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Checklist for Year-End Payroll & 1099 Reporting
2009 Year-End Tax Strategies Overview
December 8, 2009
Dear Client & Friends:
We are providing this information to help you with year-end tax planning. It is important that you first read this introduction which sets forth the underlying assumptions and concepts.
Tip: If you are short on time, begin by initially reading just the underlined portions to help identify the key tips that may help you, then pursue the item more thoroughly to see if that strategy will be effective for you.
The discussion and lists are not comprehensive and specific strategies affecting your particular tax situation may not have been included. Year-end planning needs to be done on an individualized basis, taking account of the specific situation and planning goals of each taxpayer. We can identify and explore opportunities with you to help you cut your tax bill by preparing a personalized tax plan for you. Let us know if you would like us to help with your tax planning.
This discussion of year-end tax planning is generally oriented to lowering 2009 taxable income often by deferring taxable income into next year (2010) and accelerating expenses into the current year (2009). However, where special circumstances exist, a taxpayer may wish to reverse this strategy by accelerating taxable income and deferring expenses to achieve the opposite effect.
Note that some tax strategists believe capital gains rates will increase from the current 15% to a higher rate in 2010. If this were to happen, certain taxpayers may benefit from taking gains in 2009 at the existing tax rates.
There may also be limitations or consequences to moving income and deductions between years. There are special considerations for each entity type (Individuals, Corporations, LLCs, etc.) and some strategies that may work for regular income tax purposes may be countered by unexpected alternative minimum tax (AMT) calculations.
Your Financial Future: As you consider year-end tax planning, you may want to also consider your situation for the longer term. Do you know if you are putting enough aside for retirement, your child’s college, or for your family should death or disability occur? Do you feel like your investment portfolio mix or management may need a change? We can help you assess these important needs… Please don’t wait until it is too late!
We appreciate your business and look forward to serving you this next year!
Sincerely,
Richard A. Howard, CMA, CPA
President & Owner
Sell stocks to realize losses on stock while substantially preserving investment position (capital losses in excess of capital gains of more than $3,000 can be claimed in later years), or defer gain on stocks with a short sale to be closed early 2010, subject to restrictions imposed by the constructive sale rules.
Sell stocks to realize gains on stock to off-set excess capital losses you may have. You can only take $3,000 of capital losses in excess of capital gains in any year; any additional “excess capital losses” will be carried into future years.
The provision for the two lowest income-tax brackets to pay nothing on long-term capital gains continued in 2009. This zero capital gains rate applies to the following "Taxable Incomes": $33,950 or less for individuals, $45,500 or less for single heads of households, and $67,900 or less for married couples.
In 2009 only, if you are 70 1/2 and older, you are allowed to skip a year of withdrawals from their retirement accounts without penalty. Normally, if you are 70 1/2 or older, you would need to take the "required minimum distribution" (RMD) from your IRA accounts by December 31st to avoid the 50% tax on the amount not withdrawn. Note that you can make a tax-free charitable gift directly from your IRA that can count as part of your RMD.
If you have low income in 2009 (or have a loss), consider converting any traditional IRAs into Roth IRAs. Traditional IRA accounts will be subject to income taxes when they are withdrawn, whereas proceeds from Roth IRA accounts are not subject to income tax. Taxpayers whose modified Adjusted Gross Income (AGI) doesn’t exceed $100,000 can convert non-Roth IRA amounts to a Roth IRA and pay those income taxes with their current year’s income tax return.
Consider contributing the maximum amount into a Company-sponsored tax-deferred retirement account (i.e. 401 (k) plan). Check to see if your employer will allow you to “catch up” for the current year.
Note that you have until April 15th, 2010 to contribute to your traditional IRAs for 2009, and that the maximum amount is $5,000 with an additional $1,000 “Catch-Up” amount for taxpayers age 50 or older. If you can participate in an employer retirement plan, your AGI may not allow an IRA deduction.
Consider year-end charitable gifts. Note that there are extra tax benefits to giving appreciated property (i.e. stock or property). Call if you may be interested in this. Remember to donate your clothing and household items to a charitable organization since “non-cash” contributions are deductible if you itemize. If you are 70 1/2 or older, you can make tax-free charitable gifts directly from your IRA accounts that count toward RMD amounts.
Pay estimated State income taxes this year (in 2009). Although State income taxes are itemized on Schedule A, they are also an AMT item and the benefits to this strategy may be limited.
Apply bunching strategy to Schedule “A” itemized deductions to increase deductible amounts (especially if you are close to the standard deduction amount or to any of the AGI limitation floors, i.e. 7.5% of AGI for medical expenses, 2% of AGI for miscellaneous deductions).
