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  • Two Pieces of GOOD Economic News!!

    07 January 2012 / Uncategorized / Comments Off on Two Pieces of GOOD Economic News!!

    Dare we say the glass is half...full?

    200,000 Jobs Added Last Month!

    Employers in the United States added 200,000 jobs last month, the Labor Department said Friday, a report that came on the heels of a flurry of heartening economic news and signaled gathering momentum in the recovery. Consumer confidence lifted, factories stepped up production and small businesses showed signs of life. The nation’s unemployment rate fell to 8.5 percent, its lowest level in nearly three years.   It was the sixth consecutive month that the economy showed a net gain of more than 100,000 jobs.

    Even with this good news, there are reasons for caution. Many economists do not expect growth in 2012 to keep up the pace of the fourth quarter of last year. Expectations are generally positive, but very modest.   But economists like Markus Schomer of PineBridge Investments, now have a much rosier view than they had back in August, after a spring and summer of lost economic ground and a demoralizing political debate over the nation’s debt ceiling. At that time, Mr. Schomer thought, as many did, that government dysfunction was paralyzing the economy. Now, he is ratcheting up his growth forecast for 2012. “The improving trend in the U.S. labor markets is not just a temporary blip, but seems to be something quite sustainable, which is not to say that there are no potential headwinds — last year’s signs of momentum were dashed by global factors like gas prices and the earthquake in Japan.  I’m a little bit concerned that Iran could be this year’s Japan,” Mr. Schomer said.

    Among the pieces of good news in Friday’s report:  The drop in the jobless rate came largely from real gains, not from discouraged workers giving up the job hunt. The new jobs were spread broadly across industries, with transportation and warehousing, retail, manufacturing and restaurants all adding jobs.  In addition, average wages on private payrolls ticked up by 4 cents an hour, though over the year wages have not kept pace with inflation. And government downsizing, which has been a drag on the jobs numbers, slowed in December, with only 12,000 public jobs lost. The private sector added 212,000 jobs.

     

     Manufacturing Is Surprising Bright Spot in U.S. Economy

    For the first time in many years, manufacturing stands out as an area of strength in the American economy.

    When the Labor Department reports December employment numbers on Friday, it is expected that manufacturing companies will have added jobs in two consecutive years. Until last year, there had not been a single year when manufacturing employment rose since 1997.  And this week the Institute for Supply Management, which has been surveying American manufacturers since 1948, reported that its employment index for December was 55.1, the highest reading since June. Any number above 50 indicates that more companies say they are hiring than say they are reducing employment.

    As stores have filled with inexpensive imports from China and other Asian countries, the perception has risen that the United States no longer makes much of anything. Certainly there has been a long decline in manufacturing employment, which peaked in 1979 at 19.6 million workers. Now even with hiring over the last two years, the figure is 11.8 million, a decline of 40 percent from the high. But those numbers obscure the fact that the United States remains a manufacturing power, albeit one that has been forced to specialize in higher-value items because its labor costs are far above those in Asia.

    The value of American manufactured exports over a 12-month period peaked at $1.095 trillion in the summer of 2008, just before the credit crisis caused world trade volumes to plunge. At the low, the 12-month figure fell below $800 billion, but it has since climbed back to $1.074 trillion. Those figures are not adjusted for inflation.   In total exports, including manufactured goods as well as other commodities like agricultural products, the United States ranked second in the world in 2010, behind China but just ahead of Germany. For the first 10 months of 2011, Germany is slightly ahead of the United States.

    The United States is particularly strong in machinery, chemicals and transportation equipment, which together make up nearly half of the exports. Exports of computers and electronic products are growing, but are well below their precrisis levels. Production of cheaper computers and parts shifted to Asia long ago.

    We at Widget Bookkeeping and Tax are hoping a recovery is already occurring and will bring profitability to all of us in 2012!! Happy New Year!!

  • Tax Filing Deadline EXTENDED to When!?!

    05 January 2012 / Uncategorized / Comments Off on Tax Filing Deadline EXTENDED to When!?!

    IRS Extends Tax-Filing Deadline to April 17

    The Internal Revenue Service opened the 2012 tax season on Wednesday by extending the tax-filing deadline until April 17.

