving to the cloud and providing their users with a cloud based accounting software.

In closing, there are a lot of great online bookkeeping tools out there ready to assist with your accounting and bookkeeping needs. There are services that are designed to help with small hobby type businesses such as Ebay & Etsy sellers, to services that excel in invoicing/billing features, to services based around bank statement accounting, and services that offers a full accounting software package. Taking your bookkeeping to the clouds, provides you with the flexibility of being able to work on any device (desktop, laptop, Mac, and mobile) while also having access to your accounting information from anywhere and at anytime!

I want to take a moment to thank Masters in Accounting for nominating CafeTax as one of their 50 Top Accounting Blogs. If you blog or follow accounting and tax blogs check out the list they have complied. They are some great accounting blogs listed that you should have bookmarked as a reader.

On a side note to readers, there have been several successful attempts at hacking this blog and posting spam. I apologize for any emails that contain information not relative to the subject matter we produce.

Happy tax season and thank you for the recognition as one of your favorite accounting blogs!

More people seem to be using twitter than ever and a higher percentage of Twitter use seems to be completely oriented at “give me your business”. Pure marketing with no level of personalization.

I have grown a bit weary of Twitter in the last year for a couple reasons. I have become cynical of those who follow me that show no personal side and only want to sell me on what they do. Come-on Twitter pros, like thousands of others don’t do this over Twitter already?

When I first started using twitter I did so to make connections with other professionals and share information. I wanted to also help grow my blog, you know the information part. I have learned a lot from those I have connected with on Twitter that share information with me. So why do I feel like I am just being spammed now?

Perhaps Twitter has become to big. First; don’t send me auto direct messages if I choose to follow you. I don’t want to deal with robots. Second; I look at your short bio. If it only tells me what you do for a living, I’m probably not interested. There are to many people on Twitter now. I don’t want to waste my time with people whose sole purpose is to strategically market “at me”. Yes, there are plenty of you telling me how you can get me more clients. How about asking who my clients are and if I want more clients… How about the people telling me they can show me how to network with CPAs… Obviously they are spamming me and haven’t noticed that I am a CPA. How does that look?

I am guilty as well, like auto-tweeting 2 bloggers. A little bit robotic? Sure.. But I do it because I have grown to respect what they write and want to help share it. That’s it. I am also following way to many people. How am I supposed to filter the garbage from the good information while following 1000 Twitter users?? I have even considered changing my @taxguycpa Twitter name to something that says more about me, but I recognize that I am still their to network professional and share information. My use has been a learning experience as well. And these are the things I have learned that I am sharing. Don’t take my critique as a way to put myself on a pedestal, because I have made Twitter mistakes as well.

If your trying to generate business from Twitter, fine. I get that. I think you will be much more effective doing so by creating actual relationships, not throwing mud against the wall and hoping some sticks. I follow people to create relationships, but have created about 20 out of 1000 people I have followed. That should tell me something.

After a couple years of Twitter use and some great relationships made with other professionals who are willing to help each other I can end this by saying, make it personal and put in real effort. Professionals like myself are a dime-a-dozen. It’s about who you are and being real to those around you. Otherwise, it’s not for me and it’s probably not for a lot of the people who want to be real and helpful. I wonder, do you feel differently?

If you haven’t received it, here is IRS Tax Tip 2012-15. A quick rundown of some parental tax benefits provided by the IRS.

1. Dependents In most cases, a child can be claimed as a dependent in the year they were born. For more information see IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.

2. Child Tax Credit You may be able to take this credit for each of your children under age 17. If you do not benefit from the full amount of the Child Tax Credit, you may be eligible for the Additional Child Tax Credit. For more information see IRS Publication 972, Child Tax Credit.

3. Child and Dependent Care Credit You may be able to claim this credit if you pay someone to care for your child or children under age 13 so that you can work or look for work. See IRS Publication 503, Child and Dependent Care Expenses.

