No matter what your net worth, you should have an estate plan in place. Such a plan ensures that your family is cared for and your assets maximized upon your death. An estate plan consists of your will, health care documents, powers of attorney, life insurance coverage, and post-mortem letters.
For those of you with an estate plan already, good for you! But we have a piece of additional advice: make it a priority to review the plan every two years to see whether it needs updating.
Here are the life events that necessitate an update to your plan:
- Marriage or remarriage
- Birth/adoption of child
- Death of spouse or child
- Sale of a residence or purchase of new residence
- Enactment of new tax laws
When updating your estate plan you may need to do the following:
- Name a different executor
- Revise your will, especially if your assets have increased significantly
- Reassess your life insurance needs
- Add or change a power of attorney
- Change legal documents to comport with state laws if you move to a different state
- Change wills or trust instruments to account for changes in beneficiaries
- Change your post-mortem letter to reflect new assets, changes in executors, or other changes
Due to recent changes in estate tax laws, many estate plans may need to be revised. Give us a call to review your current situation.
While 2011 is not yet over, it’s not too early to starting planning ahead for 2012. If your business has employees, here are some things to help you get ready for next year.
1. Decide on wage increases
If you can afford to give raises, you probably want to keep up with what your competitors may be offering. According to one survey, most companies are giving raises of 3%. Raises are running higher for technology jobs.
2. Set retirement plans in motion
To enable employees to make salary elective deferrals to 401(k) and other similar plans throughout the year, be sure to implement the plan now and let employees set their deferrals for 2012. The contribution limit for 2012 is $17,000 ($22,500 for employees who will be more than 50 years old by the end of 2012).
3. Plan for fringe benefits
What types of benefits does your company provide to employees, besides retirement plan savings? Here are some things that could influence your decision:
- Health coverage. If you pay more than half of your employees’ premiums, you may be eligible for a federal tax credit. The credit is restricted to small employers. The credit is not new, but the Treasury Inspector General for Tax Administration says many small employers continue to be unaware of its availability.
- Transportation fringe benefits. If you give free parking or pay for monthly transit passes for your staff, the numbers change in 2012. The limit on the value of monthly free parking is $240 (up from $230 in 2011). The limit on monthly transit passes is $125 (down from $230 in 2011). Bicycling assistance stays at $20 per month.
4. Budget for payroll tax increases
Do you have many employees making over $100,000 a year? It may cost you more for employment taxes in 2012. The wage base for the Social Security portion of FICA increases to $110,100 (up from $106,800 in 2011). This means an increase of about $200 per employee whose earnings are at the new wage base. All earnings, without limit, continue to be subject to the Medicare portion of FICA.
If you do in-house payroll, now is the time to adjust your systems for 2012.
- Adjust withholding to account for the new amounts needed to be withheld from employee wages.
- Change the withholding rate. In 2011, the employee share of Social Security portion of FICA is 4.2%; in 2012, it is set to rise to the level of 6.2% that had applied before 2011. Congress is currently debating whether to retain the lower rate for another year, so keep watch for any development.
Note: If you are self-employed, you’ll pay self-employment tax on the higher wage base. As long as your net earnings from self-employment in 2012 are at least $110,100, you’ll pay about $400 more than in 2011; half the payments are deductible.
5. Plan for new income tax withholding
As an employer, you are required to withhold federal income taxes. You may also be required to withhold state income taxes. Again, if you handle payroll in-house, look for new federal withholding tables in IRS Publication 15, Circular E (the 2012 tables are not yet out, but should be available shortly using the same link). Also check with your state; Maryland and Oklahoma have already announced that their withholding tables will change for 2012.
Factor in any pay raises, new fringe benefit costs, and increased employment taxes into your 2012 budget. If you need assistance with your payroll processing, we offer an affordable full service payroll package. Contact us for details.
WASHINGTON, D.C. – The Internal Revenue Service is encouraging more taxpayers to take advantage of the “saver’s credit.”
The credit enable low- and moderate-income workers to begin to save for their retirement while earning a special tax credit in 2011 and the years ahead, the IRS noted.
The saver’s credit helps offset part of the first $2,000 that workers voluntarily contribute to individual retirement arrangements, 401(k) plans and similar workplace retirement programs. Also known as the retirement savings contributions credit, the saver’s credit is available in addition to any other tax savings that apply.
