FICA – The Federal Insurance Contributions Act imposes two taxes on employers, employees,and self-employed workers—one for Social Security tax, and the other for Medicare tax. The FICA tax rate for employees and employers is 7.65% each. For self-employed workers, the FICA tax is 15.3%. However, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 reduced the employee FICA tax by two percentage points to 4.2%  for the total compensation that an employee receives during 2011. As a result, for 2011, employees will pay only 4.2% Social Security tax on wages up to $106,800, a savings of up to $2,136. The employer tax rate for Social Security remains unchanged at 6.2%.

The SSA intermediate forecasts through 2020 are as follows:

• 2012 — $110,700
• 2013 — $114,900
• 2014 — $120,000
• 2015 — $125,400
• 2016 — $130,800
• 2017 — $135,900
• 2018 — $141,300
• 2019 — $146,700
• 2020 — $153,300

If you need help with your small business or are looking for an accountant in the Jacksonville, FL area, please don’t hesitate to contact us. Hagan CPA, Inc was founded in 2002 and has served small businesses and individuals with tax preparation, bookkeeping systems and strategic planning ever since.

If you file less than 250 W-2s for the tax year 2011, the IRS has delayed mandatory reporting of employer-sponsored health coverage information requirements.  The amount of coverage is reported on section 14, other information. It is not taxable.

There is a mandatory reporting requirement for employers that file 250 or more for the tax year 2011, which will be issued in January 2012.  If you fall into this category, now is the time to be gathering this information by employee.

For more information on tax law that is currently in place, new requirements for 2012 and beyond go to Paychex, Inc.–this site is full of useful information.

If you need help with your small business or are looking for an accountant in the Jacksonville, FL area, please don’t hesitate to contact us. Hagan CPA, Inc was founded in 2002 and has served small businesses and individuals with tax preparation, bookkeeping systems and strategic planning ever since.

In English: For payments made after Dec. 31, 2011, the Act repeals the requirement for payments to corporations, payments for goods or other property, and for payments made after Dec. 31, 2010. The Act also repeals requirements placed on rental income from real estate.

If you remember, there was a new requirement for business owners to report on a 1099, any amount paid to a corporation that totaled $600.00 or more in a single year. Further, there were new requirements for owners of rental properties.

In other words, under the Act, the information reporting rules effectively revert to the way they read before enactment of PPACA and the Small Business Jobs Act of 2010.

Please contact us if you are looking for an accountant in the Jacksonville, FL area.

1099s Required for Payments to Corporations

Some of the changes are coming from §9006 of the Affordable Care Act, and where previously you were only required to provide 1099s to individuals and sole proprietorships, the requirement now includes payments to corporations. This means that as of right now corporations are no longer exempted from the 1099 filing requirement. To recap: previously, businesses were not required to file an information return if the payments (in excess of $600) were made to a corporation. Unless things change, you will now be required to provide a 1099 (and of course a copy to the IRS) even if the payments were made to corporations.

Landlords Now Required to File 1099s

Another important change affects landlords. Thanks to §2101 of the Small Business Act, landlords are now considered to be “in a trade or business,” which means that they will also be required to file 1099s for payments made in the course of conducting their property rental business. There are 3 exceptions. You will not be required to file 1099s:

• If all of your rental income is earned while you are renting your primary residence on a temporary basis
• If you receive “rental income of not more than the minimum amount”
• If complying with these reporting requirements would “cause a hardship”

The first exception is pretty clear, of course.

The last 2… well, they may be subject to interpretation. Unfortunately, it’s the IRS interpretation that is ultimately going to matter. So, if you are engaged in renting property, you must keep records and prepare to provide 1099s to any service provider to whom you make payments of $600 or more in 2011.

What to do right now – print a blank W-9 from www.irs.gov, just type W-9 in the top right hand search engine.  Complete the form for every company that you do business with.  O.K., that’s a bit much.  Start with companies you have recurring business with or if you write one check for $600.00 or more.

Again… we’ll do our best to keep you posted here if things change — and there already some rumblings in Congress that may eliminate this requirements. But for now, it’s better to prepare and be safe than sorry. The penalty for not filing a required information return (such as a 1099) is $100 per return. That adds up very quickly… particularly if you are renting property and were not previously required to file these returns and got to the end of the year without realizing that you needed to be paying attention to this.

Credit Card Payments

One possible way to avoid some headaches with 1099 and other information returns is to make your payments via credit card or third party payment network when possible.