4. Earned Income Tax Credit The EITC is a tax benefit for certain people who work and have earned income from wages, self-employment or farming. EITC reduces the amount of tax you owe and may also give you a refund. IRS Publication 596, Earned Income Credit, has more details.

5. Adoption Credit You may be able to take a tax credit for qualifying expenses paid to adopt an eligible child. If you claim the adoption credit, you must file a paper tax return with required adoption-related documents.  For details, see the instructions for IRS Form 8839, Qualified Adoption Expenses.

6. Children with earned income If your child has income earned from working, they may be required to file a tax return. For more information, see IRS Publication 501.

7. Children with investment income Under certain circumstances a child’s investment income may be taxed at their parent’s tax rate. For more information, see IRS Publication 929, Tax Rules for Children and Dependents.

8. Higher education credits Education tax credits can help offset the costs of higher education. The American Opportunity and the Lifetime Learning Credits are education credits that can reduce your federal income tax dollar-for-dollar. See IRS Publication 970, Tax Benefits for Education, for details.

9. Student loan interest You may be able to deduct interest paid on a qualified student loan, even if you do not itemize your deductions. For more information, see IRS Publication 970.

10. Self-employed health insurance deduction If you were self-employed and paid for health insurance, you may be able to deduct any premiums you paid for coverage for any child of yours who was under age 27 at the end of the year, even if the child was not your dependent. For more information, see the IRS website.
1. Dependents In most cases, a child can be claimed as a dependent in the year they were born. For more information see IRS Publication 501, Exemptions, Standard Deduction, and Filing Information.

2. Child Tax Credit You may be able to take this credit for each of your children under age 17. If you do not benefit from the full amount of the Child Tax Credit, you may be eligible for the Additional Child Tax Credit. For more information see IRS Publication 972, Child Tax Credit.

3. Child and Dependent Care Credit You may be able to claim this credit if you pay someone to care for your child or children under age 13 so that you can work or look for work. See IRS Publication 503, Child and Dependent Care Expenses.

4. Earned Income Tax Credit The EITC is a tax benefit for certain people who work and have earned income from wages, self-employment or farming. EITC reduces the amount of tax you owe and may also give you a refund. IRS Publication 596, Earned Income Credit, has more details.

5. Adoption Credit You may be able to take a tax credit for qualifying expenses paid to adopt an eligible child. If you claim the adoption credit, you must file a paper tax return with required adoption-related documents.  For details, see the instructions for IRS Form 8839, Qualified Adoption Expenses.

6. Children with earned income If your child has income earned from working, they may be required to file a tax return. For more information, see IRS Publication 501.

7. Children with investment income Under certain circumstances a child’s investment income may be taxed at their parent’s tax rate. For more information, see IRS Publication 929, Tax Rules for Children and Dependents.

8. Higher education credits Education tax credits can help offset the costs of higher education. The American Opportunity and the Lifetime Learning Credits are education credits that can reduce your federal income tax dollar-for-dollar. See IRS Publication 970, Tax Benefits for Education, for details.

9. Student loan interest You may be able to deduct interest paid on a qualified student loan, even if you do not itemize your deductions. For more information, see IRS Publication 970.

10. Self-employed health insurance deduction If you were self-employed and paid for health insurance, you may be able to deduct any premiums you paid for coverage for any child of yours who was under age 27 at the end of the year, even if the child was not your dependent. For more information, see the IRS website.
Courtesy of the IRS

Numbers everyone should know as they end the 2011 year.

