Well, the devil is in the details… We noted earlier this week that the Senate votes to limit debate on the jobs bill, leaving only consensus on the amendments to potentially hold up the bill. Both sides couldn’t agree on amendments, and the Senate failed to get the 60 votes necessary to close debate and move forward.
Chances of seeing passage prior to the August recess, as well as any action on tax extenders or the looming expiration of the lower tax rates, are very remote.
The Senate is moving forward with the Small Business Jobs and Tax Relief Act (S. 2237), which would provide an income tax credit of 10% of wages for small employers who create jobs or increase wages in 2012. The credit would be capped at $500,000 per employer.
The bill also extends 100 percent bonus depreciation through 2012 for all employers.
In a procedural move last night, the Senate voted 80-14 to limit debate, which clears the bill to eventually move forward for a vote. There are still amendments to the bill that need to be worked out, but 80 votes to close debate indicates that there’s some rare bipartisan support to move forward.
As was floated around yesterday on the Sunday news shows, President Obama plans to propose a one-year extension of the “Bush tax cuts” for families making $250,000 or less. Presumably, the extension would apply to up to $125,000 for married-filing-separate and something in-between for singles and heads of household.
My first blush reaction is that this is the Administration digging in for an election-year position, and that the proposal as-is doesn’t stand a serious chance at passage. Republicans will be pushing for a longer-term extension of the entire tax bracket, while Congressional Democrats are more in favor of an extension at $1,000,000 or less. At least it’s a starting point for discussions.
We’re in the early days of July, which means we’ve crossed the halfway point of the 2012 tax year. There’s still plenty of time to implement most tax strategies for 2012, but the clock is ticking on getting your withholding accurate!
If you were under-withheld in 2011 and didn’t adjust your withholding, you’ll likely end up under-withheld in 2012. With each paycheck that passes, the adjustment necessary to fix your withholding is getting larger. July is a good time to look at your withholding and do what’s necessary to increase it if necessary.
If you do need to adjust your withholding, you do so by submitting a new Form W-4 to your employer. The form has a worksheet to assist you in choosing the number of allowances you need to elect, but you can also use the tables in IRS Publication 15 (Circular E) to more accurately determine the amount of withholding you need.
Although not as critical, don’t forget to address state withholding as well!
Fox Business has a timely article today about when to hire a tax professional that I thought was worth passing along. A couple of thoughts I’d pass along:
* I’ll echo the sentiment that you should choose someone who’s both credentialed and highly recommended. There are a lot of shops out there who are only open a few months a year, with little continuity from year to year, and these are nowhere to be found once issues pop up with the IRS or state agencies. Find someone who’s available all year and has credibility.
* Sometimes people will hire a professional not necessarily for expertise, but for peace of mind. It’s the same reason I hire an electrician or plumber to do a task that I probably can do myself, but would rather have someone who I know and trust do the task.
The intensity of tax filing season is inversely proportional to the number of blog posts, so that’s why there’s been little posting activity here the past several weeks. Will try to improve upon that!
I took the kids to school last Friday just like any other day, and I don’t recall seeing any specialty cards in the Hallmark section at Target, so I missed out on Earned Income Tax Credit Awareness Day. You probably did too.
For the uninitiated, Earned Income Tax Credit is basically a wage subsidy in the form of a refundable tax credit for low income wage earners. The amount of credit is scaled based on income levels and number of dependents, and is determined based on a published table (see Form 1040 booklet for the tables). For 2011, maximum credits for persons with three or more qualifying children is $5,751; two qualifying children, %5,112; one qualifying child, $3,094; and no qualifying children, $464.
The EITC program has also been rife with fraud over the years. People have abused the program over the years with claims of false income and/or false dependents in order to reap the refunds generated by EITC. With that in mind, the IRS now requires paid tax preparers to include Form 8867 – Paid Preparer’s Earned Income Credit Checklist with all returns in which EITC is claimed. Form 8867 is basically a due diligence checklist.
And with that, the cost of preparing a return with EITC just went up.
In the music world, Tuesday is always release day. The impending release of Mitt Romney’s tax returns today was, to me at least, reminiscent to the anticipation of a much-awaited record being released. Well, the return has been released now, and the pundits are picking it apart.
A lot was initially made about the effective tax rate. There’s no need to go into a dissertation about why the capital gains rate and the dividends rate are where they are, but suffice it to say that the Romneys are paying the tax that they owe. Later reports are focusing on the nature of some of the investments and whether or not the Romneys are hiding income overseas.
The first impression I get is just the sheer size of the numbers. It’s hard to fathom just how much wealth accumulation is generating these amounts of investment income.
As with the Gingrich return, where you don’t get the whole picture because you don’t get to see what’s in the Gingrich Holdings return, you don’t get the full picture with the Romney return because a lot of investments are held in trusts and partnerships. The Romneys have clearly engaged in a high level of generational transfer planning (good for them). As for some of the partnership interests, yes, it does appear that some of those are foreign investments, which will raise red flags for some people. Ownership in a foreign entity is not always in and of itself a tax avoidance vehicle (I have a number of clients with investments in foreign LPs). Again, without seeing the return of the foreign partnership, it’s hard to gauge exactly what is and isn’t flowing through to the individual return.
Santorum, your turn!
Forms W2, 1099-MISC, and other information returns are required to be distributed to payees by January 31, 2012 (reports are due to tax agencies later, with varying due dates depending on whether paper or electronic media are used for reporting). Here are a couple of changes of note for 2011 information returns:
* On Form W2, employers must now report the cost of employer-provided health insurance in Box 12, with the code DD. The amount is just informational and does not affect the employee’s taxable wages (for now).
* The IRS has added Form 1099-K, whereby a “payment settlement entity” will report payments made to payees. This reporting requirement, on its face, impacts banks, credit card processors, PayPal, and the like. However, if you pay rent or independent contractors using a credit card or PayPal, you are tangentially affected by Form 1099-K. You will need to reduce the amount you would otherwise report on Form 1099-MISC by the amount that is now reportable on Form 1099-K; otherwise, the payee is potentially double-taxed.
The Romney campaign announced today that Romney will be releasing his 2010 tax return on Tuesday.