The Tax Relief Act of 2012 also repeals the 2% recapture tax for individuals that were paid more than $18,350 in January and February 2012, which was meant to keep those individuals from gaining more benefits from the temporary tax cut than those not paid more than that amount.

What does this mean for you? Basically, it means that the status quo remains the same.  Your employees who are subject to social security tax will still see the same 2% tax reduction they have seen since January 2011.  Be sure to thank your congressperson.

The minister is solely responsible for the entire Social Security & Medicare liability, regardless of whether the minister has opted-out of self employment tax.  Ministers cannot opt-in to having Social Security & Medicare taxes withheld.

But ministers, don’t worry! You’re not doomed to a big tax bill in April!  We recommend that if ministers choose not to opt-out of self employment tax (by filing Form 4361 with the IRS), that you elect to have an additional amount of income withheld above the regular federal income tax withholding to make up for the shortfall – you can indicate an additional flat amount on box 6 on Form W-4.  Keep in mind the self employment tax rate is 13.3% for 2011.

Also, church administrators, if you’re not sure if you’re handling Social Security & Medicare taxes for ministers correctly, give us a call.  We’d be happy to review your records and get you heading in the right direction!  Also, a great resource is Publication 15-A from the IRS (http://www.irs.gov/pub/irs-pdf/p15a.pdf) which gives guidance on this and many other employment tax matters.

• Guidance on the IRS website walks you through the process of determining the classification of a worker
  • http://www.irs.gov/businesses/small/article/0,,id=99921,00.html
• IRS Form SS-8
  • This form permits you to request a determination of the classification of a worker.
  • http://www.irs.gov/pub/irs-pdf/fss8.pdf

Another January has come and gone, and for us accountants, that means the headache of 1099’s is behind us for another year. The best way to avoid those January woes is to stay on top of collecting W-9’s throughout the year. Here’s a brief rundown of who you need to collect a W-9 from and then who you need to send a 1099.

Who should I collect a W-9 from?

It is a good practice to collect a W-9 from all new vendors. However, you won’t need to issue 1099’s to corporations (unless they provide legal or medical services), so you really only need to collect a W-9 from individuals, partnerships, LLC’s and all legal and medical practices.

Who should I send a 1099 to?

A 1099 must be sent to all eligible recipients when over $600 payments are made in the calendar year. The 1099 amount is determined by payments made, not by the amount that has been invoiced. Take a look at a W-9. Here’s a quick rundown of how the federal tax classification determines if the vendor should receive a 1099:

• Individual/sole proprietor – A 1099 must always be issued if the payments were for services. Notable exceptions include expense and mileage reimbursements/advances and benevolence.
• C Corporation – Unless the vendor provides legal or medical services, a 1099 does not need to be issued to C corporations.
• S Corporation – Unless the vendor provides legal or medical services, a 1099 does not need to be issued to S corporations.
• Partnership – A 1099 must always be issued to partnerships.
• Trust/estate – A 1099 must always be issued to trusts and estates.
• Limited liability company – If the LLC doesn’t identify their tax classification, go ahead and issue them a 1099.
  • C – LLC’s that have elected to be taxed as C corporations do not need to be issued a 1099 unless the vendor provides legal or medical services.
  • S – LLC’s that have elected to be taxed as S corporations do not need to be issued a 1099 unless the vendor provides legal or medical services.
  • P – LLC’s that have elected to be taxed as partnerships must always be issued a 1099.

These growth numbers, coupled with a modest, normal inflation forecast of 2.5%, make 2011 the most economically optimistic year in recent memory. While the U.S. economy still has a long way to go to make up for the losses of the past few years, 3.5% growth is a good start.

To qualify for the 100% bonus depreciation, the equipment purchased must be new, not used, and have a MACRS recovery period of 20 years or less. Taxpayers are not required to claim the depreciation bonus.

We will keep you posted on any changes or updates.

Perhaps the biggest impact of the Tax Relief Bill is its extension of the “Bush Tax Cuts.”   The Bush Tax Cuts were two pieces of legislation passed in 2001 and 2003 that, among other things, lowered the federal tax rates across the board.  Had the tax cuts been allowed to expire, as they were set to do at the end of 2010, the tax rates would have reset, increasing the top rate back to 39.6% and completely eliminating the 10% tax rate.  The tax rates are now in place until the end of 2012.

The Bush Tax Cuts also cut the tax on capital gains and dividends from the ordinary income tax rate you paid on all income to a maximum of 15% for individuals in a tax bracket greater than 15% and to 0% for those in the 10% and 15% tax brackets.  This limitation on capital gains and dividend taxation will be around for at least another two years.

Another big impact of the Tax Relief Bill is a reduction of social security tax for employees and self-employed individuals.   Currently employees pay 6.2% on their earnings (withheld from their paycheck) and self-employed individuals pay 12.4% on net income.  The Tax Relief Bill reduces these amounts to 4.2% and 10.4%, respectively.  For employees, this means that you should see extra in your paycheck for all of 2011.

Several of the tax credits that were affected are the extension of the American Opportunity Tax Credit (provided for higher education) for two years, the Child Tax Credit is now refundable for two years, and the Earned Income Credit has been expanded to include more families.

The IRS has announced an unintended consequence of the passing of the Tax Relief Bill.  They have indicated that certain filers, particularly those who file Schedule A to claim itemized deductions, will not be able to file as early this year due to additional time needed to update the appropriate forms.  They have not set a particular date; however, the IRS has indicated that the forms should be ready sometime in mid-February.  We will post more information once we know when the forms will be ready.

Effective for tax years beginning after 2009, cell phones and similar telecommunications devices used for business are no longer subject to the ultra-strict recordkeeping requirements that formerly applied.  This retroactive change has some taxpayer-friendly consequences.  For instance, a self-employed individual is no longer required to keep detailed usage records to prove that a cell phone is used for business.

However, if the individual has only one cell phone used for both personal and business purposes, some recordkeeping will still be necessary to determine allowable business deductions.  An employee who uses a personal cell phone for his or her employer’s business can now claim the related costs as a miscellaneous itemized deduction without having to prove the phone usage was for the employer’s convenience.

Please let us know if you have any questions, and we’ll be glad to help out in any way.

You will want to figure your total housing expenses for 2010; i.e. that is how much you have spent to date.  Be sure to include your estimate for the remainder of December, as well.  Once you have this total, you will fall into one of three categories listed below:

• On Track:  Your projected housing expenses are relatively close to your housing allowance that is projected to be received from the ministry.  Thus, no adjustments are needed at this time.

• More Housing Income than Expenses:  If you are projecting to have less housing expenses than what you are projecting to be paid in housing allowance, then you may want to proportionally reduce your housing income for the rest of the year and receive the income as regular taxable income (W-2 income).

• More Housing Expenses than Income: If you are projecting to have more housing expenses than what you are projecting to be paid in housing allowance, then multiple steps need to occur.  We can help walk you through these steps if needed:
  1. Confirm that additional housing income can be received and still be below your Fair Rental Value.
  2. Request that the Board of Directors of your church, designate the additional income you will need as housing allowance, in advance.  We have a template for designating an additional amount for housing allowance throughout the year, when a minister becomes aware he needs to have an additional amount designated.  Please just let us know if you need assistance with this process, and we would be happy to help.
  3. Adjust your payroll accordingly.

Please let us know if you have any questions, and we’ll be glad to help out in any way.