2011 2010 Adoption Credit  Maximum credit $13,360 $13,170 Phaseout threshold amount $185,210 $182,520 Completed phaseout amount after $225,210 $222,520 Alternative Minimum Tax (AMT)  Maximum AMT exemption amount Married filing jointly or surviving spouse $74,450 $72,450 Single or head of household $48,450 $47,450 Married filing separately $37,225 $36,225  AMT income exemption phaseout threshold Married filing jointly or surviving spouse $150,000 $150,000 Single or head of household $112,500 $112,500 Married filing separately $75,000 $75,000 Charitable deductions:  Use of auto for charitable purposes (deductible standard mileage rate) $0.14 $0.14 Charitable fundraising contributions “insubstantial benefit” limitations:  Low-cost article (re: unrelated business income) $9.70 $9.60  Other insubstantial benefits (re: gifts to donor in return for contribution). Contribution is fully deductible if minimum contribution amount is met and cost of token gift does not exceed maximum. Token gift maximum cost $9.70 $9.60 Minimum contribution amount $48.50 $48  Charitable contribution is fully deductible if the benefit received by the donor doesn’t exceed the lesser of the threshold amount or 2% of the amount of the contribution Threshold amount $97 $96 Child tax credit  Maximum credit per qualifying child $1,000 $1,000  Phaseout– credit reduced by $50 for each $1,000 or fraction thereof of MAGI over: Single $75,000 $75,000 Married Filing Jointly $110,000 $110,000 Married Filing Separately $55,000 $55,000  Refundability — up to specified percentage of earned income in excess of specified amount Percentage 15% 15% Amount $3,000 $3,000 Classroom expenses of elementary and secondary school teachers (maximum above-the-line deduction) $250 $250 Earned income tax credit (EITC):  Excessive investment income limit (“disqualified income limit”) $3,150 $3,100  Maximum amount of EITC per number of children 0 children $464 $457 1 child $3,094 $3,050 2 children $5,112 $5,036 3 or more children $5,751 $5,666  Maximum amount of earned income on which EITC is based (earned income over this amount but under the threshold phaseout amount will not change the amount of the credit received) 0 children $6,070 $5,980 1 child $9,100 $8,970 2 or more children $12,780 $12,590  Threshold phaseout amount for joint filers per number of children 0 children $12,670 $12,490 1 child $21,770 $21,460 2 children $21,770 $21,460 3 or more children $21,770 $21,460  Threshold phaseout amount for other filers per number of children 0 children $7,590 $7,480 1 child $16,690 $16,450 2 children $16,690 $16,450 3 or more children $16,690 $16,450  Completed phaseout amount for joint filers per number of children 0 children $18,740 $18,470 1 child $41,132 $40,545 2 children $46,044 $45,373 3 or more children $49,078 $48,362  Completed phaseout amount for other filers per number of children 0 children $13,660 $13,460 1 child $36,052 $35,535 2 children $40,964 $40,363 3 or more children $43,998 $43,352 Expatriation  An individual with “average annual net income tax” of more than this amount for the five taxable years ending before his or her loss of citizenship is a covered expatriate for the purposes of IRC§877A(g)(1) $147,000 $145,000 *IRC§877A(3) exclusion amount $636,000 $627,000 Foreign earned income exclusion: $92,900 $91,500 Itemized Deductions  Itemized deductions threshold phaseout amount for MFS: N/A N/A  Itemized deductions threshold phaseout amount for all others: N/A N/A Kiddie tax:  Unearned income limit Amount exempt from tax $950 $950 Additional amount taxed at child’s rate $950 $950 Unearned income over this amount taxed at parent’s rate $1,900 $1,900  Election to include child’s income on parent’s return — child’s gross income requirement $950 – $9,500 $950 – $9,500  AMT exemption for child subject to kiddie tax: Lesser of $6,800 + child’s earned income or $48,450 Lesser of $6,700 + child’s earned income or $47,450 Making Work Pay tax credit Maximum credit         Filing status other than married filing jointly N/A Credit not extended, but related benefit provided by one-year 2% reduction in employee Social Security payroll taxes (also applies to self-employment tax of self-employed individuals) $400         Married filing jointly $800 Income phaseout: Other than married filing jointly         Phaseout threshold amount $75,000         Completed phaseout amount after $95,000 Income phaseout: Married filing jointly         Phaseout threshold amount $150,000         Completed phaseout amount after $190,000 Nanny tax (domestic employee coverage threshold) $1,700 $1,700 Personal exemption amount: $3,700 $3,650  Personal exemption amount for taxpayers with AGI exceeding maximum phaseout threshold N/A N/A  Married filing jointly Phaseout threshold amount N/A N/A Completed phaseout amount after N/A N/A  Head of household Phaseout threshold amount N/A N/A Completed phaseout amount after N/A N/A  Single Phaseout threshold amount N/A N/A Completed phaseout amount after N/A N/A  Married filing separately Phaseout threshold amount N/A N/A Completed phaseout amount after N/A N/A “Saver’s Credit” (Elective Deferrals and IRA Contributions by Certain Individuals)  Maximum credit amount $1,000 $1,000  Applicable percentage of 50% applies to AGI Joint Return $0 – $34,000 $0 – $33,500 Head of Household $0 – $25,500 $0 – $25,125 Other $0 – $17,000 $0 – $16,750  Applicable percentage of 20% applies to AGI Joint Return $34,001 – $36,500 $33,501 – $36,000 Head of Household $25,501 – $27,375 $25,126 – $27,000 Other $17,001 – $18,250 $16,751 – $18,000  Applicable percentage of 10% applies to AGI Joint Return $36,501 – $56,500 $36,001 – $55,500 Head of Household $27,376 – $42,375 $27,001 – $41,625 Other $18,251 – $28,250 $18,001 – $27,750  Applicable percentage of 0% applies to AGI Joint Return Over $56,500 Over $55,500 Head of Household Over $42,375 Over $41,625 Other Over $28,250 Over $27,750 Standard deductions:  Married filing jointly or surviving spouse $11,600 $11,400  Head of household $8,500 $8,400  Single $5,800 $5,700  Married filing separately $5,800 $5,700  Dependent Greater of $950, or $300 + earned income Greater of $950, or $300 + earned income  Additional deduction for aged or blind (single or head of household) $1,450 $1,400  Additional deduction for aged or blind (all other filing statuses) $1,150 $1,100  Additional standard deduction for state and local real property taxes (maximum additional deduction) Married filing jointly N/A N/A All other filing statuses N/A N/A Standard mileage rates:  Use of auto for business purposes (cents per mile) $0.51 $0.51 for first half of 2011 $0.555 for second half  Use of auto for medical purposes (cents per mile) $0.19 $0.19 for first half of 2011 $0.235 for second half  Use of auto for moving purposes (cents per mile) $0.19 $0.19 for first half of 2011 $0.235 for second half

