Happy New Year
Hope everyone had a great Holiday Season and is now ready to make 2010 a better year. Good Riddance to 2009!
The Dallas Southwest Dental Conference is next week, starting Thursday morning at 10:00 (January 21st) and continuing through Saturday afternoon (January 23rd) at the Dallas Convetion Center. I would like to invite everyone to come by our Booth #920 (directly across from Patterson Dental) to visit with us. We take this opportunity each year, to visit with vendors and continue our search for new vendors to provide services to our clients. It is at the DSWDC that we make new contacts that will benefit our clients into the future. Please come by our booth to chat while you are in attendance. This is your opportunity to check out all the new products, build relationships and have a good time in a relaxed setting with your colleagues.
For those clients that choose to have us do your tax planning at the end of 2009, thank you. You have taken the first step toward getting control over your future. We will follow this up with several meetings over the course of 2010 to discuss practice issues and show you some ways in which you can practice more efficiently. This will translate into more dollars in your pocket and/or retirement plan.
In the meantime, let us know if we can do anything for you. We are constantly working on refinancing for our client’s loans, setting up retirement plans or just answering questions about the tax effect of buying new equipment. Keep in mind, we expect to see a lot of changes in the tax code this year. Stay tuned to this blog for further details, as they happen.
Stock Market
I am tired of all the people I hear complaining about how bad the stock market is doing. This is the best year I have seen in the market since 1999! Yes, the market was down 35% last year. Our client did a little better, about 30%. But this year, only through August 28th 7 of the 10 mutual funds into which we invest our client’s money are up almost 30%. That would be 45% on an annualized basis, which I am not saying will happen. But a 30%+ return is certainly something to sit up and take notice of. Look at it this way. If you don’t fund your retirement plan because you are afraid the market is going to go down, you are going to lose 28% to 35% on your money to taxes anyway, with no chance of a recovery. At least when you invest in the stock market, there is some chance of recovery down the road.
Tax Update
According to my most recent (August 7th) newsletter, it now looks like we won’t have a tax increase until 2011. And depending on how the health care reform shakes out, it may not be considered necessay to implement the 10% surtax on those with adjusted gross incomes in excess of $250,000. It is still not clear what Congress intends to do regarding depreciation deductions for 2010. As it stands now, the 50% bonus depreciation will expire at the end of 2009. And the deduction under IRS Code Section 179 (for new equipment purchases) will roll back to $125,000 (from the current $250,000), adjusted for inflation. This will affect those clients who are planning on starting new dental practices in 2010. As we continue to wind down the tax preparation season for the year, we are beginning to focus more on refinancing debt for many of our clients. This can often “free-up” enough dollars to completely fund a retirement plan. For those of you that want us to analyze your situation, give the office a call. We are trying to analyze all clients, but it is time consumming to get around to all approximately 300 dental clients. We will continue to do our best, but a phone call gets you to the top of the list.
Regarding the economy, a new survey of small and midsized CPA firms indicates that they see signs of economic recovery coming by the end of the year. Another survey of manufacturing and wholesale distributors sees the economy rebounding from the recession in late 2009 and early 2010. Good to know, huh? Together with the recent spat of articles in the news media, maybe we really are getting close to a turnaround. Now, if we can just get everyone back to work……….
Update of Tax Changes
As of May 15th here are more changes to consider when anticipating your taxes for 2009.
Some good news, believe it or not. In the true spirit of loopholes, the Obama administration has inadvertently lowered taxes on taxpayers that fall close to the upper limit of the 28% tax bracket for 2011. The way this works is the upper limit of the 28% bracket will move from $210,000 now to about $250,000 in 2011. So, the $40,000 between those two amounts will be taxed at 28% in 2011 compared to 33% today. Quit reading here if all you want is good news. The rest isn’t going to be pretty.
The income to be taxed at the new higher rates will be that above $250,000, not some lower amount which had been discussed previously.
The tax rate on capital gains will increase from 15% now to 20% in 2011, maybe sooner.
The phaseout for itemized deductions which is set to expire after the 2009 tax year, will be reinstated for uppers income earners in 2011 and later years. Right now it looks like there will be no phaseout of itemized deductions for any taxpayers in 2010. It also looks like the itemized deductions will not be allowed to reduce taxable income below the 28% tax bracket although there is a lot of political opposition to that proposal.
From a compliance standpoint, the President is proposing the corporations be forced to issue 1099’s to everyone, not just individuals, to which they pay more than $600 a year.
Independent contractors would be subject to withholding if they don’t provide a valid tax id number to the person for which they are providing services.
Employee leasing firms would be liable for unpaid payroll taxes, removing the employer from the burden of making those payments.
Estate taxes will be kept at this year’s level of $3.5 million. But estate planning will get trickier for those of you using the family limited partnerships for that purpose. The proposed rules include restrictions on valuation discounts for family limited partnerships making them less attrative to reduce the overall value of an estate.
