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Pinal County
Property Taxes are PAINFUL. PEEL Away the PAIN
CLICK HERE
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Be certain to
visit the "Truth-Detector" Page that discusses Pinal County Issues - CLICK
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By scrolling
down, YOU MAY CALCULATE SOCIAL SECURITY TAXES, REVIEW
OTHER TAX
PLANNING SUGGESTIONS.
C.W.
Barsness,CPA
A Professional Corporation
1845 W. Dobson Rd. Ste: 213 - Mesa, AZ 85202 - 480-345-6707
6268 S. Kings Ranch Rd. Ste: 1 - Gold Canyon, AZ 85218 - 480-288-2200
Arizona
Immigration Law to Take Effect January 1, 2008
·
publications
Client Alert
Starting January 1, 2008, employers operating in Arizona under a
business license issued in that state are required to comply with the Legal
Arizona Workers Act. This Immigration Alert briefly describes the Arizona
law.
Brief Overview of the Legal Arizona Workers Act
The employer sanctions law intends to prevent any employer in the State of
Arizona from knowingly or intentionally hiring and/or employing illegal
immigrants. As of January 1, 2008,
all
employers in Arizona, regardless of size, will be required
to use the federal government’s E-Verify program to verify the status of new
employees. Although the new law faces many legal challenges, ongoing efforts
have not succeeded thus far in preventing the law from taking effect as
originally intended.
According to the U.S. Citizenship and Immigration Services (USCIS),
"E-Verify is an Internet-based system operated by [USCIS] in partnership
with the Social Security Administration (SSA). E-Verify is currently free to
employers and is available in all 50 states. E-Verify provides an automated
link to federal databases to help employers determine employment eligibility
of new hires and the validity of their Social Security numbers." Links to
the E-Verify website appear below.
While the legislative sponsors of the bill have publicly stated that the law
will only apply to employees hired on or after January 1, 2008, legal
commentators have opined that the legislation could technically be applied
to ALL employees, regardless of date of hire. This issue could lead to
additional litigation, depending on how the law is enforced and assuming
that the law survives the pending litigation.
Penalties for intentionally or knowingly hiring or employing illegal
immigrants are severe. Employers face mandatory suspension of their business
licenses for first offenses and permanent revocation of their business
licenses for second offenses. The law appears to treat each business
location as separate from its corporate affiliates. Consequently, the
dominant interpretation of the law is that an entity with a violation at one
location might be shut down, but affiliated operations operating under
separate licenses would not be affected unless they also are found to have
knowingly hired illegal workers. However, businesses that operate multiple
locations under a shared business license would likely be viewed as a single
entity, and a violation at one site could impact all related business
operations.
Arizona's
15 county attorneys are responsible for enforcing the law and must
investigate all nonfrivolous complaints. Enforcement requires contacting
U.S. Immigration and Customs Enforcement (ICE) as well as local police. The
federal government will be responsible for ultimately determining the status
of the workers at issue.
Legal Challenges
On December 7, 2007, a federal judge dismissed without prejudice litigation
filed by a coalition of business groups and immigration rights organizations
challenging the constitutionality of the Arizona employer sanctions law.
According to the court, plaintiffs improperly filed suit against the State
of Arizona, which is not ultimately responsible for enforcement of the law.
On December 9, 2007, a second lawsuit was filed naming the 15 counties
responsible for enforcement of the law as defendants. While the pending
litigation seeks a temporary restraining order to prevent the law from
becoming effective until the litigation is resolved, it is unclear at this
point whether the effective date will be delayed.
How This Affects You
As of this Immigration Alert's publication date, the employer sanctions law
will become effective January 1, 2008. It is likely that the Arizona court
will rule on the pending motion for a temporary injunction shortly; however,
even if the injunction is granted, it is unclear for how long it would be in
place.
The law penalizes employers for knowingly or intentionally hiring
unauthorized workers; however, it does not expressly punish an employer’s
failure to register with E-Verify by January 1, 2008. Nonetheless, the most
conservative approach appears to be for employers to take appropriate
measures to comply with the law, or to be prepared to comply with the law,
in the event the litigation fails.
E-Verify registration requires that employers enter into a Memorandum of
Understanding (MOU) with USCIS. The MOU outlines the obligations assumed by
the employer through participation in the E-Verify program. Employers can
register for the E-Verify program on the USCIS website noted below.
Additional information concerning the program and the registration process
is also provided on this site.