The reason is that banks and merchant service providers will now be required to report merchants’ gross receipts to the IRS automatically. Since this is occurring, you (as a payor) will not be required to file a 1099 for payments made via credit card or a system such as PayPal.

As an aside… if you have a merchant account, this means that the IRS will be notified about your gross receipts unless you receive less than $20,000 or fewer than 200 merchant payments in 2011.

Tax season is often a stressful time for small business owners. It doesn’t have to be–with the right accountant and right planning, tax season can be navigated smoothly and seamlessly. Are you prepared?

If you are in the Jacksonville, FL area and are looking for an accountant, I am here to assist you!  Our Jacksonville accounting firm was founded in 2002 and has served small businesses and individuals with tax preparation, bookkeeping systems and strategic planning ever since.

I am a Certified Public Accountant who has been licensed in Florida since 1999. I have a passion for people who have “let things go” and need to get back on track.

Please contact me if you need help with your taxes this season.

• Pay bills on time and more than the minimum required balance.

• Use credit regularly, but keep the balance low compared to the limit.  It’s better to have two balances that are lower, than one that is closer to your limit. A rule of thumb is to keep the balance to credit limit at or under 35%.  If you can’t get a credit card, purchase a prepaid credit card from a reputable issuer.  This shows your ability to use a card and limit spending.

• Keep long term accounts open and limit the number of applications you apply for in a 12 month period.

• Piggybacking – or getting added as a joint account holder to accounts with good credit.  This is actually a good idea for children who will be moving to college or out in the world soon.  You have to add them as a joint account holder, not an authorized user.  This will help your child establish credit.

• Stay away from finance companies that cater to the high risk lenders.  These companies tend to offer financing at substantially higher rates and have additional fees.  An example is a company that offers cash for your title on your car.

• Monitor the progress.  Go to CreditKarma and join, it’s free.  That web site pulls the score from TransUnion for free.  It also has a cool feature that shows you what will happen to your credit score when you borrow more money.

Here is a link to the  most frequently asked questions from the  annual credit report website.

I hope this information helps you and provides you with a plan of action to tackle repairing your credit score.  If you need additional help or have more questions, please feel free to contact me.

There are several strategies that can be put into place to help you manage your credit score; it’s wise to communicate with a professional to help you.  The first step is to obtain a current copy of your credit score.

First, a little information about the credit reports that are available and how this information will affect you and the process… The Fair Credit Reporting Act requires each nationwide consumer credit reporting company to provide a free copy of the credit report at the consumer’s request once every 12 months.  Under the law, credit reports are to be mailed within 15 days of the request.   The 3 largest reporting agencies, Equifax, Experian, and Transunion, have set up a centralized process for consumers to access their credit information by the internet.  Go to annual credit report to get a copy of your free credit report.

You can easily go to this site and print your credit reports from all three agencies; however, they will not give you the credit score.  You have to purchase that.

Once you have your reports, you will need to start the process of repairing any items that are inaccurate.  If there is an item that is inaccurate, incomplete, or unverifiable, you will need to take action.  You must first contact the reporting company in writing outlining the information that is inaccurate.  Consumer reporting companies must investigate the items in question within 30 days.  That company must contact all three agencies to correct any items that were inaccurate.

Here is an example to help you understand how a credit score has evolved over the last several years.  In May of 2006, a credit score of 620 would have qualified you for the best mortgage rate.  In May 2008, a credit score of 730 was needed  to receive the best rate.  In March 2009, you needed 760 or above to receive the best rate.  Higher credit scores combined with lower home values have shut out many consumers who could have refinanced in the past.

Although FICO scores are currently being used, there is a new scoring system – referred to as Vantage Score – that is being developed by the three major credit reporting companies. This score will be consistent across the three agencies.  The FICO score ranges from 300 to 850 and is calculated differently for mortgages than for car loans, as an example.  The Vantage Score is graded on an A – F score.

Once you have pulled your credit report and disputed any incorrect information, now it’s time to work on repairing any damage that is causing you to have a low score.  This will be covered in Part 2 of Facing and Repairing Your Credit Score.

• The total amount owed is less than $10,000.00 – that is the tax due without considering interest and penalties.
• If the person requesting the installment hasn’t failed to file a tax return and pay the tax previously
• The person is not able to make the total payment in a lump sum

The installment agreement comes with conditions.  You have to repay the full amount within three years and make the payments timely.  This does not trigger the IRS to review your return, it’s simply an arrangement to pay.  There are fees associated with the agreement, which are minimal.