Increase payroll withholding on your final 2009 paycheck to reduce or eliminate estimated tax penalty.
Dispose of passive activity to free up suspended losses (i.e. When you sell a rental property, any related suspended passive losses that have been accumulated will be used in the calculation of the property’s gain or loss).
Make energy efficient upgrades. In 2009, you can get a one-time tax credit of up to $1,500 for projects that involve the home's shell (insulation, windows, sealing) or the home’s heating and cooling equipment. Each project must meet specific criteria.
If your employer provides flexible spending accounts, sign up before December 31st. Also take advantage of tax-deferred retirement accounts (i.e. Company-sponsored 401(k) plans). Consider contributing the maximum allowed to defer income into the future.
If you are planning on purchasing a new vehicle, take advantage of the sales tax deduction offered on "new" vehicle purchases by completing the transaction in 2009. This deduction is not available after December 31, 2009.
The $8,000 First-time Homebuyer's Credit has been extended into the first part of 2010, and is available for individuals that purchase a main home and have not owned another home in the previous three years. There is also a $6,500 credit for current homeowners who have owned a home five consecutive years of the last eight years, and who purchase a main home after Nov. 6, 2009. The home must be purchased by Dec. 31, 2009, in order to receive the credit on your 2009 tax return.
If your business is on the cash basis accounting method, defer income by delaying invoicing customers. Note that “constructive receipt” determines when income is received, which includes anything received, in hand or via the mail.
Also for cash basis taxpayers, pay expenses before the end of the year, whether by mailing the check or through the use of credit cards. Don’t forget to consider interest on loans and any State/County taxes.
Take a physical inventory count and consider items that are obsolete or damaged. If your business produces, purchases or sells merchandise, you must have an accurate accounting of each year-end inventory to compute the cost of goods sold.
Purchase non-inventory supplies and do any needed repairs and maintenance by year-end.
Pay your children for their time spent working in your proprietorship business. They can each earn up to $5,700 without having to file and pay Federal or Idaho taxes ($1,945 for Oregon), and your business gets the deduction! Remember that payroll reports and W2s need to be filed.
Buy equipment by December 31 to take advantage of the business property expensing option (Section 179 expense) up to $250,000 in both 2008 and 2009. You don’t have to pay cash; financed purchases qualify if the asset is received and put into service by year-end. Section 179 phases-out when $800,000 or more in total assets have been purchased. Note that Oregon amounts are different. Oregon's Section 179 maximum deduction is $133,000 with a $530,000 phase-out. Vehicles under 6,000 pounds do not qualify for the Section 179 expense. SUV’s over 6,000 pounds are limited to $25,000 of allowable Section 179 expense. Section 179 expense is scheduled to drop from $250,000 to $134,000 in 2010.
If you want a Keogh, Profit-Sharing or Pension Plan, it must be set up by year-end. You will have until the tax return deadline in 2010 to make contributions to these plans and still take the deduction on your 2009 return.
Set up an employee benefit program (i.e. AgriPlan/BizPlan) to take a 100% tax deduction on your Proprietorship (Schedule C or F) for family health care expenses.
If you anticipate having a loss from your ownership interest in an S Corporation or Limited Liability Company (LLC), make sure you have enough basis to deduct these losses on your individual tax return.
If you are considering maximizing owner profit-sharing contributions or C Corporation owner compensation, you need to have your accounting up to date and accurately estimate year-end net taxable income, as well as make any corresponding or related transaction by December 31.
If you plan to incorporate your business, you need to do this before you begin operating in the next year. Contact your legal counsel ASAP to get this started.
Checklist for Year-End Payroll & 1099 Reporting
Be sure your payroll amounts agree on all reports (Federal and State) before you send them in. If the amounts do not agree, you will be notified and will have to correct the situation (which takes much longer than doing it right the first time). We have a reconciling worksheet available to help you with this step.
Correctly report benefit amounts on W-2s. While most types of employee benefits are reported on form W2 without increasing wages, there are some benefits that should increase the wages reported in box 1. Examples include the personal usage of a company owned vehicle and company paid health insurance for S-Corp owners (2% or more).
Remember to file 1099’s. A Form 1099-Misc should be sent to all attorneys and each non-corporate contractor/vendor to whom you paid $600 or more for the year. Other Form 1099’s may be necessary if you pay rent, interest or dividends.
If you need help preparing payroll reports, W2s and/or Form 1099’s, please let Sue Johnson or Becky Belknap in our office know in early January.
Circular 230 Disclosure: This is to advise you that, unless expressly stated, nothing in this communication (including any attachment or other accompanying materials) was intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding any federal tax penalties, or for promoting, marketing, or recommending a partnership or other entity, investment plan or arrangement to anyone.