    Taxpayers will have until Tuesday, April 17 to file their 2011 tax returns and pay any tax due because April 15 falls on a Sunday, and Emancipation Day, a holiday observed in the District of Columbia, falls this year on Monday, April 16.  According to federal law, District of Columbia holidays affect tax deadlines in the same way that federal holidays do, giving all taxpayers two extra days to file this year. Taxpayers requesting an extension will have until October 15 to file their 2011 tax returns. The IRS will begin accepting e-file returns on January 17, 2012.

    The IRS also announced a number of improvements to help make this tax season easier for taxpayers. This includes new navigation features and helpful information on www.IRS.gov and a new pilot program to allow taxpayers to use interactive video to get help with tax issues.

    The IRS is conducting a limited rollout of its new videoconferencing technology at 10 IRS offices and two other sites, and may expand to further sites in the future. A list of locations is available on www.IRS.gov.

    The IRS has updated the front page of the IRS Web site to make it easier for taxpayers to get key forms, information and file tax returns. The front page also has links to taxpayer-friendly videos on the IRS YouTube channel. Morei mprovements are planned for www.IRS.gov in the months ahead.

    “At the IRS, we’re working hard to make the process of filing your taxes as quick and easy as possible,” IRS Commissioner Doug Shulman said in a statement. “Providing quality service is one of our top priorities. It not only reduces the burden on taxpayers, but also helps in filing an accurate return right from the start.”

    The IRS said it expects to receive more than 144 million individual tax returns this year, with most of those being filed by the April 17 deadline.

    Even though we have a couple of extra days to file this year, PLEASE do not hesitate to call us for an appoinment to get your taxes done!  We would love to see you in February!!

  • New Tax Provisions for 2012!

    03 January 2012 / Uncategorized / Comments Off on New Tax Provisions for 2012!

    New Tax Provisions for 2012

    With the ringing in of the New Year, several new tax provisions took effect. While the list of new items does not compare with the number of tax provisions that expired at the end of 2011 (see prior BLOG) here is what is new:

    Inflation Adjustments

    The applicable amounts for many tax items increased on Jan. 1, due to annual inflation adjustments.

    Revised tax tables are in effect, as well as an increased personal exemptionamount (now $3,800) and standard deduction amounts. Various credits and other items also were adjusted, which can be found in Revenue Procedure 2011-52 on www.IRS.gov. Contribution limits and otheramounts for pension plans retirement accounts were also changed for 2012 (see IR-2011-103 for the inflation adjusted amounts).

    The Social Security wage base for 2012 is $110,100.

    The standard mileage rate for business use of an automobile remains at 55½ cents per mile for 2012; for medical and moving expenses it decreases to 23 cents per mile, down a half-cent from the second half of 2011.

    Capital Gain and Loss Reporting

    Taxpayers will have to report new information on Form 1040, Schedule D, Capital Gains and Losses, and file a new form, Form 8949, Sales and Other Dispositions of Capital Assets, to report gains and losses of certain capital assets. The information on Form 8949 will correspond to the new information being reported on 2011 Forms 1099-B, Proceeds from Broker and Barter Exchange Transactions.

    Under Sec. 6045, as amended in 2008, brokers are required to report to the IRS and their customers the customers’ adjusted basis in securities sold and to classify the customers’ gain as long term or short term. This basis reporting applies to covered securities acquired in 2011 and later (certain corporate stock in 2011 and other securities starting in later years; see Sec. 6045(g)(3)(C)).

    Individuals will be required to report both short-term and long-term gains and losses of capital assets in the following three situations:

    1. When basis was reported in box 3 of Form 1099-B;
    2. When basis was not reported on Form 1099-B; or
    3. When no Form 1099-B was received.

    The information from Form 8949 must then be transferred to Part I of Schedule D, which has been redesigned for 2011.

    Veterans Work Opportunity Credits

    The Three Percent Withholding Repeal and Job Creation Act, P.L. 112-56, extended the work opportunity tax credit (now called the returning heroes and wounded warriors work opportunity tax credits) for businesses that hire certain military veterans. Employers will be eligible for a credit of up to $9,600 for each qualified veteran that they hire after the law’s enactment date (Nov. 21, 2011) and before Jan. 1, 2013.