E-Verify can be used only for new hires within three business days of their
start date. It is improper to use E-Verify to screen individuals prior to
making an offer or to screen existing employees. Also, the program checks
only employment eligibility. It does not reflect a worker's immigration
status.
Recommended Steps for Employers
-
Register
for E-Verify. Employers should register in sufficient time for them to
begin conducting verifications of new hires on January 1, 2008.
Employers should take into account the lead time needed to complete the
registration process, train personnel on the program, and adapt to this
new step in the hiring process.
-
As part of
an ongoing compliance program, consider performing an internal I-9 audit
to make certain that proper policies are being followed.
-
As needed,
train personnel on proper completion of the Form I-9. (Note: Beginning
on December 26, 2007, employers must use a modified Form I-9, available
at
http://www.uscis.gov/files/form/i-9.pdf.)
-
Review,
revise, and develop policies for storing and retaining I-9 documents.
Helpful Links
Legal Arizona Workers Act:
http://www.azleg.gov/search/oop/qfullhit.asp?CiWebHitsFile=/legtext/48leg/1r/bills/hb2779c.htm&CiRestriction=2779&CiBeginHilite=%3cb%3e&CiEndHilite=%3c/b%3e&CiHiliteType=Full
50-State Survey of Immigration Laws:
http://www.morganlewis.com/documents/50StateSurvey_StateImmigrationLaws.pdf
E-Verify:
http://www.dhs.gov/e-verify
E-Verify Introduction for Employers:
http://www.uscis.gov/files/nativedocuments/E4_english.pdf
E-Verify MOU:
http://www.uscis.gov/files/nativedocuments/MOU.pdf
IRS CIRCULAR 230
DISCLOSURE: TO ENSURE COMPLIANCE WITH REQUIREMENTS IMPOSED BY THE IRS, WE
INFORM YOU THAT, TO THE EXTENT THIS COMMUNICATION (OR ANY ATTACHMENT)
ADDRESSES ANY TAX MATTER, IT WAS NOT WRITTEN TO BE (AND MAY NOT BE) RELIED
UPON TO (I) AVOID TAX-RELATED PENALTIES UNDER THE INTERNAL REVENUE CODE, OR
(II) PROMOTE, MARKET OR RECOMMEND TO ANOTHER PARTY ANY TRANSACTION OR MATTER
ADDRESSED HEREIN (OR IN ANY SUCH ATTACHMENT).
**********************************************************************************************
Tax Year 2005
and Later
Standard Mileage Rates
For tax years beginning in 2005, the allowable
deductions for the standard mileage rate are as follows:
-
Business miles.
The standard mileage rate for the cost of operating your car increases to
40.5 cents a mile for all business miles driven.
-
Medical reasons.
The standard mileage rate allowed for use of your car for medical reasons is
15 cents a mile.
-
Moving.
The standard mileage rate for determining moving expenses is 15 cents a
mile.
Retirement Savings Plans
Traditional IRA income limits. If you have a
traditional individual retirement account (IRA) and are covered by a
retirement plan at work, the amount of income you can have and not be affected
by the deduction phase out increases. The amounts vary depending on filing
status.
Limit on elective deferrals. The maximum amount
of elective deferrals under a salary reduction agreement that can be
contributed to a qualified plan increases to $14,000 ($18,000 if you are age
50 or over). However, for a SIMPLE plan, the amount increases to $10,000
($12,000 if you are age 50 or over).
IRA
deduction expanded. The amount you, and your
spouse if filing jointly, may be able to deduct as an IRA contribution will
increase to $4,000 ($4,500 if age 50 or older at the end of 2005).
Charitable Contributions of Cars, Boats, and
Aircraft
If you donate a car to a
qualified organization after December 31, 2004, your deduction is limited to
the gross proceeds from its sale by the organization. This rule applies if the
claimed value of the donated vehicle is more than $500. However, if the
organization makes significant intervening use of or materially improves the
car, you generally can deduct its fair market value.
Boats,
aircraft, and other vehicles.
These rules also apply to
donations of boats, aircraft, and any vehicle manufactured mainly for use on
public streets, roads, and highways.
Acknowledgement required.
If the claimed value of the
car is more than $500, you must have a written acknowledgement of your
donation from the organization and must attach it to your return. If you do
not have an acknowledgement, you cannot deduct your contribution.
The acknowledgement must
include the following information.
-
Your
name and taxpayer identification number.
-
The
vehicle identification number or similar number.
