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NOTICE TO RESIDENTS OF MARYLAND

We are NOT affiliated with the State of Maryland. If you are looking for information about Maryland income taxes, please go to www.marylandtaxes.com.


Useful Links:

FindAGoodCPA.com - Not a healthcare professional?  Find a CPA or EA who understands the tax issues specific to you.

Nanny Taxes - Find out what's involved with complying with the Nanny Tax Rules

IRS Web Site - for tax forms, publications, and general tax information.

Exchange Authority - New England's first authority for IRC 1031 Exchanges

Cost Segregation Studies - Accelerate tax depreciation deductions on new and existing buildings through cost segregation studies

Social Security - find out the latest rules or your projected retirement benefit.

The Company Corporation offers fast, reliable & affordable incorporation and LLC services.


MONTHLY TAX NEWSLETTER

April 2011

SO WHO'S PAYING THE TAXES?

by Andrew D. Schwartz, CPA

According to the New York Times on March 25, 2011, GE earned more than $14 billion in profits last year, yet didn't pay a dime in U.S. Corporate Income taxes.  Does news like that make you wonder who is paying the nation's taxes?

When it comes to personal taxes, the IRS tracks and reports the demographics of who is actually paying.  This data is published as SOI Tax Stats - Individual Income Tax Return (Form 1040) Statistics

According to information detailed on their Excel report, there were approximately 140 million individual tax returns filed with positive Adjusted Gross Income (AGI) for each of the prior two years. Here are the highlights:

  • Top 1 Percent:  To be in the top 1 percent of filers, your AGI needs to exceed $380k.  This group of taxpayers currently reports 20% of the country's income and pays 38% of the personal income taxes.

  • Top 5 Percent: Tax returns showing AGI of at least $160k made the top 5 percentile of all filers.  In 2009, these taxpayers reported 35% of the country's income, but paid 59% of the personal income taxes.

  • Top 10 Percent: Anyone reporting AGI in excess of $114k would be in the top 10 percentile.  This group reported 46% of the country's income, but paid 70% of the personal taxes.

  • Bottom 50 Percent: The bottom half of the income reporting population paid just 2.7% of the personal income taxes.

Can a tax system survive when only half the population pays into it?  Stay tuned.

Income Reported and Income Taxes Paid

  AGI
Threshold
% of AGI
Reported
% of Tax
Paid
Top 1% $380k 20% 38%
Top 5% $160k 35% 59%
Top 10% $114k 46% 70%

TOP


2011 TAX SEASON EXTENDED UNTIL APRIL 18TH

According to the IRS in their first News Release of 2011:

IR-2011-1, Jan. 4, 2011

WASHINGTON — The Internal Revenue Service today opened the 2011 tax filing season by announcing that taxpayers have until April 18 to file their tax returns.

Taxpayers will have until Monday, April 18 to file their 2010 tax returns and pay any tax due because Emancipation Day, a holiday observed in the District of Columbia, falls this year on Friday, April 15. By law, District of Columbia holidays impact tax deadlines in the same way that federal holidays do; therefore, all taxpayers will have three extra days to file this year. Taxpayers requesting an extension will have until Oct. 17 to file their 2010 tax returns.

The IRS expects to receive more than 140 million individual tax returns this year, with most of those being filed by the April 18 deadline.

 TOP


THREE MORE F'N DAYS THIS YEAR

by Andrew D. Schwartz, CPA

April 18th is just a few weeks away.  Consider these alternatives to dropping the F-bomb as the due date for filing your 2010 tax returns approaches:

 

F1 - File Something

 

If you can't get your tax returns completed by April 18th, make sure to file for an automatic extension.  Filing something on April 18th is the only way to avoid the Failure to File Penalty equal to five percent per month on any federal income taxes due.  Yes, expect the IRS to charge you $50 per month on every $1,000 of taxes owed as of 4/18 if you don't file your tax return or extension request by that date.

 

Filing for an extension is easy.  Simply submit a Form 4868 to the IRS, along with a check for an estimate of the taxes you might owe, if anything.  Even if you're confident you'll be getting a refund, it's still a smart idea to file for an automatic extension.

By submitting an extension request (Form 4868) prior to the tax return due date, the Failure to File penalty of five percent per month is replaced with a much more reasonable Failure to Pay penalty of one-half percent per month.  That's a pretty good return on your $.44 stamp used to mail the one-page automatic extension request, Form 4868, to the IRS.

Plus, if you end up owing the IRS no more than the greater of 10% of your total federal tax liability or $1,000, you should not be assessed any penalties at all, as long as you file your federal tax return by October 17th.  In this case, you'll only owe interest to the IRS on your balance due. 

F2 - Figure Your 2011 Estimates

April 18th is also the due date for paying your first quarter estimates.  If your federal withholding will not be sufficient to ensure that you won't be hit with an underpayment penalty for 2011, your only alternative is to remit estimated taxes on a quarterly basis.

