AICPA Total Tax Calculator

On Tuesday, May 15^th the AICPA introduced their first version of the “Total Tax Insight Calculator,” an online tool that provides you an estimate of how much your income goes to paying taxes,  and not just on your tax return, but also on items like food, alcohol, cigarettes, and gas. The AICPA is hoping this calculator will be the first attempt to show citizens how tax exists and when it is imposed. It is the complete picture of your federal, state, and local tax spending.

AICPA Vice President, Edward Karl claims “the idea is to give the public a better idea of the various taxes that impact them.” You may know what you paid in taxes this past April for your Federal and State income returns, but do you realize how much you paid in state and local taxes on your purchases in the last year? This calculator has over 3,000 formulas that allow you to calculate an estimated tax amount based on 24 input options. Although it does not consider all the tax items and deductions you can take, the AICPA is hoping to use this calculator to come up with additional features that the users would like to see.

You must realize that this does not replace your tax preparation software or any tax planning items that you may currently use. This is just a fun tool to that allows you to see the different taxes you incur on items you purchase throughout the year. It could also help with weighing the impact of your purchase options. For example, how purchasing a fuel efficient car could not only help your environment but also the amount of taxes you pay on gas. Karl emphasis “this doesn’t place a valued CPA.  It’s just about giving the public a rough sense of the impact of taxes in their lives.”

The AICPA hopes to create future versions of this calculator including features that would facilitate comparison among states as well as including more tax calculations, deductions and credits.  Feedback from current users will help decide what the future versions will include.

Check out the calculator at the following link: Tax Calculator

Medical Insurance Premiums and S-Corporations

A common issue that comes up with S-corporations is how to account for medical insurance premiums paid by the company.  Sometimes, a company will record the health insurance premium paid to its shareholder as a direct business expense.  However, the premiums should actually be reported by the S-corporation as wages for income tax purposes.  For any greater than 2 percent S-corporation shareholder-employees, health insurance premiums should be included in box 1 of the W-2.  This compensation is not subject to Social Security, Medicare, or Unemployment taxes, and should not be included in boxes 3 or 5 of the W-2.

For more information about medical insurance premiums and S-corporations, please visit the following IRS article: IRS.gov.

Simple Steps to Savings: Part 4

Symbols = Savings – The “Symbols” savings is a tool that helps you put a symbolic value or key to the amount you want to save. If you want to retire at age 65, set aside $65 each week into a different account. Another great example is to set a symbolic reference to the amount of money you save each week or month. A resident in Indiana started making weekly deposits equal to each of his children’s ages. Ever year they increase by only a dollar and when they are done weekly it is easier to live without it because you are so used to it. Putting a symbolic tool with your savings is a great way to remember the number as well as remember what you are doing it for.

Rewarding Yourself Doesn’t Always Mean a Materialist Reward – Did you just receive a large bonus that you worked so hard for, and now you want to treat yourself for your hard work?? Why does our rewards always seem to be those materialistic things we normally would never buy? Don’t buy the expensive shoes you want just because you have the money to. Ask yourself “Would I have bought those even if I didn’t get the bonus?” It is ok to treat yourself but make sure you are not buying something that is twice or three times the price you normally do, just because you got that raise.  You deserve a reward that keeps giving so why not put that bonus aside into an investment that will keep rewarding you. If you already have tried the CD savings tool, try investing that extra money into the stock market.  

If you’re someone who does not need to worry about saving your change for yourself or coming up with new ways to set aside money, a great way to think about the above savings tools could be that additional charitable contribution you give at year end. All the money you saved with the tips above could go into a bank account and whatever it has in it at year end can be sent to a charity of your choice.

Katie Rubalcaba, Associate Accountant

Davis & Hodgdon Associates, CPA's

May 2012

Vermont Tax Advisory Board Announced

The Vermont Department of Taxes announced yesterday, May 10, 2012, the creation of a Vermont Tax Advisory Board.  According to the VDOT website, the Board has three objectives:

1.  To provide a public forum for tax administration and policy
2. To provide ideas and perspective to the Tax Commissioner in creating tax policies
3. To provide constructive observations  on current policies

To learn more about the Vermont Tax Advisory Board and its members, please visit the following link: Vermont Department of Taxes

Simple Steps to Savings: Part 3

Learn to live off what you have left – This savings tool is the hardest one in our listing but is the best tool to live by. Living with what you have left is to train yourself to live off only whatever you have left after paying bills as well as money you have set aside. This can best be done by setting up automatic withdrawals for bill paying from your bank account, or better yet your paychecks (so that you don’t even see the money coming in), and you will quickly learn to live off what you have left over. This tool is best used along with the Allowance Tool mentioned previously. This will also save you money if you are the type that always has to pay late payment fees or you are accumulating interest on your payments for back payments. 

Along with setting up automatic payments through your paycheck you should also withhold a small amount from each paycheck that goes into a separate bank account. Give yourself a goal for how much you want to save additionally a month and divide this into how often you get paid and have that amount put into a separate account. Make sure to be reasonable with the amount you put into a separate account. This can be a separate savings account that once it gets big enough you can transfer to a CD to earn higher interest on. Once you have gotten used to this practice you can also discipline yourself by saying anything additional, like bonuses or raises, will also be set aside into a separate account. When you have learned to live off of what you were making before net the withholdings and payments on your bills, this extra money won’t be needed to live your everyday life, it will be an additional savings tool. . The best account to put this extra money into would be an account that is not easily accessible and one that you stopped receiving paper statements for. This way you do not get that monthly statement in the mail and if you receive an e-statement, you should train yourself to not open the file but to put it in a separate folder.  

Remember to start with withholding a few dollars from each paycheck. If you do not have any bills that you can set up for automatic payments, then you can open a new account and put the money into that account. Once you have gotten used to your net paycheck being that much lower, increase the amount you withhold into a separate account. Soon enough you will be withholding money and setting it aside in an account and you will realize how much money you don’t need. Once you realized how much you have accomplished you are more disciplined and want to keep improving. This is great if you are the type that “will spend it if you have it.”

Katie Rubalcaba, Associate Accountant

Davis & Hodgdon Associates, CPA's

May 2012