Quarterly Review Winter 2010 Timely 401(k) Deposit Rules SEK&Co Announces Two The US Department of Labor has issued New Associate Members a final regulation on when participant con- tributions become “plan assets” for small pension and welfare benefit plans with fewer than 100 participants by provid- ing a safe harbor period of seven business days following receipt or withholding by employers. Currently, employers of all sizes must transmit employee contributions to pen- sion plans as soon as they can be reason- ably segregated from the employer’s general assets, but not later than the 15th business day of the month following the month in which the amount was received by the employer or would otherwise have been payable to the employee in cash. For welfare plans, the maximum period is 90 days from the date of receipt or withhold- ing. The problem the DOL has encountered in Kara M. Darlington, CPA Kristi M. Glass, CPA reviewing compliance with this general rule is that it is not always clear when is the “earliest date” on which the segrega- tion of contributions is possible. The Members of Smith Elliott Kearns & Company, LLC are pleased to announce that Kara M. Darlington, CPA and Kristi M. Glass, CPA have been elected as Associate Mem- (continued "401(k) Rules" on Page 2) bers of the Firm effective January 1, 2010. Kara M. Darlington, CPA joined the firm in 1997 after graduating magna cum laude from York College of Pennsylvania. Kara earned her CPA certificate in 1999 and was promoted to Manager in 2003. Kara manages the Hanover office audit practice as well as a significant number of the firm’s employee benefit plan audit engagements. She also specializes in pro- viding accounting and auditing services to local nonprofit and governmental organizations. We publish the Quarterly Review to keep our clients and friends Kara’s continuing education has included tax and audit considerations of nonprofit orga- informed and up to date on nizations and audit and compliance considerations of employee benefit plans for the past accounting, tax, and business 13 years. She is a member is good standing with the American Institute of Certified Public developments. Accountants (AICPA) as well as the Pennsylvania Institute of Certified Public Accountants (PICPA). She is also a member of the PKF North America’s Employee Benefit Plans Com- If you would prefer not to receive mittee. our newsletter, please call Ginger An active member of the local community, Kara is a board member of Sweet Charities of Lewis at 800-841-9463 or e-mail Hanover and Hanover Symphony Orchestra. She also remains active in various volunteer firstname.lastname@example.org and we will capacities with the Hanover Chamber of Commerce, Soroptimist International of Hanover remove you from our mailing list. and Junior Achievement. (continued "Members" on Page 2) Insight. Integrity. Results.™ Smith Elliott Kearns & Company, LLC Page 2 SEK&Co Announces Management Change in the Hanover Office Christopher J. Distefano, CPA was appointed as the Member-In- Charge of the firm’s Hanover, Pennsylvania office effective January 1, 2010. Chris succeeds John Schnitzer, who has held the leadership position since 1991 and was elected to serve as the Firm’s Manag- ing Member effective January 1, 2010. Chris has been with SEK&Co since 1989 and became a Member of the Firm in January 2002. He specializes in providing tax, consult- ing, and auditing services to individuals, for-profit and nonprofit organizations. Additionally, he oversees the Firm’s Pennsylvania region's em- ployee benefit plan audit practice and participates in the Firm’s peer review practice. He is a member of the Audit & Accounting Com- mittee, Accounting and Tax Services Committee, GPS Committee, and is Chair of the Human Resource Committee. He is a member of the AICPA as well as the PICPA. He previously was recognized as John Schnitzer