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WHAT'S NEW WITH THE FICA REFUND?

Most recent information issued by the IRS

Check out the memorandum issued by the U.S. District Court in Minneapolis and you'll see that the court found that medical residents and fellows might not be subject to FICA taxes in many instances.

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

 

 


November, 2005

SOCIAL SECURITY MAX INCREASES TO $94,200 FOR 2006

by Andrew D. Schwartz, CPA

Each year, the government bumps up the maximum social security taxes that you can pay. According to the Social Security Administration (www.ssa.gov), the maximum wage base for 2006 is $94,200, an increase of $4,200 from the 2005 max of $90,000.

At a rate of 6.2%, the maximum social security taxes that your employer will withhold from your salary increases by $260.40, from $5,580.00 in 2005 to $5,840.40 in 2006. 

In addition, your employer also withholds Medicare taxes from your pay at a rate of 1.45%. There is no limit on your wages subject to this tax.

Calculating the Self-employment Tax:

If you're self-employed, you're subject to social security and Medicare taxes as well. Known as the "self-employment tax", you'll need to complete a Schedule SE to calculate this tax, and then report the amount due on page 2 of your Form 1040.

The self-employment tax is based on a social security tax rate of 12.4% and a Medicare tax rate of 2.9%. These rates are double those paid by employees, since a self-employed person must pay both the employee's portion and the employer's portion of both taxes.  Remember, when you work as an employee, your employer matches the social security and Medicare taxes withheld from your pay.

Unlike most other taxes, when dealing with self-employment taxes, the more you earn, the less you pay in taxes.  If you earn income as an employee and as an independent contractor, and your combined income exceeds $90,000 in 2005, make sure to complete Section B of the Schedule SE. Otherwise, your tax calculation will be incorrect and you'll end up overpaying your self-employment taxes.

Do You Work For More Than One Employer in 2005 and Earn More Than $90,000?

For 2005, each of your employers will withhold social security taxes from the first $90,000 that you earn from them.  If you work for more than one employer and your total salary from all sources exceeds that threshold, you'll have excess social security taxes withheld. Make sure to claim a credit for these excess taxes on your 1040 as additional federal taxes paid in.

For Example:

Let's say you work for two employers and earn $75,000 from each employer. Employer #1 will withhold $4,650 in social security taxes ($75,000 * 6.2%). Employer #2 will also withhold $4,650 in social security taxes - for a total of $9,300 in social security taxes withheld during the year. Since the maximum social security taxes that you should pay through payroll withholdings for 2005 is limited to $5,580.00, the excess of $3,720.00 counts as additional federal income taxes paid in by you.

A) Social security taxes withheld by Employer #1

$4,650.00

B) Social security taxes withheld by Employer #2

$4,650.00

C) Total social security taxes withheld during the year (A+B)

$9,300.00

D) Social security max for 2005

$5,580.00

E) Excess social security taxes withheld (C-D)

$3,720.00

www.ssa.gov

A great place to find out more about your social security taxes and projected benefits is at the Social Security Administration's website located at www.ssa.gov.

 

FYI: The social security wage base has been increased each year. The wage base maximum has been increased as follows:

2006 wage base max: $94,200
2005 wage base max: $90,000
2004 wage base max: $87,900
2003 wage base max: $87,000
2002 wage base max: $84,900
2001 wage base max: $80,400
2000 wage base max: $76,200
1999 wage base max: $72,600
1998 wage base max: $68,400
1997 wage base max: $65,400
1996 wage base max: $62,700
1995 wage base max: $61,200
1994 wage base max: $60,600

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THREE FREE PEEKS AT YOUR CREDIT REPORT

by Andrew D. Schwartz, CPA

Are you aware that you can now get a free copy of your credit report three times per year?    

Currently, three companies, Equifax, Experian, and TransUnion, track everyone's credit histories.  Banks, lenders, retailers, landlords, and other "credit grantors" use credit reports generated by these companies to determine your creditworthiness.

Your credit report reflects quite a bit of information about you and your financial affairs.  The bulk of your credit report focuses on your various loans and credit card accounts. Included is the name of each of your creditors, as well as the type of account, the minimum monthly payment, the account's limit or high balance, and the current outstanding balance.

Your credit report also includes the most recent twenty-four month payment history for each creditor, showing whether each month's payments were current, delinquent, or in default.

Another section on your credit report details inquiries that were made by potential creditors.  In this section, the name of the creditor and the date of inquiry are listed for each request that has been made.

Your credit report also reflects "public records" such as tax liens, bankruptcies, and judgements made against you.  Most public records remain part of your credit history for seven to ten years.  If you have any tax liens, they won't be removed from your credit report until they are paid off.

Improving Your Credit Score

Based on the information from your credit report, your credit score is calculated.  By planning ahead, you can take certain steps to improve your score.   Start by paying your bills on time, since potential creditors frown upon people who are continually late with their payments.

Next, keep an eye on the total amount of available credit you have and how much of your available credit is outstanding.  If you have access to lots of credit, or if your outstanding debt exceeds 75% of your available credit, your credit score will probably be affected.

You should also try to minimize the number of inquiries that show up on your credit report.  Lots of inquiries can be interpreted to mean that you're having financial difficulties.

Finally, review your credit report periodically and immediately dispute any inaccuracies that you find.  The current system is far from perfect, and mistakes, unfortunately, are not uncommon.  Your best bet is to fix any problems soon after they arise and well before anyone will be looking at your credit report.

Obtain a Free Credit Report

The best way to find out how your credit report looks is to order one.  You can now order three free credit reports per year - one from each credit bureau - through annualcreditreport.com

After reviewing your report, make it a priority to take the steps necessary to improve your credit score.  If you need help interpreting your credit report, please e-mail us at creditreport@mdtaxes.com.

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TAX AND FINANCIAL PLANNING CALENDAR FOR NOVEMBER, 2005

Month

Income Taxes

Saving and Investing

 

 

 

November

  • Good time to make semi-annual donation of clothing and household items to charitable organizations

  • Need to make applicable elections in connection with employer's flexible spending account

  • Contact an MDTAXES CPA to discuss any year end tax planning questions or strategies

  • Someone making $100,000 per year will go over the 2005 social security max of $90,000 this month

  • Determine whether to convert your IRAs to a Roth IRA if your income will be less than $100,000 this year

  • Order your free credit report here

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2004 & 2005 TAX FACTS

  • For 2004, the standard deduction for a single individual is $4,850 and for a married couple is $9,700. 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. Our March, 1998 newsletter  explains itemizing your deductions.
  • For 2004, the personal exemption is $3,100. Individuals will claim a personal deduction for themselves, their spouse, and their dependents. 
  • The maximum earnings subject to social security taxes is $90,000 for 2005, and increases to $94,200 in 2006.
  • The standard mileage rate is $.485 per business mile as of September 1, 2005 (after being $.405 per mile through August 31, 2005), up from $.375 per mile for 2004. Deducting automobile expenses was addressed in our March, 1996 newsletter .
  • The maximum annual contribution into a 401(k) plan or a 403(b) plan is $14,000 for 2005.  And if you'll be 50 or older by December 31, 2005, you can contribute an extra $4,000 into your 401(k) or 403(b) account this year.
  • The maximum annual contribution to your IRA is $4,000 for 2005.  And once you turn 50, you can contribute an extra $500 into your IRA this year.  You have until April 15, 2006 to make your 2005 IRA contributions. 

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copyright - 2005 - The MDTAXES Network

 


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Tax and financial planning calendar for November, 2005


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