November 2009
IRS ANNOUNCES FEW INCREASES TO RETIREMENT SAVINGS LIMITS FOR 2010
by
Andrew D. Schwartz, CPA
Last month, the IRS announced the
cost of living adjustments applicable to the various retirement plan
limitations. Unfortunately, the bulk of the
retirement savings limits will not increase from 2010.
According
to the October
15th announcement made by the IRS on
Pension Plan Limitations for 2010,
"The
limitations that are adjusted by reference to Section 415(d) will remain
unchanged for 2010. This is because the cost-of-living index for the
quarter ended September 30, 2009, is less than the cost-of-living index for
the quarter ended September 30, 2008, and, following the procedures under
the Social Security Act for adjusting benefit amounts, any decline in the
applicable index cannot result in a reduced limitation.
No
Increases for 2010
Most
working professionals have access to a 401(k) plan or a 403(b) plan at work.
Amounts contributed to these plans generally reduce your taxable earnings
and always grow tax deferred. Like 2009, you can contribute up to
$16,500 into a 401(k) or 403(b) plan through salary deferrals in 2010.
Anyone 50 or older by December 31,
2010 can contribute
an extra $5,500 into their 401(k) or 403(b) plan through salary deferrals
next year, for a total annual contribution of $22,000. That is the
same as what was allowed during 2009.
Many
smaller employers offer their staff access to SIMPLE/IRAs instead. SIMPLE's work just like
401(k) plans, which means it's up to you to fund the bulk of this retirement
savings account through salary
deferrals. For 2010, the maximum contribution into your SIMPLE remains
at
$11,500. Anyone 50 or older by December 31st can sock away an additional
$2,500 in 2010, for a total annual contribution of $14,000, unchanged from
2009.
And
if you are self-employed, you can contribute up to 20% of your net
self-employment income into a SEP IRA. The maximum contribution into
your SEP IRA for 2010 remains at $49,000.
One Increase to IRAs
Don't forget about IRA's.
There is a bit of good news for people
looking to contribute to a Roth IRA in 2010. While the amount you can earn and still
contribute to a Roth has not increased for single individuals, this threshold
did increase by $1,000 for married couples.
If your income is too high for a
Roth, don't forget that the rules changed a few years ago, eliminating the income limitation as of 2010 for people looking to convert their IRAs to
a Roth IRA. This tax law change provides high-income taxpayers with a great
opportunity to get money into these tax-free investment accounts. For
more information, please check out these articles:
And finally, if you're married and your
spouse isn't covered under either an employer sponsored or self-employed
retirement plan during the year, the phase-out range for your spouse making
a deductible IRA contribution has increased to $167,000 - $177,000, which is
identical to the Roth IRA phase-out limits.
Monthly Budget
Most
people won't be able to max out these tax-advantaged retirement options
unless they get on a budget and put away a set amount of money each month.
With 2009 winding down, now's the time to start thinking about resetting your monthly retirement savings
goals for 2010.
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FREE SKIING
FOR KIDS AT NEW HAMPSHIRE AND VERMONT SLOPES
by
Andrew D. Schwartz, CPA
Check out this
unbelievable opportunity that my wife and I stumbled on last
year when we were looking into a family ski trip for the
pre-tax season winter. Click on the
Kids Ski Free link on
www.SkiNH.com
to learn how to get free lift tickets to most of the ski
mountains in New Hampshire for your child in the fourth and fifth grade.
The cost is just $20
per child for a booklet chock full of complimentary lift
tickets. Please note that your fourth grader also needs to
complete a short essay on some topic pertaining to the history
of skiing in New Hampshire. My daughter wrote about
snowmaking.
The fifth graders have
it much easier. Simply submit your $20 fee along with a
copy of their recent report card to prove that they are
currently in the fifth grade, and you're all set.
Last winter, my two
two kids were the perfect age of this promotion - a fifth grade
son and a fourth grade daughter. We really got lucky
finding this free skiing opportunity last year. By
the end of the winter, my kids skied eight times, and we didn't
pay a dime for their lift tickets. Plus, many of the
mountains offer discounted or two-for-one tickets for adults who
accompany the child. Here are some of the incredible ski
bargains we've enjoyed last winter thanks to SkiNH.com:
- All four of us skied at Black
Mt in Jackson NH for $39.
- All four of us skied at
Crotched Mt in Southern NH for $51.
- My two kids and I skied at Mt.
Sunapee for $54.
- All four of us skied at
Gunstock, Mt. Cranmore, and Pat's Peak for around $90 per day.
According to their
site, "Ski NH is the statewide association representing 37
alpine and cross country resorts and more than 200 lodging
properties in New Hampshire. The Earn Your Turns and
Snowsports Passport program are made possible by the support of
the NH Department of Travel and Tourism Development" plus a few
other sponsors.
