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16A
Put Power of Tax Deferral to Work
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As an investor, you may
sometimes feel frustrated. After
all, your portfolio seems to be
at the mercy of the financial
markets, whose volatility is
beyond anyone’s control. Yet
you can control the quality of
the investments you own and the
diversification of those invest-
Payroll Tax Cut Temporarily
Extended into 2012
WASHINGTON - Nearly
160 million workers will
benefit from the extension of
the reduced payroll tax rate that
has been in effect for 2011 .
The Temporary Payroll Tax
Cut Continuation Act of 2011
temporarily extends the two
percentage point payroll tax
cut for employees, continuing
the reduction of their Social
Security tax withholding rate
from 6.2 percent to 4.2 percent
of wages paid through Feb.
29, 2012. This reduced Social
Security withholding will have
no effect on employees’ future
Social Security benefits.
Employers should imple¬
ment the new payroll tax rate as
soon as possible in 2012 but not
later than Jan. 31,2012. For any
Social Security tax over-with
held during January, employ¬
ers should make an offsetting
adjustment in workers’ pay as
soon as possible but not later
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• FEBRUARY 22, 2012
ments to improve your chances
of attaining your long-term
financial goals. One way in
which to do so is to put as much
as you can afford, year after
year, into tax-deferred invest
ments.
When you contribute to a tax
deferred account, your money
has the potential to grow faster
than it would if you placed it in
a fully taxable investment —
that is. an investment on which
you paid taxes every year. Over
time, this accelerated growth
can add up to a big difference in
your accumulated savings. For
example, if you put $200 each
month into a taxable invest
mcnt that earned a hypotheti
cal 7 percent a year, you’d end
up with about $325,000 after
40 years, assuming you were
in the 25 percent federal tax
bracket. If you put that same
than March 31,2012.
Employers and payroll com¬
panies will handle the with¬
holding changes, so workers
should not need to take any
additional action.
Under the terms negotiat¬
ed by Congress, the law also
includes a new “recapture” pro¬
vision, which applies only to
those employees who receive
more than $18,350 in wages
during the two-month period
(the Social Security wage
base for 2012 is $ 110 , 100 , and
$18,350 represents two months
of the full-year amount). This
provision imposes an additional
income tax on these higher
income employees in an amount
equal to 2 percent of the amount
of wages they receive during the
two-month period in excess of
$18,350 (and not greater than
$ 110 , 100 ).
This additional recapture
tax is an add-on to income
tax liability that the employee
$200 per month into a tax
deferred investment that earned
the same hypothetical 7 percent
a year, you’d accumulate about
$515000 - or nearly $200,000
more than you’d have with the
taxable investment *
Of course, you will eventu¬
ally have to pay taxes on the
tax-deferred investment, but
by the time you’re retired, you
might be in a lower tax bracket.
Furthermore, depending on
how much you choose to with¬
draw each year from your tax
deferred account, you can have
some control over the amount of
taxes you’ll pay.
Clearly, tax deferral can be a
smart choice, but what sort of
tax-deferred vehicles are avail¬
able?
One of your most attractive
choices will be your employ¬
er-sponsored retirement plan.
would otherwise pay for 2012
and is not subject to reduction
by credits or deductions. The
recapture tax would be payable
in 2013 when the employee files
his or her income tax return
for the 2012 tax year. With the
possibility of a full-year exten¬
sion of the payroll tax cut being
discussed for 2012, the IRS will
closely monitor the situation in
case future legislation changes
the recapture provision.
The IRS will issue additional
guidance as needed to imple¬
ment the provisions of this new
two-month extension, including
revised employment tax forms
and instructions and informa¬
tion for employees who may be
subject to the new “recapture”
provision. For most employers,
the quarterly employment tax
return for the quarter ending
March 31, 2012, is due April
30,2012.
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such as a 401(k). Your earn¬
ings have the potential to grow
on a tax-deferred basis, and
since you typically fund your
plan with pre-tax dollars, the
more you put in. the lower your
annual taxable income. If you’re
lucky, your employer will even
match some of your contribu¬
tions. Consequently, it’s almost
always a good idea to put in
as much as you can afford into
your 401(k), up to the contribu¬
tion limits, and to boost your
contributions every time your
salary increases. In 2012 , you
can contribute up to $17,000 to
your 40!(k). plus an additional
$5,500 if you’re 50 or older.
