Gunning Daily News

How to Navigate 2011 Tax Changes

October 25, 2011 5:08 pm

Every year brings with it new changes related to W-2 and 1099 forms and reporting requirements. Due to the government's increasing focus on the proverbial "tax gap," it's more important than ever for small business to understand the changing W-2 and 1099 reporting environment. Greatland, one of the country's leading providers of W-2 and 1099 products for business, wants employers to know some of the key changes that will affect small business this year.

Reinforced Compliance and Increased Penalties
The tax gap is the difference between the taxes owed and the amount the federal government actually receives in paid taxes. Most recent figures show this gap to be greater than $345 billion. One of the primary drivers cited as contributing to the tax gap is the underreporting of business income. The Internal Revenue Service (IRS) is facing increased pressure to close this gap and remedy the problems that contribute to underreporting. As Greatland noted earlier this year, in 2010 and 2011, the IRS has and will continue to be even stricter about enforcing compliance, and will implement new form changes and reporting requirements aimed at gathering more information.

The IRS has always imposed consequences for misfiled or late tax forms, but as of January 1, 2011, W-2 and 1099 penalties for failure to file correct and timely returns have increased. Penalties range from $30-$250 per incorrect return. Employers need to file on time and file correctly to avoid issues.

W-2 & W-3 Form Changes and New Additions
The recently passed Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 called for an extension of unemployment benefits, a two percent employee payroll tax cut, and allowed businesses to expense 100 percent of certain investments in 2011. When filing this year, employers recall that this act also has temporarily reduced the rate of social security tax withholding (for employees only) from 6.2% to 4.2% for wage payments made in 2011. Social Security tax withheld is reported in box 4 on the W-2 form.

Also new in tax year 2011: a portion of the W-2 (box 12-code DD) is now designated for employers to report the cost of coverage under an employer-sponsored group health plan. Part of the Affordable Care Act, this requirement is optional for all employers in 2011 in order to provide them more time to update their payroll systems before it becomes mandatory in 2012. The IRS provided further relief for small employers filing fewer than 250 W-2 forms by making the reporting requirement optional through 2012, and continuing elective treatment for smaller employers until further notice. This new reporting requirement is for informational purposes only and is not taxable. Roth contributions under a governmental section 457(b) plan are another new addition to this year's W-2 form (box 12-code EE) and the section designated to report HIRE wages in 2010 (box 12-code CC) is now obsolete.

To improve document-matching compliance, a 'Kind of Employer' option has been added to the W-3 form, which includes five new checkboxes for individuals to select if they are a state/local employee, federal government employee, etc. Filers are now required to check one of these new boxes or select the "None Apply" option if appropriate. The advance earned income credit payment was eliminated for tax year 2011; therefore, this correlating box has been deleted from all 2011 W-2 and W-3 forms.

In addition to the above W-2 and W-3 form changes, Greatland also noted several specific form updates to various 1099 forms. Below are several of the more prominent changes for 2011:

• All 1099s: The pilot program for shortening an individual's identifying number (TIN) on paper payee statements has been EXTENDED through 2012. The payees' identifying numbers that can be truncated are: Social Security Number, IRS Individual Taxpayer Identification Number, or IRS Adoption Taxpayer Identification Number. The identifying number can be truncated by replacing the first 5 digits of the number with either asterisks or X's and truncations can only appear on paper payee statements.
• 1099-K: Form 1099-K, for merchant card and third-party network payments, is new in 2011 and will be used by payment settlement entities to report merchant card payments and third-party network transactions to participating payees.

• 1099-SA & 5498-SA: Excess employer contributions (and the earnings on them) withdrawn from employee HSAs by the employer should not be reported as a distribution on Form 1099-SA or as a contribution on Form 5498-SA.

Below are some important dates for filers to remember as they enter tax season:

• January 31, 2012 – Due date to send most 1099s and Copies B, 2, and C of form W-2 to each employee / recipient
• February 28, 2012 – Due date to send Copy A of form 1099 to the Internal Revenue Service (IRS)
• February 29, 2012 – Due date to send Copy A of form W-2 to the Social Security Administration (SSA) on paper
• April 2, 2012 – Due date to send copy A of form W-2 to SSA and form 1099 to IRS electronically (e-file)

For more information, visit www.greatland.com.