-
A
statement certifying the car was sold in an arm's length transaction between
unrelated parties.
-
The
gross proceeds from the sale.
-
A
statement that your deduction may not be more than the gross proceeds from
the sale.
-
The date of the
contribution
However, if there was
significant intervening use of or material improvement to the car by the
organization, the acknowledgement does not have to include the information in
items 3, 4, and 5 above. Instead, it must contain a certification of the
intended use of or material improvement to the car and the intended duration
of that use and a certification that the vehicle will not be transferred in
exchange for money, other property, or services before completion of that use
or improvement.
This acknowledgement must be
provided within 30 days of the sale of the car or, if there is significant
intervening use or material improvement of the car by the organization, within
30 days of the contribution.
The organization also must
provide this information to the IRS.
Exemption Amount Increased
The amount you can deduct
for each exemption has increased from $3,100 in 2004 to $3,200 in 2005.
You lose all or part of the
benefit of your exemptions if your adjusted gross income is above a certain
amount. The amount at which the phase out begins depends on your filing
status. For 2005, the phase out begins at:
-
$109,475 for married persons filing separately,
-
$145,950 for single individuals,
-
$182,450 for heads of household, and
-
$218,950 for married persons filing jointly or qualifying widow(er)s.
If your adjusted gross
income is above the amount for your filing status, use the
Deduction for Exemptions Worksheet
in the
Form 1040 instructions to figure the amount you can deduct for exemptions.
This
articled is presented for information and educational purposes only and is not
intended to constitute legal, tax or accounting advice. The article profiles
only a very general summary of complex rules. For advice on how these rules
may apply to your specific situation, contact your professional advisor.
**************************************************************************************************************
C.W.
Barsness,CPA
A Professional Corporation
1845 W. Dobson Rd. Ste: 213 - Mesa, AZ 85202 - 480-345-6707
6268 S. Kings Ranch Rd. Ste: 1 - Gold Canyon, AZ 85218 - 480-288-2200
Dear Client:
On Oct. 22, 2004, the President
signed into law the American Jobs Creation Act of 2004. This massive tax law
replaces the U.S. export tax regime with broad-based tax relief for domestic
manufacturing, U.S. multinationals, and a wide variety of other businesses and
industries. It also includes a number of important changes for individuals.
Here's what you need to know right now about the more widely applicable tax
changes for individuals in this important new law:
New
Law Changes Affecting Individuals
New itemized deduction for state
and local general sales taxes. Individuals who itemize will be able to deduct
either state and local income taxes or state sales taxes on their 2004 and
2005 federal tax returns. Previously, only state and local income taxes were
deductible. Individuals who take the sales tax option may deduct their actual
sales taxes or use IRS-published tables. This change will primarily benefit
individuals in states with sales taxes but with no or limited individual
income taxes (i.e., Alaska, Florida, Nevada, New Hampshire, South Dakota,
Tennessee, Texas, Washington and Wyoming). But even individuals who live in
states that impose both income taxes and sales taxes may be affected. For
example, residents of states with an income tax and sales taxes should
determine whether their sales taxes for a particular year will exceed their
income taxes for that year. In some cases, they may want to bunch major
purchases into the same year so that sales and use taxes for that year will
exceed the income taxes paid for that year. By doing this, they can deduct
their sales and use taxes in one year, and their income taxes in another year.
Tougher rules for charitable
donations of autos. Tougher rules will apply to the charitable deduction for
autos (as well as boats and planes) donated to charity after 2004 if the
vehicle has a claimed value of more than $500. If the charitable organization
immediately sells the auto (for example, to a wholesaler) without making
material improvements to it, your charitable deduction generally can't exceed
the charity's gross proceeds from the sale. By contrast, under the pre-2005
rules, the charitable contribution deduction for a noncash contribution
(including an auto) generally equals the fair market value of the contributed
property. Thus, if you are thinking of donating an auto (or boat or plane),
you'll probably wind up with a bigger deduction if you make the gift this year
rather than next year. Beginning next year, tougher substantiation rules also
will apply to donated vehicles that have claimed value of more than $500
(e.g., the charity must provide a contemporaneous written acknowledgment of
the gift bearing a number of specific facts, such as the sales price if it
immediately sells the vehicle).