    Under the returning heroes tax credit, an employer may be eligible for a credit of up to $2,400 for hiring a veteran who has been unemployed for at least four weeks and up to $5,600 for hiring a veteran who has been unemployed for more than six months. Under the wounded warriors tax credit, an employer may be eligible for a credit of up to $9,600 for hiring a veteran with a service-connected disability who has been unemployed for more than six months and up to $4,800 for hiring a veteran with a service-connected disability (who does not meet the returning hero credit requirements) or who qualifies as a food stamp recipient.

    Foreign Asset Reporting

    Under the Foreign Account Tax Compliance Act, individuals are required to report interests in specified foreign financial assets when filing their federal income tax returns (Sec. 6038D). This requirement was suspended until the Form 8938, Statement of Specified Foreign Financial Assets, was released.  The IRS posted the final version of the form and its instructions in December; taxpayers subject to the reporting requirement must file the form in 2012 for 2011 tax years. In addition, taxpayers who would have been required (except for the suspension of the requirement) to file Form 8938 in 2011 for a tax year that began after March 18, 2010, must file it for the prior year with their return for the current tax year.

    Bonus Depreciation

    The 100% first-year bonus depreciation provision expired on Dec. 31, but 50% bonus depreciation is available for property placed in service in 2012. (100% bonus depreciation does still apply in the case of certain longer-lived and transportation property placed in service before 2013.)

    Estate Tax

    Estates of decedents who died in 2010 have until Jan. 17, 2012, to elect not to have the estate tax apply and to have heirs’ bases in assets they inherit determined under the modified carryover basis rules in Sec. 1022. This election is made by filing Form 8939, Allocation of Increase in Basis for Property Acquired from a Decedent.

    The estate and gift tax lifetime exclusion increases to $5.12 million for 2012.

    Voluntary Classification Settlement Program

    A new voluntary classification settlement program (VCSP) introduced in September allows eligible taxpayers to voluntarily reclassify their workers as employees for federal employment tax purposes for future tax periods while receiving relief for part of the tax liability relating to the past treatment of the workers as nonemployees. Taxpayers are eligible if they have consistently treated the workers as nonemployees, filed all required Forms 1099 for the previous three years, are not currently under IRS audit, are not currently under audit by the U.S. Department of Labor or a state agency, and complied with the audit results if the taxpayers were previously audited by the IRS or the Department of Labor.

    The VCSP limits the tax liability to 10% of the employment tax liability that would have been due on the compensation paid to the workers in the most recent tax year, as calculated under the reduced rates of Sec. 3509. Interest and penalties are not charged on the liability.

    The classification of these workers for prior years is not subject to an employment tax audit, but the statute of limitation on assessment of employment taxes is extended from three to six years for the first, second and third calendar years beginning after the date the taxpayers begin treating the workers as employees under the VCSP closing agreement.

    If you would like more information on the information above, or have questions, please don't hesitate to contact us!

  • Top Tax-Time Tips!

    03 January 2012 / Uncategorized / Comments Off on Top Tax-Time Tips!

    Top Tax-Time Tips!

    The income tax filing season has begun and important tax documents should be arriving in your mailbox soon. Even though your entity return is not due until March and your personal return is not due until April, you can make tax time easier on yourself with an early start. Here are Widget’s top tips to ensure a smooth tax-filing process.

    1. Gather your records - Round up any documents you’ll need when filing your taxes: receipts, canceled checks and other documents that support income or deductions you’re claiming on your return.  Be on the lookout for W-2s, 1099s, 1098s and broker statements as they will be coming soon; you’ll need these to file your tax return.

    2. If you have numerous stock transactions, give your broker a call and get a “gain/loss” schedule that reports the purchase date and cost basis for each of your stock transactions.  Even better – get this schedule electronically!

    3. Ask your tax professional to E-file your return. E-file is the safe, easy and most common way to file a tax return. Last year, 79% of taxpayers - 106 million people – E-filed their returns.  Why? Many reasons – Less chance of an keypunch or math error, which will generate an annoying and costly notice, IRS confirmation of your return being received is received within 24 hours and IRS issues refunds to 98 percent of electronic filers by direct deposit within 14 days (most report less than one week).

    4. Check out IRS Publication 17, Your Federal Income Tax, on the IRS website. It’s a comprehensive resource for taxpayers, highlighting everything you’ll need to know when filing your return.

