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MONTHLY TAX NEWSLETTERNovember 2008
year, the government bumps up the maximum social security taxes
that you can pay. For 2009, the maximum wage base jumps to
$106,800, an increase of $4,800, or 4.7%, over the 2008 max of
At a rate of 6.2%, the maximum social security taxes that your employer will withhold from your salary increases by $298, from $6,324 in 2008 to $6,622 in 2009. 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 and earn more than $400 in net profit from your business, 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 $102,000 in 2008, 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 2008 and Earn More Than $102,000?
For 2008, each of your employers withholds social security taxes from the first $102,000 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.
Let's say you work for two employers and earn $75,000 from each employer. Employer #1 withholds $4,650 in social security taxes ($75,000 * 6.2%). Employer #2 also withholds $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 2008 is limited to $6,324, the excess of $2,976 counts as additional federal income taxes paid in by you.
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:
2009 wage base max:
Few can deny that the mortgage market is a mess. Even so, Bank of America remains committed to the Doctor Loan program.
"Even in today's market, this unique program offers doctors up to 100 percent financing with no PMI (private mortgage insurance)," says Bob Cahill, Senior Mortgage Loan Officer at Bank of America. "But we need to keep in mind that in areas with declining home prices, a 5 percent down payment may be required."
"The reason that Bank of America can continue to offer this great opportunity to physicians, dentists, and other healthcare professionals is because the bank initially keeps these mortgages in their own portfolio. The doctor loans were never immediately sold through Fannie Mae and Freddie Mac," explains Cahill.
"Another benefit is that the bank omits student loans that are in deferment as part of the loan approval. There are also no income limitations for this product."
For more information about Bank of America's Doctor Loan Program, feel free to contact Bob Cahill at (781) 589-8756 or via Bob's e-mail.
Contributing to a retirement plan is one of the best tax shelters available to you during your working years. Recently, the IRS announced that most of the retirement savings limits will increase for 2009.
Employer Sponsored Plans
Most working professionals have access to a 401(k) plan or a 403(b) plan at work. Amounts contributed to these plans generally reduce your taxable earnings and always grow tax deferred. For 2009, you can contribute up to $16,500 into a 401(k) or 403(b) plan through salary deferrals, up from $15,500 in 2008.
Looking to set your 2009 monthly budget? To max out your 401(k) or 403(b) salary deferrals next year, instruct your employer to withhold $1,375 per month from your pay.
Catch-up contributions got bumped up as well. Anyone 50 or older by December 31, 2009 can contribute an extra $5,500 into their 401(k) or 403(b) plan through salary deferrals next year, for a total annual contribution of $22,000, or $1,833.33 per month.
Many smaller employers offer their staff access to SIMPLE/IRAs instead. SIMPLE's work just like 401(k) plans, which means it's up to you to fund the bulk of this retirement savings account through salary deferrals. For 2009, the maximum contribution into your SIMPLE is $11,500, or $958.33 per month. Anyone 50 or older by December 31st can sock away an additional $2,500 in 2009, for a total annual contribution of $14,000, or $1,166.67 per month.
Are you self-employed? Each year, you can contribute up to 20% of your net self-employment income into a SEP IRA. The maximum contribution for 2009 is $49,000, or $4,083.33 per month.
Solo 401(k)'s are an attractive alternative to many sole proprietors and business owners with no full time employees who work more than 1,000 hours per year besides a spouse. If you don't have access to a 401(k) or 403(b) plan through another employer, the Solo 401(k) plan makes it easier for you to hit next year's max of $49,000. If you're 50 or older, your maximum contribution into a Solo 401(k) jumps to $54,500, or $4,541.67 per month.
The IRS also announced that the maximum amount of wages and net self-employment income that you can use to determine certain retirement plan contributions has increased to $245,000 for 2009, up from $230,000 in 2008.
Don't forget about IRA's. Even if you're covered under a retirement plan at work, you and your spouse can each contribute up to $5,000, or $416.67 per month, into a traditional IRA or Roth IRA next year, as long as your combined wages and net self-employment income exceeds the total amount contributed. Anyone 50 or older can contribute an extra $1,000, increasing the total allowable contribution to $6,000, or $500 per month.
While the maximum contribution to an IRA did not increase for 2009, there is some good news for people looking to contribute to a Roth IRA . The amount you can earn and still contribute to a Roth has increased by $7,000 for married couples and by $4,000 for single individuals, as follows:
If your income is too high for a Roth, don't forget that the rules changed a few years back, eliminating the income limitation as of 2010 for people looking to convert their IRAs to a Roth IRA. This tax law change provides high-income taxpayers with a great opportunity to get money into these tax-free investment accounts. For more information, please check out the article, The Re-Emergence of Non-Deductible IRAs, available on our March 2007 Newsletter.
And if you're married and your spouse isn't covered under either an employer sponsored or self-employed retirement plan during the year, the phase-out range for your spouse making a deductible IRA contribution has increased to $166,000 - $176,000, which is identical to the Roth IRA phase-out limits.
Re-Set Your 2009 Budget
Most people won't be able to max out these tax-advantaged retirement options unless they get on a budget and put away a set amount of money each month. With 2008 winding down, now's the time to start thinking about resetting your monthly retirement savings goals for 2009.
2009 Maximum Retirement Account Contributions
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