January 2011
Jim Oliver & Associates, P.C.
FB Bancorp Building
17300 Henderson Pass
Suite 240
San Antonio, TX 78232
p:210.344.0205
f:210.344.4362
cpa@teamoliver.com
www.teamoliver.com
Financial Life Advisors
FB Bancorp Building
17300 Henderson Pass
Suite 290
San Antonio, TX 78232
p:210.918.8998
f:210.344.4362
advisor@teamoliver.com
www.fladvisors.com
This firm is not a CPA firm.
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January Tips -
2011 Tax Changes
- Personal Exemption up $50 to $3,700 per person
- Standard Deduction up $200 for married couples to $11,600, up $100 for single filers at $5,800 and up $100 for head of household at $8,500
- Social Security tax reduced 2% to 4.2% of employee pay up to $106,800 of income.
- Mileage rates are up to $.51 per mile for business, $.19 per mile for medical and moving and $.14 per mile for services to charitable organizations
Articles in this Month's Issue
2010 Tax Relief Act - Personal Income Tax
On December 17, 2010, The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 was signed into law by the President. The personal income tax provisions in this law provide for an extension of the Bush-era tax cuts which were scheduled to expire at the end of 2010. The 2010 Tax Relief Act temporarily extends most of the tax cuts for 2011 and 2012 only.
Income Tax Rates
Individual income tax brackets will remain unchanged for 2011 and 2012, keeping the current structure ranging from 10-35%. The capital gains tax rates will also remain as is for the next two years.
Payroll taxes are reduced by 2 percentage points. Social Security tax rate for the employee-portion will be reduced temporarily to 4.2% for 2011 only. The employer-portion will remain at 6.2%. The Social Security wage base remains at $106,800 for 2011. Medicare tax rates remain unchanged. The self-employment tax rate is temporarily reduced 2 percentage points to 13.3% for 2011 only.
Extension of Tax Credits
The Act extended many personal tax credits through 2012. These credits were either scheduled to expire or reverted back to previous levels in 2011. - Child Tax Credit
- Earned Income Credit
- Dependent and Child Care Credit
- Adoption Tax Credit
- American Opportunities Credit
Estate Tax
The Estate Tax Credit was enhanced under the Act. The 2011 Estate Tax exempts the first $5.0 million of the estate and then imposes a 35% tax rate on the remainder. This is a significant change from the 2009 level of $3.5 million exemption and 45% tax rate. Further, without this provision, the estate exemption level would have reverted back to $1.0 million.
Other Deductions - For higher-end taxpayers, there is a two year extension to the elimination of the itemized deduction limitation and the personal exemption phaseout. Both of the temporary repeals have been extended until the end of 2012.
- Retention of marriage relief penalty for certain tax brackets.
- Deductions for educator expenses, student loan interest, qualified tuition and state sales tax have all been extended for one or two years.
As can be seen, the 2010 Tax Relief Act provides many tax saving opportunities for individuals. Please contact us for further information regarding your personal tax situation.
The Tax Cuts of 2010 - Good News for Businesses
Do you own a business? Are you wondering how your company is affected by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 - aka the Obama Tax Cuts?
If so, read on. We explain how your business can benefit from the new tax cuts. We also tell you about your responsibility to enact the payroll tax cut for your employees.
Paying Less Tax Under the New Legislation
The Bonus Depreciation Doubled in Size
Under the Obama Tax Cuts, the bonus depreciation amount jumped from 50% to 100%. This means businesses can write off 100% of eligible purchases (e.g., equipment and off-the-shelf computer software) bought and put in service between September 9, 2010 and December 31, 2011.
Note: In 2012, business owners can still take a bonus depreciation, but it will be back at the 50% level.
Section 179 Deductions Also Got a Boost
Section 179 deductions allow businesses to deduct the full purchase price of property from their gross income.
Section 179 deductions differ from standard depreciations because they allow you to write off your expenses in the same year you bought property, rather than spreading it out over time.
Section 179 was bolstered under the Small Business Jobs Act of 2010 (signed September 27, 2010), with the allowable deduction set at $500,000 for 2010 and 2011. Now, under the Obama Tax Cuts, the maximum deduction will fall only to $125,000 in 2012, rather than to $25,000, as it would have without the recent tax cut package.
This should inject confidence in the business owner that she can continue to invest in her business for the next few years - which is beneficial not just for her, but for the U.S. economy as a whole.