    5. Hire a CPA to prepare your return.  We agree that the tax code should be simple enough for you to file your own return, however, that is simply not the case.  Every time Congress "simplifies" the tax code, it gets larger and more complex.  It is impossible to know that you are getting all the deductions and credits that you are entitled to without having some professional assistance.  In almost all but the simplest returns, the savings attained by using a CPA pays for the cost to prepare the return several times over and without all of the aggrevation!

    If we can be of service to you during this tax season, please don't hesitate to call us.

  • Many Tax Provisions Set to Expire at Year-End

    23 December 2011 / Uncategorized / Comments Off on Many Tax Provisions Set to Expire at Year-End

    Many Tax Provisions Set to Expire at Year-End

    Congress has reportedly broken its impasse and agreed to extendthe payroll tax cut for two months, so the reduced Social Security tax rate will not expire as scheduled at midnight on Dec. 31. While Congress’ negotiations over extending the reduced payroll tax rate have garnered a lot ofmedia attention, many other tax items are scheduled to expire at the end of the year, and it appears that any future extension of these expiring provisions will have to be retroactive.

    The expiring items include a wide variety of credits, deductions and other tax incentives. Many of the items set to expire on Dec. 31 were temporarily extended, through 2011, by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.

    Individuals

    While most of the expiring incentives affect businesses, many individuals’ taxes will be affected by the expirations. And the temporary extension of the 4.2% rate for the employee’s portion of the tax—if passed by Congress and signed by the president—will expire Feb. 29. Without further legislative action, the rate will then revert to the usual 6.2%.

    Personal credits allowed against regular tax and AMT (Sec. 26(a)).

    Starting in 2012, nonrefundable credits generally cannot be used to offset alternative minimum tax (AMT). A small list of exceptions applies, including the adoption credit (Sec. 23); the child tax credit (Sec. 24); the American opportunity tax credit (Sec. 25A(i)); the retirement savings credit (Sec. 25B); the residential energy-efficient property credit (Sec. 25D); the nondepreciable property portion of the alternative motor vehicle credit (Sec. 30B); and the nondepreciable property portion of the new qualified plug-in electric drive motor vehicle credit (Sec. 30D).

    Increased AMT exemption (Sec. 55(d)).

    The “AMT patch” amounts expire, and the AMT exemption reverts to its statutory amount: $45,000 for married individuals filing jointly, less 25% of alternative minimum taxable income exceeding $150,000; and $33,750 for unmarried individuals, less 25% of alternative minimum taxable income exceeding $112,500.

    Transit pass parity with parking benefits (Sec. 132(f)).

    The maximum amount an employee will be able to exclude from income for employer-provided transit passes and transportation in a commuter highway vehicle for 2012 will be $125 per month, down from $230 per month in 2011.

    Other expiring items affecting individuals include:

    • Deductibility of state and local sales tax instead of state income taxes on Schedule A (Sec. 164(b));
    • The expanded adoption credit (Sec. 36C) and adoption assistance program (Sec. 137) amounts;
    • The deduction of up to $250 for certain elementary and secondary school teacher expenses (Sec. 62(a)(2)(D));
    • The District of Columbia first-time homebuyer credit (Sec. 1400C);
    • Deductibility of mortgage insurance premiums as interest (Sec. 163(h));
    • The above-the-line deduction of up to $4,000 for qualified tuition and related expenses (Sec. 222);
    • The tax-free treatment of charitable distributions from IRAs (Sec. 408(d)(8)); and
    • The nonbusiness energy property credit (Sec. 25C).

    The temporary 100% exclusion of gain from the sale of certain small business stock under Sec. 1202(a) also expires after Dec. 31.

    Businesses

    Many business tax incentives are also scheduled to expire at the end of the year. Perhaps the most significant of these are the expiration of the allowance for 100% first-year bonus depreciation (Sec. 168(k)) and the expiration of the increased deduction amounts under Sec. 179. The Sec. 179 expensing limitation is reduced to $25,000 for 2012, and the phaseout threshold amount is lowered to $200,000.

    The Sec. 41 research and development credit also expires at the end of the year, as does the work opportunity tax credit (Sec. 51(c)) (but portions were extended for certain veterans by the Three Percent Withholding Repeal and Job Creation Act, P.L. 112-56).

