Youmans & Gardner, LLC | Certified Public Accountants

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February 4, 2013

Thank you farmers

Great super bowl commercial from Ram Trucks! Youmans & Gardner, CPAs appreciate our farmer clients and look forward to serving them.

The narrative is from a speech given by Paul Harvey at the 1978 National FFA Convention.

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January 9, 2013

Action Alert: Expiration of Employee's Social Security Withholding Rate Decrease

On December 31, 2012 the 2011—2012 reduction in the withholding rate for Old Age, Survivors and Disability Insurance (“OASDI”), commonly referred to as Social Security, will expire. The law which decreased the tax from 6.2% to 4.2% was set to expire automatically at the end of 2012 and Congress has not extended the provision.

Background

The Federal Insurance Contributions Act (FICA) imposes two taxes on both employers and employees. The first tax is for OASDI and the pre-2011 rate was 6.2% of the wage base ($113,700 for 2013). The second is for Hospital Insurance, commonly referred to as Medicare Tax, and the rate is 1.45% with no wage limitation. The taxes are withheld from employees’ paychecks and matched by employers, so each employee normally pays a combined 7.65% (up to the wage base and 1.45% above the wage base) and each employer pays 7.65% with the same limitation on wages. Self-employed individuals pay both portions of the tax or 15.3% up to the wage base and 2.9% above the wage base.

Scope

The increase in OASDI tax applies only to the employees’ withholdings, not the employer’s match; therefore, employees will now pay 6.2% OASDI and 1.45% Medicare tax under the increased rates, which are the same rates employers pay. Self-employed individuals will pay 15.3% after 2012.

Action You Should Take

Effective for all payroll checks dated after December 31, 2012, employers should begin withholding 6.2% for OASDI and 1.45% for Medicare or a combined 7.65%. Clients using software to prepare their payroll checks will need to update their payroll tax tables prior to entering the first payroll in 2013. Those clients using the calculating payroll module of Client Bookkeeping Solution will receive an update from us on January 2, 2013.

If you need our services to help in calculating your employees’ taxes or would like to discuss how our payroll preparation service—a component of our Controller & Internal Accounting Services—could benefit you, please contact our office. You can also visit our website, www.ygcpafirm.com, for more information on our services and other news articles.

Our office will be closed Monday, December 24 through Tuesday, January 1, 2013 for the Christmas and New Year’s Day holidays. We will reopen on Wednesday, January 2, 2013 at 8:30 AM.

Keeping you informed is another way that Youmans & Gardner is “A Partner in Your Financial Future.”

December 19, 2012

2012 Year-end Action List

Many of these tax saving ideas are based on the likely increase in ordinary and long-term capital gain tax rates after 2012. If Congress and the President extend some or all of the expiring provisions these ideas may no longer be advantageous. We recommend that you consider these items and make plans to implement any that may benefit you, but contact us for any last minute legislation and its impact on your tax situation.

Consider selling long-term capital gain property in order to pay tax at a maximum federal rate of 15%. This only makes sense for appreciated property that you expect will continue to appreciate. You can immediately repurchase the asset since wash sale rules do not apply to gains. You would pay tax on the gain at current long-term capital gain rates and only future appreciation would be subject to likely higher tax rates and the Medicare surtax (see “2013 Medicare Surtaxes”). The disadvantage may be the cash outlay that would be necessary to pay the current taxes.
If you hold a note receivable and elected installment sale treatment, consider accelerating receipt of the payments or having the debtor refinance or payoff the note before December 31 in order to avoid the likely increase in long-term capital gain tax rates and the Medicare Surtax on the portion of the future payments that represent the gain.
Consider selling long-term capital gain property with losses in order to reduce your long-term capital gain rate to 0%. The downside is next year there will likely be higher capital gains rates and certainly the Medicare surtax making the losses worth more next year. Because of the wash sale rules do not repurchase the property until 31 days after the sale or the loss is not currently deductible.
Are you thinking of selling property at a large gain? Doing so by December 31 will avoid the likely higher capital gains rates and the Medicare surtax next year.
While IRA distributions will not be subject to the Medicare surtax next year, if you convert a Roth into a traditional IRA it could increase your income to the point that the Medicare surtax would apply to your other unearned income. Consider converting before year-end.
If you turned age 70 ½ during 2012 you are must begin taking your required minimum distribution (“RMD”) from your IRA(s), but you can delay it until 2013. Consider taking your first RMD in 2012 to avoid having two distributions in 2013 because of likely higher income tax rates and the Medicare surtax.
If you have adopted a gifting strategy in order to reduce the size of your estate you should consider making your gifts of up to $13,000 per year per individual before January 1, 2013. If you are married and your spouse agrees you can gift up to $26,000 per individual.
Some taxpayers cannot take advantage of itemized deductions every year, but by deferring or accelerating payments of items such as medical expenses, state income tax estimates, charitable donations, and other deductions you may be able to itemize every other year. Consider the timing of payment of itemized deductions before writing your checks. With the medical expense limitation increasing from 7.5% to 10% of adjusted gross income for taxpayers under age 65 after 2012 you will want to consider bunching medical expenses into 2012 to have a better chance of exceeding the limitation.
Trustees should consider making distributions within 65 days after year end to have the income taxed at the beneficiary’s rates instead of the higher trust rates.
Be sure to place qualified business property (see “Depreciation of Business Property”) in service by December 31 to take the 50% bonus depreciation.
Shareholders of closely held C corporations should consider paying a dividend before December 31 if it qualifies for the maximum 15% federal rate. Ordinary tax rates instead of long-term capital gain rates are likely to apply to dividends in 2013. This may be your last chance to draw out money from a C corporation at a maximum 15% federal tax rate.