Eligible workers still have time to make qualifying retirement contributions and get the saver’s credit on their 2011 tax return, according to the IRS. Taxpayers have until April 17, 2012, to set up a new individual retirement arrangement or add money to an existing IRA and still get credit for 2011. However, elective deferrals must be made by the end of the year to a 401(k) plan or similar workplace program, such as a 403(b) plan for employees of public schools and certain tax-exempt organizations, a governmental 457 plan for state or local government employees, and the Thrift Savings Plan for federal employees. Employees who are unable to set aside money for this year may want to schedule their 2012 contributions soon so their employer can begin withholding them in January.
The saver’s credit can be claimed by:
• Married couples filing jointly with incomes up to $56,500 in 2011 or $57,500 in 2012;
• Heads of households with incomes up to $42,375 in 2011 or $43,125 in 2012; and
• Married individuals filing separately and singles with incomes up to $28,250 in 2011 or $28,750 in 2012.
Like other tax credits, the saver’s credit can increase a taxpayer’s refund or reduce the tax owed. Though the maximum saver’s credit is $1,000, $2,000 for married couples, the IRS cautioned that it is often much less and, due in part to the impact of other deductions and credits, may, in fact, be zero for some taxpayers.
A taxpayer’s credit amount is based on the taxpayer’s filing status, adjusted gross income, tax liability and amount contributed to qualifying retirement programs. Form 8880 is filed to claim the saver’s credit. The form’s instructions provide the details on figuring the credit correctly.
In tax year 2009, the most recent year for which complete figures are available, saver’s credits totaling just over $1 billion were claimed on just over 6.25 million individual income tax returns. The saver’s credits claimed on these returns averaged $202 for joint filers, $159 for heads of household, and $121 for single filers.
The saver’s credit supplements other tax benefits available to people who set money aside for retirement. For example, most workers may deduct their contributions to a traditional IRA. Though Roth IRA contributions are not deductible, qualifying withdrawals, usually after retirement, are tax-free. Normally, contributions to 401(k) and similar workplace plans are not taxed until withdrawn.
Other special rules that apply to the saver’s credit include the following:
• Eligible taxpayers must be at least 18 years of age.
• Anyone claimed as a dependent on someone else’s return cannot take the credit.
• A student cannot take the credit. A person enrolled as a full-time student during any part of 5 calendar months during the year is considered a student.
• Certain retirement plan distributions reduce the contribution amount used to figure the credit.
For 2011, this rule applies to distributions received after 2008 and before the due date, including extensions, of the 2011 return. Form 8880 and its instructions have details on making this computation.
The saver’s credit began in 2002 as a temporary provision. However, it was made a permanent part of the Tax Code in legislation enacted in 2006. To help preserve the value of the credit, income limits are now adjusted annually to keep pace with inflation.
By Michael Cohn, Accounting Today
WASHINGTON — Nearly 160 million workers will benefit from the extension of the reduced payroll tax rate that has been in effect for 2011. The Temporary Payroll Tax Cut Continuation Act of 2011 temporarily extends the two percentage point payroll tax cut for employees, continuing the reduction of their Social Security tax withholding rate from 6.2 percent to 4.2 percent of wages paid through Feb. 29, 2012. This reduced Social Security withholding will have no effect on employees’ future Social Security benefits.
Employers should implement the new payroll tax rate as soon as possible in 2012 but not later than Jan. 31, 2012. For any Social Security tax over-withheld
during January, employers should make an offsetting adjustment in workers’ pay as soon as possible but not later than March 31, 2012.
Employers and payroll companies will handle the withholding changes, so workers should not need to take any additional action.
Under the terms negotiated by Congress, the law also includes a new “recapture” provision, which applies only to those employees who receive more than $18,350 in wages during the two-month period (the Social Security wage base for 2012 is $110,100, and $18,350 represents two months of the full-year amount). This provision imposes an additional income tax on these higher-income employees in an amount equal to 2 percent of the amount of wages they receive during the two-month period in excess of $18,350 (and not greater than $110,100).
This additional recapture tax is an add-on to income tax liability that the employee would otherwise pay for 2012 and is not subject to reduction by credits or deductions. The recapture tax would be payable in 2013 when the employee files his or her income tax return for the 2012 tax year. With the possibility of a full-year extension of the payroll tax cut being discussed for 2012, the IRS will closely monitor the situation in case future legislation changes the recapture provision.
The IRS will issue additional guidance as needed to implement the provisions of this new two-month extension, including revised employment tax forms and instructions and information for employees who may be subject to the new “recapture” provision. For most employers, the quarterly employment tax return for the quarter ending March 31, 2012 is due April 30, 2012.
IRS Issue Number: IR-2011-124