and Chris Distefano one of central Pennsylvania’s “Top Forty under 40” by the Central Penn Business Journal. An active participant in the local com- munity, Distefano has served in various leadership positions with the Hanover Area "401(k) Rules" ... Chamber of Commerce, Hanover Ki- (Continued from Page 1) wanis Club, Hanover Community Progress The final rule amends the participant Council, and the Bulgarian Orphanage contribution rules to create a safe harbor Medical Relief Fund. This informal newsletter of accounting, tax and investment developments is published quarterly for use by clients and period under which participant contribu- friends of Smith Elliott Kearns & Company, LLC. tions to a small plan (under 100 partici- pants) will be deemed to comply with the "Members" ... Service Specializations: (Continued from Page 1) Employee Benefit Plan Audits law if those amounts are deposited with the Accounting, Auditing & Assurance plan within seven business days of receipt Kristi M. Glass, CPA joined the firm in Tax Planning & Compliance or withholding. This ruling is effective Business Valuations 1996 after earning a bachelor’s degree in Estate Planning & Administration January 14, 2010 and applies for both pen- accounting from Frostburg State Universi- Employee Benefit Plan Design & Administration sion and welfare benefit plans. The final ty. Kristi earned her CPA certificate in 1998 Business Accounting & Consulting regulation also applies to participant loan Payroll/Bookkeeping and was promoted to Manager in 2006. Human Resources Consulting repayments. Kristi provides tax and consulting services The DOL has determined not to change to local businesses and individuals, special- Industry Specializations: Healthcare the safe harbor provision to cover partici- izing in accounting and tax reporting for Nonprofit pant contributions to a pension or welfare medical practices. She is also a Certified Local Government benefit plan with 100 or more participants. Financial Institutions QuickBooks® ProAdvisor ™ offering Construction Therefore, large plans are still held to the training and support to local businesses. Manufacturing “as soon as administratively feasible” guidelines as mentioned above. Kristi is a member in good standing of the Offices AICPA and the Maryland Association of 480 N. Potomac Street, Hagerstown, MD 21740 For a SIMPLE plan that involves SIMPLE 301-733-5020 Certified Public Accountants (MACPA). IRA’s the maximum period for depositing She is a Leadership Washington County 19 Brookwood Avenue, Carlisle, PA 17015 contributions remains 30 calendar days 717-243-9104 Graduate, Class XX (2007) and serves on after the end of the month in which the the Academy of Finance Advisory Board. 55 Wetzel Drive, Hanover, PA 17331 717-637-5915 employees would otherwise have received Kristi teaches students about rewarding the amounts in cash. careers in public accounting, delivering 804 Wayne Avenue, Chambersburg, PA 17201 717-263-3910 If you have questions about these require- presentations and leading discussions www.sek.com ments, please call our Retirement Plan in several local high school business Services Group at 717-263-3910. classes. Rates & Dates 2010 REFERENCE SHEET 2009 INDIVIDUAL TAX RATE SCHEDULES INDIVIDUALS BUSINESSES MARRIED TAXPAYERS - JOINT OR SURVIVING SPOUSE STANDARD DEDUCTION* - 2009 PAYROLL TAX DEPOSIT DUE DATES Joint Return .......................