Statutory stock options are
officially free of FICA and FUTA. The Jobs Act provides that FICA and FUTA
taxes do not apply and income tax withholding isn't required when a statutory
stock option is exercised. This term refers to an incentive stock option or an
option to purchase stock under an employee stock purchase plan. The exercise
of a statutory stock option also is not taken into account to determine Social
Security benefits. Although these changes are effective for options exercised
after Oct. 22, 2004, the IRS had said back in 2002 that pending detailed
guidance it would not assess FICA or FUTA taxes, or require withholding, on
statutory stock options.
Tougher rules for nonqualified
deferred compensation plans. Under current rules, compensation deferred under
a nonqualified deferred compensation plan (one that isn't subject to the usual
tax rules that apply to pension plans) generally is taxed to the recipient
when it is no longer subject to a substantial risk of forfeiture. Effective
generally for amounts deferred in tax years beginning after 2004, a sweeping
new set of rules will apply. Amounts deferred under a nonqualified deferred
compensation plan will not be subject to a substantial risk of forfeiture (and
thus will not produce income tax deferral) if distributions from the plan can
be made for any reason other than passage of a certain period of time,
termination of employment, death, disability or unforeseeable emergency (e.g.,
financial hardship resulting from illness), or change of control in the
employer. There also won't be a substantial risk of forfeiture if funds are
held in certain specialized vehicles called offshore rabbi trusts.
Additionally, the plan will have to require that compensation for services
performed during a tax year may be deferred only if the participant so elects
no later than the close of the preceding tax year or at the time provided by
IRS regulations.
Please keep in mind that I've
described only the highlights of the most important changes in the new law.
Give me a call at your earliest convenience for more details on how you may be
affected by this important tax legislation.
Sincerely, -
Carol W. Barsness - Certified Public Accountant
*******************************************************************************************
C.W.
Barsness,CPA
A Professional Corporation
1845 W. Dobson Rd. Ste: 213 - Mesa, AZ 85202 - 480-345-6707
6268 S. Kings Ranch Rd. Ste: 1 - Gold Canyon, AZ 85218 - 480-288-2200
To Our Clients
and Friends:
On May 23rd,
Congress narrowly passed the third significant tax bill of the Bush presidency.
This one is called the Jobs and Growth Tax Relief Reconciliation Act of 2003.
The new law has nothing but good news for taxpayers because there are absolutely
no “revenue raisers” (better known as tax increases) included in the
package. In addition, some of the most favorable and important changes are
retroactive to January 1st of this year. As you will see, the people who will be
happiest about the new law are married couples with children under age 17,
investors, high-income individuals, and small business owners. That said, almost
everyone will find something to like in the 2003 Act.
Now for the
inevitable qualifier: in order to placate certain members of Congress, all the
favorable changes are subject to so-called sunset rules. So, all the breaks will
expire in future years unless Congress takes further action. With that thought
in mind, here’s the story on the new tax law and what it means for you.
Changes That Help
Almost Everybody
Future Rate Cuts Accelerated
Into 2003. Perhaps
most importantly, the individual income tax rate cuts that were included in the
2001 tax legislation but delayed until 2004 and 2006 are accelerated into 2003
by the new law. (When it comes to rate cuts, sooner is definitely better than
later.) It’s as if you woke up on January 1st with lower tax rates. (It’s
not just a dream; it really happened!) Salaried employees will find their
paychecks are increased when new tax withholding tables take effect this summer.
Now let’s get specific. Here are the rate reductions:
|
Old
Rate
|
|
New
Rate
|
|
|
|
|
|
27%
|
|
25%
|
|
30%
|
|
28%
|
|
35%
|
|
33%
|
|
38.6%
|
|
35%
|
|
|
|
|
The existing 10%
and 15% rates remain unchanged. Furthermore, under a sunset rule, your rates
will return to the pre-2001 Tax Act rates of 15%, 28%, 31%, 36%, and 39.6% after
2010 unless Congress takes further action. The 10% rate would disappear entirely
with 15% becoming the lowest rate.
Bigger
10% Bracket for Most Folks. In another favorable change, the
new law widens the 10% rate bracket effective back to January 1st. The 10%
bracket is expanded by $2,000 for married individuals who file jointly ($0 to
$14,000 versus $0 to $12,000 under prior law). The bracket is now $1,000 wider
for single filers and married individuals who file separately from their spouses
($0 to $7,000 versus $0 to $6,000 before). This means a bit more of your income
will be taxed at the lowest 10% rate. However, this break was not extended to
those who use head of household filing status (the 10% bracket continues to
covers the first $10,000 of taxable income as before).