To avoid being penalized, your taxes paid in during the year must generally exceed the lesser of 100% of your prior year's tax (110% if your AGI is $150,000 or higher in 2010) or 90% of your 2011 tax liability.  Assuming your income won't change much next year, simply base your estimates on your 2010 tax liability and withholdings.

F3 - Fund Your IRAs

When it comes to your IRAs, the deadline to put away money for 2010 is April 18, 2011, even if you file an extension.  This deadline applies for traditional IRAs and Roth IRAs. 

For 2010, you can contribute up to $5,000 into an IRA.  Anyone 50 or older as of December 31, 2010 can put away an extra $1,000.  If you're married, both spouses can contribute to an IRA provided one spouse has earned income during the year in excess of the total amount to be contributed.

One great reason to contribute to an IRA this year is to take advantage of the rule allowing all taxpayers to convert their IRAs to a Roth IRA regardless of their income.  Prior to January 1, 2010, only taxpayers earning less than $100,000 could convert their retirement accounts to a Roth IRA.

Remember, there is also a relatively modest income limitation for Roth contributions.  If your 2010 AGI exceeds $120k if single or $177k if married, you aren't allowed to contribute any money directly into a Roth IRA.

Are you self-employed?  If so, filing an extension might make a lot of sense since it buys you an additional six months to establish and fund your SEP IRA for 2010.  It's not uncommon for self-employed individuals to pay all of their taxes due with an extension, and then fund their SEP IRA and file their tax forms in the fall.

F4 - Fix Your Withholdings

Were you surprised with either a substantial balance due or a substantial refund for 2010?  If so, take this opportunity to adjust your withholdings at work to hopefully come closer to breaking even on your taxes for 2011.

Keep in mind that while the W-4 Form seems easy enough to complete, this IRS form doesn't always work so well.  One problem is that each employer thinks that they are your only employer. Plus, if you're married, the withholding tables assume your spouse doesn't work.

Here's what you need to know when completing a new W-4 form with your employer's payroll department.  You'll have less taxes withheld by claiming Married versus Single and also with each additional "allowance" that you claim.  You might need to submit a W-4 form multiple times until your pay check finally has the correct amount of taxes withheld each pay period. 

F5 - For More Info on Your April 18th Options

Check out these articles on prior MDTAXES newsletters:

Or listen to these podcasts about filing for an extension:

TOP


TAX AND FINANCIAL PLANNING CALENDAR FOR APRIL 2011

Month

Income Taxes

Saving and Investing

 

 

April

  • Personal income tax returns are due 4/18/11
  • Request for automatic six month extension, Form 4868, due 4/18/11
  • 1st Quarter estimates due 4/18/11
  • Due date for funding your 2010 Roth or Traditional IRA, or Education Savings Account (ESA) is 4/18/11
  • Due date for self-employed individuals to fund their retirement plans is 4/18/11
  • Self-employed individuals who need additional time to fund a retirement plan should file a Form 4868 with the IRS by 4/18/11

 TOP


2010 & 2011 TAX FACTS

  • For 2010, the standard deduction for a single individual is $5,700 and for a married couple is $11,400. A person will benefit by itemizing once allowable deductions exceed the applicable standard deduction. Itemized deductions include state and local income taxes (or sales taxes), real estate taxes, mortgage interest, charitable contributions, and unreimbursed employee business expenses.
  • For 2010, the personal exemption is $3,650. Individuals will claim a personal deduction for themselves, their spouse, and their dependents. 
  • The maximum earnings subject to social security taxes is $106,800 for 2010 and 2011.
  • The standard mileage rate is $.51 per business mile as of January 1, 2011, up from $.50 per mile for 2010.
  • The maximum annual contribution into a 401(k) plan or a 403(b) plan is $16,500 in 2010 and 2011.  And if you'll be 50 or older by December 31st, you can contribute an extra $5,500 into your 401(k) or 403(b) account that year.
  • The maximum annual contribution to your IRA is $5,000 for 2010.  And if you turn 50 by December 31st, you can contribute an extra $1,000 that year.  You have until April 15, 2011 to make your 2010 IRA contributions. 

TOP

Need Help With Your Nanny Payroll?
 

This Month's Topics

So Who's Paying The Taxes?

2011 Tax Season Extended Until April 18th

Three More F'n Days This Year

The FICA Refund for Medical Residents 

2010 & 2011 Tax Facts

Tax and Financial Planning Calendar for April 2011

 

NEWSLETTER ARCHIVES
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WHAT'S NEW WITH THE FICA REFUND?

In a shocking development, the IRS recently announced that they will be honoring the FICA tax refunds submitted by residency programs and individual doctors.  The catch is that only FICA taxes paid prior to 4/1/05 qualify.

For more information, go to our April 2010 Newsletter, our January 2009 Newsletter, or our February 2001 Newsletter or read through the IRS' Chief Counsel Advice Memorandum on this issue.

Let's work together to keep current on this hugely valuable tax break.  Please post whatever you read or hear regarding this FICA issue on our new Message Board we set up just for this topic.

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