BizLawBuz …. The Power of Know

Good news coming from the federal government? It’s true!

In October, the IRS announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for the 2012 tax year. This is the first time since 2008 that the limits have been increased, which is mainly attributable to the fact that the cost of living in recent years either decreased or did not increase enough to trigger adjustments.

According to www.irs.gov, here are a few highlights of the changes (see below for expanded information):

• The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $16,500 to $17,000.
• The catch-up contribution limit for those aged 50 and over remains unchanged at $5,500.
• The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2012 from $49,000 to $50,000.
• The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $58,000 and $68,000, up from $56,000 and $66,000 in 2011. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $92,000 to $112,000, up from $90,000 to $110,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $173,000 and $183,000, up from $169,000 and $179,000.
• The AGI phase-out range for taxpayers making contributions to a Roth IRA is $173,000 to $183,000 for married couples filing jointly, up from $169,000 to $179,000 in 2011. For singles and heads of household, the income phase-out range is $110,000 to $125,000, up from $107,000 to $122,000. For a married individual filing a separate return who is covered by a retirement plan at work, the phase-out range remains $0 to $10,000.
• The AGI limit for the saver’s credit (also known as the retirement savings contributions credit) for low-and moderate-income workers is $57,500 for married couples filing jointly, up from $56,500 in 2011; $43,125 for heads of household, up from $42,375; and $28,750 for married individuals filing separately and for singles, up from $28,250.
• The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased from $160,000 to $165,000.
• The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) is increased from $110,000 to $115,000.

As always, if you have any questions, please contact Wright Penning & Beamer.

Julie P. Cotant

Michigan permits husbands and wives to own real estate as “tenants by the entireties.” This special form of joint ownership, recognized only in about half of the states, protects real property from the claims of creditors unless the creditor is the joint creditors of both the husband and the wife. In other words, the creditor of one spouse has always been powerless to force the sale or refinance of entireties property in order to collect a debt.

This was true for all creditors until 2002, when the IRS prevailed in a court battle over whether a federal tax lien may attach to a delinquent taxpayer’s interest in real estate owned as tenants by the entireties. The 2002 ruling essentially gave the IRS “super creditor” status, but there was some comfort for taxpayers in that the IRS could not actually force the sale or refinance of entireties’ property. Instead, it could only wait in the wings until the property was either sold or refinanced, at which time the delinquent tax debt would be paid.

The tax collection landscape changed dramatically this August when the U.S. Court of Appeals expanded the reach of the IRS by ruling that the government could foreclose a husband’s income tax debt by forcing the sale of the Michigan home he owned as tenants by the entireties with his wife. As a practical matter, this ruling means that any transfer of a marital home to one spouse or to that spouse’s living trust must be completed well before any tax dispute arises if the home is to be protected from the collection efforts of the IRS against the other spouse.

Lee Flaherty

Over the last several years, Michigan has experienced extraordinary job loss. One fruit of those job losses has been an unusual number of business start-ups. All over the state, laid off workers have “reinvented” themselves, sometimes going back to school to pursue a different or more advanced degree, and sometimes going into business for themselves doing either the kind of work they have always done or something entirely new.

Online Resources
The federal government continues to develop online resources for the benefit of business owners. Among the recent resources posted by the Internal Revenue Service is a virtual small-business tax workshop that you can access at http://www.tax.gov/virtualworkshop. The virtual workshop consists of a series of nine videos covering a number of topics of interest to small business owners, particularly those who are just getting started. Lessons cover topics such as how to set up and run your business, how to file and pay your taxes using your computer, how to set up a home office or a retirement plan and how to manage payroll.

Taking Advantage of SBA Loan Programs
The U.S. Small Business Administration also has a number of online resources for small business owners. Several videos and podcasts can be accessed at http://www.sba.gov/training. Among the topics covered by the SBA are how to develop a business plan, how to survive in a down economy, and how to take advantage of SBA loan programs and federal government contracting opportunities.

The Need for Tax or Legal Counsel
These online tools don’t replace the need for tax or legal counsel, but they can help you make better and more efficient use of both your time and our office, which in turn can save you money. If you are considering a new business venture or you need our assistance with a legal matter affecting your ongoing business, please contact any of the attorneys at Wright Penning & Beamer. We would be pleased to help you!

