Doeren Mayhew
2011 year-end tax planning for businesses: bonus depreciation, expensing, and more available
Many tax benefits for business will either expire at the end of 2011 or become less valuable after 2011. Two of the most important benefits are bonus depreciation and Code Sec. 179 expensing. Both apply to investments in tangible property that can be depreciated. Other sunsetting opportunities might also be considered.
Bonus depreciation
Bonus depreciation is 100 percent for 2011. A business can write-off, in the first year, the entire cost of its investment in new depreciable property. Under current law, bonus depreciation will decrease to 50 percent in 2012 and will terminate after 2012. (These deadlines are extended one year for certain transportation property and property with a longer production period). President Obama has proposed to extend 100 percent bonus depreciation through 2012. Normally, this would have a good chance of being approved, but with the focus on deficit reduction and the linking of tax benefits to tax increases, it is not at all clear what will happen.
So, if a business has income in 2011 and plans to invest in depreciable property, it is worthwhile to consider making that investment in 2011, while the available write-off is at its highest. Under normal depreciation rules, a business will still be able to claim accelerated write-offs, but this may be 50 percent or less of the cost of the property, with the balance written-off over several years, instead of all in one year.
Planning for bonus depreciation is important because the property must satisfy placed-in-service and acquisition date requirements. Property is placed in service when it is in a condition or state of readiness on a regular ongoing basis for a specifically assigned function in a trade or business. The acquisition date rules may vary. For 2011, property is acquired when the taxpayer incurs or pays its cost. This could occur when the property is delivered, but it could also be when title to the property passes. For 2012, property is acquired when the taxpayer takes physical possession of the property.
Code Sec. 179 expensing
Code Sec. 179 expensing (first-year writeoff) has been around for awhile, but at higher amounts more recently. While there is no limit on bonus depreciation, expensing is limited to a statutory amount. For 2011, this amount is $500,000. It is scheduled to drop to $125,000 in 2012 and to $25,000 after 2012 (adjusted for inflation). Moreover, the cap is reduced for the amount of total investment in Code Sec. 179 property. The phaseout threshold is $2 million for 2011, dropping to $500,000 for 2012 and $200,000 for 2013 and subsequent years. For businesses who want to invest in depreciable property, the payoff is definitely greater in 2011. Taxpayers taking advantage of expensing should write off assets that would otherwise have the longest recovery periods.
Other 2011 benefits
Some other important benefits expire at the end of 2011 or become less valuable. A significant benefit in 2011 is the 100 percent exclusion for small business stock. After 2012, the normal exclusion rate will drop to 50 percent, although it has been 75 percent in recent years. The exclusion is based on the year the stock is acquired; the stock must be held for five years before sold and satisfy other requirements.
Another important benefit is the 20 percent research credit. The credit has been extended one year at a time for a long period, so it is likely to be extended again. Nevertheless, until Congress acts, there is some uncertainty for research expenses incurred after 2011.
Conclusion
To maximize the benefits of 2011 year-end tax planning, a business must be proactive in determining what upcoming capital investments might be accelerated into this year and what investments become cost effective because of the immediate tax benefits that they offer. Some business-related tax benefits will be less valuable after 2011; for others, it is not clear what Congress and the administration will do in terms of surprising taxpayers with a year-end tax bill. Please contact Doeren Mayhew if you have any questions over how year-end tax strategies that begin now and continue through December can help maximize tax benefits for your business.
If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.
Wednesday, October 26, 2011
Wednesday, October 19, 2011
How Do I? Compute a 'substantial equal periodic payment'
Doeren Mayhew
How Do I? Compute a 'substantial equal periodic payment'
Taxpayers who wish to withdraw funds from a retirement account such as an IRA before they reach the age of 59 and a half, can do so without their distributions becoming subject to the additional 10 percent tax. One option is to have their distributions made in substantially equal periodic payments, as outlined in Sec. 72(t) of the IRC. Taxpayers can use one of three methods to calculate these substantially equal payments:
(1) Required minimum distribution method. Under this method, a taxpayer divides the retirement account's principal by the appropriate number on the IRS's life expectancy table for the year in which distributions will begin. That number depends upon the taxpayer's age. Payment amounts will be predetermined each year by dividing the remaining principal by the number corresponding to the taxpayer's age.
Note: Although this method of computation is much simpler than the second and third, it results in lower annual distributions. The length of time, however, over which the distributions are made is generally greater than for the amortization and annuitization methods.
