Nearly 72% of men who filed for Social Security in 2009 opted for early benefits, up from 58% in 2008. More women also filed–74.7% in 2009 compared with 64.2% in the previous year.

Are you considering joining them in 2010? Before you decide to take the easy money in these hard times, know that the early option results in a significant negative impact to the amount of your benefit.

First, let’s get a little perspective.

The full retirement date (that is, the age at which seniors qualify for 100% of their Social Security benefit) for people born in 1937 and prior, is age 65. Retirement dates gradually increased by two months every year until they reached age 66, and then were held there for people born from 1943 through 1954. A similar pattern begins for those born in 1955 through 1959, adding two months per year, until birth years beginning in 1960 and beyond have a full retirement age of 67.

So, now that you know your full retirement age, how does that matter?

Applying for benefits at age 62 will permanently reduce your monthly benefits by 25%. Whether that works to your favor depends on how long you live. The longer you draw Social Security, the less of a benefit starting early is over the balance of your lifetime. Starting your benefit between age 62 and your full date will increase your monthly benefit by a prorated portion of that 25%. If we could predict our life expectancy, this calculation would be much easier to determine!

If you have the patience to wait and the funds from other sources to live on until your full retirement date, then you will have another decision to make at that time. By waiting until you are 70 or later to start drawing that benefit check, you will get a large increase over those extra years, up to 32% extra. More patience and an additional pile of money to live on will be needed to wait those extra three to five years. This table summarizes how waiting would benefit you.

So with a 25% benefit for waiting past age 62 and another 32% for waiting until age 70, you will get a 57% benefit for waiting eight years. Not a bad return in this market! But take care of yourself, too, so you’re sure you’ll be living long enough to collect those bigger checks for the next decade or so.

If this all seems confusing, it gets even more complicated when you try to mix in variables of how much your spouse would be eligible for at different ages and the amount of taxes you might pay from these various benefits.

Despite these complications, a prudent decision requires consideration of all the facts. First, a vast resource of information is at http://www.ssa.gov. If need more information for your personal situation, your friends at Patrick & Robinson, CPAs are here to help; email or call us for an appointment: 904-396-5400.

Remember, Social Security is your personal benefit. Be smart in deciding when to apply for it.

Filed under: General by Mark Patrick
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Are you recently married?  If you are, congratulations! These good wishes are not just from your friends at Patrick & Robinson, but also the IRS. It offers some helpful tips for newlyweds to make filing your 2010 joint return smoother next year:

• If you changed your name, be sure to notify the Social Security Administration.  Your name and social security number must match, or your e-filed tax return will be rejected.  Download a Form SS-5 at the Social Security Office’s website and get a  get a new or replacement Social Security card.
• Let the IRS know if your address has changed.  You can download the Change of Address form (Form 8822) at the IRS’s website.
• Let the U.S. Postal Service know if you moved, so that any IRS correspondence can be forwarded to your new home.
• Inform your employer of your new name and/or address.  If you changed employers during the year, also let your previous employer know, so you receive your W-2 early next year.
• If you and your spouse both work, your combined income may put you in a different tax bracket.  The IRS offers a Withholding Calculator to help you avoid a surprise tax bill when you file your return next year.  Find your most recent pay stubs and tax returns to help you determine whether or not you should consider having more taxes withheld from your paycheck.  Remember, the goal should be to owe nothing, or just a small sum, not getting some of your own money back. Tax refunds are overpayments—meaning you loaned money to Uncle Sam interest-free. Keep that money for your new life!

Again, congratulations on your marriage…and your new filing status! You’re sure to encounter many changes in the journey ahead, but if we can help make the adjustments to your tax return go smoothly next year, let us know. We’re available through e-mail at Office@CPAsite.com and by phone at 904-396-5400.

Filed under: Tax by Lynn Barwell
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Maybe you read Friday’s article in the Florida Times-Union.  (If you’re not in Jacksonville you can read the article online at http://jacksonville.com/business/2010-08-19/story/health-care-tax-credit-help-small-business.)  Kevin Turner gave an overview of how the government’s Affordable Care Act will affect small businesses, using information provided by Mark Patrick. 

For more information on how your small business can benefit from this incentive, see our June blog (http://www.cpasite.com/blog/?p=126) or contact us personally:  904-396-5400 or Office@CPAsite.com.  We look forward to hearing from you!

