Self-employed individual

Self-employed individuals generally must pay self-employment tax (SE tax) as well as income tax. SE tax is a Social Security and Medicare tax primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most wage earners.

Before you can determine if you are subject to self-employment tax and income tax, you must figure your net profit or net loss from your business. You do this by subtracting your business expenses from your business income. If your expenses are less than your income, the difference is net profit and becomes part of your income on page 1 of Form 1040. If your expenses are more than your income, the difference is a net loss. You usually can deduct your loss from gross income on page 1 of Form 1040. But in some situations your loss is limited.  (See Pub. 334, Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ) for more information.)

You have to file an income tax return if your net earnings from self-employment were $400 or more. If your net earnings from self-employment were less than $400, you still have to file an income tax return if you meet any other filing requirement listed in the Form 1040 instructions.

Do not wait until year end to determine if you have net earnings of $400 or more; do the calculations every quarter; 'cause you may be required to sent quarterly estimated payments to the IRS.

Source: http://www.irs.gov/

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Employment news

According to the U.S. Dept of Labor Economic News release of Sept. 16, 2011, the national jobless rate for the month of August 2011 remained unchanged at 9.1 percent but was 0.5 percentage point lower than a year earlier. For the month; we noted that twenty-six states reported rate increases, twelve states reported decreases, tand he remaining twelve states reported no rate change.  

Non farm employment over-the-year results as follows:  25 states experienced statistically significant changes in employment, 24 of the 25 were increases.  The largest increases occurred in TEXAS (+232,200), followed by California (+171,300), New York (+83,400), and Michigan (+79,800).  The only state with an over-the-year statistically significant decreases in employment was Georgia (-29,500).

For the Month of August; Texas unemployment rate stand at 8.5% , California at 12.1%, Michigan at 11.2%, and New York at 8.0%.

The Metropolitan area employment and unemployment news release for August is scheduled to be released on Wednesday, Sept. 28.  

Source: US Bureau of Labor Statistics 


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Cancelation of debt is reportable income...

Cancellation of debt income is taxable as ordinary income. Internal Revenue Code section 61 provides that gross income means all income from whatever source derived.

Section 61(a)(12) specifically includes “income from discharge of indebtedness” as an item of gross income.

COD income can arise in a number of areas, such as:

        •Cancellation of credit card debt

        •Foreclosure of personal residence, or

        •Cancellation of an automobile loan

SOURCE: IRS.gov  http://www.irs.gov/

 

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U.S. Securities still attractive for foreign Investors..

Foreign residents increased their holdings of long-term U.S. securities in July — net purchases were $24.6 billion. Net purchases by private foreign investors were $10.4 billion, and net purchases by foreign official institutions were $14.2 billion. At the same time, U.S. residents increased their holdings of long-term foreign securities, with net purchases of $15.1 billion.

Taking into account transactions in both foreign and U.S. securities, the net foreign purchases of long-term securities were $9.5 billion. After adjustments, such as estimates of unrecorded principal payments to foreigners on U.S. asset-backed securities, are included, the overall net foreign acquisition of long-term securities is estimated to have been negative $17.2 billion in July.

Foreign holdings of all dollar-denominated short-term U.S. securities and other custody liabilities decreased $36.5 billion. Banks’ own net dollar-denominated liabilities to foreign residents decreased $7.6 billion.

In sum, the net foreign acquisitions of long-term securities, the change in foreign holdings of short-term U.S. securities, and banking flows yielded monthly net TIC outflows of $51.8 billion. Of this, net foreign private outflows were $44.4 billion, and net foreign official outflows were $7.4 billion.

Source: US Dept of Treasury

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TAX RELIEF- Extended due date

Taxpayers who reside in, or have businesses in counties that were declared federal disaster areas can file certain returns late. This apply to the states of New York, New Jersey, North Carolina, and Puerto Rico.

Certain deadlines falling on or after August 25, and on or before October 31, have been postponed to October 31, 2011.  Includes corporations and other businesses that previously obtained an extension until September 15 to file their 2010 returns, and individuals and businesses that received a similar extension until October 17. 

The extended due date also applies to the estimated tax payment for the third quarter, normally due September 15.

In addition, the IRS is waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after August 25, and on or before Sept. 9, as long as the deposits are made by September 9, 2011.

Source: IRS.gov

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Outsourcing the Payroll Functions?

Three Tips for Employers Outsourcing Their Payroll, according to the IRS website.

Background:

Outsourcing payroll duties to third-party service providers can streamline business operations, but the IRS reminds employers that they are ultimately responsible for paying federal tax liabilities.  Recent prosecutions of individuals and companies who - acting under the guise of a payroll service provider - have stolen funds intended for payment of employment taxes makes it important that employers who outsource payroll are aware of the following: 

1. The employer is ultimately responsible for the deposit and payment of federal tax liabilities. Even though you forward the tax payments to the third party to make the tax deposits, you - the employer - are the responsible party.  The IRS can also hold you personally liable for certain unpaid federal taxes.

2. If there are any issues with an account, the IRS will send correspondence to the address of record. The IRS strongly suggests you do not change the address of record to that of the payroll service provider. That could limit your ability to stay informed of tax matters involving your business.

3. Choose a payroll service provider that uses the Electronic Federal Tax Payment System. You can register on the EFTPS system to get your own PIN to verify the payments.

For more information; the IRS web site – www.irs.gov has more information.

