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All the tax information you need for 2011 !
| Contact us: 301-495-3086 410-685-3040 email: stkimcompany@gmail.com |
Tax Highlights 2011
Individual Income Tax Issues
Standard Deduction:
Married Filing Joint $11,600.00
Head of Household $ 8,500.00
Single/MFS $ 5,800.00
Personal Exemption $3,700.00
Child Credit For Child under 17 $1,000.00 per child
Individual Income Tax Rates:
Married Filing Joint and Surviving Spouse
Taxable Income Tax Rate:
<17,000 10%
17,000-69,000 15%
69,000-139,350 25%
139,350-212,300 28%
212,300-379,150 33%
>379,150 35%
Unmarried Individuals
<8,500 10%
8,500-34,500 15%
34,500-83,600 25%
83,600-174,400 28%
174,400-379,150 33%
>379,150 35%
FICA Wage Base:
2010 Wages up to $106,800. will be subject to FICA taxes
2011 Wages up to $106,800. will be subject to FICA taxes
2012 Wages up to $110,100. will be subject to FICA Taxes
Retirement Accounts:
IRA Maximum Contribution $ 5,000.00($6,000.00 if 50 yrs old or
over)
Simple IRA Maximum Contribution $11,500.00($14,000.00 if 50 yrs old
or over)
401K elective Deferal $16,500.00($22,00.00 if 50 yrs old or over)
For taxpayers with active participation in an employers retirement plan, IRA
deductions start to phase out for single taxpayers with adjusted gross
income at $56,000.00 and for married filing joint taxpayers at $89,000.00. At
adjusted gross income of $66,000.00 for single taxpayers and $109,000.00
for married filers, the IRA deduction is completely eliminated.
Gains & Losses:
Long Term Capital Gains will be taxed at
20% For gains incurred before 5-5-03
15% For gains incurred after 5-5-03
Long Term Capital Gains are defined as those held for over a year.
After 2012 the Capital Gains tax rate is scheduled to increase to 20%.
Dividends received will be taxed at a rate of 15% maximum tax. After 2012
the dividend tax rate is scheduled to increase to 20%.
Wash sales losses not deductible; any losses on stock sales are not
deductible if same stock is purchased back within 30 days.
$8,000/$6,500 Credit to 1st Time Homebuyers has expired.
It does not seem that the IRS will offer this credit anytime soon.
Energy Efficient Home Improvements:
For 2009 and 2010, energy efficient improvements will have a 30% tax credit
up to $1,500 for both years combined.
Sale of Residence:
Taxpayers may exclude gains of up to $500,000.00 ($250,000.00 for single
taxpayers) on sale of residence. Taxpayer must have used the home as
their main residence for at least 2 out of the last 5 years prior to the sale.
However if you have lived in your residence for less than 2 years, the
exclusion may be prorated if you sold your home due to change of
employment, health or other unforeseen circumstances.
A significant change for home sales after 12-31-2008, will be that periods of
non qualifying use (ie rentals and vacation homes) will not be allowed the
exclusion. Thus you can no longer turn a rental property into your primary
residence and live there for 2 years and claim the full exclusion. The
exclusion amount will be determined by how long the property was in non
qualifying use vs primary residence use.
College Savings Plans (529 Plans)
These education savings plan are operated by the state that you reside in or
by educational insititutions. These prepaid or savings plans are designed
to help families save money for future college costs. Additionally, they come
with some tax benefits as well. Any amounts contributed into one of these
plans will grow tax free. Withdrawals from the accounts will be tax free if the
funds are used for educational purpose. The State of Maryland will allow a
deduction up to $2,500.00 per account. The State of Virginia will allow a
deduction up to $2,000.00 per account.
Personal Injury Awards
Any liquidated damage award received from lawsuits due to personal
physical inuries or physical sickness is not subject to tax. In order for any
lawsuit judgement be non taxable, the payment has to be for personal
physical injuries or physical sickness. Emotional distress is not considered
a physical injury and thus any damages from such will be taxable. Punitive
damages are always taxable.