Current E-File requirements

Every year more tax returns are filed electronically. It can help both the tax preparers and clients. Many times there are benefits like increased efficiency, immediate acceptance (usually) by the IRS and possibly faster refunds!

Every year it seems that e-file requirements change.

If you are an e-file provider you need to make sure you acquire your Electronic Filing Identification Number (EFIN). This can take awhile to process; so don’t procrastinate if you plan on e-filing for clients.

Starting on the first day of 2012, preparers who file 11 or more Federal 1040 or 1041 returns are required to use e-file for all the 1040 and 1041 returns. I wonder how that will affect clients who still don’t like to e-file? Clients can request an e-file waiver with Form 8944.Not many e-filers perform less than 11 tax returns. The previous year required more than 100. Also, if your income is $58,000 or less, the e-file is free.

How about E-organizers? Has anyone started using those? Instead of sending your client a big stack of paper with questions they fill out and mail back to you, they fill out an organizer online and send it back as a secure file. Some programs will take that data and automatically input it for the preparer, increasing efficiency and saving time. Anyone can input numbers into professional tax software and that is what this does for you. It is making adjustments to get the correct results that clients should be paying for!

Year-End Tax Planning: 10 Things to Keep in Mind

The window of opportunity for many tax-saving moves closes on December 31. So set aside some time to evaluate your tax situation now, while there’s still time to affect your bottom line for the current tax year.

Here are 10 things to consider as the curtain closes on 2011.

