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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

November 2011

SOCIAL SECURITY MAX INCREASES TO $110,100 FOR 2012

by Andrew D. Schwartz, CPA

For the first time in three years, the government has increased the maximum social security taxes that you can pay. For 2012, the maximum wage base jumps to $110,100, an increase of $3,300, or 3.1%, over the max of $106,800 that was in place from 2009 through 2011. 

The Social Security Administration predicts that 10 million individuals will end up paying higher taxes due to this increase, out of the estimated 161 million workers who will pay social security taxes next year. 

As an interesting side note (and sad commentary about the current state of the economy), here is what we wrote back in November 2008 in an article about the 2009 increase to social security taxes: The Social Security Administration predicts that 11 million individuals will end up paying higher taxes due to this increase, out of the estimated 164 million workers who will pay social security taxes next year.  Basically, the government projects that there are now one million less individuals who will be at the Social Security max and three million less workers paying into the system than there were just three years ago.

At a rate of 6.2%, the maximum social security taxes that your employer will withhold from your salary is $6,826.  This is $2,341 higher than the 2011 max of $4,485.  Remember, the rate for the employee portion of the Social Security tax was reduced to 4.2% for 2011 only.  Not only will high-income individuals pay Social Security taxes on an extra $3,300 in 2012, they, like all workers paying into the system, will also do so at a higher rate.

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 $106,800 in 2011, 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 2011 and Earn More Than $106,800?

For 2011, each of your employers withholds social security taxes from the first $106,800 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 withholds $3,150 in social security taxes ($75,000 * 4.2%). Employer #2 also withholds $3,150 in social security taxes - for a total of $6,300 in social security taxes withheld during the year. Since the maximum social security taxes that you should pay through payroll withholdings for 2011 is limited to $4,486, the excess of $1,814 counts as additional federal income taxes paid in by you.

A) Social security taxes withheld by Employer #1

$3,150.00

B) Social security taxes withheld by Employer #2

$3,150.00

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

$6,300.00

D) Social security max for 2011

$4,486.00

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

$1,814.00

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:

2012 wage base max: $110,100
2009, 2010 & 2011 wage base max: $106,800
2008 wage base max: $102,000
2007 wage base max: $97,500
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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ADD A PERSONAL TOUCH TO YOUR PRACTICE WITH "SEND OUT CARDS"

by Lisa DiOrio

Statistics show that 68% of customers who leave a business do so due to perceived indifference.   Frankly, they don't think anyone at the business will notice or care if they go somewhere else.

These statistics apply to healthcare professionals as well.  Does your practice have a system in place to periodically connect with your patients?  With Send Out Cards, you can easily and cost effectively implement a relationship marketing campaign by sending out a physical greeting card with a genuine heartfelt message that includes your own handwriting and signature.  You can even personalize the cards you send with pictures and business logos, and can also add a gift or gift card to be sent along with the card.

I'd like to share these testimonials from other healthcare professionals I work with:

Dr. Phil M., Southbury, CT:

Send Out Cards has provided a tremendous service to my medical practice.  It has given me a simple mechanism to reach out to my patient population to wish them happy birthday, happy anniversary, or simply to recognize an important event in their life.  The response has been overwhelmingly positive and it has allowed me to foster a more personal relationship with my patients.

E Dental, Westford, MA:

In our office, we use Send Out Cards for a "thank you for a referral" to patients.  If a patient refers more than one person in a month, we send brownies too through Send Out Cards.  We also use Send Out Cards to send a sympathy card or a  congratulations on a new baby. If we see a patient's name in the paper or on Patch.com, we'll send a congratulations card to acknowledge the student's academic or athletic accomplishment.

We use Send Out Cards for anything we would normally send a card for.  The beauty of it is that it is immediate so we don't have to run out an pick up a card or allow too much time to pass before sending out a card.

For more information about this unique, easy-to-use, and cost effective relationship marketing opportunity, check out this short video, e-mail me, or give me a call at (978) 397-6063.