Foreign Earned Income Exclusion/Bank Accounts
You can exclude up to $92,900. in income earned in a foreign country. You
must be a bona fide resident of a foreign country during the tax year.
If you have more than $10,000.00 in foreign bank accounts you will have to
report these accounts to the Department of Treasury. This report is not a tax
form but is filed separately from your tax return and is due 6-30 of every year.
Additionally beginning in 2011 if you have over $50,000.00 in any foreign
bank accounts, you must file a new IRS form reporting the details of these
accounts with your tax return. This is in addition to the Department of
Treasury report.
Estate & Gift Taxes
You can give annual tax free gifts up to $13,000.00 per donee in 2011.
You can leave up to $5,000,000.00 in your estate tax free if you die in 2011.
Any amount above this will be taxed at the rate of 35%. However, you have
an unlimited marital deduction allowance for amounts transferred to
surviving spouses. But in order to take advantage of this allowance, the
surviving spouse has to be a US citizen...if not, there is no marital deduction
allowance at all.
As for lifetime gifts, there is an unlimited marital deduction for gifts to your
spouse, so you can give as much as you want to your spouse tax free.
However gifts to non citizen spouses are limited to $134,000 per year. Gifts
to non spouses are tax free up to $5,000,000.00 a lifetime in 2011. Any gifts
that use up the gift exclusion is counted towards the estate tax exclusion.
After 2012, the $5,000,000.00 changes to $1,000,000.00 and the top tax rate
changes from 35% to 55%.
And as always, there is an unlimited amount that you can give to a donee for
education and medical expenses, provided that the payments are made
directly to the institution providing the service. There is no relationship
requirement needed between donor and donee.
Business Income Tax Issues
1099MISC and Payroll Issues
IRS is currently offering an amnesty to companies that have been improperly
classifying employees as contractors. The Voluntary Classification
Settlement Program requires that the employer pay 10% of any tax that
should have been due on any improperly classified employee for the most
recent tax year. No penalties or interest will be assessed.
New Credit Card and Stock Basis Reporting
The 2008 Housing Assistance Tax Act of 2008 requires banks and credit
card companies, to begin reporting credit card transactions. The effective
date is 1-1-2011. You should be receiving a 1099 from your credit card
processor reporting all credit card sales for your company for the year 2011.
Brokerage companies will have to report stock basis for any stock sales.
Mileage & Travel Expenses
All ordinary and necessary business travel expenses are deductible.
Commuting expenses incurred going to and coming home from your work
or place of business is not deductible. Meals and lodging expenses are
deductible only if taxpyer is away from home on business related travel. For
regular business auto expense, the mileage deduction rate for 2011 is 51c
per mile for miles driven from 1-1-11 thru 6-30-11 and 55.5 c per mile for
miles driven from 7-1-11 thru 12-31-11.
Retirement Plans & Beneficiary Issues
Should you be in the position of inheriting an IRA, your choices of what to do
with the IRA depends on whether the IRA owner died before or after April 1 of
the year following the year in which the owner became 70 ½ years old (the
Beginning Date).
If the IRA owner died before April 1st of the year following the year in which
the owner became 70 ½ years old, and the IRA owner did not name a
beneficiary (or names estate as beneficiary), then the total proceeds are
subject to the five year distribution rule (all proceeds distributed by
December 31s of the fifth year after owners death. If the IRA owner died
after the Beginning Date, then the proceeds must be distributed over the
remaining term elected by the IRA owner. If you are a non spouse
beneficiary, you can also elect to take distributions over a period not
exceeding your life expectancy.
For non spouse beneficiaries, if IRA owner dies after the Beginning Date,
the distributions must be paid out at least as rapidly as they would have
been under the method of distribution in effect before the owners death.
Spouse beneficiaries have all the options available to non spouse
beneficiaries along with the ability to treat the inherited IRA as his/her own
IRA and thus avoid the post death minimum distributions required. Non
spouse beneficiaries can not roll over the inherited IRA into their own IRA;
doing so would subject the total inherited IRA to taxation.