$11,400 Blind or Elderly (per condition) TAXABLE BUT NOT OF AMOUNT EFFECTIVE JANUARY 1, 2010 Single.................................. $5,700 Single/Head of House ........... $1,400 INCOME OVER YOUR TAX IS OVER Head of Household ............. $8,350 Married .................................. $1,100 Employer Classification Day Incurred Due Date $ 0 $ 16,700 $ 0 +10% $ 0 * You may deduct the greater of your standard deduction or your itemized deductions. Monthly Depositors ($50,000 All during month 15th of following month* 16,700 67,900 1,670.00 +15% 16,700 or less reported over 12 67,900 137,050 9,350.00 +25% 67,900 REDUCTION OF ITEMIZED DEDUCTIONS* months ending 6/30/09)** 137,050 208,850 26,637.50 +28% 137,050 Itemized deductions are reduced by 1% if 2009 AGI is more than: 208,850 372,950 46,741.50 +33% 208,850 166,800 - For all returns other than married filing separately $ Semi-Weekly Depositors Wed, Thurs or Fri Following Wed* 372,950 — 100,894.50 +35% 372,950 $ 83,400 - Married filing separately (over $50,000 but less than Sat, Sun, Mon or Tues Following Fri* * Reduction limited to standard deduction or 26 2/3% of deductions $100,000 over 12 months SINGLE TAXPAYERS PERSONAL EXEMPTIONS ending 6/30/09) TAXABLE BUT NOT OF AMOUNT Deduction for each taxpayer, spouse and dependent for 2009 is $3,650. One Day Depositors Any day of month Next banking day INCOME OVER YOUR TAX IS OVER * $100,000 cumulative $ 0 $ 8,350 $ 0 +10% $ 0 REDUCTION OF PERSONAL EXEMPTIONS* Personal exemptions are reduced if 2009 AGI is more than: during monthly or 8,350 33,950 835.00 +15% 8,350 $166,800 - Single $250,200 - Married - Joint semi-weekly period 33,950 82,250 4,675.00 +25% 33,950 82,250 171,550 16,750.00 +28% 82,250 $208,500 - Head of Household $125,100 - Married - Separate * Extended for Banking Holidays 171,550 372,950 41,754.00 +33% 171,550 *Reduction continues through an additional $122,500. ** Automatic move to semi-monthly if $100,000+ cumulative rule applies 372,950 — 108,216.00 +35% 372,950 *Reduction limited to 1/3 of the total exemption amount CORPORATE INCOME TAX RATES INDIVIDUAL RETIREMENT ACCOUNTS - Not in another plan & with earn- TAXABLE INCOME YOUR TAX IS OF AMT OVER ings - $5,000 for 2009 and 2010 - $1,000 more if at least 50 years old (same 2010 INDIVIDUAL TAX RATE SCHEDULES $ 0- 50,000 0 + 15% $ 0 limits for a non-working spouse). AGI limits are gradually being increased. To 50,001 - 75,000 7,500 + 25% 50,000 help with tax planning, these limits are for active participants in another plan MARRIED TAXPAYERS - JOINT OR SURVIVING SPOUSE 75,001 - 100,000 13,750 + 34% 75,000 during 2010. TAXABLE BUT NOT OF AMOUNT 100,001 - 335,000 22,250 + 39% 100,000 Married AGI Deduction Single AGI 335,001 - 10,000,000 113,900 + 34% 335,000 INCOME OVER YOUR TAX IS OVER $ 0 – $ 89,000 $5,000/$6,000 max. $ 0 – $56,000 10,000,001 - 15,000,000 3,400,000 + 35% 10,000,000 $ 0 $ 16,750 $ 0 +10% $ 0 16,750 68,000 1,675.00 +15% 16,750 $89,001 – $109,000 Partial $56,001 – $66,000 15,000,001 - 18,333,333 5,150,000 + 38% 15,000,000 68,000 137,300 9,362.50 +25% 68,000 > $109,000 None > $66,000 18,333,334 ---- a flat 35% ---- 137,300 209,250 26,687.50 +28% 137,300 ROTH RETIREMENT ACCOUNTS - Contributions are not deductible and PERSONAL SERVICE CORPORATIONS 209,250 373,650 46,833.50 +33% 209,250 are reduced by the amount of contributions made to all other IRAs. Allowable 35% flat tax rate 373,650 — 101,085.50 +35% 373,650 contribution phases out ratably as follows: 2009 2010 SINGLE TAXPAYERS Married - Joint - AGI $166,000 - $176,000 $167,000 - $177,000 DEPRECIATION TAXABLE BUT NOT OF AMOUNT Married - Separate - AGI $0 - $ 10,000 $0 - $ 10,000 All others - AGI $105,000 - $120,000 $105,000 - $120,000 2009 2010 INCOME OVER YOUR TAX IS OVER $ 0 $ 8,375 $ 0 +10% $ 0 Expensing election on qualified assets subject to $250,000 $134,000 8,375 34,000 837.50 +15% 8,375 SOCIAL SECURITY TAXES limitations based on income and assets purchased 34,000 82,400 4,681.25 +25% 34,000 FICA Tax Self-Employment SUVs limitation $ 25,000 $ 25,000 82,400 171,850 16,781.25 +28% 82,400 171,850 373,650 41,827.25 +33% 171,850 Wage Base Rate Tax Rate LUXURY VEHICLES ACQUIRED 2009 373,650 — 108,421.25 +35% 373,650 2009 $106,800 6.20% 12.40% (Maximum Depreciation Deduction) Unlimited 1.45% 2.90% Autos Truck & Vans Bonus 2010 $106,800 6.20% 12.40% 1st year $2,960 $3,060 $8,000 ESTIMATED TAX PAYMENTS - 2010 Unlimited 1.45% 2.90% 2nd year $4,800 $4,900 Self-employed can deduct 1/2 of their Social Security taxes as an adjustment 3rd year $2,850 $2,950 To avoid possible underpayment penalties, you are required to pay through with- on their 1040. Each succeeding year $1,775 $1,775 holding or estimated tax payments, the lesser of: SOCIAL SECURITY ALLOWABLE EARNINGS 1. 