Please click the link to view the article: “The tax that will not die“

The following is outlined according to the tentative agreement:

• Extend the 2 percentage cut in Social Security and Medicare until year–end.
• Extend the expiring jobless benefits for the long-term unemployed
• Adjust the Medicare payment system to avoid a 27% drop in physicians’ fees
• Reduce the maximum unemployment extension from 99 to 73 weeks
• Require federal employees to contribute another 1.5 percent of their salaries toward pensions

The payroll tax cut and renewing jobless benefits were announced this September. It benefits 160 million Americans and delivers a tax cut annually of about $1,000 for the typical worker making $50,000 a year. Those making a salary of $100,000 would get a $2,000 tax cut.

We will release an update pending a final decision.

Visit: 2011 Payroll Tax Cut Extended

The purpose of estate planning is to be sure that after you die, your assets go to your intended beneficiaries. Therefore, people often associate estate planning with old age and decide to put it off. However, the best time to plan your estate is now, while you can — before you need an estate plan. Remember, advance planning is the key to any successful endeavor.

Asset Preservation
It’s difficult to pinpoint any particular age for starting to plan your estate. But, if you begin now, you may be able to preserve your assets for your spouse and other heirs in a safe and tax-efficient way. A simple will can efficiently transfer your assets; however, you’ll have no guarantee that a reliable, unbiased investment manager will succeed you. A flexible legal arrangement called a trust may help to ensure that your family’s financial future is protected if you die or become incapacitated.

In your trust agreement, you legally transfer some or all of your assets to a trustee’s care. You can make the transfer effective immediately, upon your disability or death, or at some future time. It is important to choose a trustee with strong investment skills and experience to handle substantial assets. Poor investment decisions could mean a lower standard of living for your spouse or a reduced inheritance for your beneficiaries. When you choose a professional asset manager as your trustee, you’ll feel secure knowing that your family’s finances will be carefully managed, whatever the ages, health, or financial experience of your heirs.

Reduce Uncle Sam’s Share
Keep in mind that the amount that can be sheltered from federal estate tax is $5 million in 2011. This means that you can avoid owing estate taxes on any amount that you leave to your heirs under this threshold. Transfers to a spouse generally are not subject to estate tax. However, the estate-tax rules may make it difficult to escape paying taxes when those same assets eventually pass to your children or other heirs. By planning ahead and setting up a trust now — before you actually need it — your children may be able to avoid paying hefty taxes on the assets they inherit from your spouse. Of course, professional guidance is essential before acting.

Another way to reduce your potential estate tax is to remove assets from your future estate by giving them away. The tax law exempts small gifts with a gift-tax annual exclusion. This tax break can be your major opportunity for making tax-free transfers over your lifetime. In 2011, you can make gifts of up to $13,000 to each of as many individuals as you want without gift-tax consequences. If your spouse joins with you, the tax-free amount doubles to $26,000, per person, per year. Also, up to $5 million total in otherwise taxable gifts can be made without incurring gift tax.

You can turn a sizable gift into a tax-advantaged source of income by setting up a charitable remainder trust. Simply set up the trust during your lifetime, or in your will, and fund it with your charitable contribution. The charity will receive the trust’s assets when the trust’s term ends. But, before that, income from the trust can be paid to anyone you choose — including yourself — as the trust’s beneficiary. Thus, a charitable remainder trust allows you to support a good cause and pay yourself or your beneficiaries as well.

Protect Your Family
None of us likes to think about our own mortality or the chance of becoming incapacitated. And that’s exactly why so many families are caught off guard and unprepared when incapacity or death strike. You can protect your family and help ensure their financial future with a properly designed trust. If you want to know more about the importance of setting up a trust before you need it, please contact us.

Conclusion
It is important to understand that there are many estate planning strategies. While living trusts may be beneficial for some, for others it may not. Each estate planning project should be tailored to your specific circumstances, your goals and objectives.

Look for future blog articles where we will discuss additional estate planning strategies such as Grantor Retained Annuity Trusts (GRATs), charitable trusts, generation skipping planning, etc.

Contact Jayne Schaeffer with any questions or email gotfeedback@herbein.com for future blog article suggestions.

Jayne R. Schaeffer, CPA/PFS
Partner
jrschaeffer@herbein.com

A beneficiary who inherits a traditional IRA doesn’t receive a pass on income taxes. If you inherit an IRA, be cautious about simply liquidating the account, since the tax bite could be quite large. Instead, talk with us about your distribution options.

As a Surviving Spouse
You can leave the account as is and designate yourself as the account owner, assuming you are the sole designated beneficiary of your spouse’s IRA. Or you can roll the funds over into your own traditional IRA. Either way, you won’t have to take any money out until after you reach age 70½. Then, you’ll have to start taking RMDs. If you want to, you can allow the rest of your IRA to continue growing tax deferred.

A surviving spouse can also choose to be treated as the IRA beneficiary. This might be the better choice if you’ll need to take money from the IRA before you turn 59½, since withdrawals by IRA beneficiaries escape the 10% tax penalty on early withdrawals. What about RMDs? If you go the beneficiary route, you generally won’t have to start taking them until the year your spouse would have reached 70½.

As a Nonspouse Designated Beneficiary
You can also stretch out withdrawals — and the related income taxes — by setting up an inherited IRA. The deadline for taking your first RMD is December 31 of the year after the year the account owner died. You may make additional withdrawals from the IRA at any time.