Filed under: Tax by Lynn Barwell
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Do you have cluttered closets, piles of papers, and drawers of documents?  Does the mountain of mail you get every day cause you to overlook important items like bills and tax returns? 

Are you overwhelmed by catalogs you set aside to look at on a rainy day when, in actuality, it’s going to take another flood before you’ll ever get enough time?  Whether this situation applies to you or somebody else in your life, get a handle on it by putting a stop to unwanted mass mailings.

You have a choice of several websites that enable you to remove yourself from mailing lists.  These include:

• DMA Choice (www.dmachoice.org), to help you stop getting unwanted mail and start getting mass mailings you actually do have an interest in. 
• Catalog Choice (www.catalogchoice.org) claims it only takes about 15 seconds to opt out of catalog mailing lists using its site. 
• OptOutPrescreen (www.optoutprescreen.com) enables you to opt out of receiving firm offers of credit or insurance. 

All of these sites require you to register, but a few minutes up front can enable you to save hours of sorting through and discarding junk mail.

So take control of the junk!  While you’re organizing the important documents and discarding the unimportant ones, make sure you filed your tax return.  If we prepared it and you need a copy, give us a call at 904-396-5400 and we’ll be glad to send it to you. Happy de-cluttering!

Filed under: General by Jeannie Dopson
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Most people see the IRS as the “bad guy”– the agency that takes away all their money.  If you paid more than you owe, though, the IRS turns into the “good guy”–willing to give your money back.  Here are some things to consider about your potential refund:

• If taxes were withheld from your wages but you didn’t file because your total income was too low, you may be eligible for a refund.  You must file a return within three years of the original due date of the return, or the IRS gets to keep it.  Previous years’ filing forms can be found on the IRS website (http://www.irs.gov/formspubs/index.html – click Previous Years), or by calling the IRS at 800-829-3676.
• You should also file if you didn’t pay any tax but would be eligible for the Earned Income Tax Credit.  The same rules listed above apply.
• If you should have received a refund but moved and didn’t get it, The IRS maintains information about undeliverable checks for a year. Check out “Where’s my refund?” on the IRS website where you’ll be prompted to enter your correct address. Pull out your old tax return though, as you will need data from it to verify your identity before the IRS will release any information.  If you prefer, you can also call 800-829-1040.
• If your check was lost, stolen or destroyed, “Where’s my refund?” will also give you information about filing a claim.
• Electronically filing your claim will eliminate many of these lost-refund issues. If you’ve never filed electronically, it’s easy and we can help.

So, unless you want to donate your overpayment to pay off the national debt, be sure to (promptly) claim what’s yours. If you need help getting all you’re due, give us a call: 904-396-5400.

Filed under: Tax by Lynn Barwell
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If you are in a position of leadership for a not-for-profit organization, have you verified whether or not it’s following the latest IRS rules? If it isn’t, the IRS is providing time for a make-up.

Some quick background: The IRS had approved so many not-for-profit organizations that tracking whether or not taxpayers’ donations were truly being given to a legitimate organization was becoming difficult. So in 2006, Congress authorized the IRS to cancel the tax exempt status of any previously approved Sec. 501c3 organization that had not filed by 2010 a Form 990 series tax return in at least one of the last three years. Larger organizations (those with over $25,000 in gross receipts) were already required to file at least a Form 990-EZ each year, but organizations under that threshold had no filing requirement.

The new law requires charities with up to $50,000 of gross receipts to file at least a Form 990-N each year. Numerous small organizations were set to lose their tax exempt status after the May 2010 filing deadline if they had not filed a return in at least one of the last three years.

But in a “charitable” move, the IRS has provided a one-time relief program: the deadline for filing the 2009 return has been extended to Oct. 15, 2010. Two corrective options are available: (1) the smallest organizations (eligible to file Form 990-N) are granted an automatic extension and just need to file by the new due date; and (2) a voluntary compliance program for small organizations (eligible to file Form 990-EZ).

Organizations eligible to file Form 990-N can simply go to the IRS website and provide the eight information items online by October 15. This action is a quick way to put them in good standing again.