C Corporation Tax Rates
0-50,000 15%
50-75,000 25%
75-100,000 34%
100-335,000 39%
335-10mil 34%
10-15mil 35%
15-18mil 38%
>18mil 35%
Personal Service Corporations(where the principal activity is service related
and performed by owner-employees) are subject to a flat tax of 35%.
Fringe Benefits
Generally, unless specifically excluded by code, fringe benefits are a form of
pay to employees and are taxable. 2% of more owners of S Corporations
are not considered employees and thus will not qualify for most of the fringe
benefits exclusion. Accident/health benefits, transit passes up to $110,
achievement awards (up to $1,600.00), use of athletic facilities, minimal
fringe benefits, dependent care assistance, educational assistance (up to
$5,250.00), group term life insurance up to $50k of coverage, lodging on
employers premise if condition of employment are all fringe benefits that
would not be taxable to employees.
Health Insurance Premiums now reported on W2
Although health insurance premiums paid by an employer still remains non
taxable to the employee, the amount of premium paid is now required to be
reported on the employees W2 form beginning 1-1-11. However for the year
2011 this reporting requirement is waived
Health Care Credit
Beginning in 2010 employers with less than 25 full time employees with
average annual wages per employee of less than $50,000 may receive a
credit of up to 35% of qualifying medical insurance premiums paid for
qualifying employees. The credit rate depends on the number of employees
and average wages paid. The lower number of employees and lower
average wage would result in a higher credit. This credit will remain at a
maximum of 35% of medical insurance premiums from 2010 thru 2013. In
2014 the credit will go to a maximum of 50% of premiums paid.
Health Savings Account
A HSA is a High Deductible Health Plan in which contributions you make are
tax deductible and the earnings on the contributions are tax free.
Distributions from the plan are tax free if used for qualified medical
expenses. To qualify for HSA, you must not be on Medicare, have no other
health insurance and have a high annual deductible. There are no income
limitations.
The 2011 minimum deductible on a HSA plan is as follows:
Self only coverage $1,200.00
Family coverage $2,400.00
The 2011 maximum contribution to a HSA is as follows:
Self only coverage $3,050.00
Family coverage $6,150.00
Like Kind Exchange
Like Kind Exchange may be used to defer taxes: Property must be identified
within 45 days and must be received within 180 days. Properties exchanged
must be similar in nature. Also the property being sold must have been
used in a trade or business or for investment, and the property being
purchased is to be used in a trade or business or for investment. Thru the
use of a qualified intermediary, a deferred exchange can occur when the
replacement property is received after the original property has been sold
first. After transferring the relinquished property, the taxpayer must identify
within 45 days a replacement property and must receive the replacement
property within 180 days. Should you need to buy a property before you can
sell your original property, you can engage in a reverse Like Kind Exchange.
In this scenario, you would have the intermediary hold your replacement
property while your old property is being sold. All time line requirements are
the same.
All these difference forms of Like Kind Exchanges accomplish the same
objective: exchanging one similar property for another and deferring the tax
consequences.
Fixed Assets, Depreciation and Section 179
Section 179 Immediate Deduction $500,000.00
Section 179 limit for SUVs $ 25,000.00
All tangible property used in a business can be immediately expensed
up to $500,000.00. Phaseout of Section 179 begins when acquisitions for
the year exceeds $2,000,000.00.
All fixed assets are to be depreciated according to schedules established by
the IRS. The issue is what can be expensed and what is subject to
depreciation ie capitalization. The general guiding principle as to what must
be capitalized, which is what most taxpayers wish to avoid, and what must
be expensed, which is what most taxpayers want, depends on whether the
cost expended repaired the object to its previous existing level or
substantially increased the objects remain life and value over its existing
level before the expenditure. For example, replacing a roof that was leaking
is an expense. Constructing an addition with a roof; all costs including
roofing would be capitalized.