(2) Fixed amortization method. Under the amortization method, the annual amount of payments is fixed at the time the first payment is made. The amount of the annual distribution is determined by amortizing the taxpayer's account balance using the appropriate reasonable interest rate released by the IRS over a number of years, which equals the life expectancy of the account owner.
(3) Fixed annuitization method. As with the amortization method, all resulting annual payments remain the same for each succeeding year. The amount of the payments is determined by dividing the account principal by the appropriate annuity factor, which is based on the IRS's mortality table and an interest rate of not more than 120% of the federal mid-term rate.
Payments made calculated through the annuitization method are generally the highest. Taxpayers electing to use this method should be aware that higher annual payments will more quickly exhaust their principal.
So long as the distribution payment scheme remains unmodified for a five year period beginning from the first payment date, the distributions will not be subject to the additional 10 percent tax.
Please contact Doeren Mayhew for more information.
If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.
How Do I? Compute a 'substantial equal periodic payment'
Taxpayers who wish to withdraw funds from a retirement account such as an IRA before they reach the age of 59 and a half, can do so without their distributions becoming subject to the additional 10 percent tax. One option is to have their distributions made in substantially equal periodic payments, as outlined in Sec. 72(t) of the IRC. Taxpayers can use one of three methods to calculate these substantially equal payments:
(1) Required minimum distribution method. Under this method, a taxpayer divides the retirement account's principal by the appropriate number on the IRS's life expectancy table for the year in which distributions will begin. That number depends upon the taxpayer's age. Payment amounts will be predetermined each year by dividing the remaining principal by the number corresponding to the taxpayer's age.
Note: Although this method of computation is much simpler than the second and third, it results in lower annual distributions. The length of time, however, over which the distributions are made is generally greater than for the amortization and annuitization methods.
(2) Fixed amortization method. Under the amortization method, the annual amount of payments is fixed at the time the first payment is made. The amount of the annual distribution is determined by amortizing the taxpayer's account balance using the appropriate reasonable interest rate released by the IRS over a number of years, which equals the life expectancy of the account owner.
(3) Fixed annuitization method. As with the amortization method, all resulting annual payments remain the same for each succeeding year. The amount of the payments is determined by dividing the account principal by the appropriate annuity factor, which is based on the IRS's mortality table and an interest rate of not more than 120% of the federal mid-term rate.
Payments made calculated through the annuitization method are generally the highest. Taxpayers electing to use this method should be aware that higher annual payments will more quickly exhaust their principal.
So long as the distribution payment scheme remains unmodified for a five year period beginning from the first payment date, the distributions will not be subject to the additional 10 percent tax.
Please contact Doeren Mayhew for more information.
If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.
Wednesday, October 12, 2011
FAQ: Are Social Security survivor benefits received by children taxable income?
Doeren Mayhew
FAQ: Are Social Security survivor benefits received by children taxable income?
When an individual dies, certain family members may be eligible for Social Security benefits. In certain cases, the recipient of Social Security survivor benefits may incur a tax liability.
Family members
Family members who can collect benefits include children if they are unmarried and are younger than 18 years old; or between 18 and 19 years old, but in an elementary or secondary school as full-time students; or age 18 or older and severely disabled (the disability must have started before age 22). If the individual has enough credits, Social Security pays a one-time death benefit of $255 to the decedent's spouse or minor children if they meet certain requirements.
Benefit amount
The benefit amount is based on the earnings of the decedent. The more the decedent paid into Social Security, the larger the benefit amount. Social Security uses the decedent's basic benefit amount and calculates what percentage survivors may receive. That percentage depends on the age of the survivors and their relationship to the decedent. Children, for example, receive 75 percent of the decedent's benefit amount.
Taxation
The person who has the legal right to receive Social Security benefits must determine whether the benefits are taxable. For example, if a taxpayer receives checks that include benefits paid to the taxpayer and the taxpayer's child, the child's benefits are not considered in determining whether the taxpayer's benefits are taxable. Instead, one half of the portion of the benefits that belongs to the child must be added to the child's other income to see whether any of those benefits are taxable to the child.
Social security benefits are included in gross income only if the recipient's "provisional income" exceeds a specified amount, called the "base amount" or "adjusted base amount." There are two tiers of benefit inclusion. A 50-percent rate is used to figure the taxable part of income that exceeds the base amount but does not exceed the higher adjusted base amount. An 85-percent rate is used to figure the taxable part of income that exceeds the adjusted base amount.