Larger organizations with between $50,000 and $500,000 of gross receipts are required to file Form 990-EZ, which can be submitted as past due. It will still be accepted with a small compliance fee in lieu of any taxes, penalties and interest that otherwise would be assessed for failure to file. The fee is based on the gross receipts reported on the 2009 return: $100 for below $100,000; $200 from $100,001 to $200,000; and $500 from $200,001 to $499,999. This relief plan does not waive any responsibility for other taxes that might be due, including employment or unrelated business income taxes.

The IRS website has more details and (FAQs) at http://www.irs.gov/charities/article/0,,id=225954,00.html

It also provides a list of known non-compliant organizations at http://www.irs.gov/charities/article/0,,id=225889,00.html

Not being listed does not guarantee that an organization is in compliance! So check with your organization’s CPA to ensure your organization is following the most current rules. And check with us (office@CPAsite.com or 904-396-5400) if you need help following the rules.

Filed under: Tax by Mark Patrick
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One of the frustrating complexities on a personal tax return is making interest expense deductible. The current law comes from the revision to the Internal Revenue Code in 1986. Essentially, you should manage four categories of interest to ensure you’re maximizing your qualifying deductions:

 Home mortgage interest

This interest is incurred on the primary residence, plus one other home (which can also be a boat or an RV). The interest is deductible on the Schedule A, but is limited to the interest incurred on the amount of debt used to purchase the property, plus improvements.

Deductible interest expense is limited to the interest on combined mortgage balances of $1,000,000 or less, plus an additional $100,000 on a second mortgage or home equity loan. Points do not count toward this limit, so lowering the periodic rate by paying extra at closing may leverage you a slightly higher total deduction.

Interest above these limits falls under personal interest, discussed below.

Investment interest

This Schedule A deduction is limited to the amount of investment income, primarily taxable interest and dividend income. For example, a margin account or a loan used to acquire an investment asset that does not generate current income qualifies for the Schedule A deduction.

If tax-exempt interest is earned in a particular year, the ratio of that income to total investment income is used to determine what investment interest expense is disallowed.

It’s also possible to increase the amount of investment income reported in a particular year by electing to treat net capital gains as investment income. The down-side to this approach is that the lower capital gains tax rates are waived, but making the election may make sense to avoid losing the deduction.

If the total investment interest expense exceeds the total investment income in a particular year, the excess may be carried for up to five years into the future.

Business interest

This deduction includes interest paid for rental property. To qualify, the proceeds of the debt must be used for business purposes and the activity should be non-passive; or if it’s passive, it must be combined with other passive activity to create a net income of at least enough to prevent the losses being limited by the passive loss rules.

If a net passive loss does get limited in a particular year, the interest expense is included with that loss. It is suspended until a future year has sufficient passive income to take an allowable deduction, or until the activity is sold and the suspended loss is included in the net income reported from the sale.

Personal interest

Finally, all other interest expense (credit cards, auto loans, vacation loans, etc., in addition to those excesses mentioned already) is considered personal interest, which has no income tax effect.

If you need help planning your debt structure to maximize your deductible interest, feel free to contact us by phone (904-396-5400) or email.

Filed under: Tax by Mark Patrick
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In our series of recent blogs we mentioned that prudent taxpayers should prepare themselves for laws that may make it into next year: the one pending for 2013 and the one which may survive the current partisan Congress this year.

Use these ideas to plan your strategy:

• Consider accelerating capital gains and dividend income into 2010 to enjoy the lower rates. If you are in the 15% bracket or below, this income could be taken tax free, so pay attention.
• Deductions can be deferred to future years when the tax rate may make them more valuable to you, but remember that the returning phase-out of itemized deductions may limit your benefit.
• A Roth IRA rollover this year (see our Blog archive) could lower future adjusted gross income (AGI) and taxable income to keep you under the investment surtax.
• Think about increasing pension and IRA contributions over the next few years to reduce the amount of income subject to the wealth taxes. These income sources will be taxed upon withdrawal in future years, but the distributions will not be subject to the investment income tax of 3.8%.
• Study the practicality of installment sales to lower the annual capital gain income in a single year, thus moving it below the investment income tax.
• Weigh the option of tax exempt income, such as municipal bonds.
• Invest in life insurance contracts that could produce tax-free income at death. Lifetime needs for income can be provided for by borrowing against the policy.
• The popularity of the S corporation may come to an end if the proposed surtax gets through this year, so planning for an organizational tax change may need to be considered.