Question of the Day

October 25, 2011 5:08 pm

Q: What is the first step to buying a home?

A: Make sure you are ready—psychologically and financially. Ask yourself the following questions: Do I have steady income? Is my debt lower than my total income? Do I have enough money to pay for the down payment and closing costs? Am I working hard enough to improve bad credit?

A house needs constant care and attention. Also ask yourself if your budget will allow for unexpected repairs and upkeep. Once you can honestly answer “yes” to these questions, you are several steps ahead of the game and that much closer to becoming a homeowner.

6 Saving Strategies That Work

October 24, 2011 5:36 pm

Between regular bills and unexpected expenses—like that blown tire or the leak in the water heater—it sometimes seems that saving money is as impossible as pie in the sky. But while none of the savings strategies listed here will be new to you, say the money mavens at Walletwatcher.com, the secret to stashing needed cash is to make these old savings standards work for you in new ways.

• Paycheck deductions – You’ve heard it 100 times, but it’s true: having money deducted from your paycheck, or diverted to savings from direct deposits to your checking account, is the best way to save without “missing it.” But the deduction doesn’t need to be major. Start with a $10 per check deduction. Even that adds up. After six or eight months, increase the deduction by $10 or $20. Before long, you’ll have a comfy little cushion to fall back on.
• Cash only – It can be hard to wean yourself from the ease of using credit cards, even when you find you can’t pay the cards off each month. Ease off by declaring two or three days per week as, “cash only” days—and stick to your guns. No cash, no purchase—even it’s just a grande latte.
• Break bad habits – aside from health or other issues, smoking regularly, or stopping for a beer after work or a fancy coffee each morning are habits that really add up. Adjusting your lifestyle in small ways can put you on track to saving if you stash the cash you didn’t spend each day.
• Eating out – Cut out two or three restaurant meals each week and put the money you saved into an envelope. You may be surprised at how much it totals in a week. Packing lunch and cooking in a little more often can pay off big in savings.
• Saving coins – Empty your pockets or change purse each evening into a jar or piggy bank. You may be amazed each month to see how that change adds up!

Plastics Help Make Halloween a Little Less Scary for Parents

October 24, 2011 5:36 pm

Halloween can be thrilling for little superheroes, zombies, and fairies, but it can be stressful for moms and dads concerned with their safety. And with tens of millions of kids trick or treating this year, that's a lot of worried moms and dads. Plastics Make it Possible®, an initiative sponsored by the plastics industries of the American Chemistry Council, offers some tips on how a little plastic can help make Halloween a little less scary – at least for parents.


• Time To Reflect – Add reflective plastic tape to costumes and trick-or-treat bags to make your kids more visible.
• Be Afraid (of fire) – Keep your little ones supervised and away from flames – candles, Jack-O-Lanterns, marshmallow roasts—and make sure all costumes, wigs and accessories are labeled flame resistant.
• Modify the Mask – Some Halloween masks can obstruct vision and breathing. Take scissors to the plastic mask to expand the eye and mouth holes so your little zombie can see and breathe.
• Dagger Danger – Make sure that your Grim Reaper's scythe or your Ghostface's dagger is soft and flexible plastic.
• Light the Night – Experts recommend that children carry a flashlight (use fresh batteries!) to help them see and be seen—or a glow stick or little flashing decorations, at least.
• Careful Contact – If your child doesn't carry an I.D., simply jot down name/ address/contact info, place it a small plastic zipper bag and slide it into a pocket. It's easy to find in an emergency, won't dissolve if wet and doesn't broadcast information to strangers.
• Phone Home – A cell phone adds another layer of safety —preset home and parent cell numbers in the phone. Although cell phones made with tough plastics hold up to rough treatment, soft plastic phone cases add further protection if your little ghoul fumbles the phone.
• Candy Care – Check all goodies before munching away. Most candy is wrapped in plastic wrappers to provide protection; treat the unwrapped treats with great suspicion.

"Halloween means costumes and candy to kids, but safety is top of mind for parents," saysSteve Russell, vice president of plastics for the American Chemistry Council.