Unless Congress
takes further action, these expansions of the 10% rate bracket will expire after
2004.
Major Relief for Married Taxpayers (Finally). The unfairness of the “marriage penalty” has been a
constant tax topic for many years. It just doesn’t seem quite right that
getting married in and of itself can actually cause a higher federal income tax
bill for the newly wedded pair. We have good news on this issue. While the 2003
Act doesn’t completely eliminate the problem, it nevertheless delivers
significant relief to joint filers. It also helps married persons who file
separately from their spouses. Here are the specifics:
·
Thanks to the new law, the 15% bracket
for those who file jointly is now twice as wide as the 15% bracket for single
filers. This means the 15% bracket for joint filers now extends to taxable
income of $56,800 (up from the old-law figure of $47,450).
·
The standard deduction for joint filers
has been made bigger too. It’s now $9,500, which is exactly double the amount
for single filers (up from $7,950 under prior law).
·
The 15% bracket for married filing
separate status is now the same as for single filers. So, the 15% bracket now
extends to taxable income of $28,400 (versus only $23,725 under prior law).
·
Finally, the standard deduction for
married filing separate status is now $4,750, which is the same as for single
filers (under prior law it was only $3,975).
Under yet another
sunset rule, all these favorable changes will last only for 2003 and 2004 unless
Congress takes further action.
Our New and Improved 2003
Federal Income Tax Rate Structure. This table includes all the
taxpayer-friendly new rules we’ve covered so far.
|
|
|
Single
|
|
Joint
|
|
Head
of Household
|
|
Married
Filing Separately
|
|
|
|
|
|
|
|
|
|
|
|
10%
Bracket
|
|
$0–7,000
|
|
$0–14,000
|
|
$0–10,000
|
|
$0–7,000
|
|
15%
Bracket
|
|
$7,001–28,400
|
|
$14,001–56,800
|
|
$10,001–38,050
|
|
$7,001–28,400
|
|
25%
Bracket
|
|
$28,401–68,800
|
|
$56,801–114,650
|
|
$38,051–98,250
|
|
$28,401–57,325
|
|
28%
Bracket
|
|
$68,801–143,500
|
|
$114,651–174,700
|
|
$98,251–159,100
|
|
$57,326–87,350
|
|
33%
Bracket
|
|
$143,501–311,950
|
|
$174,701–311,950
|
|
$159,101–311,950
|
|
$87,351–155,975
|
|
35%
Bracket
|
|
$311,951
and up
|
|
$311,951
and up
|
|
$311,951
and up
|
|
$155,976
and up
|
|
Standard deduction
|
|
$4,750
|
|
$9,500
|
|
$7,000
|
|
$4,750
|
Child Credit “Kicked up a Notch” to $1,000. For
2003 and 2004, the tax credit for each under-age-17 dependent child, stepchild,
foster child, or grandchild is raised to $1,000 (up from only $600 for 2002). As
under prior law, the credit is still subject to phase-out beginning at adjusted
gross income of $110,000 for joint filers, or $75,000 for unmarried individuals.
If you are
eligible for the credit, expect a tax rebate check from the government this
summer (probably in July or August). Based on information in your 2002 tax
return, you’ll automatically receive up to $400 for each child for whom you
claimed a credit last year (assuming the child is still under age 17 as of the
end of this year). However, if you have a qualifying child born this year,
you’ll have to wait and claim the credit when you file your 2003 return next
year (no automatic rebate check for you). One more thing: if you haven’t yet
filed your 2002 return, please get right on it. You won’t receive the
automatic rebate check until you file your 2002 return.
Now for the
sunset rule: unless Congress acts, the $1,000 child tax credit will fall back to
only $700 in 2005.
Alternative
Minimum Tax Relief. For 2003 and 2004, the
alternative minimum tax (AMT) exemption for joint filers goes up by $9,000 (to
$58,000 versus only $49,000 under prior law). For singles and heads of
households, the exemption rises by $4,500 (to $40,250, up from $35,750). For
those who use married filing separate status, the exemption also increases by
$4,500 (to $29,000 compared to the old-law figure of $24,500). These
more-generous exemption amounts are supposed to prevent all of your advertised
tax savings from being consumed by the AMT.
However, unless
Congress takes further action, the exemptions for 2005 and later years will fall
back to only $45,000, $33,750, and $22,500 respectively. Not good.