Depreciation for various property classes:
5 year property: generally automobiles, light trucks, computer based
equipment
7 year property: most equipments, furnitures & fixtures
27.5 year property: residential real property
39 year property: commercial real property
For the year 2011 there is a Section 179 Immediate Deduction available for
qualifying real property placed in service during the year. The qualifying real
property is leasehold improvements made to a leased commercial building
(lease can not be between related parties), restaurant improvements and/or
building, and improvements made to a retail property.
Corporations; S and C
As started in 2008, there will continue to be a late filing penalty for filing S
Corporations and partnership returns late. The late filing penalty is $89 for
the year 2009. For years after 2009, the penalty has been increased from
$89.00 per shareholder per month to $195 per month up to 12 months.
Previous to 2008, there were no penalty for filing late S Corporation returns.
For 2011 the penalty remains at $195 per month per shareholder/partner.
All S Corporation profits and losses are passed thru to the individual
shareholders who are ultimately responsible for the tax consequences.
Shareholders in S Corporations can withdraw tax free up to the amount in
the S Corporations accumulated earnings account since the earnings have
already been subject to taxation when passed thru. After surpassing this
accumulated earnings account, any more funds withdrawn would be a
return of any shareholder loans. If there are no shareholder loans, then any
more funds withdrawn would be a return of capital up to the amount of
common stock and paid in capital. Once the common stock and paid in
capital have been exceeded, then the funds withdrawn are capital gains. So
should you be an S Corporation?
Advantages of S Corporation over C Corporation:
Income of S Corporations are taxed only once; to the shareholder.
Income of C Corporations are taxed twice; once to the corporation and then
again to the shareholder as dividends if withdrawn.
No long term capital tax gains rate for C Corporations; thus long term capital
gains will be subject to whatever tax rate the C Corporation is in as opposed
to the S Corporations shareholders long term capital gains tax rate of 15%.
Income of S Corporations are not subject to self employment tax, and
therefor the shareholder/owner can pay him/herself a modest salary and
take flow thru income without subject to self employment tax.
Operating losses of S Corporations can be used on shareholders personal
return.
Capital losses of S Corporations can be passed thru to shareholders
whereas on C Corporations, capital losses are only deductible against
capital gains.
Advantages of C Corporation:
C Corporations are able to use the dividends received deduction which is
not available to S Corporations. This allows C Corporations to deduct up to
70% of dividends received against income.
C Corporation shareholders are able to bypass Section 1372 rules which
removes most of the fringe benefits to more than 2% shareholders/owners.
For example, medical insurance will be available to C corporation
shareholders while S corporation shareholders will have to include the
medical insurance as income. Thus in S Corporations greater than 2%
owners can not take advantage of fringe benefits.
C Corporations that convert to S Corporations must generally wait 10 years
before selling any appreciated assets or be subject to built in gains tax.
Therefor you can not convert a C Corporation to S Corporation, sell
appreciated assets and pass the gains thru to the individual shareholders
hoping to avoid double taxation. However for the tax years 2009 and 2010,
the 10 year period is shortened to 7 years. Thus any previous C
Corporation that converted to S Corporation will not be subject to built in
gains tax for any assets sold in 2009 or 2010 provided that they have
converted for a period of 7 years. For tax years beginning 2011, the holding
period has again been shorted to 5 years.
Limited Liability Companies (LLC)
LLC offers liability protection same as corporations but are normally taxed
as partnerships (although LLC can elect to be taxed as a corporation). LLC
offer pass thru of income and losses just like S Corporations; but LLCs
income will be subject to self employment tax if member is active. One
advantage of LLC over S Corporation is that an LLC can have any type of
owner; whereas S Corporations can not have corporation, non resident
aliens or LLC shareholders.
Circular 230 Disclaimer: Any tax advice contained in the body of this
material was not intended or written to be used, and cannot be used, by the
recipient for the purpose of i)avoiding penalties that may be imposed under
the Internal Revenue Code or applicable state or local tax law provisions, or
ii)promoting, marketing, or recommending to another party any transaction
or matter addressed herein.