LeClair L. Flaherty

Many of us sent kids off to college last month, and some of us even returned to school ourselves. Coincident with the start of the new school year, the Internal Revenue Service announced the launch of an interesting back-to-school feature on its website. If you have (or will soon have) kids in college, you will want to take a look at the new “Tax Benefits for Education” section on www.irs.gov.

The section highlights a number of tax breaks intended to help parents and students pay for higher education. In addition to describing how to take advantage of deductions and credits that have been in place for some time, the section features two significant changes that will be in effect just for 2009 and 2010.

The first change expands Section 529 plans to permit expenditures for a student’s computer equipment and computer-related services, such as software and Internet access. Previously, the qualified expenses were limited to tuition, fees, books, supplies, equipment, special needs services and, for those enrolled at least half-time, room and board.

The second change is called the “American opportunity credit” and is designed to help students pay for the first four years of college. It expands the existing Hope credit, making it available to more families and adding course materials to the list of qualified expenses.

LeClair Flaherty

In addition to the new Web section, you can find out more about school-related tax breaks in IRS Publication 970, Tax Benefits for Education. Download it from www.irs.gov or call 1-800-TAX-FORM (829-3676) to have a copy sent to you.

Everywhere I look, I run into lists. We seem to be obsessed with them. I’ve run across the following lists just today, and it’s only 3:00 in the afternoon:

-Top ten things to make out of Lego;

-The 100 best companies;

-Seven ways to improve the results of sales calls; and

-Twenty-five people to blame for our economic woes.

I’m sure that you can readily recall any number of lists that you’ve recently seen. How about the best-dressed stars at the Oscars, or maybe the ten snowiest winters in Detroit?

Not to be outdone by popular culture, the Internal Revenue Service has jumped into the list-making game. One of the IRS lists that I thought was particularly timely and helpful is reprinted below. A lot has been published about identity theft in recent years, but this list is one of the few pieces I’ve seen that addresses what you should do AFTER a problem arises. You’ll find this list and a host of other interesting tax-related topics at http://www.irs.gov/newsroom/content/0,,id=106439,00.html.

Ten Things the IRS Wants You to Know About Identity Theft

IRS TAX TIP 2009-11

1. If you receive a letter or notice from the IRS which leads you to believe someone may have fraudulently used your Social Security Number, respond immediately to the name and address or phone number printed on the IRS notice.

2. If you receive a letter from the IRS that indicates more than one tax return was filed for you, this may be a sign that your SSN was used fraudulently.

3. Another sign that you may be the target of identity theft is an IRS letter indicating you received wages from an employer unknown to you.

4. The IRS has a department which deals specifically with identity theft issues. The IRS Identity Protection Specialized Unit is available if you have been in contact with the IRS about an identity theft issue and have not achieved a resolution.

5. You can contact the IRS Identity Protection Specialized Unit by calling the Identity Theft Hotline at 800-908-4490 Monday through Friday from 8:00 am to 8:00 pm local time (Alaska and Hawaii follow Pacific Standard Time).

6. The IRS Identity Protection Specialized Unit is also available if you believe your identity may be at risk of being stolen due to a lost or stolen purse or wallet or due to questionable activity on your credit card or your credit report.

7. The IRS never initiates communication with taxpayers about their tax account through emails. If you receive an e-mail or find a Web site you think is pretending to be the IRS, forward the e-mail or Web site URL to the IRS at phishing@irs.gov.

8. The IRS has many more resources available to help inform taxpayers about identity theft on the IRS Web site at IRS.gov. On IRS.gov you can access information on how to report scams and bogus IRS Web sites. You can also visit the IRS Identity Theft Resource Page, which you can find by typing Identity Theft Resource Page in the search box on the IRS.gov home page.

9. The Federal Trade Commission is also available to assist taxpayers with identity theft issues. You can reach them at 877-ID-THEFT (877-438-4338).

10. Visit OnGuardOnline.gov for protection tips from the federal government and the technology industry.

Lee Flaherty

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