Great News If You
Invest in Taxable Accounts
Dividends
Now Taxed at Only 15% (Maybe Less). As long as
anyone can remember, dividends paid on stocks held in taxable accounts were
taxed as “ordinary income.” So, you paid your “regular” federal rate,
which could be as high as 35% under the new law (down from 38.6% in 2002).
Things have changed big time here.
·
For all of 2003 through the bitter end
of 2008, your qualified dividends from domestic corporations and qualified
foreign corporations will be taxed at no more than 15% (the same as the new
maximum rate on most long-term capital gains).
·
If you happen to be in the 10% or 15%
rate bracket (see the new rate table presented earlier in this letter), your
dividends will be taxed at only 5%. (For 2008, your rate will be an unbeatable
zero percent, but just for that single year.)
Naturally,
there’s a catch, but it’s not too bad. To be eligible for the new,
drastically reduced rates on qualified dividend income, you must hold the stock
on which the dividends are paid for more than 60 days during the 120-day period
that begins 60 days before the ex-dividend date (the last date on which
shareholders of record are entitled to receive the upcoming dividend). If you
fail this test, your dividends are taxed at your regular rate (up to 35%). Also,
a slightly longer holding period applies to preferred stock.
Observation: Unfortunately,
this change doesn’t help a bit for dividends received by tax-deferred
retirement accounts (such as 401(k), SEP, Keogh, and traditional IRAs).
Dividends that you accumulate in these tax-deferred accounts will still be taxed
at your regular rate (up to 35%) when withdrawn as cash distributions. (As
before, dividends accumulated in Roth IRAs can be withdrawn tax-free if you meet
certain guidelines.)
Needless to say,
the dividend break has a sunset rule too. Unless Congress acts, dividends
received in 2009 and beyond will once again be taxed at your regular rate.
Ditto
for Long-term Capital Gains. We have more good news. If you
invest in securities via taxable accounts, your long-term capital gains from
sales after May 5, 2003 will be taxed at no more than 15% (down from 20% under
prior law). Those in the 10% or 15% rate brackets will pay only 5% on long-term
gains from sales after the magic date (in 2008, the rate will be zero percent,
but just for that one year). These same much-reduced rates also apply to the
long-term capital gain component of installment sale payments you receive after
May 5th of this year. So far, so very good. However, the rates for certain types
of gains were not reduced by the 2003 Act.
·
A maximum rate of 25% remains in effect
for long-term real estate gains attributable to depreciation deductions claimed
against your property (“unrecaptured Section 1250 gains”).
·
A maximum rate of 28% remains for
long-term gains from sales of collectibles and certain small business stock.
·
Finally, long-term capital gains from
sales that occurred before May 6 of this year will be taxed at the old-law rates
(20% maximum rate for gains in the higher brackets, 10% maximum rate for gains
within the 10% and 15% brackets, 8% for five-year gains within the 10% and 15%
brackets).
Observation: The
new, lower capital gains rates don’t apply to investments held in tax-deferred
retirement accounts (such as 401(k), SEP, Keogh, and traditional IRAs). Gains
that you accumulate in these tax-deferred accounts will still be taxed at your
regular rate (up to 35%) when withdrawn as cash distributions. (As before, gains
accumulated in Roth IRAs can be withdrawn tax-free if you meet certain
guidelines.)
One more thing:
unless Congress acts, long-term capital gains will once again be taxed under the
“old rules” in 2009 and beyond.
Great News for Small Business
Owners, Too
Huge
Increase in Annual Section 179 Allowance. If you own a
small business, the very best part of the new law from your perspective may be
the huge increase in the Section 179 first-year depreciation break. Under the
much-loved Section 179 rule, you can generally instantly deduct 100% of the cost
of most new and used personal property (non-real estate) assets in the year you
place them in service. Until the new law, however, this year’s Section 179
deduction was limited to $25,000. That was then. You can now deduct up to
$100,000 for tax years beginning in 2003, 2004, and 2005 (subject to a taxable
income limitation and another limitation if you add over $400,000 of qualifying
assets during the same tax year).
Bottom
line: Many
small businesses can now deduct the entire cost of all equipment additions in
the first year. No more complicated multi-year tax depreciation schedules!
(Nobody is going to miss those things.)
The 2003 Act also
makes most computer software eligible for the Section 179 deduction, which means
you can deduct the whole cost in the year of purchase. (Under prior law, you
generally had to depreciate software costs over 36 months.)