As it turns out,
Vermont has a similar program for fifth graders only. For
more info about the free skiing available for kids in Vermont,
check out the
Kids Zone page on SkiVermont.com.
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NO INCREASE TO SOCIAL SECURITY MAX
FOR 2010
by
Andrew D. Schwartz, CPA
For the
first time since Congress enacted automatic Cost-of-Living
Adjustments (COLA) for Social Security back in 1975, there will
be no increase to the Social Security Wage Base. This
annual calculation is based on whether there "is an increase in
the Bureau of Labor Statistics’ Consumer Price Index for
Urban Wage Earners and Clerical Workers (CPI-W), from the
third quarter of the last year to the corresponding period of
the current year. This year there was no increase in the CPI-W
from the third quarter of 2008 to the third quarter of 2009,"
explains the Social Security
Administration.
At a
rate of 6.2%, the maximum social security taxes that your
employer will withhold from your salary remains at $6,622 for 2010. In addition, your
employer also withholds Medicare taxes from your pay at a rate
of 1.45%. There is no limit on your wages subject to this tax.
Calculating the Self-employment Tax:
If you're
self-employed and earn more than $400 in net profit from your
business, you're subject to social security and Medicare taxes
as well. Known as the "self-employment tax", you'll need to
complete a Schedule SE to calculate this tax, and then report
the amount due on page 2 of your Form 1040.
The self-employment
tax is based on a social security tax rate of 12.4% and a
Medicare tax rate of 2.9%. These rates are double those paid by
employees, since a self-employed person must pay both the
employee's portion and the employer's portion of both taxes.
Remember, when you work as an employee, your employer matches
the social security and Medicare taxes withheld from your pay.
Unlike most other
taxes, when dealing with self-employment taxes, the more you
earn, the less you pay in taxes. If you earn income as an
employee and as an independent contractor, and your combined
income exceeds $106,800 in 2009, make sure to complete Section B
of the Schedule SE. Otherwise, your tax calculation will be
incorrect and you'll end up overpaying your self-employment
taxes.
Do You Work For More Than One Employer in 2009 and Earn More
Than $106,800?
For 2009, each of your employers
withholds social security taxes from the first $106,800 that you earn from them.
If you work for more than one employer and your total salary from all sources
exceeds that threshold, you'll have excess social security taxes withheld. Make
sure to claim a credit for these excess taxes on your 1040 as additional federal
taxes paid in.
For Example:
Let's say you work for two employers
and earn $75,000 from each employer. Employer #1 withholds $4,650 in social
security taxes ($75,000 * 6.2%). Employer #2 also withholds $4,650 in social
security taxes - for a total of $9,300 in social security taxes withheld during
the year. Since the maximum social security taxes that you should pay through
payroll withholdings for 2009 is limited to $6,622, the excess of $2,678 counts
as additional federal income taxes paid in by you.
www.ssa.gov
A great place to find
out more about your social security taxes and projected benefits
is at the Social Security Administration's website located at
www.ssa.gov.
FYI: The social security wage base has been increased
each year except for 2010. The wage base maximum has been increased as follows:
2009 & 2010 wage base max:
$106,800
2008 wage base max:
$102,000
2007 wage base max: $97,500
2006 wage base max: $94,200
2005 wage base max: $90,000
2004 wage base max: $87,900
2003 wage base max: $87,000
2002 wage base max: $84,900
2001 wage base max: $80,400
2000 wage base max: $76,200
1999 wage base max: $72,600
1998 wage base max: $68,400
1997 wage base max: $65,400
1996 wage base max: $62,700
1995 wage base max: $61,200
1994 wage base max: $60,600
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2008 & 2009 TAX FACTS
- For 2009, the standard deduction for a single individual is $5,700 and
for a married couple is $14,400. A person will benefit by itemizing once
allowable deductions exceed the applicable standard deduction. Itemized
deductions include state and local income taxes (or sales taxes), real estate
taxes, mortgage interest, charitable contributions, and unreimbursed employee
business expenses.
- For 2009, the personal exemption is $3,650.
Individuals will claim a personal deduction for themselves, their spouse, and
their dependents.
- The maximum earnings subject to social security taxes is $106,800
for 2009 and 2010.
- The standard mileage rate is $.55 per business mile as of
January 1, 2009, down from $.585 per mile for the final six months of 2008.
- The maximum annual contribution into a 401(k) plan or a
403(b) plan is $16,500 in 2009 and 2010. And if you'll be 50 or
older by December 31st, you can contribute an extra $5,500 into your 401(k) or
403(b) account this year.
- The maximum annual contribution to your IRA is $5,000 for 2009. And if you turn 50 by December 31st, you can contribute an extra
$1,000 that year. You have until April 15, 2010 to make your 2009 IRA
contributions.
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