Individual Income Tax Issues
Standard Deduction:
Married Filing Joint $11,600.00
Head of Household $ 8,500.00
Single/MFS $ 5,800.00
Personal Exemption $3,700.00
Child Credit For Child under 17 $1,000.00 per child
Individual Income Tax Rates:
Married Filing Joint and Surviving Spouse
Taxable Income Tax Rate:
<17,000 10%
17,000-69,000 15%
69,000-139,350 25%
139,350-212,300 28%
212,300-379,150 33%
>379,150 35%
Unmarried Individuals
<8,500 10%
8,500-34,500 15%
34,500-83,600 25%
83,600-174,400 28%
174,400-379,150 33%
>379,150 35%
FICA Wage Base:
2010 Wages up to $106,800. will be subject to FICA taxes
2011 Wages up to $106,800. will be subject to FICA taxes
2012 Wages up to $110,100. will be subject to FICA Taxes
Retirement Accounts:
IRA Maximum Contribution $ 5,000.00($6,000.00 if 50 yrs old or
over)
Simple IRA Maximum Contribution $11,500.00($14,000.00 if 50 yrs old
or over)
401K elective Deferal $16,500.00($22,00.00 if 50 yrs old or over)
For taxpayers with active participation in an employers retirement plan, IRA
deductions start to phase out for single taxpayers with adjusted gross
income at $56,000.00 and for married filing joint taxpayers at $89,000.00. At
adjusted gross income of $66,000.00 for single taxpayers and $109,000.00
for married filers, the IRA deduction is completely eliminated.
Gains & Losses:
Long Term Capital Gains will be taxed at
20% For gains incurred before 5-5-03
15% For gains incurred after 5-5-03
Long Term Capital Gains are defined as those held for over a year.
After 2012 the Capital Gains tax rate is scheduled to increase to 20%.
Dividends received will be taxed at a rate of 15% maximum tax. After 2012
the dividend tax rate is scheduled to increase to 20%.
Wash sales losses not deductible; any losses on stock sales are not
deductible if same stock is purchased back within 30 days.
$8,000/$6,500 Credit to 1st Time Homebuyers has expired.
It does not seem that the IRS will offer this credit anytime soon.
Energy Efficient Home Improvements:
For 2009 and 2010, energy efficient improvements will have a 30% tax credit
up to $1,500 for both years combined.
Sale of Residence:
Taxpayers may exclude gains of up to $500,000.00 ($250,000.00 for single
taxpayers) on sale of residence. Taxpayer must have used the home as
their main residence for at least 2 out of the last 5 years prior to the sale.
However if you have lived in your residence for less than 2 years, the
exclusion may be prorated if you sold your home due to change of
employment, health or other unforeseen circumstances.
A significant change for home sales after 12-31-2008, will be that periods of
non qualifying use (ie rentals and vacation homes) will not be allowed the
exclusion. Thus you can no longer turn a rental property into your primary
residence and live there for 2 years and claim the full exclusion. The
exclusion amount will be determined by how long the property was in non
qualifying use vs primary residence use.
College Savings Plans (529 Plans)
These education savings plan are operated by the state that you reside in or
by educational insititutions. These prepaid or savings plans are designed
to help families save money for future college costs. Additionally, they come
with some tax benefits as well. Any amounts contributed into one of these
plans will grow tax free. Withdrawals from the accounts will be tax free if the
funds are used for educational purpose. The State of Maryland will allow a
deduction up to $2,500.00 per account. The State of Virginia will allow a
deduction up to $2,000.00 per account.
Personal Injury Awards
Any liquidated damage award received from lawsuits due to personal
physical inuries or physical sickness is not subject to tax. In order for any
lawsuit judgement be non taxable, the payment has to be for personal
physical injuries or physical sickness. Emotional distress is not considered
a physical injury and thus any damages from such will be taxable. Punitive
damages are always taxable.