Source: IRS.gov

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IRS reduction on Interest Rates

The Internal Revenue Service announced that interest rates will decrease for the calendar quarter beginning Oct. 1, 2011. The rates will be: 

• 3 % for overpayments ( 2% for corporations),
• 3% for underpayments;
• 5% for large corporate underpayments; and
• 0% - 0.5% for the portion of a corporate overpayment exceeding $10,000.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points.

  

The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

 

The interest rates announced today are computed from the federal short-term rate during July 2011 to take effect Aug. 1, 2011, based on daily compounding.

 

Source:  IRS.gov

 

 

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Back to School Expenses, Taxes, and your Wallet.

Copping with School Expenses:

Back to School is just around the corner and with that $$$ ...for tuition, books, and supplies.   The good news is that they are some tax benefits that can help offset students costs.

Who qualify?

Typically, these benefits apply to you, your spouse or a dependent for whom you claim an exemption on your tax return.

Under which IRS Regulations?

American Opportunity Credit- The credit can be up to $2,500 per eligible student and is available for the first four years of post secondary education. Forty percent of this credit is refundable.  It covers, tuition and fees, course related books, supplies and equipment. Generally available to eligible taxpayers whose modified adjusted gross income is below $80,000 ($160,000 for married couples filing a joint return).

Lifetime Learning Credit In 2011-  A credit of up to $2,000 for qualified education expenses. There is no limit on the number of years you can claim the Lifetime Learning Credit for an eligible student.  To qualify, your modified adjusted gross income must be below $60,000 ($120,000 if married filing jointly).

Some of the Terminology you should know: 

What constitute "Tuition and Fees Deduction?"

What is consider "Qualified Education expenses"

How you calculate your "Modified Adjusted Gross Income"?

Who is considered an "Elegible Student?"

How much you are allowed to include?

Source: IRS.gov

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Tax Planning

The Internal Revenue Service issued guidance on the treatment of basis for certain estates of decedents who died in 2010. The executors who are making the choice to opt out of the estate tax and have the carryover basis rules apply.

Under the Economic Growth and Tax Relief Reconciliation Act of 2001, the estate tax was repealed for persons who died in 2010. However, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 reinstated the estate tax for persons who died in 2010. This recent law allows executors of the estates of decedents who died in 2010 to opt out of the estate tax, and instead elect to be governed by the repealed carry-over basis provisions of the 2001 Act. This choice is to be made by filing Form 8939.

However, you need to hire a CPA to do the numbers for you, to see which is a better option. 

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Legal Entity Identifier (LEI)

WASHINGTON – This Month, the U.S. Department of Treasury’s Office of Financial Research (OFR) issued the following statement on the progress made to date and next steps forward in the global initiative to establish a Legal Entity Identifier (LEI).

The plan is to issue a notice of proposed rulemaking that would require the LEI to be used for data reported to the OFR. 

“The OFR will continue to work with policymakers, regulators, and the private sector to achieve a mutually agreeable, effective, and timely global LEI solution,” said Richard Berner, Counselor to the Secretary of the Treasury. “An LEI would serve as a cornerstone in fulfilling the G-20 mandate to improve market integrity and regulators’ ability to mitigate risks posed to the financial system.”

The Financial Stability Board (FSB) is hosting a workshop on September 28 and 29 to discuss how to coordinate work on LEI and move the initiative forward. Additionally, because of the work that has been done to date, the OFR believes that sufficient progress can be made to allow for an initial phase of implementation in 2012, consistent with the needs of regulatory authorities in a variety of jurisdictions. The OFR intends to issue a notice of proposed rulemaking consistent with that timeline. In the United States, the OFR’s objective remains to coordinate with the Securities and Exchange Commission (SEC) and Commodities Futures Trading Commission (CFTC), which are issuing rules for reporting swap transactions to trade repositories, and for all three agencies to require the same system for identifying parties in reporting.

An LEI is a unique number that would identify a legally distinct entity that engages in financial market activities. Currently, there are many ways to identify entities, but there is no universal identification scheme for legal entities across markets and jurisdictions.

During the recent crisis, the lack of a universal entity identifier made it difficult for firms and regulators to assess market exposures to risky or failing institutions. An LEI would promote financial stability by illuminating those exposures. It would also contribute to market efficiency by enhancing transparency for investors, reducing reporting burdens and other operational costs for financial firms, and improving customer service. Indeed, the Dodd-Frank Wall Street Reform and Consumer Protection Act created a critical sponsor in the LEI’s development: the OFR.

The OFR has conducted extensive outreach to solicit participation and input from a broad group of policymakers and regulators, and to facilitate global coordination on important issues, such as scope, governance, and implementation. A task force of the Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO) has been evaluating the potential use of an LEI for over-the-counter (OTC) derivative reporting worldwide. In the United States, the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) proposed rules for swap reporting and expressed a preference for using an LEI for that reporting, if it can be established through international consensus and is available in a timely manner. The Canadian Securities Administrators published a consultation paper calling for each participant conducting a derivative transaction in Canada to be assigned an LEI based on universal internationally accepted standards. And recently the Hong Kong Monetary Authority (HKMA) published a consultation paper on reporting to the Hong Kong Trade Repository (HKTR), which states that the HKTR will work with the HKMA to consider how to incorporate a global LEI into that reporting.

The OFR is working with the FSB Secretariat and other authorities to organize the September LEI workshop, which will include stakeholders and experts in finance, data, and technology from the public and private sectors. One objective for the workshop is for public sector participants to develop a roadmap for their next steps in the development and implementation of an LEI.

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