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My Blog
Posted on Tuesday, January 10, 2012 3:06 PM
NTB Consulting LLC
Accounting, Bookkeeping, Taxes & Financial Staffing January 2012 In this issue: America Gets a
Raise...Again...TemporarilyTaxability of Credit Card Rewards Programs
Why is My Bank Giving me a Tax Form?What's New With W-2
and 1099s?Key Expiring Tax Laws2012 Mileage RatesContact: 252-443-4480 This Month: January 16th: 4th quarter estimated tax payment dueActions items: - Start gathering 2011 tax information
- Review 2012 W-2 withholdings
- Set 2012 financial goals
Past Newsletters: ast year at this time we were trying to make sense out of the recently passed Tax Relief Act of 2010. Would this year be a little more calm? Not quite. This month's newsletter outlines the key provisions of recent legislation and discusses some of the major tax changes you should keep in mind as we bring in the new year.
As always, should you know of someone who may benefit from this information please feel free to forward this newsletter to them.
| Prior to adjourning for the Holidays a spending package was signed into law by President Obama. The law extends the Social Security tax break and Federal Unemployment benefits for two months. Specifically, | | | Temporary extension of the employee payroll tax break. The employee portion of Social Security will remain at 4.2% versus the normal 6.2% for two months through February 29th, 2012. This includes a 2% drop in the self-employed tax as well. What this means: | | | Review your next paycheck to ensure the Social Security withholding did not revert back to 6.2%. Companies have until January 31, 2012 to make this change, and they have until March 31, 2012 to adjust workers' pay for any implementation delay. | | | Don't plan on having this extra money in your wallet throughout the year. The lower tax has only been approved for 60 days into 2012 because there was no consensus on how to pay for the tax. | | | Don't plan on loading your pay into the first two months of 2012 to gain a tax advantage. You will receive a 2% additional tax for any income received in excess of $18,350 during January/February. | | Extension of unemployment benefits to those who have been out of work for some time. The recent legislation extends Federal unemployment benefits for another 60 days on all tiers. What this means: | | | If you are currently on unemployment and expect your benefits to expire shortly, please check to ensure you continue to receive benefits. | | But everyone needs to keep a legislative watch, when Congress reconvenes in early 2012 they are sure to discuss extending these benefits throughout calendar year 2012. |
Why is My Bank Giving me a Tax Form? | Many credit card rewards program card-holders are receiving 1099-MISC and 1099-INT forms from their banks. Are the miles you earn on your credit card purchases taxable income? What is the taxability of rewards from credit card point programs that let you purchase merchandise, receive a discount on your credit card bill, or redeem them for travel benefits? Are Rewards Taxable?
Two points of view. The answer is...probably not, but it depends on differing points of view. Rewards are Rebates. Since the retailer is the one ultimately paying for the credit card programs through their credit card fees, these programs could be deemed a purchase price reduction or rebate. This perspective means that you are simply paying less for the product you bought, just as the value of coupons used to purchase a box of cereal are not deemed income. | | Rewards as incentives. If seen as a way for credit card banks to offer you a "commission" to use their card, then it could look like income to you. This point of view is based on the fact the credit card company is providing you with the benefit and not the merchant. What does this all mean? While there are no hard set rules in the tax code about these programs, they are generally seen as non-taxable income. While not a finite decision by the IRS, their Announcement 2002-18 provides guidance as to the non-taxability of the benefit: "Consistent with prior practice, the IRS will not assert that any taxpayer has understated his federal tax liability by reason of the receipt or personal use of frequent flyer miles or other in-kind promotional benefits attributable to the taxpayers' business or official travel. Any future guidance on the taxability of these benefits will be applied prospectively. This relief does not apply to travel or other promotional benefits that are converted to cash, to compensation that is paid in the form of travel or other promotional benefits..." While this clause addresses the personal benefit of business related credit card programs, might one assume it also applies to personal use programs? So why the 1099? You may receive a 1099 from your bank if: | Their credit card rewards program also includes debit cards or other products attached to a traditional bank account. In this case, the rewards would be deemed as interest on your underlying bank balance. It is appropriate to receive a 1099-INT reporting your redeemed credit card rewards as interest income. | | You redeem your rewards points/miles for cash or other merchandise in excess of $600. If this is the case, you will need to clarify how the bank is perceiving their program.