Up to 50 percent of Social Security benefits could be included in taxable income if a recipient's provisional income is more than the following base amounts:
--$25,000 for single individuals, qualifying surviving spouses, heads of household, and married individuals who live apart from their spouse for the entire tax year and file a separate return; and
--$32,000 for married individuals filing a joint return;
--zero for married individuals who do not file a joint return and do not live apart from their spouse during the entire tax year
Up to 85 percent of benefits could be included in taxable income if a recipient's provisional income is more than the following adjusted base amounts:
--$34,000 for single individuals, qualifying surviving spouses, heads of household, and married individuals who live apart from their spouse for the entire tax year and file a separate return; and
--$44,000 for married individuals filing a joint return;
--zero for married individuals who do not file a joint return and do not live apart from their spouse during the entire tax year.
If the taxpayer's provisional income does not exceed the base amount, no part of Social Security benefits will be taxed. For taxpayers whose income exceeds the base amount, but not the higher adjusted base amount, the amount of benefits that must be included in income is the lesser of:
--One-half of the annual benefits received; or
--One-half of the amount that remains after subtracting the appropriate base amount from the taxpayer's provisional income.
Taxpayers whose provisional income exceeds the adjusted base amount must include in income the lesser of:
--85 percent of the annual benefits received; or
--85 percent of the excess of the taxpayer's provisional income over the applicable adjusted base amount plus the smaller of: (a) the amount calculated under the 50-percent rules above, or (b) one-half of the difference between the taxpayer's applicable adjusted base amount and the applicable base amount. One-half of the difference between the base amount and the adjusted base amount is $6,000 for married taxpayers filing jointly and $4,500 for other taxpayers. For taxpayers who are married, not living apart from their spouse, and filing separately, the amount will always be zero.
If you have any questions about the taxation of Social Security benefits, please contact Doeren Mayhew.
If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.
FAQ: Are Social Security survivor benefits received by children taxable income?
When an individual dies, certain family members may be eligible for Social Security benefits. In certain cases, the recipient of Social Security survivor benefits may incur a tax liability.
Family members
Family members who can collect benefits include children if they are unmarried and are younger than 18 years old; or between 18 and 19 years old, but in an elementary or secondary school as full-time students; or age 18 or older and severely disabled (the disability must have started before age 22). If the individual has enough credits, Social Security pays a one-time death benefit of $255 to the decedent's spouse or minor children if they meet certain requirements.
Benefit amount
The benefit amount is based on the earnings of the decedent. The more the decedent paid into Social Security, the larger the benefit amount. Social Security uses the decedent's basic benefit amount and calculates what percentage survivors may receive. That percentage depends on the age of the survivors and their relationship to the decedent. Children, for example, receive 75 percent of the decedent's benefit amount.
Taxation
The person who has the legal right to receive Social Security benefits must determine whether the benefits are taxable. For example, if a taxpayer receives checks that include benefits paid to the taxpayer and the taxpayer's child, the child's benefits are not considered in determining whether the taxpayer's benefits are taxable. Instead, one half of the portion of the benefits that belongs to the child must be added to the child's other income to see whether any of those benefits are taxable to the child.
Social security benefits are included in gross income only if the recipient's "provisional income" exceeds a specified amount, called the "base amount" or "adjusted base amount." There are two tiers of benefit inclusion. A 50-percent rate is used to figure the taxable part of income that exceeds the base amount but does not exceed the higher adjusted base amount. An 85-percent rate is used to figure the taxable part of income that exceeds the adjusted base amount.
Up to 50 percent of Social Security benefits could be included in taxable income if a recipient's provisional income is more than the following base amounts:
--$25,000 for single individuals, qualifying surviving spouses, heads of household, and married individuals who live apart from their spouse for the entire tax year and file a separate return; and
--$32,000 for married individuals filing a joint return;
--zero for married individuals who do not file a joint return and do not live apart from their spouse during the entire tax year
Up to 85 percent of benefits could be included in taxable income if a recipient's provisional income is more than the following adjusted base amounts:
--$34,000 for single individuals, qualifying surviving spouses, heads of household, and married individuals who live apart from their spouse for the entire tax year and file a separate return; and
--$44,000 for married individuals filing a joint return;
--zero for married individuals who do not file a joint return and do not live apart from their spouse during the entire tax year.