"Fortunately, there are many inexpensive, readily available products made with plastics that can contribute to Halloween safety and help parents achieve a bit more peace of mind."

For more information, visit www.plasticsmakeitpossible.com.

AAA Offers Test Driving Tips for Car-Buying Consumers

October 24, 2011 5:36 pm

It is easy for car buying consumers to fall in love at first sight with the sleek styling and attractive exterior of their dream machine. In most American households today, a vehicle purchase is a major financial expense, so a second look and an extensive test drive is time well invested.

AAA Automotive experts recommend that consumers start that test drive at the computer keyboard. Valuable information about vehicle safety features, performance data, and purchase pricing and resale value can be researched online. AAA can assist consumers shopping for a vehicle by providing information they need to make an educated decision at AAA.com/AutoBuying.

"In today's economy, consumers have additional factors to consider when purchasing a vehicle, often making the selection process more difficult and extensive," says John Nielsen, AAA Director of Automotive Repair, Buying, and Consumer Information. "There is no substitute for quality research and an in-depth test drive tailored to your personal driving needs, to help make a sound financial car buying decision."

The physical test drive is the next step in the car buying research process. An extensive test drive can reveal many important factors not immediately obvious at first blush.

AAA recommends the following test driving tips:

Before You Drive. Walk around the car. Is it the right size for the needs of your family? Check the quality of the assembly and the tightness of the body panel alignment. Check for bubbles and pitting on the paint and chrome. Open and close the tailgate or trunk and doors. Does it sound solid and well made? Will the design allow for easy loading of luggage, sporting goods, and groceries?
Be a Backseat Test Driver. Ask the salesperson to take you for a preliminary test drive. You can focus on the ride without the distraction of driving, and you're more likely to notice noise and overall comfort. And, of course, you can evaluate backseat room for future passengers.
Find Your Fit. Get in and try the car on for size. Check the leg room and visibility. How easy is it to adjust the seats? Are the controls easy to read, reach and use? Try all of the accessories and options, such as air conditioning, the sound system, and navigation aids.
On The Road. Drive the exact model of the car you want to purchase. Pick your own route for the test drive. If possible, pick a route that mirrors your daily driving routine. It's a good idea to test the car's ride quality and handling on a number of different road surfaces: city streets, hills, freeways, and winding roads.
Power. Test the engine's responsiveness in real-world conditions. Is there a smooth and constant delivery of power? Try merging onto the highway, passing, and stop-and-go city driving. Spend part of the test drive with the air conditioner on to see if it drains power.
Transmission. Look for smoothness and ease of operation. Listen for hesitation or straining.
Handling. Check steering responsiveness. Practice long turns and sharp turns. Safely practice sudden swerves and gradual lane changes.
Brakes. Your life could depend on your brakes, so put them to the test. Brake both softly and decisively to gain an accurate idea of the car's stopping distance.
Noise Level. At various speeds, listen for excessive engine, road, and wind noise. Check for squeaks and rattles coming from the interior and bodywork. Listen with the windows open and closed.
Parking. Parallel park to discover any blind spots or potential difficulty in identifying the corners of the car.

For more information, visit AAA.com.

5 Term Life Insurance Tips to Save Money

October 24, 2011 5:36 pm

One of the best ways to protect a family's financial future is with a term life insurance policy. Renewable life insurance is affordable, can provide a lump sum to the beneficiaries, replace income, pay off credit card debts, cover housing expenses, medical costs and funeral expenses, in addition to covering the cost of a child's higher education. With a wide range of plan options, TermLifeInsurance.com offers money-saving tips for cost-conscious consumers.

TermLifeInsurance.com recommends five ways to save money on a term life insurance policy:

1. Buy as a young adult. Whether a person is just starting a family or wants to in the future, one can save money by locking in low rates when they buy as a young and healthy adult.
2. Choose the appropriate length of coverage. Term life insurance policies are flexible and can generally be purchased in increments anywhere from five to 30 years. One should consider their unique situation. An individual with young children and a home mortgage might consider enough protection to cover their mortgage and send the kids off to college.
3. Buy the right amount of coverage. When choosing between policies, think about how much coverage is actually needed to maintain the family's lifestyle and cover final expenses. Many recommend a policy amount about six to ten times the policyholder's gross annual income; however, one should only buy a plan that is affordable in their current situation.
4. Be healthy. This may seem obvious, but the savings are surprising. Some companies charge twice as much for high-risk individuals who smoke. Being smoke-free and maintaining a healthy weight can add up to hefty savings.
5. Shop around and compare rates. Get multiple quotes from competing life insurance agents and companies in order to save the most on a policy. 