What about the
sunset rule you ask? Good question. The favorable Section 179 changes will cease
to exist after 2005 unless Congress acts. So if nothing happens, the Section 179
allowance will fall back to only $25,000 for tax years beginning in 2006 and
beyond.
Bigger and Better Bonus Depreciation Break. Last year’s tax legislation introduced a new first-year
bonus depreciation deduction equal to 30% of the cost of new (but not used)
assets with a normal depreciation recovery period of 20 years or less. The 2003
Act takes the bonus depreciation idea and makes it bigger and better.
For qualifying
assets acquired after May 5, 2003 and before 2005 (and placed in service before
2005, or 2006 for certain assets with long production periods), you can deduct a
whopping 50% of cost in the first year. Wow! This break is available regardless
of the size of your business. Qualifying assets acquired before May 6th of this
year are still eligible for 30% first-year bonus depreciation.
Under a sunset
rule, however, the bonus depreciation rule will vanish after 2004 unless
Congress takes further action.
More
Bonus Depreciation for Business Autos, Too. If you use a
car for business purposes, you are no doubt aware of the incredibly unfavorable
depreciation rules. Until now, the maximum first-year depreciation write-off for
a new (not used) vehicle placed in service this year was a paltry $7,660. Thanks
to the new 50% bonus depreciation break, you can deduct up to $10,710 worth of
first-year depreciation for new (not used) vehicles acquired after May 5th of
this year. For new autos acquired this year but before May 6th, the maximum
first-year depreciation deduction is still only $7,660 (under the 30% bonus
depreciation rule). For used vehicles placed in service at any time this year,
the maximum first-year depreciation deduction remains at only $3,060.
Micro-break
on Corporate Estimated Tax Payments. Corporations
qualify for a break on this year’s estimated tax payments. Specifically, 25%
of the installment otherwise due in September can be postponed until October 1st
without penalty. Please hold your wild applause! Still, it’s better than
nothing.
Conclusion
You now
understand the basics on all the changes included in the new tax law. Obviously,
we cannot cover the fine details here. If you have questions or want more
information, please don’t hesitate to call. We are at your service.
Sincerely;
Carol
W. Barsness, C.P.A.
**********************************************
C.W.
Barsness,CPA
A Professional Corporation
1845 W. Dobson Rd. Ste: 213 - Mesa, AZ 85202 - 480-345-6707
6268 S. Kings Ranch Rd. Ste: 1 - Gold Canyon, AZ 85218 - 480-288-2200
November 10, 2004
Dear Clients & Friends:
With
many tax law changes, please read the following.
As the end of the year approaches,
it is a good time for you to engage in tax planning. You know your tax picture
from earlier in the year and you have a pretty good idea of what it will be
for the rest of the year. With that knowledge in hand, you are now in a
position to take various actions that may save taxes for this year, next year,
or both years.
A recent flurry of tax legislation
may have an impact on your year-end tax planning for 2004. The American Jobs
Creation Act of 2004 allows taxpayers who itemize their deductions to deduct
state and local general sales and use taxes in 2004 and 2005, instead of
deducting state and local income taxes. This option can benefit taxpayers
living in or moving to states with no income tax and others, depending on
their particular situations.
The Jobs Act also creates tougher
deduction and substantiation rules for post-2004 charitable contributions of
autos, thereby giving taxpayers an incentive to donate autos in this year
rather than the next.
The Working Families Tax Relief
Act of 2004 extends certain credits through 2005, keeps the child tax credit
at $1,000 through 2009, and extends marriage penalty relief. A special
deduction for educators who incur teaching-related expenses has been extended,
too (through 2005). On the other hand, “bonus” first-year depreciation was
not extended by recent tax legislation. Thus, it generally won't be available
for assets bought and placed in service after 2004.
We have compiled a checklist of
actions that may help you to save taxes if you act before year-end. Not all
actions will apply to everyone, but many clients will benefit from numerous
items. We can narrow down the specific actions that you can take once we meet
with you to tailor a particular plan. In the meantime, please review the
following list and contact us at your earliest convenience so that we can
advise you on which tax-saving moves to make:
- Increase
the amount you set aside for next year in your employer's health flexible
spending account so that you can get tax-free reimbursements for
over-the-counter drugs, such as aspirin and antacids.
- If
you have any capital gains or losses from sales of stock or other capital
assets or you have stock or other capital assets that are ripe for sale,
it may be advisable for us to meet to discuss how you can best coordinate
timing your gains and losses to minimize tax on your gains and maximize
the tax benefit from your losses.
