So we have "tax reform," ...again.
On December 22, 2017, the President signed the Tax Cuts and Jobs Act of 2017.
A quick synopsis reveals that the Corporate tax cuts are permanent (until Congress changes its mind), and the individual tax changes sunset (return to 2017 version) after 2025.
Most of the changes became effective 1/1/2018, although there are a few specific exceptions that affect 2017- and see below, some that started in 2019.
Virtually all people will see lower taxes; but with very unusual combinations
of circumstances it is possible that may not be the case. This is certainly not
the tax return on a postcard scenario; but roughly 1 in 8 additional
taxpayers will be converted from "itemizers" to the standard deduction.
This may not also apply to their state tax situation, however.
As boring as the bean counting side of taxes are to most of you in the general public; the three branches of the federal government (Executive, Legislative and Judicial) and a plethora of state, county and local government entities manage to keep everyone guessing, confused, and/or frustrated. We endeavor to cut through the tangled web crafted by our elected officials.
Taxes determine which pocket YOUR money ends up in. While we have an academic background in both accounting and tax accounting, our extensive background in corporate management, real estate law,personnel, business administration, marketing and teaching help ensure that you pay the lowest legal piece of the pie while avoiding the all too familiar bureaucratic quagmire.
What is Going on With Social Security?
In a nutshell: It is the world's largest Ponzi Scheme. (Sorry Bernie)
The employer and employee each pay half of the payroll taxes
assessed on wages. In 2021 the Social Security wage base is $142,800; up from $137,700. in 2020.
2021 metrics: both employer and employee can be responsible
for a maximum of $8853.60 each on that amount. However there continues to be no cap on the Medicare (1.45% each) portion after exceeding the base amount, Also married taxpayers owe an additional 0.9% Medicare tax if their income exceeds $250,000. [$200,000. single/Head of Household]
2020: the wage base of $137,700 will result in a maximum of both employer and employee owing $8537.40 in payroll taxes. This continues to be comprised of 6.2% each Social Security and 1.45% each Medicare taxes. While the Social Security taxes are capped at the wage base maximum, there continues to be no cap on the Medicare taxes.
2019: the wage base of $132,900. means that the employer and employee could owe as much as $8,239.80 each to the US Treasury.
2018: the 6.2% rate^ each owed on the first $128,400.00 in earnings annually combined for maximum of $15,921.60 F.I.C.A. taxes.
Self employed individuals are responsible for
both halves of Social Security taxes.
The 2017 wage base was $127,200. meaning the maximum
employee and employer contribution was $15,772.80.
^The last change in those contribution rates affected the employee portion in 2011 and 2012 where they paid a reduced share of 4.2%, employer portion remained 6.2%.
In addition, both the employee and employer pays 1.45% on ALL earned income into the "Medicare Trust Fund." [ self employed pay the full 2.90%] These funds are remitted to the Treasury, and the Government promptly spends these funds. Each wage earner is credited with their earnings via the W-2 Forms submitted to the Social Security Administration by their employers.
In addition, the Affordable Care Act, (commonly known as Obamacare) imposes additional Medicare taxes on taxpayers with incomes above certain threshholds. There are provisions to tax both earned income and also investment income. The tax bill signed into law in December 2017 ONLY eliminated the "shared responsibility payment," but NOT until the 2019 calendar year.
In fact Congress has consistently raided the "excess" funds that have been collected when there has been more people paying into the system than drawing out.
The Government backs this with paper debt in the form of Treasury bills, notes and bonds. The interest paid on this debt is actually additional debt in the budget. Because there is no real "investment," the system relies on the current contributions of today's workers to fund the Social Security checks of retirees. The ratio of
workers to retirees is currently about 2.5:1. It is not hard to understand why there are going to be problems with all the baby boomers now retiring. The ratio of "Generation X" and beyond workers to baby boomer retirees will sink below 2:1!
Strategy: Save now through 401's, 403's, 457's, IRA's, Simple's,and/or Roth's, while tax rates are relatively low.
Is your employer offering the Roth 401(K) option?
If it Quacks Like a Duck...
Are You a Sitting Duck?
We hope you haven't had your feathers "plucked." The Internal Revenue Service has completed audits and has evaluated results from approximately 49,000 "randomly" selected taxpayers' returns for the National Research Program. According to the Government this is the kinder, gentle version of the grueling TMCP audits from the late 1980's.
The IRS hopes to utilize the information gathered to more efficiently administer the tax collection process, and minimize the intrusion to the public...
Are you working with your tax professional to ensure you are keeping the records necessary to avoid an audit financial windfall for the government? While no tax Professional can prevent you from being audited, they sure can increase your audit potential by how they prepare your return.
We'd love to hear from you regarding your audit experience, good or bad. If you had representation, did they do a good job in preparing you for what to expect? Did the auditors treat you with respect? Did you sense frustration in the auditor with all the complexities and changes in the tax laws?