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Also part of the Affordable Care Act passed in 2010, there is a new Medicare tax on Unearned Income of 3.8% (yep, the usual 2.9% plus the new 0.9% add-on). There are income thresholds (mostly the same as on the additional 0.9% Medicare tax on earned income previously discussed) based on Modified Adjusted Gross Income. Most investment forms of income are subject to this new tax such as most investment gains and losses, interest, dividends, royalties, and rents.

There are some specific exceptions, but few that are widely applied to individual tax returns, but here are the common ones I've identified as exempt: qualified plan retirement income, S-Corporation distributions when the shareholder is considered to be materially participating, rental income if the property is not a passive activity. Since this new tax is unlikely to be withheld without your direction, you may need to consider making Estimated Income Tax payments beginning in 2013. The first one is due April 15. Yes, the same day as your taxes.

The IRS has announced that they will not begin processing returns until January 30, 2013; this is about a week later than usual. The delay is due to the late passing of the "fiscal cliff" avoidance measures signed into law on January 2. If you are preparing a return on paper (how 20th Century!) it means your return will not be treated as "received" until the 30th so there is no advantage to using paper returns. E-filing will not be accepted until January 30, and offers faster refunds using e-file with direct deposit.

The most important first step in preparing your tax return is to gather together all your financial data for your CPA or other tax preparer — and that includes yourself, if you are doing your own. We suggest using a system on a day-to-day ongoing basis throughout the year, but if you have not already done so for 2012, you can still get your data together before the "offical tax documents" begin to arrive. To make that task easier, we have placed some guides and organizers in our members-only area. Please register via the login tab (it's free!), and we'll help you through this season. Check in regularly, as we will be updating this area every few days with new guides and forms, and more complex analyses of issues on a routine basis.

Passed in 2010 as part of the Affordable Care Act, effective beginning in 2013, there is a new approach to taxing for Medicare. Wage Earners who exceed certain thresholds of income will have an additional 0.9% Medicare Tax withheld. This also applies to the self-employed. This is not a tax on the employer, but only on the employee. Married couples may also be subject to this, even if neither of them individually meets the threshold, and have to pay the tax directly since each spouses wages would not trigger the added employer withholding.

The thresholds are:
Married Filing Jointly $250,000
Married Filing Separately $125,000
Single of Head of Household $200,000

For any of you S-Corporation owners who think you can change your apportionment of wages (earned income) and non-wages (un-earned income) wait before you leap — the next blog post will discuss the new Medicare tax on Unearned Income.

Here's why: The temporary Payroll Tax holiday (2% of the 6.2% Social Security Tax) ended on December 31, 2012. This return to the prior norm is effectively reducing your paycheck, as compared to 2012. Since the SSA is widely considered to be underfunded, it did not make sense to continue the tax holiday. Unfortunately, other items may impact your net paycheck negatively. Many folks are seeing additional deductions from wages, as of the beginning of the 2013 year. For example, Medical Insurance contribution changes, increased state income tax, or other payroll deductions. I would not expect this tax holiday to be extended as Congress ponders the additional financial strains of the Country.

In the most simple words possible: A business expense is an expense which is normal or necessary to the operation of your business [except for illegal activities].

Yes, my imagination and experience have given me many a giggle about what does qualify in any given situation, but only you know your business well enough to define what is normal and necessary.

Common expenses include (this list is only some common items):
• Cost of sales [if you are selling merchandise - the cost of that to you]
• Advertising and marketing
• Auto or vehicle expenses [whether standard mileage or actual expenses]
• Commissions
• Contract Labor [may require a Form 1099 to be issued]
• Depreciation [for larger pieces of equipment with useful life greater than one year]
• Employee benefits if you have employees - this would mean you are filing payroll tax returns
• Insurance
• Interest on Business debt
• Legal and professional fees
• Office expenses and supplies
• Parking and tolls for business trips in your vehicle
• Rent or lease paid for equipment or space
• Meals and entertainment - 50% of cost is considered normal and not allowed generally
• Travel expenses - whether local transportation or out of town travel with airfare, lodging etc
• Utilities - including cell phone, internet, electric, heat, and so on.
• All those other expenses you can justify.
• And possible home office if you qualify.

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