Caution: Estates and trusts cannot take a section 179 deduction.
Section 179 Vs. Bonus Depreciations - Which Is Better?
Section 179 deductions are available on all new and used equipment, whereas the bonus depreciation (set now at 100%, with no limit) is for new equipment only.
Think of the bonus depreciation as an extra deduction you can take - but you must take it in the first year only.
To figure out which type of deduction is right for your business for tax year 2010, give us a call.
Complying with the New Payroll Tax Cut
The Obama Tax Cuts instituted a one-year reduction in the Social Security tax for employees, from 6.2% to 4.2%. This means the single taxpayer making $50,000 will save $1,000 on taxes in 2011.
Note: This reduction in Social Security tax will not impact the employee's future Social Security benefits.
But it's up to business owners to adjust their employees' withholdings. They must do so as soon as possible in January 2011, but no later than January 31, 2011. Notice 136 lists the new amounts you should withhold from employees' paychecks.
Caution: If you withhold too much Social Security tax during January, you will need to make an offsetting adjustment in your employees' pay as soon as possible and no later than March 31, 2011. Ask us for more details.
Self-Employed Folks See a Reduction, Too. Those who own businesses with no other employees should also be aware of their new Social Security withholding amount, which fell from 12.4% to 10.4%. This combined with the 2.9% Medicare rate brings the total of the 2011 self-employment tax rate to 13.3%.
Confused? We're Here to Help
The Obama Tax Cuts are designed to bolster the economy by putting more money back in the pockets of business owners, thus allowing them up to hire more workers.
But to take advantage of the new rules for deductions and depreciations, you have to understand the new law.
That's where we come in. To find out more about how to improve your business with certain investments now and in 2012, give us a call.
A One-Year Checklist to Retirement
One of the biggest lessons of the recent economy is that many people who thought they were financially ready for retirement…weren’t.
The amount of money, investments and government support you’ll need to retire comfortably is as individual as you are. Some people plan to work in retirement. Others have health issues or other financial responsibilities – kids’ college bills, financial support for a senior relative -- to juggle with the everyday living expenses they’ll face in retirement.
However, one thing is true for every potential retiree. It makes sense to get customized advice from qualified financial, tax and estate planning professionals at least one year before a retirement date is set. Here are some preparatory steps to take before you seek that advice and finally set a retirement date.
Figure out where the money is: The days of single-employer careers have been over for decades. And nearly 30 years into the world of widespread IRAs, 401(k) and other self-directed retirement plans, many potential retirees can’t reliably state where all their retirement resources are. Start pulling together all available paperwork tracking personal, government and employer-based retirement assets get them into order. It’s OK if you don’t know immediately whether you have enough to retire – experts can help you with that. What’s important right now is to identify everything you have so you can properly evaluate alternatives.
Identify debt: If you have significant home or consumer debt, that’s a tough burden to take into retirement because most retirees find their income will be somewhat or significantly lower. That also goes for big car payments, tuition debt, medical debt or elder support. Debt is the first major reality check on retirement for most people.
Adopt a downsizing budget: Too many people wait until retirement to learn how to live like retirees. If you have a budget, review it for unnecessary spending that could mean anything from cutting back on lattes to selling a bigger, more expensive car and going with public transit or a used vehicle. If you’ve never made a budget, now’s the time. Budgeting for retirement doesn’t mean cutting out every treat and luxury – it simply means extinguishing debt, setting priorities and determining which current expenses can be cut or eliminated. As the real estate market recovers, you may want to plan to sell your current home in favor of a smaller one that can be bought for cash or minimally financed, or possibly you might decide to rent. You might want to try “going smaller” with vacations, cars, clothes and other needs or wants that can move to a lower price point. Do this while you’re working, bank the money you save and you’ll have excellent training wheels for retirement.
Evaluate your support from the government: A good rule of thumb is, “If you need Social Security or Medicare to retire, it’s best to keep working.” While both of these programs remain enormous help to many retirees, there’s always a chance of significant change in these programs, not to mention the continued discussion of moving the official retirement age well past 65. Definitely evaluate your government benefits, but do so in the context of what you’ve accumulated privately so you can maximize your government benefits when you need them.