    Various other tax credits aimed at businesses also expire:

    • The credit for plug-in electric vehicles (Sec. 30);
    • The plug-in electric vehicle conversion credit (Sec. 30B(i));
    • The alternative fuel (nonhydrogen) vehicle refueling property credit (Sec. 30C);
    • The alcohol fuels income tax credit (Secs. 40(e) and (h));
    • The alcohol fuel mixture excise tax credit (Sec. 6426(b));
    • The biodiesel and renewable diesel fuel credits (Sec. 40A);
    • The biodiesel excise tax credit (Sec. 6426(c));
    • The alternative fuel and alternative fuel mixture excise tax credits (Secs. 6426(d) and (e));
    • The refined coal production facility credit (placed-in-service date) (Sec. 45(d));
    • The Indian employment tax credit (Sec. 45A);
    • The new markets tax credit (Sec. 45D);
    • The railroad track maintenance credit (Sec. 45G);
    • The new energy-efficient homes credit (Sec. 45L);
    • The energy-efficient appliances credit (Sec. 45M);
    • The mine rescue team training credit (Sec. 45N);
    • The military reservist employer wage credit (Sec. 45P); and
    • The American Samoa economic development credit (P.L. 109-432).

    Expiring deductions and special depreciation rules (in addition to the expiration of 100% bonus depreciation) include:

    • 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements (Sec. 168(e)(3)(E));
    • Seven-year recovery period for motorsports entertainment complexes (Sec. 168(i)(15));
    • Accelerated depreciation for certain Indian reservation property (Sec. 168(j));
    • Special rules for charitable contributions of real property for conservation purposes (Sec. 170(b));
    • Charitable deduction for food inventory contributions (Sec. 170(e)(3)(C));
    • Increased charitable deduction for contributions of book inventory to public schools (Sec. 170(e)(3)(D));
    • Increased charitable deduction for corporate contributions of computer equipment to schools (Sec. 170(e)(6));
    • The election to expense advanced mine safety equipment (Sec. 179E);
    • Special film and television production expensing rules (Sec. 181);
    • Brownfields environmental remediation expensing (Sec. 198);
    • The deduction for domestic production activities in Puerto Rico (Sec. 199(d)(8)); and
    • Suspension of 100%-of-net-income limitation on percentage depletion for oil and gas from marginal wells (Sec. 613A(c)).

    Finally, a number of other special business incentives and other tax items expire, including:

    • Grants in lieu of tax credits for specified energy property (Sec. 48(d));
    • Qualified zone academy bonds (allocation of limitation) (Sec. 54E);
    • Low-income housing credit special treatment of military housing allowances (Sec. 142(d));
    • Modified tax treatment of certain payments to controlling tax-exempt organizations (Sec. 512(b));
    • Special treatment of dividends from regulated investment companies (Secs. 871 and 881);
    • Regulated investment company treatment under FIRPTA (Sec. 897(h));
    • Subpart F active financing income exceptions (Secs. 953(e) and 954(h));
    • Foreign personal holding company lookthrough rules for payments between related controlled foreign corporations (Sec. 954(c));
    • Basis adjustments for S corporation charitable contributions of property (Sec. 1367(a));
    • Reduced S corporation recognition period for built-in gains tax (Sec. 1374(d));
    • Various Empowerment Zone tax incentives (Secs. 1202, 1391, 1394, 1396, 1397A and 1397B);
    • District of Columbia investment incentives (Secs. 1400, 1400A and 1400B);
    • Definition of gross estate for regulated investment company  stock owned by nonresident noncitizens (Sec. 2105(d)); and
    • Disclosure of prisoner return information to certain prison officials (Sec. 6103(k)).

    Of course this list is subject to change, depending on what Congress decides to pass or not to pass.  If you would like assistance with any of these expiring provisions, please give us a call.  We discussed the 100% bonus provision with one of our clients this week and they are writing of their new $80,000 Lexus SUV in 2011 even though the first payment isn't due until 2012!!! Now THAT is tax planning!

  • Top Tax News of 2011!!

    22 December 2011 / Uncategorized / Comments Off on Top Tax News of 2011!!

    Top Tax News of 2011!!

    There was not a ton of tax news this year, due to a welcome lack of legislation. So for a first, the Internal Revenue Code was not a constantly moving target. Thank you Congress!!

    Still, there were two significant developments and one significant non-development. Here are the three biggest tax stories for 2011.