The social security wage base is expected to remain the same for 2010, the first time since 1971 that the base amount on which social security taxes are assessed did not increase. In addition, there has been some talk of the social security tax rates increasing. This will not happen in 2011.
There has been a lot of discussion of the new sales tax deduction for new car purchases made between Feb. 16, 2009 and Jan. 1, 2010. The issue is the cap on the value of the new car on which the sales tax can be deducted. That cap is $49,500. Now, the IRS is saying they will allow the cap to be deducted for each car. Not just a single cap per taxpayer. So, if you buy two new cars this year, you can take the deduction for the sales tax on the first $49,500 cost of each vehicle, even if you don’t itemize.
That summarizes the most recent changes to the tax laws. But I am sure there will be many more proposals and we will try to keep you updated as they happen. As we approach the last half of the year, it will become more important to consider these changes in your tax planning meetings with us.
As always, please call us with any questions.
President Obama’s plans for April 15th
President Obama spoke at a White House event on tax deadline day and had plenty to say about the future of taxes in this country. He said that his administration is working toward “a simpler tax code that rewards work and the pursuit of the American Dream”. The President also noted that he has asked his economic advisors to throughly review how to simplify the tax code and report back to him by the end of this year. He further stated, “We need to simplify a monstrous tax code that is far too complicated for most Americans to understand, but just complicated enough for the insiders who know how to game the system”. “It will take time to undo the damage of years of carve-outs and loopholes. But I want every American to know that we will rewrite the tax code so that it puts your interests over any special interest. And we will make it quicker, easier and less expensive for you to file a return, so that April 15 is not a date that is approached with dread each year”. Political rhetoric? Certainly. Have we heard it before? Yes. But I have a feeling this President will actually try to do something about the tax code. Will he succeed? In my wildest imagination, I cannot imagine a revision of the existing tax code that would accomplish what he is trying to accomplish. I think he will have to scrap the existing system and initiate something entirely different to have a working chance of “changing” the system. If he is successful, it will enable those of us who become mired in the preparation of tax return preparation each year, to spend our time being more productive on behalf of our clients. And that is as it should be. So much of our time is now taken up by compliance work that is required by the government, that any actual productive work for our clients may get pushed to the back burner. As always, stay tuned for the changes as they happen.
Sunday, April 5, 2009
It has been awhile since my last entry. Seems like lots of things have happened since then. We are in the middle of tax season here at Edwards & Associates, so I will try to give some advice that will help you avoid IRS penalties and, perhaps even lower your tax liabililty.
Reminder: the estimated tax payment for the 1st Quarter of 2009 must be postmarked by Wednesday, April 15th. If you need a coupon or some help in determining how much to send to the IRS, get in touch with our office immediately. Remember, we need some time to calculate these amounts for you, if you need our help, so give us some time to make an accurate estimate for you.
Also, if you want to fund your IRA account for 2008, the deadline is April 15th.
And, of course, if you owe a balance on your 2008 taxes, the deadline to make that payment is also April 15th. Filing an extension does not give the taxpayer more time to PAY the tax, only more TIME to file an accurate tax return. If you don’t know yet, whether you will owe or not, we can help you calculate the amount to send with your extension to avoid penalties. Get in touch with our office and let us help you. It frustrates me each year to see how much in penalties our clients pay to the IRS. It is often times more than you pay us to prepare your tax returns!
Since my last blog, the stock market has completed its best month in over 7 years. Does this mean the market has turned around? I wish I knew. But what I do know is that if you don’t fund your retirement plan out of fear of further market declines, then you will lose some of your money with no chance of a recovery. That is because of paying higher taxes without funding your retirement plan. For instance, lets say you are in the 33% tax bracket and elect not to fund retirement this year. Then you will lose 33% of what you would have funded, to taxes. Therefore, if you go ahead and fund the retirement plan, and the market suffers further declines, but less than 33%, then you are still better off. And the market just might recover at some point during the next few years. So, I am still a big proponent of funding for retirement, every year. We can help you to invest those dollars into something with more stability than the stock market, if you so desire. A retirement plan can invest in CD’s and money market accounts, as well as the stock market. Get in touch with us to help you decide which investments are right for you.
Our newly elected President has certainly been busy since my last posting in mid-February. I am not going to try to cover all of the changes that he is proposing in this space, at least not today. But he is in the middle of budget negotiations with Congress and has proposed his healthcare reform. The insurance companies have already reacted to some of his proposals and this may help lower health insurance costs for all of us. We will continue to monitor this and his other proposed changes as they develop.
That is about all there is time for now. Back to reviewing tax returns. Get in touch with our office if there is any way we can help you.