Somewhat different rules may apply if you receive an IRA that has passed through an estate instead of directly to you as the account’s designated beneficiary. To get the most from your IRA inheritance, you’ll want to carefully evaluate your options or talk to your Herbein tax professional.

For the 2011 tax year, a return generally should be filed if your child has:

• Unearned income of more than $950 or
• Gross income (whether unearned, earned, or a combination) of more than the standard deduction. As your dependent, your child is entitled to a standard deduction equal to the greater of (1) $950 or (2) $300 plus earned income, up to a maximum deduction of $5,800.

Filing a separate return may not be your only option. You can elect to report your child’s income on your return for 2011 if your child’s income consists only of interest and dividends and is more than $950 but less than $9,500. Since the election sometimes results in a higher overall family tax bill, you’ll want to consider the pros and cons before choosing this option.

Even if your child is not required to file, a return should be filed if your child had income tax withheld from his or her pay and wants to have that money refunded.

The individual income-tax brackets and many other tax-related provisions are subject to inflation indexing. Thanks to cost-of-living adjustments (COLAs), several key items will be higher for the 2012 tax year, including the:

• Personal exemption — $3,800 per eligible person
• 401(k) salary deferral limit — $17,000 (plus an additional $5,500 of catch-up contributions, if eligible)
• Limit on annual additions to defined contribution plan account — $50,000
• Basic standard deduction — $11,900 (married filing jointly); $8,700 (head of household); $5,950 (single); $5,950 (married separate)
• Roth IRA contribution phaseout range — $173,000 to $183,000 of adjusted gross income for married couples filing jointly; $110,000 to $125,000 for singles and heads of household
• Estate-tax exemption — $5,120,000 of cumulative taxable gifts and transfers at death (exemption is portable between spouses)

Some internet vendors falsely advertise their products as “tax free”. However, Pennsylvania law requires the payment of use tax by any person who purchases taxable goods delivered to Pennsylvania if sales tax is not collected by the vendor.

The use tax also applies to purchases made through toll-free numbers, mail order catalogs and services such as lawn care, maintenance and housekeeping services.

In an effort to encourage compliance with the use tax law, a new line has been added to the PA-40 Pennsylvania Personal Income Tax Return. Line 25 will ask for a calculation of your use tax due. The tax rate is the same as the 6 percent state sales tax, plus 1 percent local tax for items delivered to Allegheny County and 2 percent for items delivered to Philadelphia.

If you have incomplete receipts or your related purchases totaled less than $1,000 in 2011, you may use a table prepared by the PA Department of Revenue to estimate your use tax liability. Click below for a copy of the Use Tax Worksheet and table of Estimated Use Tax Due:

The Pennsylvania Department of Revenue considers the use tax an important source of revenue for the Pennsylvania General Fund and is prepared to enforce penalties and interest for late payment of use tax.

Use Tax Calculation Worksheet

If your business took advantage of the Hiring Incentives to Restore Employment Act (HIRE Act) which was enacted in March 2010, you may now qualify for another tax break – the New Hire Retention Credit.

The HIRE Act was designed to restore jobs lost during the economic downturn by providing a temporary social security tax exemption for employers on wages paid to new hires. To qualify, new hires had to start between 2/4/10 and 12/31/10 and could not be employed for more than 40 hours during the 60-day period ending on their start date. They also could not replace another worker unless that person quit voluntarily or was discharged for cause.

If you have retained any of your employees hired under the HIRE Act for a minimum of 52 consecutive weeks, it is now time to claim the Retention Credit on your 2011 business income tax return. In addition to retaining the employee for at least 52 weeks, you must also have paid wages such that total wages in the final 26 weeks were at least 80% of the total wages paid during the first 26 weeks of employment.

The tax credit for qualified retention is worth 6.2 percent of wages paid to the employee or $1,000 – whichever amount is less. If you are unsure whether an employee qualifies under the New Hire Retention Credit, you can check the criteria by using IRS Form W-11. Click the link below for details.

http://www.irs.gov/pub/irs-pdf/fw11.pdf

Herbein celebrates our 40^th anniversary in 2012. A comparison between technology then and technology today is shocking. Even more shocking is the rate of acceleration over the past 20 years, the past 10 years, and even the past year. Today we’re routinely doing things that were previously unimaginable. Sometimes we look at technology as a curse (does anyone turn off their smartphone on vacation) but we are fortunate in many ways.

In preparation of the latest incarnation of herbein.com, we listened to clients and our own team regarding what should be on the site and how it should be laid out. We have eliminated some sections, but most importantly, we have added a few key features.

Our new website will feature a blogging section – the Herbein Hub. This blog will be the Hub at the center of our communications. You can count on seeing regular postings regarding all aspects of services and industries. These blog articles will be straight from Herbein’s professionals and will discuss any current hot issues and their views on them.

We’re excited by the opportunities. Also included are links to our social media outlets. In many ways, our website details our capabilities and successes on behalf of our clients. Our social media presence really shows the personality of the firm. A key concern expressed by our clients via our Client Loyalty Survey was about how they don’t know what other services may be of benefit to them. This site addresses that concern directly – the Services and Industries pages are drawn from our actual experience, not just from a list of every service known to CPAs.

Take a tour of our new site! If you have any questions, concerns, input – or if you simply just want to tell us what you think, please contact us! We’d love to hear from you. Email gotfeedback@herbein.com.

We view this new website as the start to another chapter in our firm’s history…  we don’t know what the future holds, but we’re sure it will be an exciting adventure!

Jack M. Kolmansberger
Chief Marketing Officer
jmkolmansberger@herbein.com