Thursday, July 15, 2010
Georgia's New Retirement Income Legislation
In May 2010, new legislation was passed that will phase out Georgia personal income taxation of retirement income. For Georgia income tax purposes, beginning with the 2012 tax year, taxpayers who are age 62 but less than age 65 during any part of the taxable year, or permanently and totally disabled, can exclude up to $35,000 per year for each taxpayer. Taxpayers 65 or older during any part of the taxable year can exclude up to $65,000 for the tax year beginning in 2012 increasing to $100,000 for 2013, $150,000 for 2014, $200,000 for 2015. Then, in the 2016 tax year, taxation on retirement income for Georgia income tax purposes is completely eliminated for taxpayers age 65 or older during any part of the taxable year. Retirement income includes interest income, dividend income, net income from rental property, capital gains income, income from royalties, income from pensions and annuities, and no more than $4,000 of an individual’s earned income.
Saturday, April 17, 2010
The HIRE Act
The Hiring Incentives to Restore Employment (HIRE) Act was signed into law on March 18, 2010. This new law provides tax benefits to employers who hire workers who were previously unemployed or working part time.
Hiring and payroll tax incentives
Employers who hire previously unemployed workers (after February 3, 2010 through the end of 2010) may qualify for a 6.2% payroll tax incentive. This incentive effectively exempts the employer from Social Security taxes on wages paid to these workers after March 18, 2010. Employers are still responsible for the Medicare tax and the employees are still responsible for income taxes as well as their share of Social Security taxes and Medicare taxes.
For each qualified newly hired worker, retained at least a year, the business may claim an additional non-refundable tax credit up to $1,000 per worker on their 2011 income tax return.
A few key details regarding the Act are:
New employees filling existing positions qualify only if the previous worker left voluntarily or was terminated for cause.
Eligible new employees must sign a statement certifying that they were unemployed during the 60 days prior to beginning work or that they worked fewer than 40 hours per week at their previous job.
New employees cannot be family members.
New employees are not required to work a minimum number of hours.
The payroll tax benefit also applies to not-for-profit organizations.
Section 179 Expensing limits extended for businesses
The HIRE Act also extended the increased Section 179 expensing limits in effect for tax years beginning in 2008, 2009 and 2010 which provided for expensing qualified machinery and equipment additions up to a maximum of $250,000 with a phase out beginning at $800,000 in qualified additions. For tax years after 2010, the expensing limit returns to $25,000 and the phase out limitation starts at $200,000.
For additional information about the HIRE Act tax benefits, please contact your tax advisor.
Hiring and payroll tax incentives
Employers who hire previously unemployed workers (after February 3, 2010 through the end of 2010) may qualify for a 6.2% payroll tax incentive. This incentive effectively exempts the employer from Social Security taxes on wages paid to these workers after March 18, 2010. Employers are still responsible for the Medicare tax and the employees are still responsible for income taxes as well as their share of Social Security taxes and Medicare taxes.
For each qualified newly hired worker, retained at least a year, the business may claim an additional non-refundable tax credit up to $1,000 per worker on their 2011 income tax return.
A few key details regarding the Act are:
New employees filling existing positions qualify only if the previous worker left voluntarily or was terminated for cause.
Eligible new employees must sign a statement certifying that they were unemployed during the 60 days prior to beginning work or that they worked fewer than 40 hours per week at their previous job.
New employees cannot be family members.
New employees are not required to work a minimum number of hours.
The payroll tax benefit also applies to not-for-profit organizations.
Section 179 Expensing limits extended for businesses
The HIRE Act also extended the increased Section 179 expensing limits in effect for tax years beginning in 2008, 2009 and 2010 which provided for expensing qualified machinery and equipment additions up to a maximum of $250,000 with a phase out beginning at $800,000 in qualified additions. For tax years after 2010, the expensing limit returns to $25,000 and the phase out limitation starts at $200,000.
For additional information about the HIRE Act tax benefits, please contact your tax advisor.
Friday, March 12, 2010
Could converting your IRA to a Roth IRA benefit you? Maybe.
Although there are benefits to converting
your IRA, especially in light of the 2010 provisions, there are also variables and potential pitfalls you should consider.
The traditional IRA allows for contributions to the IRA by an individual taxpayer with the benefit of a deduction on the taxpayer’s individual tax return. The taxes on an IRA’s earnings are “deferred” until the individual taxpayer begins to withdraw distributions. Each future distribution would generally be taxed at the individual’s current tax rate.