1. Deferring income to 2012 means postponing taxes

2. Paying deductible expenses sooner may help you in 2011

3. Income tax rates to remain the same in 2012 

5. IRA and retirement plan contributions

6. Special distribution requirements at age 70½

7. Depreciation and expense limits to drop for business owners and the self-employed 

8. Last chance to deduct energy-efficient home improvements

If you’re a client a full year end overview has been made available to you through Arbor Financial & Tax, PLLC. If you do not have the password you can request it by email. ArborNewsLetter2011

10. Get help

Making effective year-end moves requires a solid understanding of the rules that are in effect for both 2011 and 2012. It also requires a comprehensive grasp of your overall financial situation. A financial professional can help you evaluate potential opportunities, and can keep you apprised of any last-minute legislative changes.

Congratulations, your business is growing and you are thinking about hiring an employee! Many business owners make the mistake thinking the employee will only cost the business their wages/salary. Unfortunatley, employees come with additional hidden costs. The average estimate is that an employee will actually cost 25%-40% above their wages/salary amounts. As you think about hiring your next employee, here are some additional employment costs to consider:

• Payroll Taxes
  In addition to paying your employee their wages/salary, business owners are also responsible for paying employment taxes. On average, these employment taxes cost employers about 15% of an employee’s wages. Business owners are responsible for paying Social Security (6.2%), Medicare (1.45%), Federal & State Unemployment Insurance Tax (~2-6%), Workman’s Compensation Insurance (about 5%, but varies on your SIC code, employee responsibilities, salary, claims history, etc.), local payroll taxes (on occasion). All these taxes add up to cost the employer about an additional 15% of the employees wages. Therefore, an employee making $15/hour will cost the employer about $17-$18/hour.
• Paid Time Off
  To be a competitive employer, business owners also have to look at offering their employees paid time off benefits. These can include vacation, sick leave, personal time off, paid holidays, and paid breaks (as required by local & federal employment laws). The cost of these benefits typically depend on the employees wages/salary, the size of the business, their location, and the industry standard.
• Health & Dental Insurance
  Most employees expect to receive health benefits from their employers. It’s a wonderful benefit to offer employees, but can add a hefty price tag. Business owners need to consider the monthly premiums paid for their employees health insurance benefits. Some employers pay 100% of the monthly premium, while most employers pass along a portion of the cost to the employees. However, it’s typical for the employer to pay no less than at least 50% of the monthly premium.
• Retirement Savings Benefit
  Another consideration is whether or not you offer employees retirement savings plans, such as Simple IRA or 401(k). These plans are usually funded by the employee’s elective payroll deductions. But then the employer offers to match the employee’s contribution, up to a certain percentage. On average, this employer contribution costs employers 3-6% of the employee’s salary/wages. This does not keep in mind the cost of running and compliance for the retirement plan benefits.
• Overhead Costs
  If that’s not enough, there are also additional overhead costs employers must consider when hiring an employee. The employee will need a work space (computer, desk, chair, phone equipment, phone line, office space, etc). They will also use office supplies. New employees typically require training to get them up to speed on their new job duties. Perhaps your business will need to consider adding a HR department, hiring legal help to draft employment forms and handbooks, and keep up with changing employment laws. Your business will most likely decide to hire an outside payroll processing company to assist with paying your company’s employee(s), submitting payroll tax deposits to government agencies, and filing the appropriate payroll tax forms. Don’t forget about general business insurance premiums increasing. Other overhead costs to consider might include, but are not limited to, protective gear, uniforms, tools, additional fringe benefits, etc.

As you can see, there are quite a few additional costs to hiring an employee. Therefore, an employee hired at an annual salary of $35,000, will cost the employer at least $45,500, if not more. Or based on the example above, an employee paid an hourly wage of $15/hour, will cost the employer at least $20/hour, if not more. When you decide to hire an employee, it is very important to keep in mind the additional hidden costs. It’s also important to understand these additional costs vary based on the employee’s salary/wage amount, the size of the company, business location, SIC code, etc. Please contact your CPA or other financial adviser to help calculate the additional cost of the new employee for your specific business.

Helpful Resource:
IRS – Publication 15, Employer’s Tax Guide