Foreign Earned Income Exclusion/Bank Accounts
You can exclude up to $92,900. in income earned in a foreign country. You
must be a bona fide resident of a foreign country during the tax year.
If you have more than $10,000.00 in foreign bank accounts you will have to
report these accounts to the Department of Treasury. This report is not a tax
form but is filed separately from your tax return and is due 6-30 of every year.
Additionally beginning in 2011 if you have over $50,000.00 in any foreign
bank accounts, you must file a new IRS form reporting the details of these
accounts with your tax return. This is in addition to the Department of
Treasury report.
Estate & Gift Taxes
You can give annual tax free gifts up to $13,000.00 per donee in 2011.
You can leave up to $5,000,000.00 in your estate tax free if you die in 2011.
Any amount above this will be taxed at the rate of 35%. However, you have
an unlimited marital deduction allowance for amounts transferred to
surviving spouses. But in order to take advantage of this allowance, the
surviving spouse has to be a US citizen...if not, there is no marital deduction
allowance at all.
As for lifetime gifts, there is an unlimited marital deduction for gifts to your
spouse, so you can give as much as you want to your spouse tax free.
However gifts to non citizen spouses are limited to $134,000 per year. Gifts
to non spouses are tax free up to $5,000,000.00 a lifetime in 2011. Any gifts
that use up the gift exclusion is counted towards the estate tax exclusion.
After 2012, the $5,000,000.00 changes to $1,000,000.00 and the top tax rate
changes from 35% to 55%.
And as always, there is an unlimited amount that you can give to a donee for
education and medical expenses, provided that the payments are made
directly to the institution providing the service. There is no relationship
requirement needed between donor and donee.
Business Income Tax Issues
1099MISC and Payroll Issues
IRS is currently offering an amnesty to companies that have been improperly
classifying employees as contractors. The Voluntary Classification
Settlement Program requires that the employer pay 10% of any tax that
should have been due on any improperly classified employee for the most
recent tax year. No penalties or interest will be assessed.
New Credit Card and Stock Basis Reporting
The 2008 Housing Assistance Tax Act of 2008 requires banks and credit
card companies, to begin reporting credit card transactions. The effective
date is 1-1-2011. You should be receiving a 1099 from your credit card
processor reporting all credit card sales for your company for the year 2011.
Brokerage companies will have to report stock basis for any stock sales.
Mileage & Travel Expenses
All ordinary and necessary business travel expenses are deductible.
Commuting expenses incurred going to and coming home from your work
or place of business is not deductible. Meals and lodging expenses are
deductible only if taxpyer is away from home on business related travel. For
regular business auto expense, the mileage deduction rate for 2011 is 51c
per mile for miles driven from 1-1-11 thru 6-30-11 and 55.5 c per mile for
miles driven from 7-1-11 thru 12-31-11.
Retirement Plans & Beneficiary Issues
Should you be in the position of inheriting an IRA, your choices of what to do
with the IRA depends on whether the IRA owner died before or after April 1 of
the year following the year in which the owner became 70 ½ years old (the
Beginning Date).
If the IRA owner died before April 1st of the year following the year in which
the owner became 70 ½ years old, and the IRA owner did not name a
beneficiary (or names estate as beneficiary), then the total proceeds are
subject to the five year distribution rule (all proceeds distributed by
December 31s of the fifth year after owners death. If the IRA owner died
after the Beginning Date, then the proceeds must be distributed over the
remaining term elected by the IRA owner. If you are a non spouse
beneficiary, you can also elect to take distributions over a period not
exceeding your life expectancy.
For non spouse beneficiaries, if IRA owner dies after the Beginning Date,
the distributions must be paid out at least as rapidly as they would have
been under the method of distribution in effect before the owners death.
Spouse beneficiaries have all the options available to non spouse
beneficiaries along with the ability to treat the inherited IRA as his/her own
IRA and thus avoid the post death minimum distributions required. Non
spouse beneficiaries can not roll over the inherited IRA into their own IRA;
doing so would subject the total inherited IRA to taxation.
