The Social Security Administration has announced an increase in the cost of living benefit for Social Security benefit recipients for 2012. The benefit will increase 3.6 percent, the first increase since 2009.

Along with the benefit increase, the SSA has announced an increased in the Social Security maximum wages for 2012 - from $106,800 in 2010 and 2011 to $110,100 in 2012. Earnings from self-employment are also subject to the Social Security maximum in calculating self-employment taxes (Social Security and Medicare tax for self-employed individuals).

What This Means for Your Business

Wages paid starting in January 2012 are subject to the $110,100 limit in Social Security withholding. Your payroll processing service should be tracking wages and stopping Social Security deductions at the limit. If you are doing your own payroll processing, you will need to track wages to make sure no employee has more than the $110,100 limit deducted from his or her pay.

Medicare deductions are not affected by this limit; all wages are subject to the Medicare deduction.

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Social Security Wages

FICA Taxes

Social Security and Medicare Taxes for Self-Employed

The Congress and the Obama Administration have worked hard to create incentives for U.S. businesses to buy equipment and vehicles, to grow the economy. So 2011 is a good time to consider buying stuff for your business, to help the economy and yourself. Some of these incentives will continue into 2012, while others expire at the end of this year.

Tax-Saving Opportunities for 2011

Here are some tax-saving opportunities to discuss with your tax advisor:

Start-up expenses. Starting in 2010, new businesses are allowed up to $10,000 in deductible start-up expenditures, with a reduction if these expenses go over $60,000.Start-up expenses over this maximum may be amortized over 15 years.

Self-employed business owners may deduct the cost of health insurance for themselves, spouses, and dependents, for purposes of figuring self-employment taxes. This provision applies to tax years starting in 2010.

Capital Gains from the sale or exchange of qualified business stock may be excluded from tax up to 100% on the exclusion from gross income of the capital gains from the sale or exchange of qualified small business stock acquired after March 15, 2010, and before January 1, 2012.

Bonus depreciation provisions have been increased to from 50% to 100% for 2011 and 2012. This means you can fully depreciate eligible business property purchased in 2011. To qualify, the asset must have been placed in service (used in the business) after December 31, 2011 and before January 1, 2013.

Section 179 provisions have been extended through 2011, allowing business owners to deduct certain types of  business property as expenses in the current year rather than draw out the expense over many years. There are maximums on the amount of Section 179 property that can be deducted as an expense.

Carry back on business tax credits has been extended to five years. In the past, you could only carry back these tax credits for one year. The provision applies to small businesses (not publicly traded) that have averaged less than $50 million in gross receipts for the last three years. Examples of the tax credits you can carry back include Work Opportunity Credit, Disabled Access Credit, Empowerment Zone Hiring Credit, and the Employer Provided Child Care Credit.

Disclaimer: This information is not intended to be tax advice. Every situation is different and these tax savings may not apply to your business. Talk to your tax advisor before taking any action.

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While it may seem a long time until April 14, 2012, there is much to be done before January 1. Trust me on this, it isn't that far away. This week, I'm focusing on some tasks you may want to take care of before it gets too late.

Talk to a Tax Advisor. If you don't have a tax advisor, you need to get one. If you haven't talked to your tax advisor lately, you need to schedule an appointment. A good tax advisor may be a CPA or tax attorney or an Enrolled Agent.

A tax advisor can help you with your business taxes - before, during, and after tax preparation:

• Before tax time, a tax advisor can provide tax planning advice, to help you maximize deductions and minimize taxes. For example, if you are considering buying a company vehicle or equipment, your tax advisor can help you figure out whether to do it now or wait until next year to maximize depreciation.
• During tax time, of course, your tax advisor can prepare your returns and make sure they are submitted on time.
• And after tax season, you may need your tax advisor to help you figure out whether to pay estimated taxes, or to provide assistance if you get audited.

Read more about how a tax advisor can help you with taxes and how to find a tax advisor.

Get Tax Software

Even if you have a superior tax advisor, you may want to get tax planning software. Why? Well, because

• You can use your small business tax return on Schedule C , using your tax software, to make sure you have all the information you need to complete your business tax return. I complete the Schedule C then take the completed form in to my tax advisor. Saves time, and money.
• You can use the tax software to estimate how much you might owe for your business taxes, including self-employment taxes. Sure, your tax advisor can help you determine this, but you can work on your own to gather the information in between meetings.
• For filing combined business and personal returns, you can see how your business profit or loss affects your personal return.

Software programs are easily available these days, either online or downloading or ordering, and some are even free.

See these reviews of the top tax software pgorams from William Perez at Tax Planning.

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Remember when we didn't have cell phones? I do, but I also remember when we had rotary dial phones, so there you are. Business cell phones have been a common tax concern for both companies and the IRS, and the rules on cell phones and taxes keep changing.

Business Cell Phones No Longer Listed Property

One provision of the Small Business Jobs Act of 2010 lifted the requirement that employer-provided cell phones be treated as "listed property." Listed property is the IRS term for business assets that can be used for both business and personal purposes (laptop computers are another example). The IRS closely monitors use of these assets because personal use doesn't get a business tax deduction and employer-provided cell phones for personal use are a taxable benefit to employees. Before this change, employers would have to carefully itemize cell phone logs to separate business and personal phone calls - a nightmare, and almost no one did it.

New IRS Guidance on Business Cell Phones

A recent IRS memo clarified some aspects of this regulation, which states, in part:

...where employers provide cell phones to their employees or where employers reimburse employees for business use of their personal cell phones, tax-free treatment is available without burdensome recordkeeping requirements.

Cell phone use must be business-related

The IRS emphasizes that in order to for cell phones to be non-taxable to employees and used as a business deduction by employers, their use must be primarily business-related. This means that there must be a clear business purpose for the use of the phone, like for contacting sales representatives who are out of the office, or to keep top managers and executives in touch with employees and customers.

To be clear:

1. Cell phones are still considered a fringe benefit, unless you can show that the phone is being used primarily for business.

2. Non-business use of the cell phone is still not deductible to employers, so you will have to figure out some way to carve out employee personal use, and

3. You still must have a way to keep records on cell phone use so you can show primary business purpose.

Read more details on Cell phones and taxes

Disclaimer: The purpose of this article is to provide general information; regulations change and each situation is different, so talk to your tax advisor about this issue before making any decisions.

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