If the taxpayer's provisional income does not exceed the base amount, no part of Social Security benefits will be taxed. For taxpayers whose income exceeds the base amount, but not the higher adjusted base amount, the amount of benefits that must be included in income is the lesser of:
--One-half of the annual benefits received; or
--One-half of the amount that remains after subtracting the appropriate base amount from the taxpayer's provisional income.
Taxpayers whose provisional income exceeds the adjusted base amount must include in income the lesser of:
--85 percent of the annual benefits received; or
--85 percent of the excess of the taxpayer's provisional income over the applicable adjusted base amount plus the smaller of: (a) the amount calculated under the 50-percent rules above, or (b) one-half of the difference between the taxpayer's applicable adjusted base amount and the applicable base amount. One-half of the difference between the base amount and the adjusted base amount is $6,000 for married taxpayers filing jointly and $4,500 for other taxpayers. For taxpayers who are married, not living apart from their spouse, and filing separately, the amount will always be zero.
If you have any questions about the taxation of Social Security benefits, please contact Doeren Mayhew.
If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.
Wednesday, October 5, 2011
Doeren Mayhew: October 2011 Compliance Calendar
Doeren Mayhew
October 2011 Compliance Calendar
October 5
Employers. Employers deposit Social Security, Medicare, and withheld income tax for September 28, 29, and 30.
October 7
Employers. Employers deposit Social Security, Medicare, and withheld income tax for October 1, 2, 3, and 4.
October 11
Employees who work for tips. Employees who received $20 or more in tips during September must report them to their employer. Form 4070 may be used.
October 14
Employers. Employers deposit Social Security, Medicare, and withheld income tax for October 6, 7, and 8.
October 17
Individuals. Individuals who received an automatic 6 month extension to file a 2010 calendar year income tax return must file and pay tax, interest, and any penalties due.
Partnerships. Electing large partnerships that received an automatic 6 month extension to file a 2010 calendar year income tax return on Form 1065-B, U.S. Return on Income for Electing Large Partnerships, must file.
Employers. Monthly depositors must deposit Social Security, Medicare, and withheld income tax for September.
October 19
Employers. Employers deposit Social Security, Medicare, and withheld income tax for October 12, 13, and 14.
October 21
Employers. Employers deposit Social Security, Medicare, and withheld income tax for October 15, 16, 17, and 18.
October 26
Employers. Employers deposit Social Security, Medicare, and withheld income tax for October 19, 20, and 21.
October 28
Employers. Employers deposit Social Security, Medicare, and withheld income tax for October 22, 23, 24, and 25.
October 31
Employers. Employers file Form 941 for the third quarter of 2010.
Employers. Employers deposit federal unemployment tax if liability for amounts owed year-to-date through September exceeds $500.
Residents living in a disaster zone should check the IRS list of disaster areas where deadlines have been postponed.
Contact Doeren Mayhew for more information.
If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.
October 2011 Compliance Calendar
October 5
Employers. Employers deposit Social Security, Medicare, and withheld income tax for September 28, 29, and 30.
October 7
Employers. Employers deposit Social Security, Medicare, and withheld income tax for October 1, 2, 3, and 4.
October 11
Employees who work for tips. Employees who received $20 or more in tips during September must report them to their employer. Form 4070 may be used.
October 14
Employers. Employers deposit Social Security, Medicare, and withheld income tax for October 6, 7, and 8.
October 17
Individuals. Individuals who received an automatic 6 month extension to file a 2010 calendar year income tax return must file and pay tax, interest, and any penalties due.
Partnerships. Electing large partnerships that received an automatic 6 month extension to file a 2010 calendar year income tax return on Form 1065-B, U.S. Return on Income for Electing Large Partnerships, must file.
Employers. Monthly depositors must deposit Social Security, Medicare, and withheld income tax for September.
October 19
Employers. Employers deposit Social Security, Medicare, and withheld income tax for October 12, 13, and 14.
October 21
Employers. Employers deposit Social Security, Medicare, and withheld income tax for October 15, 16, 17, and 18.
October 26
Employers. Employers deposit Social Security, Medicare, and withheld income tax for October 19, 20, and 21.
October 28
Employers. Employers deposit Social Security, Medicare, and withheld income tax for October 22, 23, 24, and 25.
October 31
Employers. Employers file Form 941 for the third quarter of 2010.
Employers. Employers deposit federal unemployment tax if liability for amounts owed year-to-date through September exceeds $500.
Residents living in a disaster zone should check the IRS list of disaster areas where deadlines have been postponed.
Contact Doeren Mayhew for more information.
If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.
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