C Corporation Tax Rates
0-50,000 15%
50-75,000 25%
75-100,000 34%
100-335,000 39%
335-10mil 34%
10-15mil 35%
15-18mil 38%
>18mil 35%
Personal Service Corporations(where the principal activity is service related
and performed by owner-employees) are subject to a flat tax of 35%.
Fringe Benefits
Generally, unless specifically excluded by code, fringe benefits are a form of
pay to employees and are taxable. 2% of more owners of S Corporations
are not considered employees and thus will not qualify for most of the fringe
benefits exclusion. Accident/health benefits, transit passes up to $110,
achievement awards (up to $1,600.00), use of athletic facilities, minimal
fringe benefits, dependent care assistance, educational assistance (up to
$5,250.00), group term life insurance up to $50k of coverage, lodging on
employers premise if condition of employment are all fringe benefits that
would not be taxable to employees.
Health Insurance Premiums now reported on W2
Although health insurance premiums paid by an employer still remains non
taxable to the employee, the amount of premium paid is now required to be
reported on the employees W2 form beginning 1-1-11. However for the year
2011 this reporting requirement is waived
Health Care Credit
Beginning in 2010 employers with less than 25 full time employees with
average annual wages per employee of less than $50,000 may receive a
credit of up to 35% of qualifying medical insurance premiums paid for
qualifying employees. The credit rate depends on the number of employees
and average wages paid. The lower number of employees and lower
average wage would result in a higher credit. This credit will remain at a
maximum of 35% of medical insurance premiums from 2010 thru 2013. In
2014 the credit will go to a maximum of 50% of premiums paid.
Health Savings Account
A HSA is a High Deductible Health Plan in which contributions you make are
tax deductible and the earnings on the contributions are tax free.
Distributions from the plan are tax free if used for qualified medical
expenses. To qualify for HSA, you must not be on Medicare, have no other
health insurance and have a high annual deductible. There are no income
limitations.
The 2011 minimum deductible on a HSA plan is as follows:
Self only coverage $1,200.00
Family coverage $2,400.00
The 2011 maximum contribution to a HSA is as follows:
Self only coverage $3,050.00
Family coverage $6,150.00
Like Kind Exchange
Like Kind Exchange may be used to defer taxes: Property must be identified
within 45 days and must be received within 180 days. Properties exchanged
must be similar in nature. Also the property being sold must have been
used in a trade or business or for investment, and the property being
purchased is to be used in a trade or business or for investment. Thru the
use of a qualified intermediary, a deferred exchange can occur when the
replacement property is received after the original property has been sold
first. After transferring the relinquished property, the taxpayer must identify
within 45 days a replacement property and must receive the replacement
property within 180 days. Should you need to buy a property before you can
sell your original property, you can engage in a reverse Like Kind Exchange.
In this scenario, you would have the intermediary hold your replacement
property while your old property is being sold. All time line requirements are
the same.
All these difference forms of Like Kind Exchanges accomplish the same
objective: exchanging one similar property for another and deferring the tax
consequences.
Fixed Assets, Depreciation and Section 179
Section 179 Immediate Deduction $500,000.00
Section 179 limit for SUVs $ 25,000.00
All tangible property used in a business can be immediately expensed
up to $500,000.00. Phaseout of Section 179 begins when acquisitions for
the year exceeds $2,000,000.00.
All fixed assets are to be depreciated according to schedules established by
the IRS. The issue is what can be expensed and what is subject to
depreciation ie capitalization. The general guiding principle as to what must
be capitalized, which is what most taxpayers wish to avoid, and what must
be expensed, which is what most taxpayers want, depends on whether the
cost expended repaired the object to its previous existing level or
substantially increased the objects remain life and value over its existing
level before the expenditure. For example, replacing a roof that was leaking
is an expense. Constructing an addition with a roof; all costs including
roofing would be capitalized.