 TOP


IRS ANNOUNCES HIGHER RETIREMENT PLAN LIMITS FOR 2012

by Andrew D. Schwartz, CPA

Contributing to a retirement plan is one of the best tax shelters available to you during your working years.  Recently, the IRS announced that many of the retirement savings limits will increase for 2012. 

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 2012, you can contribute up to $17,000 into a 401(k) or 403(b) plan through salary deferrals, up from $16,500 in 2011. 

Looking to set your 2012 monthly budget?  To max out your 401(k) or 403(b) salary deferrals next year, instruct your employer to withhold $1,416.66 per month from your pay.

Catch-up contributions remained the same as they were in 2011.  Anyone 50 or older by December 31, 2012 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 $22,500, or $1,875.00 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 2012, the maximum contribution into your SIMPLE remains at $11,500.  Anyone 50 or older by December 31st can sock away an additional $2,500 in 2012, for a total annual contribution of $14,000, unchanged from 2011. 

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 2012 is $50,000, or $4,166.66 per month, up from $49,000 in 2011.

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 $50,000.  If you're 50 or older, your maximum contribution into a Solo 401(k) jumps to $55,500, or $4,625.00 per month.  You have until December 31st to set up a Solo 401k for 2011.

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 $250,000 for 2012, up from $245,000  in 2011.

IRA's

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 2012, 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 $4,000 for married couples and by $3,000 for single individuals, as follows:

  Single Individuals Married Couples
Phase-out begins $110,000 $173,000
Phase-out ends $125,000 $183,000

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 or Keep on Converting in 2011 and Beyond, available in our March 2011 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 $173,000 - $183,000, which is identical to the Roth IRA phase-out limits.

Re-Set Your 2012 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 2011 winding down, now's the time to start thinking about resetting your monthly retirement savings goals for 2012.

2012 Maximum Retirement Account Contributions


Retirement Savings Option
 
Under the age
 of 50
50 or older by December 31st

401(k) or 403(b)
 
$17,000
($1,416.66/month)
$22,500
 ($1,875.00/month)

SIMPLE IRA
 
$11,500
($958.33/month)
$14,000
 ($1,166.67/month)

SEP IRA
 
$50,000
($4,166.66/month)
$50,000
($4,166.66/month)

Solo 401(k)
 
$50,000
($4,166.66/month)
$55,500 or
($4,625.00/month)

IRA
 
$5,000
($416.67/month)
$6,000
($500.00/month)

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TAX AND FINANCIAL PLANNING CALENDAR FOR NOVEMBER 2011

Month

Income Taxes

Saving and Investing

 

 

 

November

  • Need to make applicable elections in connection with employer's flexible spending account
  • Good time to make semi-annual donation of clothing and household items to charitable organizations.  Don't forget to make a list, including each item's condition, since only items "good or better" qualify for deduction.  Or, track your donation using the App, UDoGood.
  • Contact an MDTAXES CPA to discuss any year end tax planning questions or strategies
  • Determine whether  to convert your IRAs to a Roth IRA prior to 12/31/11.
  • Order your free credit report from here

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2011 & 2012 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 2011, increasing to $110,100 for 2012.
  • The standard mileage rate is $.51 per business mile as of January 1, 2011, increasing to $.555 per mile as of July 1, 2011.
  • The maximum annual contribution into a 401(k) plan or a 403(b) plan is $16,500 in 2011, increasing to $17,000 in 2012.  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 2011.  And if you turn 50 by December 31st, you can contribute an extra $1,000 that year.  You have until April 15, 2012 to make your 2011 IRA contributions. 

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This Month's Topics

Social Security Max Increases To $110,100 For 2012

Add A Personal Touch To Your Practice With "Send Out Cards"

IRS Announces Higher Retirement Plan Limits For 2012

The FICA Refund for Medical Residents 

2011 & 2012 Tax Facts

Tax and Financial Planning Calendar for November 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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