Even if you participate in a
40l(k) plan, you can probably
also contribute to a traditional
IRA. Your earnings have the
potential to grow tax-deferred
and your contributions may be
Still Waiting For Your W-2?
Employers are required to
issue a Form W-2 to report wage
income and tax withholdings
by January 31st of each year.
If you haven’t received your
W-2, the quickest resolution is
to talk to your employer and
obtain a copy. As a general rule,
it’s best to wait for your W-2
before filing your tax return,
as the W-2 may differ slightly
from your final paystub of the
year, and the W-2 has additional
information you’ll need that’s
not found on your paystub (such
as your employer’s tax identifi¬
cation number).
If you still haven’t received
your W-2 by the middle of
February, and it appears you’re
employer won't print out a
new copy for you, you can call
the IRS at 1-800-829-1040 to
lodge a compliant. The IRS
should then follow up with your
employer to make sure they’ve
followed the rules about issuing
W-2s to their employees.
It’s possible for a person to
file their tax return using infor-
New Form 8949 for Capital Gains
Sunday February 12,2012
People with capital gains
transactions to report will
need to use Form 8949 along
with Schedule D. Form 8949
is a brand new tax form, and
debuts for the 2011 'tax year.
Individuals will detail the sale
of capital assets, such as stocks,
mutual funds and bonds, on
Form 8949 before summarizing
those details on the Schedule D.
Schedule D has likewise
undergone a major redesign,
The newly revised Schedule D
functions as a summary of the
total amounts reported on Form
8949.
The first thing to notice
about the new Form 8949 is it
has more columns and a dif¬
ferent structure than the old
Schedule D. The Form 8949
has extra columns to indicate
whether a transaction has any
special characteristics, such as
THE LEADER-TRIBUNE
tax deductible, depending on
your income level. In 2012, you
can {Hit in up to $5,000 to a
traditional IRA, or $6,000 if
you're 50 or older. (If you meet
certain income guidelines, you
might be eligible to contribute
to a Roth IRA, which offers
tax-free earnings, provided you
don’t start taking withdrawals
until you’re 59-1/2 and you’ve
had your account at least five
years.)
Finally, if you’ve “maxed out”
on both your 401(k) and your
IRA, you may want to consider
a Fixed annuity. Your earnings
grow tax-deferred, contribu¬
tion limits are high, and you
can structure your annuity to
provide you with an income
stream you can’t outlive.
The more years in which you
invest in tax-deferred vehicles,
the better. So start putting the
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mation from their paystub, but
this procedure requires some
extra steps. You'll need to use
Form 4852, which acts as a sub
stitute for the W-2. You’ll need
to detail as much information
as possible, and tax returns with
this form need to be mailed in
for manual processing by the
power of tax deferral to work
soon.
* This hypothetical example
is for illustrative purposes only
and does not represent a spe¬
cific investment or investment
strategy.
This article was written by
Edward Jones for use by your
local Edward Jones Financial
Advisor, Jeff Holland. For ques¬
tions, please refer to the Call
A-Pro section for my contact
information. Thank you!
Jeff Holland
Financial Advisor
Edward Jones
4535 Forsyth Road Suite 2
Macon. GA 31210
(478) 757-0210
www.edwardjones.com
IRS. 1 also recommend to make
a copy of paystubs and attach
that directly behind the Form
4852. This way the IRS can
match up that information with
whatever data they have in their
records. •
the sale of a home or a wash
sale, which necessitate making
adjustments to the amount of
gain or loss being reported.
The second thing to notice,
capital gains transactions must
be grouped into three cate
gories. depending on whether
the broker supplied cost basis
information on the Form
1099-B (which reports the sale
of a capital asset), whether
t he broker did not supply any
cost basis information on the
1099-B, or whether no 1099 B
was received for that trans¬
action. These three categories
are found along the top of
, he Fo rm 8949. Taxpayers will
necd to f l( | out onc Form 8949
for each category of capital
gains transaction they have.
The newly revised Schedule
D mirrors the structure of
the Form 8949. with totals
from each category found on
Form 8949 showing up on the
Schedule D.
The instructions have been
revised too, and contain exten¬
sive discussion of the various
codes and adjustments that
may need to be indicated.
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