Roth IRAs, established by the Taxpayer Relief Act of 1997, do not require a minimum annual distribution and the distribution’s earnings are tax free. Thus, the assets can grow without taxation for as long as the individual chooses. However, the amount of money converted to a Roth IRA must be reported as income and taxed in the year of conversion at the then individual tax rate in effect. Due to the Tax Increase
Prevention and Reconciliation Act of 2005, there are a few key changes effective January 1, 2010, that make conversions to Roth IRAs worth considering. First, if the conversion occurs in 2010, the individual can elect to delay reporting the conversion for one year and then “split” the taxable converted amount between 2011 and 2012 (50% each year). This delayed reporting and “split” election is available only for 2010 conversions. In addition, effective January 1, 2010, the original $100,000 income limitation for Roth IRA conversions was eliminated.
Although a conversion from a traditional IRA to a Roth IRA may be a good strategy for some taxpayers, there are a few questions to consider:
What should I consider before deciding on a Roth IRA conversion?
Each taxpayer should determine if he/she has the cash available to pay the taxes on the conversion, especially in today’s economic environment. In addition, the taxpayer should determine what effect individual taxes and tax rates will have on his/her financial situation now and in the future.
When is a Roth IRA conversion beneficial?
The Roth IRA conversion is beneficial when you expect to have higher average income tax rates during retirement than in the year of conversion. There can be other instances in which a Roth conversion makes sense. You should discuss possible conversions with your tax advisor in light of your individual
circumstances.
What potential pitfalls should the taxpayer avoid in a Roth IRA conversion?
One potential pitfall is the value of your Roth IRA account could suffer market declines after the conversion. Consequently, you would have paid tax on the higher value when you converted to the Roth. You can minimize this potential pitfall by strategically splitting the IRA (or a portion) into two Roth IRA’s to separate the investment risk should you need to re-characterize your Roth IRA conversion back
to a regular IRA. The ability to re-characterize your conversion expires on the due date (including extensions) of your income tax return. If you are considering converting all or a portion of your IRA to a Roth IRA, your tax advisor can assist you with the risks and rewards of your particular situation.
In summary, the Roth IRA conversion may be a good strategy for some taxpayers; however, a detailed examination and analysis of individual circumstances,calculations of “what if” scenarios and careful planning should occur before any decision to effect the Roth conversion is made. Contact your tax professional for additional information regarding Roth IRA conversions.
your IRA, especially in light of the 2010 provisions, there are also variables and potential pitfalls you should consider.
The traditional IRA allows for contributions to the IRA by an individual taxpayer with the benefit of a deduction on the taxpayer’s individual tax return. The taxes on an IRA’s earnings are “deferred” until the individual taxpayer begins to withdraw distributions. Each future distribution would generally be taxed at the individual’s current tax rate.
Roth IRAs, established by the Taxpayer Relief Act of 1997, do not require a minimum annual distribution and the distribution’s earnings are tax free. Thus, the assets can grow without taxation for as long as the individual chooses. However, the amount of money converted to a Roth IRA must be reported as income and taxed in the year of conversion at the then individual tax rate in effect. Due to the Tax Increase
Prevention and Reconciliation Act of 2005, there are a few key changes effective January 1, 2010, that make conversions to Roth IRAs worth considering. First, if the conversion occurs in 2010, the individual can elect to delay reporting the conversion for one year and then “split” the taxable converted amount between 2011 and 2012 (50% each year). This delayed reporting and “split” election is available only for 2010 conversions. In addition, effective January 1, 2010, the original $100,000 income limitation for Roth IRA conversions was eliminated.
Although a conversion from a traditional IRA to a Roth IRA may be a good strategy for some taxpayers, there are a few questions to consider:
What should I consider before deciding on a Roth IRA conversion?
Each taxpayer should determine if he/she has the cash available to pay the taxes on the conversion, especially in today’s economic environment. In addition, the taxpayer should determine what effect individual taxes and tax rates will have on his/her financial situation now and in the future.
When is a Roth IRA conversion beneficial?
The Roth IRA conversion is beneficial when you expect to have higher average income tax rates during retirement than in the year of conversion. There can be other instances in which a Roth conversion makes sense. You should discuss possible conversions with your tax advisor in light of your individual
circumstances.
What potential pitfalls should the taxpayer avoid in a Roth IRA conversion?
One potential pitfall is the value of your Roth IRA account could suffer market declines after the conversion. Consequently, you would have paid tax on the higher value when you converted to the Roth. You can minimize this potential pitfall by strategically splitting the IRA (or a portion) into two Roth IRA’s to separate the investment risk should you need to re-characterize your Roth IRA conversion back
to a regular IRA. The ability to re-characterize your conversion expires on the due date (including extensions) of your income tax return. If you are considering converting all or a portion of your IRA to a Roth IRA, your tax advisor can assist you with the risks and rewards of your particular situation.
In summary, the Roth IRA conversion may be a good strategy for some taxpayers; however, a detailed examination and analysis of individual circumstances,calculations of “what if” scenarios and careful planning should occur before any decision to effect the Roth conversion is made. Contact your tax professional for additional information regarding Roth IRA conversions.
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