For more information, visit www.TermLifeInsurance.com.

Word of the Day

October 24, 2011 5:36 pm

Mortgage. Legal document that creates a lien on property; it secures the repayment of a loan.

Question of the Day

October 24, 2011 5:36 pm

Q: What does a mortgage broker do?

A: Much like a stockbroker helps you buy stocks, a mortgage broker can help you purchase a home loan. Because the broker has access to many lenders, you will be able to select from a wide variety of loan types and terms that fit your specific needs. 

Note, however, that brokers are not obligated to find the best deal for you. Of course, if you agree in writing to have one act as your agent, that is an entirely different story. This is why it is important when looking for a broker to contact more than one, just as you would any other lender. 

Compare their fees and ask questions, particularly about how they will be paid. Sometimes their fees appear as points paid at closing or the compensation is factored into the interest rate, or both. In any event, haggle with the broker and the lender for the best deal. 

Real estate agents normally maintain contact with several brokers. Ask your agent for recommendations.

Why Don't My Credit Scores Match?

October 21, 2011 5:34 pm

Interest rates are still low for people with excellent credit, so update your records and purchase a credit report from a reputable credit report provider.

However, sometimes the score you see doesn’t match up with what your lender pulls up, leaving you wondering what happened.

What Happened?
First, you need to understand a little about credit scores. Your credit score is a three-digit number that helps lending institutions assess their risk associated with lending you money. Credit scores are used for home loans, auto loans, personal loans and credit cards.

However, it doesn’t end there. Your score may also be considered for non-lending purposes, such as new utility services, cell phone services, renting an apartment, a lease, auto insurance and even to assess your character as part of a new job background check.

People with lower credit scores may pay higher interest rates or may not be approved at all. Whereas, those with higher, less-risky credit scores often qualify for lower interest rates and special options. Credit scores are calculated based on computer “predictability” models. These models are designed to compare and analyze credit information and credit utilization patterns from your credit report against thousands of other consumers. The data is then evaluated using a complex mathematical algorithm that generates a credit score the moment a report is ordered.

There are literally trillions of score combinations used in the calculations. Most credit scores are calculated and provided individually by each credit bureau, including the three major ones in the U.S., which are Experian, Equifax and TransUnion. Additionally, many lenders use third-party credit scoring systems, such as FICO, NextGen, CE Score and VantageScore. For consumers, the variations in scoring models and score ranges can create some confusion.

In 2006, the three major bureaus joined forces to create a single credit scoring system called the VantageScore. The VantageScore and FICO model lead the industry as competitive rivals in credit-scoring systems.

VantageScore provides a standardized universal mathematical formula to create a credit score from data found on reports from the three major bureaus. Your VantageScore may not be exactly the same if your lender only orders a credit report from one of the bureaus. This is because the data each bureau receives may be slightly different.

As an example, if your auto loan lender does not report your payment history to Equifax but does report it to Experian and TransUnion, it will create a difference in scores. In theory, the VantageScore should be more consistent across all three bureaus since the mathematical formula is the same.

Unlike FICOs traditional 300-850 credit score range, the VantageScore ranges from 501-990. There is no true way to compare the results of the VantageScore to a FICO score especially when the formulas are constantly changing. However, to put some perspective in place, a 650 FICO score approximately compares to a low, 800-range VantageScore.

Although the exact formulas and algorithms for calculating credit scores are closely guarded secrets, FICO and Vantage do provide general key characteristics that drive their credit scoring models. The one constant for both scoring systems is that paying your debts on time will typically be the primary factor that positively impacts your credit score.

Word of the Day

October 21, 2011 5:34 pm

Maturity date. Date on which principal and interest on a mortgage or other loan must be paid in full.