Depreciation for various property classes:
5 year property: generally automobiles, light trucks, computer based
equipment
7 year property: most equipments, furnitures & fixtures
27.5 year property: residential real property
39 year property: commercial real property
For the year 2011 there is a Section 179 Immediate Deduction available for
qualifying real property placed in service during the year. The qualifying real
property is leasehold improvements made to a leased commercial building
(lease can not be between related parties), restaurant improvements and/or
building, and improvements made to a retail property.
Corporations; S and C
As started in 2008, there will continue to be a late filing penalty for filing S
Corporations and partnership returns late. The late filing penalty is $89 for
the year 2009. For years after 2009, the penalty has been increased from
$89.00 per shareholder per month to $195 per month up to 12 months.
Previous to 2008, there were no penalty for filing late S Corporation returns.
For 2011 the penalty remains at $195 per month per shareholder/partner.
All S Corporation profits and losses are passed thru to the individual
shareholders who are ultimately responsible for the tax consequences.
Shareholders in S Corporations can withdraw tax free up to the amount in
the S Corporations accumulated earnings account since the earnings have
already been subject to taxation when passed thru. After surpassing this
accumulated earnings account, any more funds withdrawn would be a
return of any shareholder loans. If there are no shareholder loans, then any
more funds withdrawn would be a return of capital up to the amount of
common stock and paid in capital. Once the common stock and paid in
capital have been exceeded, then the funds withdrawn are capital gains. So
should you be an S Corporation?
Advantages of S Corporation over C Corporation:
Income of S Corporations are taxed only once; to the shareholder.
Income of C Corporations are taxed twice; once to the corporation and then
again to the shareholder as dividends if withdrawn.
No long term capital tax gains rate for C Corporations; thus long term capital
gains will be subject to whatever tax rate the C Corporation is in as opposed
to the S Corporations shareholders long term capital gains tax rate of 15%.
Income of S Corporations are not subject to self employment tax, and
therefor the shareholder/owner can pay him/herself a modest salary and
take flow thru income without subject to self employment tax.
Operating losses of S Corporations can be used on shareholders personal
return.
Capital losses of S Corporations can be passed thru to shareholders
whereas on C Corporations, capital losses are only deductible against
capital gains.
Advantages of C Corporation:
C Corporations are able to use the dividends received deduction which is
not available to S Corporations. This allows C Corporations to deduct up to
70% of dividends received against income.
C Corporation shareholders are able to bypass Section 1372 rules which
removes most of the fringe benefits to more than 2% shareholders/owners.
For example, medical insurance will be available to C corporation
shareholders while S corporation shareholders will have to include the
medical insurance as income. Thus in S Corporations greater than 2%
owners can not take advantage of fringe benefits.
C Corporations that convert to S Corporations must generally wait 10 years
before selling any appreciated assets or be subject to built in gains tax.
Therefor you can not convert a C Corporation to S Corporation, sell
appreciated assets and pass the gains thru to the individual shareholders
hoping to avoid double taxation. However for the tax years 2009 and 2010,
the 10 year period is shortened to 7 years. Thus any previous C
Corporation that converted to S Corporation will not be subject to built in
gains tax for any assets sold in 2009 or 2010 provided that they have
converted for a period of 7 years. For tax years beginning 2011, the holding
period has again been shorted to 5 years.
Limited Liability Companies (LLC)
LLC offers liability protection same as corporations but are normally taxed
as partnerships (although LLC can elect to be taxed as a corporation). LLC
offer pass thru of income and losses just like S Corporations; but LLCs
income will be subject to self employment tax if member is active. One
advantage of LLC over S Corporation is that an LLC can have any type of
owner; whereas S Corporations can not have corporation, non resident
aliens or LLC shareholders.
Circular 230 Disclaimer: Any tax advice contained in the body of this
material was not intended or written to be used, and cannot be used, by the
recipient for the purpose of i)avoiding penalties that may be imposed under
the Internal Revenue Code or applicable state or local tax law provisions, or
ii)promoting, marketing, or recommending to another party any transaction
or matter addressed herein.