If you do miss a payment, call the IRS and explain why.  Often times, they can set the installment agreement back up on the phone.

If you haven’t filed taxes for fear of owing and not having the money, this is an option that allows you time to pay and takes the risks associated with not filing away.

Caring for Aging Parents can create Tax Issues

There’s nothing more stressful than caring for your parent while juggling the everyday demands of caring for your children, business, spouse, pets, on and on.  Unfortunately, items get neglected and one of the easiest to ignore is taxes.  Uncle Sam moves slowly, so it’s easy to ignore that aspect when everything else is crashing down.

Let me tell you a story.  Mom gets ill, needs medical attention.  Once the emergency has subsided, there are medical bills.  You sell some of her assets to pay those bills.  You thank God there was money there to do that.  Your attention is then focused on getting her extended care, settling her into a new location, making sure the bills are paid, kids are fed, while still generating income from your business, because you have to pay your own bills.  The last thing you think about is filing Mom’s tax return and paying tax on the assets you just sold to help her.

Two years go by, Mom’s doing better, life is back to normal, then you find out your Mom has been put through the automated system with the IRS.  The IRS will take third party information reported to them and generate a return for Mom when she doesn’t file herself.  Then they send a bill.  Usually at this point, Mom is not paying attention to IRS notices, she’s focused on getting better, enjoying the life that she still has, sometimes, she’s not even aware of the situation and the care giver doesn’t notice the envelopes with the famous logo on it.

Now you have a serious problem.  Before it gets to this point, speak to a professional.  Even though the world is crashing down when Mom is ill, speaking to a CPA or financial advisor before selling those assets will help you in the process.  Once the assets are sold, alert your professional so the returns can be filed properly and timely.  While this is one more burden at a crazy time, it will relieve unbelievable stress later.

The notice goes something like this: we haven’t received your return for _______ (you fill in the year), therefore, we have calculated the amount of tax you owe. Please remit __________ (insert insane amount of money here) right away.

And then as you read further, you find that the IRS made some assumptions about how much money they think you made that year, calculated tax on that number, and then added a bunch of penalties and interest.

Sometimes I hear from people right away at that point. Other times, they wait until they receive CP501, CP502, CP503 or CP504. Those are the collection letters “reminding” you of your balance due. The last one is a “final notice” that lets you know the IRS is about to get serious. What follows next is an “Intent to Levy.”

What Do I Do?

Whether it’s denial, procrastination, or some other extenuating circumstance, you may have placed your bookkeeping or tax stuff on the back burner. And it can be absolutely frightening when those official-looking notices start showing up.

My advice?

Take action right away.You’re going to have to deal with the issue… or else the IRS will deal with it for you. And trust me: you don’t want that to happen.

But you don’t have to go it alone.

Choose an experienced tax professional who can help you address the situation. Many times just contacting the IRS can help. If they know you’re working on it, then they can slow the process down.

But I Have No Idea How Much I Owe

No problem. This is where you ask for help.

Even if you’re fully capable of catching up your bookkeeping, the situation can become so emotionally charged that what is normally a relatively straightforward, mundane task can feel like you’re carrying a 40-ton pile of bricks.

One area that I specialize in is helping people just like you get things caught up. Frequently, clients come to me with paperwork in disarray… bank statements, credit card statements, receipts… completely disorganized.

Guess what? It’s not emotional for me. I’ll help you sort through everything… figure out what’s missing, and help you get it straightened out. Contact me today.

Unfiled Tax Returns

The IRS has gotten more and more efficient in recent years at dealing with unfiled tax returns. The unprecedented amount of information they are collecting from multiple sources gives them data that they use to estimate your income for you.

They also have made significant investments in automation and have sped up the process of getting these notices out. This is why more and more people are getting these notices than ever before.

It used to take years sometimes before people would hear from the IRS. Not any more. They are moving faster and faster.

The sooner you deal with your situation, the less you will owe.

Don’t Fall for Scams

It seems like the internet is crawling with people who want to make your tax problem go away. They’ll offer to write to the IRS and protest the legal basis for requiring you to file a 1040. They’ll sell you downloadable forms to respond to the IRS and try to delay the process, etc.

Take it from me. As someone who has had to clean up after these messes, you don’t want to waste your money and time on these fraudulent maneuvers. When you find yourself in Federal Court, what was a big enough ordeal (emotionally) but still a relatively simple paperwork problem has now become a life-altering mess that puts undue pressure on your marriage, your business, your family, and your health.

Let us help you solve your problem.