Outnumber
their few!
Welcome
back to another year questioning what Congress has accomplished with regards to
tax law changes, and will they ever go back to the concept of compromise in
order to get the job done? There is
one fact which continues to hold true: regardless the changes, we must maintain
clear, well-documented records supporting our income and tax- deductible
expenses. In the era of paperless
everything, we must maintain an E-Filing Cabinet if we are not holding onto
paper documents.
In an
effort to assist you in preparing for your next tax appointment, I have listed
some helpful information about this upcoming Tax Season:
á Tax Season Office Hours – Mon thru Sat, 9am – 8:30pm. Tax Day is April 17th for
2012.
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Methods of Tax Preparation – It is
important I receive a complete package of tax information in order to
efficiently and effectively prepare your tax returns. I require copies or originals of all
statements of income (earned and unearned income) and a listing of your tax
deductible expenses. Please use the Client Organizer as a guide to help you
collect your information. I need to know you have retained
receipts/documentation supporting your expenses, but you donÕt have to send
the receipts to me. Please make
a tally of each type of expense so we are not using the appointed tax prep time
adding receipts.
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Delivery of Tax Materials – Due to
a heavier client load in the month of March, I will need to have your tax
mailing or drop-off by March 20th in order to guarantee an April 17th
completion.
LetÕs begin our 2011 tax review with some highlights
of recent Tax Acts signed into law:
HIRE Incentives to Restore Employment Act – signed into law on March 18, 2010, included
some changes to Offshore compliance and is worth mentioning again this year. If you have a financial account
located in another country or an interest in a foreign entity, we must
fully disclose the existence of this account or investment to the IRS. If applicable, please notify me in
advance of our tax prep appointment so I can provide more details regarding
information reporting. Since there
are steep penalties for failing to disclose information regarding these
Òspecified foreign financial assetsÓ that have a cumulative value over $50,000,
we want to make certain we are in compliance with these tax laws.
Much remains the same in 2011, but
letÕs highlight these favorable tax rates & tax credits again:
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Capital Gains Rates – For tax year 2011, the zero long-term capital gains tax
rate remains applying to the 10% and 15% tax brackets. The long-term capital gains rate for
those in higher brackets has remained at the favorable 15% rate. Therefore, one will be taxed at a 0%
capital gains rate on long-term gains up to the point oneÕs entire income
reaches the end of the 15% bracket.
Once the long-term gain brings income into the 25% bracket, the long-term
gain will be taxed at the 15% long-term capital gains rate.
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Child Tax Credit – This credit remains at a
maximum of $1,000 per qualifying child for tax year 2011 and 2012. Note: this credit is income sensitive
and only applies to Adjusted Gross Income below $110,000 for married couples,
$75,000 for Single or Head of Household, and $55,000 for Married Filing
Separately.
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Residential Energy Property Credit –
This credit is for residential home improvements (insulation, energy saving
windows/doors, etc) and has dropped from last yearÕs maximum credit of $1,500
to $500. If you have never received
this tax credit, you may qualify, but if you have previously claimed the
credit, you may have already exhausted your ÒlifetimeÓ credit allowed. Also, it only applies to improvements to
your primary residence, not a second home or vacation property.
á American
Opportunity Tax Credit – This credit is based on 100% of the 1st
$2,000 of qualified higher education tuition & related expenses, plus 25%
of the next $2,000 of such expenses paid during the tax year, not to exceed
$2,500. Also, this credit is available for the first 4yrs of college. We still
have another educational credit, the Lifetime learning credit, which remains
unchanged based on 20% of the 1st $10,000 of qualified tuition &
related expenses for a maximum credit of $2,000.
á Extensions were granted through
12/31/2011 for – Tuition & Fees Deduction and the Educator
Expense Deduction (both are Òabove the lineÓ deductions and available even
if you do not file Sch. A, Itemized Deductions).
Below are other tax topics
which change annually and are always important to note:
Standard
Mileage Rate
– For tax year
2011, the mileage rate for business use of your automobile was increased from
50 cents in 2010 to 51 cents covering 1/1 – 6/30/2011, then was increased
further to 55.5 cents from 7/1 – 12/31/11. It is scheduled to remain at 55.5 cents in
2012. The mileage rate for medical
& moving increased to 19 cents for the 1st half of 2011 and
further increased to 23.5 cents from 7/1-12/31/11. Charitable mileage remains the same at
14 cents for 2011.
Earned Income subject to FICA
(Social Security Tax) increases to $110,100 in 2012 from $106,800 for the 2011 tax year. There will finally be a cost of living
adjustment to social security benefits in 2012.
Section
179 Deduction, expensing of
business equipment placed into service during 2011, has a maximum limitation of
$500,000, clearly encouraging small business expansion.
Federal Estate Tax Exemption is at $5,000,000 for tax year 2011 and 2012 and the top tax rate is 35% for these tax years. The annual gifting exclusion remains at $13,000 per person for 2011.
Furthering
our understanding of tax law is key to properly preparing for your annual tax preparation. I am listing several topics to keep in
mind as you review your tax year:
Payments to Subcontractors: An area of concern not only for my self-employed
and small business clients, but for anyone who is entitled to this business
deductionÉIf you pay over $600 to any individual for work he performed for you,
you are required to obtain his name, address and Tax ID # in order to be able
to issue a 1099-MISC form by 1/31/2012.