Determining the best plan for your situation requires a careful understanding of where you are and where you are going within the evolution of the tax law changes.

We’re here to help you navigate these choppy waters, so give us a call, 904-396-5400, or Email, office@CPAsite.com, and we’ll help you find the smoothest sailing possible.

Filed under: Tax by Mark Patrick
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In this segment of our “Multiyear Tax Planning” series we’ll start preparing you for the “medicine” you’ll be required to take as the tax increases passed with the new health care law become effective.

In 2013 expect an extra 0.9% levy on wages for couples with “adjusted gross incomes” [AGI] above $250,000 ($200,000 for singles) and a new 3.8% tax on investment income on those same people. No longer will everyone pay FICA and Medicare taxes at the same rate. In short, those taxpayers who benefit least from these programs will be expected to pay more to support them.

Formerly considered payroll taxes, FICA and Medicare taxes will now be investment income taxes, too. Did you hear someone say we needed tax simplification? Not lately. Definitions are a long time coming, of course, but you get the gist of where all this is headed.

In addition, many professionals must prepare for the possibility they’ll need to pay FICA and Medicare taxes on the net income of their S corporation or partnership income, which, until this time, was considered only taxable for income tax purposes. The House already passed this additional dip into the pockets of doctors, lawyers, accountants, engineers and consultants, and the Senate is working on a similar, perhaps even more tightly defined, provision.

The core of this particular bill is to provide what the President wants to protect those people making under the wealth threshold (over $250,000); but the pack mule his plan is riding on may have more than it can carry right now, and Congress may not let it survive this year. Predictably, the proposal is linked to a myriad of other extenders offering incentives and relief for Americans in need, so it’s way too early to predict what will be in the final recipe from our elected cooks in Washington.

What can you do?  Hold tight!  Next week, we’ll be posting some tips to help you navigate the tricky waters ahead.  In the meantime, if you need a CPA or have questions about the new and future changes, call us at 904-396-5400.

Filed under: Tax by Mark Patrick
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Welcome to the first in a series of discussions about why tax planning really shouldn’t be done one year at a time. After you read this series over the next few weeks, you’ll arrive at the same conclusion we learned years ago: tax planning is no longer a single-year exercise!

We had already recommended a multiyear strategy because the Alternative Minimum Tax [AMT] can sneak up on you, but we have even more reasons to consider it now. We need to be prepared for these three imminent events:

• The prospect of dozens of changes to individual income tax rules in 2011;
• The massive new healthcare bill already providing for tax increases to most taxpayers in 2013;
• And now working its way through Congress: an attempt at raising more revenue from some while limiting tax increases on others.

With all this taxing activity in the works, planning a multiyear strategy that moves income and deductions to the most advantageous tax year possible is a wise step.  Many taxpayers hope for a reprieve after the November elections, but getting a break will require a majority of the new Senate to halt debate on any new legislation, and the President still holds the power to veto for at least 30 more months. Essentially, the odds are against returning to the status quo.

Our first hurdle is the repeal of the “Bush tax cuts.” Actually, Congress needs to take no action to reset the tax rates to those of a decade ago. The changes are already baked into the cake of the current law. Plain and simple, the tax cuts are scheduled to expire on New Year’s Day 2011. These changes include:

• The return to the 20% long term capital gain rate (from 15% for all but the lowest brackets, which are currently zero)
• The elimination of the special 15% rate (0% for the lowest brackets) on qualified dividends
• Back to the regular rate for ordinary income
• The cap on ordinary tax rates will return to 39.6% from the present 35%
• Special relief for the increasing population affected by the AMT will end
• Itemized deductions will again be limited for those with over $250,000 in gross income

Also, the current situation of not having an estate tax will end with the return of the old law with its maximum 55% tax rate and $1 million exclusion. Even if you’re one of the “small people” that BP is concerned about, the feds will take back half of your $1,000 child credit. There’s more, but you get the picture. The good old days may not look so good when they return next year.

Check back next week for details of the tax increases passed with March’s health care bill. Until then, if you have any questions about multiyear tax planning, call 904-396-5400 to speak with one of our accounting professionals.

Filed under: Tax by Mark Patrick
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