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The bottom line, if you receive a 1099 informational tax form you should report it on your tax return. If it is omitted, it could easily trigger a computer-generated audit. Then, if you believe the program complies with the IRS announcement, you can make the required adjustment. Hint for Businesses: If you use a cash reward to purchase business related merchandise, remember to reduce that business expense by the value of the reward. |
start of article What's New with My W-2 and 1099s? Over the next month or so, you will be receiving W-2s from your employer reporting your pay and you will receive a variety of 1099 information tax forms. These forms are being provided to you, your state, and the IRS to ensure you capture all of your income. This year's 2011 forms bring with them some changes worth noting: | More W-2s will now include the cost of employer paid health insurance premiums. While this amount is currently not taxable to you as income, the IRS will begin tracking this information for possible taxation of this benefit in the future. | | 1099-B forms are broker provided forms that report sales of investments like stocks, bonds, and mutual funds. This year you will note that most forms will include your historic cost for the original purchase of the investment. Not only is this "historic cost" being reported to the IRS, but how it was derived is also being tracked. Was the cost reported by the broker? Was it entered by you? Did you over-ride the cost reported on the 1099? | | New 1099-K forms are being introduced this year. These forms are being provided by third party merchant processors that handle transactions like e-bay and Amazon sales. If you have occasional sales of items, you probably will not see this form. However, if your business transactions are over $20,000 and 200 transactions the 1099-K is required. |
What you need to know: | Double check the figures. When you receive your 1099s and W-2s check them for accuracy. Do not wait until you prepare your tax return to do this. Often, if errors are caught soon enough, you can get the issuer to correct the error and send you a new, corrected form. | | Report them all. Even if the W-2s and 1099's are in error, it is important to report all the forms in the correct spots for the reported amounts on your tax return. This process will ensure that "automatic" mismatching does not occur with the IRS. You can always make corrections to errors on the informational tax forms, but make sure you collect and retain documents that support the changes. | | Take care with 1099-Ks. If you have a small business and receive a 1099-K make sure you do not double report your income. You will need to match 1099-K reported transactions to your books to make sure total revenue you report still matches your business's records. |
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As 2012 is a presidential election year, there will be much discussion, but also much uncertainty about what, if any, tax legislation is passed. Unless Congressional action takes place, the following tax provisions expired at the end of 2011. | | The $250 "above-the-line" deduction for unreimbursed classroom expenses for qualified elementary and secondary school teachers. | | | The option to use general sales tax as an itemized deduction option in lieu of taking a state income tax deduction. | | The deduction for Tuition and Educational expenses. | | The extension of the Alternative Minimum Tax (AMT) "patch". This means the exemption amount for AMT could revert back to its lower "statutory" levels. | | The employer provided transit pass income exclusion drops from $230/mo. to $125/mo. | | Deductibility of mortgage insurance premiums as an itemized deduction. | | Tax beneficial treatment of direct charitable contributions from a qualifying senior's IRA. | What this means to you If the past actions are any indication, you should assume some of the expired tax benefits will be extended into 2012. Unfortunately, if like 2010, the change could take place in the last few days of the tax year. So be prepared by; | saving receipts and documents to take the deduction should laws change | | delaying contributions that you may have made directly from your IRA | | conducting tax projections to understand the impact of the law change and adjust withholdings accordingly. |
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Standard Mileage Rates | | Mileage | 2012 Rate/Mile | | Business Travel | 55.5¢ | | Medical/Moving | 23.0¢ | | Charitable Work | 14.0¢ |
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As always, should you have any questions or concerns regarding your situation please feel free to call. This publication provides summary information regarding the subject matter at time of publishing. Please call with any questions on how this information may impact your situation. This material may not be published, rewritten or redistributed without permission, except as noted here.This email includes, or may include, links to third party Internet Web sites controlled and maintained by others. When accessing these links the user leaves this email. These links are included solely for the convenience of users and their presence does not constitute any endorsement of the Websites linked or referred to nor does NTB Consulting LLC have any control over, or responsibility for, the content of any such Websites. All rights reserved. This newsletter is provided by
NTB Consulting LLC
Accounting, Bookkeeping, Taxes & Financial Staffing
3303 Sunset Avenue Suite J
Rocky Mount, NC 27804
ntbconsulting@embarqmail.com
252-443-4480
www.ntbconsultingllc.com
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