Authored by David Cash, CPA, MAcc. Dave has worked in the Logan and Salt Lake City offices of CMP. He spent 2 years in the Logan office and has been in the Salt Lake City office for over 5 years. Dave specializes in oil and gas taxation, pension administration and reporting, and individual and business tax planning and compliance.

In meeting with clients for over a decade to assist them with various tax related needs I have noticed that one misconception seems to be very common. In this article I would like to discuss that misconception and hopefully shed some light on the issue of the question, “What tax rate am I in?”

When I meet with clients and let them know that their marginal tax rate is at a particular percentage, say 25% for example, they usually will look at me and ask what they can do to get into a lower tax bracket. The ensuing discussion will usually go something like this:
Client: How can I lower my tax bracket?
CPA: You are in the 25% tax bracket but only $12,000 of your taxable income is being taxed at 25%
Client: What do you mean?
CPA: The tax system that we have is a graduated rate system. For the 2013 tax year if someone is Married Filing Joint then the first $17,850 of taxable income is going to be taxed at 10%.

The taxable income between $17,851 and $72,500 is going to be taxed at 15%, then if your taxable income falls between $72,501 and $146,400 only the taxable income above $72,500 will be taxed at 25%. You are benefiting from the tax brackets that are lower than your marginal tax bracket. The marginal tax bracket just lets us know what rate the last dollar of taxable income is taxed at.
Client: So not all of my income is being taxed at 25%?
CPA: No, not all of your taxable income is taxed at 25%. It is similar to having a bucket for each tax bracket. You start by filling up your 10% bucket with income, then filling up your 15% bucket, then the remaining taxable income starts to fill your 25% bucket. Once the last of your taxable income is in one of 3 buckets, either 10%, 15%, or 25% then we are able to let you know that you are in the 25% marginal tax bracket.

Just in this past filing season, I had variations of this discussion with no fewer than 7 new clients. At Cook Martin Poulson, we strive to help you keep what you earn. Part of what we hope to do for our clients is to help them have a better understanding of the tax system and how it works. A key component to this is to try to take some of the mystery out of the tax system, such as the misconception that exists that just because you may be in the new 39.6% tax bracket for the 2013 tax year, doesn’t mean that all of your income is taxed at that rate.

For those of you who may be interested the 25% bracket includes taxable income from $72,501 through $146,400. The next bracket is at 28% and that has taxable income from $146,401 to $223,050. The 33% tax bracket is taxable income from $223,051 to $398,350. The 35% tax bracket is taxable income from $398,351 to $450,000 (yes that tax bracket only includes about $52,000 of taxable income). Those with taxable income over $450,000 gets that excess taxed at 39.6%. These tax brackets are for those that are Married Filing Joint tax returns. The other filing statuses have different tax bracket floors and ceilings, but the concept is the same.

Authored By: Sheri Lewis, Staff Accountant, has worked at Cook Martin Poulson since November 2011. She recently received her Master of Accounting Degree and is in the process of taking the CPA exams.

Have some of you wondered what happened to “Your Social Security Statement” that you used to receive in the mail on an annual basis? The Social Security Administration used to mail out a copy of “Your Social Security Statement” each year around your birthday. This statement offers useful information to assist you in planning for your retirement. The statement provides the following:

a) Whether or not you have earned enough credits to qualify to receive social security benefits
b) Your estimated social security benefits when you retire based on ages 62, 67 and 70.
c) Estimated benefits if you become disabled
d) Family survivor benefits in the event of your death
e) Whether you have earned enough credits to qualify for Medicare
f) A description of how your benefits are estimated
g) A record of your lifetime earnings by year
h) Other helpful information about social security

Due to budget restraints, this statement is no longer being mailed each year. Only those people who have reached age 60 will receive a statement in the mail until they retire and apply for social security. However, you can still access “Your Social Security Statement” by going online to www.socialsecurity.gov and creating an account with a username and password. Upon accessing the website you would click on “New Get your Social Security Statement online” and follow the directions to create an account with an username and password. You will be asked to provide your name, social security number, birth date, mailing address and primary phone number. Additional screens will ask questions to verify your identity such as the name of your banking institution, what kind of car you recently purchased or what county you live in. Once you have created an account you can access “Your Social Security Statement” and use the information provided to assist you in planning for your financial future.

Authored by: Jake McCrea. Jake is a Staff Accountant, working out of the Salt Lake City office. Jake assists many clients with issues ranging from the setup or repair of accounting operations and systems to taxes for small businesses and individuals.

Recently sales tax laws in Utah have evolved on the sales, installation, and repair of computers or computer-related items. Generally, sales tax in Utah is collected on any tangible property or merchandise sold in the state, but not collected on most services provided. This is still generally the case with computer services, but there are key elements that make computer services subject or not subject to sales tax:

Sales tax is collected on:

1. Hardware,
2. Prewritten software,
3. Upgrades to prewritten software upgrades, and
4. License fees for prewritten software accessed remotely if the software is used in Utah (this can become complex if the software is used in multiple states, see publication for examples), and
5. Repairs or replacement of computer hardware, including any other service needed to complete that repair that wouldn’t normally be subject to sales tax.

Sales tax is not collected on:

1. Reasonably priced and necessary modifications to prewritten software that are separately stated on the invoice,
2. Custom software, or any software made for a specific client to meet their specific needs,
3. Most computer-related services, if it isn’t needed for the repair of hardware (see Publication 64 of the Utah State Tax Commission for a more complete list).

If your company deals with any of these things, make sure that the accounting and invoicing systems are able to catch these specific items that are subject to sales tax. If an invoice has multiple items that are both taxable and nontaxable, they need to be broken out by item or the entire invoice is subject to sales tax.

If you have any questions, feel free to call your accountant or go to http://tax.utah.gov/forms/pubs/pub-64.pdf to see the publication on this subject.