Accounting
NEW LAW REPEALS 3% WITHHOLDING AND EXPANDS HIRING CREDITS
President Obama signed the Three Percent Withholding Repeal and Job Creation Act on Nov. 21. The law repeals a previous law that would have required 3 percent withholding from payments over $10,000 made to government contractors. The cost of repealing the withholding tax will be offset by changing the eligibility requirements for certain health care credits. The withholding repeal law was amended in the Senate to add the Vow to Hire Heroes Act, which provides incentives for employers to hire military veterans. The law creates the “Returning Heroes Tax Credit” and the “Wounded Warriors Tax Credit.” Under this new law, employers may qualify for a “Returning Heroes Tax Credit” of up to $5,600 for hiring a veteran who has been looking for work for more than six months. A credit of up to $2,400 may be available for hiring a veteran who has been unemployed for more than four weeks, but less than six months. The “Wounded Warriors Tax Credit” provides a credit of up to $9,600 to employers who hire an unemployed veteran with service-related disabilities who has been looking for work for more than six months. These tax credits for hiring qualified veterans apply to individuals who begin work after Nov. 21, 2011, through Dec. 31, 2012. Employers who hire veterans who do not qualify for the two credits created by this latest piece of legislation may be eligible for a tax credit under the “Work Opportunity Tax Credit,” an already existing tax credit for hiring individuals from certain targeted groups including veterans.
’TIS THE SEASON FOR CHARITABLE GIVING
Now that the holiday season has arrived, you might decide to step up your charitable donations to boost your deduction for 2011. Here are six timely strategies. 1. Audit-proof your claims. The IRS imposes strict substantiation rules for charitable donations. In fact, you’re required to keep records for all monetary contributions, no matter how small. The best approach is to obtain written documentation for every donation. 2. Charge it. The deductible amount for 2011 includes gifts charged by credit card before the end of the year. This covers online contributions using a credit card account. So you can claim a current deduction for donations made as late as Dec. 31. 3. Give away appreciated stock. Generally, you can deduct the fair market value (FMV) of capital gain property owned longer than one year. For instance, if you acquired stock ten years ago for $1,000 and it’s now worth $5,000, you can deduct the full $5,000. The appreciation in value isn’t taxed. 4. Sell depreciated stock. Conversely, it usually doesn’t make sense to donate stock that has declined in value, because you won’t receive any tax benefit for the loss. Instead, you might sell the stock and donate the proceeds. This entitles you to a capital loss on your 2011 return plus the charitable deduction. 5. Clean out the storage space. The tax law permits you to deduct charitable gifts of used clothing and household goods that are still in “good condition.” Don’t be so quick to discard items that can be donated to charity. 6. Donate a car. The deduction for a donated vehicle valued above $500 is generally limited to its resale amount. However, if the charity uses the vehicle for its tax-exempt purposes, you may be able to deduct its fair market value.
Kamlesh H. Patel, CPA, can be reached at (813) 949-8889 or e-mail [email protected] or [email protected].
Finance
Two Plans Are Better Than One – Part 2
What Type Of Defined Benefit Plan Is Appropriate For Me?
It is important to note that regardless of the type of defined benefit plan you choose, all defined benefit plans share common characteristics. First, all defined benefit plans do what the name implies. They are set up to deliver a promised benefit to employees at retirement. This benefit is usually expressed as a monthly benefit or a percentage of pay. The company is responsible for delivering on the promised benefit.
Traditional Defined Benefit Plans are usually based on three factors: your age, your salary and the number of years with the company. An employee’s benefit grows slowly during the early years, then rises sharply as they grow older, earn more money and accumulate more years with the company. Traditional plan benefits are typically based on a Final Average Pay scale. In this type of plan design, contributions are rear-loaded.
A Cash Balance Plan is more evenly funded because it is based on a Career Average Pay scale. In this way, sharp spikes in income that may occur as an employee approaches retirement will not have as big of an impact on the employer cost as it would under a traditional plan.
In a typical Cash Balance Plan, the company contributes a set amount of money – for example 5 percent of an employee’s salary – to an account each year. The company will also guarantee that the account will grow at a certain rate every year. That rate may be either a fixed amount or a variable rate tied to benchmark, such as the one-year Treasury bill.
The Cash Balance Advantage
For the past several years, there has been some uncertainty in designing cash balance plans because there was little regulation from the IRS. What has changed is simple. The IRS concluded its cash balance research and through the Pension Protection Act has provided us with better guidance on how to design and administer these types of plans. They are also, once again, offering favorable letters of determination for new cash balance plans. We expect guidance in the near future regarding conversions of existing defined benefit plans.
Cash Balance Plans offer unique advantages over traditional defined benefit plans. First, they look a lot like 401(k) plans. Employees receive an employer contribution equal to a set percentage of their pay to a hypothetical account. They are guaranteed a rate of return on this account. At year end, they receive a statement that shows a beginning balance, an employer contribution, a return on their account and an ending balance. The benefit is plain and simple to understand and is appreciated.
Another advantage that cash balance plans offer is the ability to equalize the contribution for partners. Under a traditional defined benefit plan, one of the biggest factors in determining the cost of an employee’s benefit is his/her age. Since partners are often of various ages, contributions are skewed toward the older partner (s). This may potentially create resentment from the younger partners and stop the plan design altogether. With a cash balance plan, we can create tiers of employees. As long as the nondiscrimination tests allow, we can allocate different amounts of contribution to the various tiers of employees.
This is being provided to you as a courtesy from Bijan Mohseni, CFP®, MBA, Financial Professional, AXA Advisors, LLC. The opinions expressed in this article will not necessarily be those of AXA Advisors, LLC. AXA Advisors is not a legal or tax advisor and does not endorse or recommend the advice or products contained in this article. Bijan Mohseni, CFP®, MBA offers securities and investment advisory services, through AXA Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC, and insurance and annuity products are offered through AXA Network, LLC and its subsidiaries, an affiliated insurance general agency. Heritage Administrative Services LLC is not affiliated with AXA Advisors or AXA Network. AGE 64746 (9/11)