If you need me to issue this 1099, please contact me prior to 1/31/2012
with the pertinent information.
Charitable Contributions: The tax
laws have not lightened, but have continued to tighten. Therefore, I am unable to deduct any
gift to charity (whether a donation of goods or money) unless there is a
receipt. For any individual donation over $250 we also need a letter of
acknowledgment (issued timely by the charity). For NonCash Charity, we must have the
acknowledgment letter and your detailed list of what was donated, the valuation
of the items donated (and the source used for determining the value), as well
as the cost (or estimate of the original cost of the item. Please note: no matter what anyone tells
you, we cannot value your time.
Therefore, if you are volunteering, you can only deduct expenses
incurred for your volunteer work and you should submit those receipts to the
charity and have them provide you with a receipt. For further details, see my business Facebook page by
searching for Janice Hayman Tax Accountant.
Education Expenses: Colleges and other accredited schools have
annually issued 1098-T forms to the students, informing us that tuition may
have been paid during the tax year.
Please obtain a printout from the college that includes who paid the
tuition & fees, plus the date and amount of payments. Also, we need to know when the student
has a Òfull-rideÓ scholarship which pays for both tuition and room &
board.
Applying
for Medicare? You should contact Medicare as soon as
you turn age 65. Even if you have
medical coverage with someone else or your employer, you should sign up for
Medicare and Òopt-outÓ of their coverage until the time you do need it.
Newly
Retired? Please contact me! You may need to begin or enhance your
quarterly estimated tax payments, or request income tax withholding from your
retirement income. Your tax picture
will certainly change, and we want to make certain you donÕt have any tax
surprises when you file your tax return.
Sales and Use Taxes: Please keep track of your purchases from the Internet or from other
states, which do not charge you the sales tax for your home state and
locality. It has been brought to
our attention that this is an area of review for many states. They are finding it a revenue
generator! The law states we are
required to pay Sales or Use Tax to our home state upon items we purchase and
bring back to our home state. (Ex. Internet
purchases and out-of-state vendors who donÕt have stores within your home
state). Most states have now added
a line to the state income tax returns, and many states expect a value above
that of zero to be included on this line.
Of
course, we have the basic reminders I mention to you every yearÉ
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Max-out on your retirement plans – Please make an IRA contribution
or fully maximize your 401K, etc.
Speak with your banker/broker (if dealing with an IRA or SEP/Simple
plan) or your benefits person (if dealing with an employer plan). The maximum contributions for 2011 &
2012, respectively are as follows: 401K - $16,500 increasing to
$17,000 in 2012 ($22,000 if over age 50, increasing to $22,500 in 2012), IRA
- $5,000 ($6,000 if over age 50) and remains at $5,000 in 2012 (if over
age 50, remains at $6,000), SEP plan * - $49,000 increasing to $50,000
in 2012, and SIMPLE plan - $11,500 and remaining at $11,500 in 2012
($14,000 if over age 50, remaining at $14,000 in 2012). (Note*: a SEP is
limited to the lower of 25% of Net Income or $49,000 in Ô11). In addition, the caps for the defined benefit plans are $195,000 in tax year
2011 and remaining at $205,000 in 2012.
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Roth IRAÕs – Please rememberÉnot everyone is
eligible to have a Roth IRA. If you
are filing Single or Head of Household and you have adjusted gross income (ÒAGIÓ)
over $107,000 ($169,000 if Married Filing Joint), your ability to contribute to
your Roth begins to phase-out. Once
your AGI exceeds $122,000 ($179,000 if Married Filing Joint), you are no longer
able to contribute anything to your Roth IRA for the 2011 tax year.
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Investment activities – 2011 is the first year new
reporting requirements are being implemented. The reporting of all brokerage activity
must now include the cost basis of the security sold. But, we must not assume all brokerage accounts
have this information or were able to successfully contact you to provide them
with this information. Therefore,
the burden is back on your shoulders to confirm that all sales of investments
have a cost assigned to them.
Please look at your December/Year-End statements (go online to print it
out if you have gone paperless) and
confirm there arenÕt any ÒunknownÓ values on your Realized Gains & Losses
reports. Also, please ask your investment company whether they
offer a Realized Gains & Losses report which can be downloaded – this
would be most helpful to your tax professional J
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Estimated Tax Payments – For those who need to prepay
taxes, remember that your final payment is due on January 15, 2012. If you need to pay estimated taxes to
the state, you may want to pay by December 31, 2011 in order to take advantage
of a federal itemized tax deduction for state taxes paid. However, if you know you have an
Alternative Minimum Tax issue, donÕt pay your state taxes prior to 1/1/12. If you are uncertain whether you
should be making a 4th quarter estimated tax payment or would like
to re-assess how much to pay, please place a quick call to my office for a
review of your 2011 income.
I
look forward to working with you during this upcoming tax year. Please reference your Client Organizer,
open tax documents as they arrive, organize your tax deductible items, ensure
you have your year-end mortgage interest statements, all statements of income
and year-end/tax reporting documentation, and your own tax preparation summary
(if you are not filling out the Client Organizer). With all these items in hand, we should
be able to efficiently tackle the 2011 tax year.
May all things peaceful and joyous come to you and your
loved ones, and may you have a safe & heart-warming Thanksgiving.
Much Merriment,
Janice & Shahnaz
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