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December 10, 2012

Tax treatment of employee Christmas bonuses

Many clients assume that Christmas bonuses paid to employees are considered "gifts" and are not taxable. This is almost always incorrect and generally, Christmas "gifts" given to employees must be reported on the employee's Form W-2 and are subject to payroll taxes. Bonuses are also considered necessary businesses expenses and generally are deductible as such.

Cash Gifts

Cash or cash equivalent benefits (e.g.. gift certificates, gift cards, or other store value card such as Bainbridge Bucks) are always taxable and employers should withhold payroll taxes and report the payments as compensation. Many clients will pay their employees a Christmas bonus that is a fixed amount such as $50 or $100. When this occurs employers must "gross-up" the bonus amount for payroll taxes. If you use our controller & internal accounting services we will make this calculation for you when we issue your bonus checks. Clients using our accounting & bookkeeping services will have their employees' gross bonuses calculated after-the-fact by our staff and we will include any taxes in your next payroll tax deposit.

Other Small Gifts

A de minimis gift has a small value and accounting for it is unreasonable or administratively impracticable and is not considered income to the employee and is deductible by the employer. Examples include hams, turkeys, or other items of merchandise of nominal value. When an employer gives such a gift at Christmas then no compensation has been paid and no additional payroll taxes are due; however, when cash or gift certificates or similar items readily converted to cash are given - even if the cash or certificate is meant to be used to purchase a de minimis item - then the amount must be reported as compensation.

Youmans & Gardner's professional accounting services can help you stay compliant with payroll and compensation reporting. We would like the opportunity to discuss how our services can help meet your needs during a FREE initial consultation. Contact us at (229) 246-1511 or by clicking here to schedule a meeting.

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December 6, 2012

Recommended Business Accounting Practices

These are a few business accounting practices that we recommend you follow in order to maintain accounting records necessary to support the amounts on your income tax returns.

1. Do not pay personal expenses from your business bank accounts. There are good legal reasons not to use your corporate or partnership bank accounts to pay your personal expenses. An attorney can provide additional legal advice on this matter. From an accounting perspective, recording personal expenses requires additional time and expense and in an audit the presence of personal expenses may result in a higher level of scrutiny and risk of adjustment.

2. Maintain a separate checking account for your business. We always recommend a separate checking account for your business. This results in a lower price for your accounting services and reduces the chance of missing deductions that may be misidentified as personal expenses.

3. Maintain a separate credit card for your business. For the same reasons stated above, we believe this is a good business practice. In addition, an auditor could deny the interest deduction when personal and business expenses are charged to the same card.

4. Use a software program such as QuickBooks or Client Bookkeeping Solution to track your finances. Those clients that use our professional accounting & bookkeeping services or our controller & internal accounting can skip this item; we already use a software program to maintain your accounting records. All other business clients should maintain their accounting records so that a detailed transaction list can be provided to support the amounts on your income tax return. These records are the first items requested in an audit of a business entity.

5. Keep every business receipt. In an audit a cancelled check or credit card charge AND a receipt are required to substantiate a deduction. To state this as simply as possible: No receipt, no deduction! Cancelled checks or credit card statements alone are not enough to substantiate a deduction in an audit.

On the other hand, documentation should be kept for each deposit into your business checking account that is not considered income. Examples include loan proceeds or additional investments from owners. In an audit all deposits are assumed to be income unless documentation shows otherwise.

These are a few of the practices we recommend to help maintain proper accounting records and protect clients in the event of an audit.

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