The American Recovery & Reinvestment Act of 2009
Well, Congress finally got it’s act together and passed the “economic stimulus” bill that President Obama wanted. Now all we have to do is wait and see if it stimulates the economy. Some provisions of the bill that might interest (or amuse) you are outlined below.
Regarding the Alternative Minimum Tax (AMT); the exemptions for 2009 were raised to $70,950 for married filing jointly and $46,700 for singles. In 2008 the exemptions were $69,950 and $46,200, respectively. This means those of you who are subject to the AMT will pay a little less of it with your 2009 taxes than you did for 2008.
The deduction for new equipment purchases under IRS Code Section 179 has been reestablished at 2008 levels of $250,000 and the 50% bonus depreciation have been extended through the end of 2009, both retroactive to January 1, 2009.
The first-time homebuyer credit has been increased to $8,000 and the requirement to repay it has been dropped. However, you have to live in the new home at least three years or you will have to recapture the credit in full. This is for qualifying purchases after December 31, 2008 and expires November 30, 2009. This credit phases out at Adjusted Gross Income (AGI) in excess of $150,000 on a joint return.
Sales tax on new autos will now be deductible “above the line”, limited to the first $49,000 of cost for vehicles purchased on or after the enactment of the new law. It expires December 31, 2009. This deduction is phased out at AGI $250,000 on joint returns.
The Child Tax Credit has been increase to $3,000.
The Hope Credit has been expanded to include all four years of college and the maximum amount of the credit was increased to $2,500 per year. This credit is phased out at AGI $160,000 for joint filers. It has also been renamed the American Opportunity Tax Credit.
A new credit is the Making Work Pay credit. This is a tax credit of 6.2% of earned income up to a maximum of $400 (for the credit) or $800 on a joint return. This is phased out at AGI $150,000.
The first $2,400 of unemployment compensation will not be subject to taxes in 2009.
For 2009 and 2010 beneficiaries of qualified tuition programs, like 529 Plans, can receive tax exempt distributions for required purchases of computers and computer technology, including internet access fees.
The new law decreases estimated tax requirements for individuals whose income is derived primarily from a small business. The new law allows computation of your 2009 Federal Estimated Taxes to be based on 90% of your 2008 liability instead of the 110% safe harbor provision in past years. To qualify, your AGI must be less than $500,000 and you must certify that more than 50% of the income on your prior year tax return comes from a qualifying small business.
The exclusion of gain on the sale of qualified business stock has been increased from 50% to 75% for sales of small business stock occuring after the date of enactment and before January 1, 2011.
Those are just some of the major highlights of the new law. President Obama is expected to sign this law today, February 17th. As we learn of more changes that will affect our clients we will post them here.
As you can tell from the various paragraphs above. Many, if not all, of the changes come with “phase-outs” at certain levels of income. It appears that our new President is keeping to his word of taxing those making more money more heavily than those of lower income levels.
Change is on the Way
President Obama and Congress are now well on their way to making the first in what will certainly turn out to be a long list of changes to try and turn the economy around. Even as the President signs his $900 Billion Economic Stimulus Act, Congress is busy putting together changes to the tax code that will affect us all, some more than others. It now looks like the 50% Bonus depreciation will return for 2009 and we now expect the limits on deductions for new equipment purchases under IRS Code Section 179 to be increased back to $250,000, also for 2009. These changes should be signed into law by mid-February and will likely be retroactive to the beginning of the year. There are several additional changes that will affect those with adjusted gross incomes of less than $100,000. Those are too numerous to go into here, but contact us if you have any questions about those. We will keep you informed of the major changes as they become a part of the President’s stimulus plan.
New Administration Changes
Welcome to our blog. Today we start a new chapter in our nation’s history. One the likes of which we have never seen before. We expect many changes that will affect the amount of taxes our clients will be paying in the future. Those changes will also affect the amount our clients are able to set aside for retirement. In addition, we expect to see major changes in the cost of health insurance. This blog is intended to be the source of that information for our client’s benefit. President Obama will go to work tomorrow morning and begin making decisions that will affect every one of us. From higher taxes to how much we will all be paying for energy sources in the future. At the same time, we will attempt to bring you those changes so that you will know what to expect and together we can plan on how to deal with the changes to maximize your retirement savings and minimize your taxes. Stay tuned.
2009 Southwest Dental Conference
We’re getting ready for one of the industry’s biggest events, and we’d love to see you there! The 2009 Southwest Dental Conference will be held at the Dallas Convention Center on January 22, 23 and 24. It’s your opportunity to check out new products and services, build relationships and have a good time with your colleagues. While you’re there, look for the Edwards & Associates booth – #918 – across from Patterson Dental. We look forward to seeing you soon!
Southwest Dental Conference
January 22-24
Dallas Convention Center
650 S. Griffin Street
Dallas, TX 75202