90% of the tax shown on your 2010 tax return. Definition of Full Retirement Age (FRA) (The information above is highly condensed as a reference source and should not be considered as a complete presentation of the topics addressed.) Year of Birth Full Retirement Age 2. 100% of prior year tax liability. If your adjusted gross income for 2009 was 1943-1954 66 more than $150,000, estimated tax payment is 110% of prior year tax liability. Below FRA Year of FRA After FRA 2009 $14,160 $37,680 Unlimited Estimated tax payments for individuals are due by: 2010 $14,160 $37,680 Unlimited April 15, 2010 September 15, 2010 Social Security is reduced based on earnings in excess of limitation above. Earnings $2 $3 n/a June 15, 2010 January 17, 2011 Reduction $1 $1 n/a PRSRT STD U.S. POSTAGE PAID Permit No. 39 Hagerstown, MD 21741 P.O. Box 947 Hagerstown, Maryland 21741 Return Service Requested Inside Timely 401(k) Deposit Rules ................................1 New Associate Members ....1 Management Change ..........2 Rates and Dates ..................3 The Better Way ...................4 2010 Mileage Rates ............4 Printed on Recycled Paper The Better Way Hi Bracket is a creature to deduct sales tax paid on an of habit so right after cel- automobile even though you 2010 Standard ebrating Groundhog Day, he don’t deduct other sales tax in would start organizing his tax lieu of state income tax. Also, Mileage Rates Set information to send to his tax after being absent for 2008, the return preparer. He knows it is best to get the information in credit for energy efficient items and insulation is back for 2009. The standard mileage rate for business use of autos early and he had done it for so The Better Way might be to Standard Mileage Rates during 2010 has decreased many years that he knew ex- talk with your tax preparer and from 55 cents to 50 cents Type of 2010 rate actly what was needed. In fact, cover what you did in 2009. You Expense (per mile) per mile. Taxpayers may he didn’t even feel he needed may think you know what an base their deduction on to talk with his preparer since asset cost you but we have seen Business ................ 50 cents either the standard mileage they had worked together so a great saving on capital gains rate (plus business-asso- long and the less time spent, when it is learned that the asset Charitable .............. 14 cents ciated parking fees, tolls, the less the cost – well maybe. was inherited or was at one and, to the extent allow- He dropped it off as usual. time owned jointly when one Medical/Moving ..... 16.5 cents able, interest and taxes) or Guess what? Things are not party is now deceased. Many deduct their actual expens- the way they used to be and changes and most certainly tax es incurred for business the future will probably hold increases are on the way so a use of an auto. little planning rather than busi- reimbursement or expense many additional changes. ness as usual may save money Employers may use the allowance arrangement and For 2009, there are sev- in the long run. Heck, in these standard mileage rate thereby substantiate the eral changes that could affect times, it might even make sense when computing pay- amount of such expenses, many people such as the abil- to pay taxes sooner rather than ments for employees' auto if the accountable plan re- ity to deduct partial real estate later. expenses incurred under a quirements are satisfied. tax even if you don’t itemize deductions and the possibility Stay in touch!