- You
may be able to take steps to convert investment income taxable at regular
rates (e.g., interest income) into qualifying dividend income taxed at a
top rate of 15%.
- It
may be advantageous to try to arrange with your employer to defer your
bonus until 2005.
- If
you own an interest in a partnership or S corporation you may need to
increase your basis in the entity so you can deduct a loss from it for
this year.
- Consider
using a credit card to prepay expenses that can generate deductions for
this year.
- You
may want to pay contested taxes to be able to deduct them this year while
continuing to contest them next year.
- Business
clients should consider putting new equipment in service before year-end
to get a 50% bonus first-year depreciation allowance, plus regular
depreciation deductions on the remaining adjusted basis. 2004 is the last
year for the bonus.
- Business
clients also should consider making expenditures that qualify for the
$102,000 business property expensing option.
- You
may want to settle an insurance or damage claim in order to maximize your
casualty loss deduction this year.
- You
may be able to save taxes this year and next year by applying a bunching
strategy to “miscellaneous” itemized deductions, medical expenses and
other itemized deductions.
- Those
facing a penalty for underpayment of estimated tax may be able to
eliminate or reduce it by increasing their withholding.
- Self-employed
individuals should consider setting up a self-employed retirement plan.
- You
can save gift and estate taxes by making gifts sheltered by the annual
gift tax exclusion before the end of the year. You can give $11,000 each
year to an unlimited number of individuals but you can't carry over unused
exclusions from one year to the next.
- If
you're thinking of donating a used auto to charity, consider doing so
before 2005 in order to maximize your deduction.
- Those
who are contemplating marriage or divorce need to watch out for how
marriage penalties could affect them. Marriage penalty relief has been
extended for the 15% tax bracket and the standard deduction but other
marriage penalties remain.
- Those
receiving Social Security benefits should consider taking a number of
steps to reduce or eliminate tax on their benefits. Workers may want to
ask their employers to increase withholding of state and local taxes to
pull the deduction of those taxes into this year (but only if doing so
won't cause an AMT problem).
- Consider
extending your subscriptions to professional journals, paying union or
professional dues, enrolling in (and paying tuition for) job-related
courses, etc., to bunch into 2004 miscellaneous itemized deductions
subject to the 2%-of-AGI floor.
- Depending
on your particular situation, you may also want to consider deferring a
debt-cancellation event until 2005, electing to deduct investment interest
against capital gains, and disposing of a passive activity to allow you to
deduct suspended losses.
These are just some of the
year-end steps that can be taken to save taxes. Again, by contacting us, we
can tailor a particular plan that will work best for you.
Very truly yours,
Carol W. Barsness, CPA
**********************************************
 C.W.
Barsness,CPA
A
Professional Corporation
1845
S Dobson Rd., Ste. 213 6268
S. Kings Ranch Rd., Ste. 9
Mesa,
AZ 85202 Gold
Canyon, AZ 85219
Phone
(480) 345-6707 Phone
(480) 288-2200
Fax
(480) 345-2636 Fax
(480) 288-2225
October 13, 2004
Many taxpayers receive social security
benefits and depending on the adjusted gross income
combined between the taxpayer and spouse, the social security benefits
may be taxable.
Worksheet
to Figure Taxable Social Security Benefits
Many of those who
receive Social Security retirement benefits will have to pay income tax
on some or all of those payments.
More specifically,
if your total taxable income (wages, pensions, interest, dividends,
etc.) plus any tax-exempt income, plus half of your Social Security
benefits exceed $25,000 for singles, $32,000 for married filing jointly,
and $0 for married filing separately, the tax man will want a cut of
your benefits.
The taxable
portion can range from 50 to 85 percent of your benefits. The worksheet
provided can be used to determine the exact amount.
Social
Security worksheet for Form 1040
Social
Security worksheet for Form 1040A
The file is in
Adobe portable document format (PDF), which requires the use of Adobe
Acrobat Reader.
To get a free
version of Adobe Acrobat Reader software, go to the Adobe
web site.
For more
information, see our
discussion of the taxation of Social Security benefits.
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This
income tax update is provided by Carol W. Barsness, C.P.A. Carol has 2 offices
in the East Valley area (including Gold Canyon). She is the treasurer of the
Gold Canyon Business Association. Her company website provides a wealth of
additional information. You may view it by
CLICKING HERE
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