Consider healthcare and long-term care NOW: If you’re lucky, your health is in great shape. But family history and events out of the blue may change that. If you retire before age 65, you won’t qualify for Medicare unless you are officially disabled. That means that you’ll have the responsibility to maintain private insurance that adequately meets your needs without huge financial risks that can come from uninsured care or procedures. Even as healthcare reform adds certain protections for under-65 policyholders, it’s more important now than ever to give attention to health matters and whether your current insurance strategy is adequate. As for long-term care, many Americans still forget that the bulk of home-based and nursing home care must be paid out of pocket. While long-term care insurance exists, age and health needs can potentially make it very expensive, so this is another important financial planning issue.
Find out if your dream retirement really works: It’s important to test your retirement dream. While many people dream of moving to a particular place, it’s important to vet that choice for financial and lifestyle repercussions. A particular location might have cheap housing and great healthcare options, but what about cultural attributes and tax issues? There are literally dozens of factors that should enter into your post-retirement lifestyle decision, and to jog your thought process, Nolo provides a checklist that might help.
January 2011 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Jim Oliver, a local member of FPA
If Rates Are Heading Up, Should You Refinance Now?
As the economy recovers, homeowners are faced with the good news/bad news prospect of a better real estate market with the likelihood of higher mortgage interest rates. For many, that leaves three choices – sell, refinance or sit tight with the mortgage they have now.
Despite the average 30-year mortgage rate that stood at 4.8 percent in late December, the decision to refinance isn’t always a great idea. In fact, it should be considered as part of an overall financial plan that is as individual as you are.
It makes sense to confer with financial and tax experts before you make such a move because there are more questions to consider beyond “How do I get that low rate!” Among them:
What are your current financial goals? If you’re planning to stay in your home for the next 20 years, your outlook is far different than someone who wants to retire and move in the next five. Many people focus on paying off their mortgage instead of planning for retirement or education savings for their children. It’s important to get advice on this question that fits your overall lifestyle and financial needs. The important question is when you’ll get to breakeven on the cost of the refinance – generally 3 to 6 percent of the total loan amount. If your breakeven is at 12 months and you plan to stay in the home five years or longer, it will probably be worth doing.
What’s your current debt load? If you’re swimming in debt, don’t expect to get the lowest, most attractive rate available on the market. While the credit crunch is loosening, many mortgage lenders are being quite picky about whom they’ll offer their most affordable loans to and many are still turning away borrowers in significant trouble. It’s best to try and cut your level of credit card and other consumer debt before applying for any loan.
When was the last time you checked your credit reports and credit score? You have the right to get all three of your credit reports – from Experian, TransUnion and Equifax – once a year for free. You can do so by ordering them at http://www.annualcreditreport.com/. Yet don’t order all three at the same time. By staggering receipt of each of your credit reports at different points in the year, you’ll get a continuous picture of how your credit picture looks. Also, you’ll have the opportunity to focus on possible errors in a single report, which will give the other two credit agencies time to update their files.
Consider biweekly payments on your current loan… Your current lender might have sent you an offer for a biweekly mortgage loan program that will save you considerable money over the life of that loan. Discard their offer – many lenders make big fees off these programs – and see if you can do it yourself. Some lenders won’t allow it, but see if you can break up your payments in a way that will equally divide the principal and interest payments so you’re whole by the end of the month. Otherwise, they might apply the first half-payment to principal and still insist on the full monthly payment by the due date.
…or consider adding a 13th payment for the year: Either by adding the equivalent of 1/12th of what you typically pay per month to principal or simply double-paying your mortgage one month a year when you’re flush, you’ll pay your loan off faster.
Fixed or variable? Given the recent uncertainty in the mortgage market and the current loan environment, it makes sense to try and go for a fixed rate since rates remain at historic lows. Higher rates mean higher payments if rates go higher.
Second mortgages can be problematic: As many lenders have gotten stricter about doing business, they may not be as willing to take second-fiddle status behind an older second mortgage, which happens in a refinancing process if not addressed. If the borrower can’t roll the two loans into a single loan during the refinancing process, it may delay or kill the deal based on what the two lenders are willing to do.
Are you on top of your tax issues? Remember that lenders are looking as broadly as they can these days for signs of financial trouble. If you have any late payments of current property taxes or any other potential disputes with state or federal tax authorities, those issues can complicate matters. Make sure you’re current.
January 2011 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Jim Oliver, a local member of FPA.
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