    1. No Grand Tax Compromise

    Earlier this year, when it became obvious to even the most jaded observers that the federal debt load had reached and exceeded the point of extreme scariness, it looked as if "tax reform" combined with "spending cuts" might be combined in a "grand compromise." No such luck. When push came to shove, the Democrats and Republicans couldn't even agree on what to order for lunch, let alone big changes in tax policy. So the deficit reduction problem was punted to a "super committee" which then failed to reach a consensus. As a result, automatic spending cuts are supposed to kick in to the tune of about $1.2 trillion (a number that looks increasingly inadequate) over 10 years. There are no automatic tax increases in the super committee deal, and none may be needed -- because the so-called Bush tax cuts are scheduled to expire (again) at the end of 2012. If that is allowed to happen, massive tax increases will take effect in 2013.  With a $15 trillion dollar deficit, we don't expect another extension.

    2. Temporary Social Security Tax Cut

    For 2011 only, the withholding rate for the employee's share of the Social Security tax was reduced from the usual 6.2% to only 4.2%. For self-employed individuals, the Social Security tax component of the self-employment tax was also reduced from the usual 12.4% to 10.4%. For 2011, the Social Security tax hit the first $106,800 of wages or self-employment income, so the maximum savings from the cut was $2,136 (2% x $106,800). A married couple can save as much as $4,272 (2% x $2,136). Anyone with wages and/or self-employment income benefits to some degree from this arrangement.

    For 2012, there's still a good chance the Social Security tax reduction will be extended and maybe even increased to 3%. But there will apparently be a lot of political showmanship before that happens. (For 2012, the Social Security tax will hit the first $110,100 of wages and/or self-employment income.)

    3. New Estate and Gift Tax Regime Takes Effect

    Legislation enacted in 2010 established a favorable new federal estate and gift tax regime that took effect in 2011 and continues through 2012.

    * For estates of individuals who died in 2011 or made gifts in 2011, there's a $5 million unified federal estate and gift tax exemption.

    * For estates of individuals who die in 2012 or make gifts in 2012, there will be a $5.12 million unified exemption.

    * The estate and gift tax rates are both a flat 35%.

    * Married individuals who die in 2011 or 2012 can pass along their unused federal estate and gift tax exemptions to their surviving spouses. In other words, unused exemptions are "portable." The ability to effortlessly pass along unused exemptions to surviving spouses allows both spouses' exemptions to be utilized without having to set up trusts or engage in other tax planning maneuvers that were previously necessary.  However, to attain this portability, a 706 MUST be filed even if not required.

    * For heirs of decedents who die in 2011 and beyond, the familiar rule that allows the federal income tax basis of inherited capital-gain assets (such as real estate and stock) to be stepped up to reflect fair market value on the date of death was reinstated. With the restoration of the unlimited basis step-up rule, heirs won't owe any federal capital gains taxes on appreciation that occurs through the date of death -- as long as that date is in 2011 or later.

    * All but one of these beneficial changes will expire at the end of 2012 unless Congress takes further action. The unified gift and estate tax exemption will fall back to a paltry $1 million, the maximum estate and tax rate will go up to a punitive 55%, and the portable exemption deal will die. The only taxpayer-friendly provision that will survive is the basis step-up rule for inherited capital gain assets (it's permanent, until Congress changes its mind).

    What is expected for 2012?

    We will likely not see any big developments until after the 2012 election -- unless you consider an extension of the Social Security tax reduction a big development. For next year, we already know what the biggest story will be. We just don't know the final outcome. Will the Bush tax cuts really be allowed to expire at the end of 2012 or will they be extended once again? Will the current estate and gift tax regime really be allowed to expire at the end of 2012 and be replaced by a harshly anti-taxpayer regime? The answers to these questions will almost certainly depend on how the election turns out.  This is what makes tax fun and exciting!

    If you should need assistance with any tax or accounting issues, please feel free to contact us.

    Merry Christmas, Happy Hannukah and Happy Holidays from Widget Bookkeeping and Tax!

  • Six Year-End Tips to Reduce 2011 Taxes!!

    21 December 2011 / Uncategorized / Comments Off on Six Year-End Tips to Reduce 2011 Taxes!!

    Six Year-End Tips to Reduce 2011 Taxes!!

    Widget wants to remind all taxpayers that with the New Year fast approaching, there is still time for you to take steps that can lower your 2011 taxes. However, you usually need to take action no later than Dec. 31 in order to claim certain tax benefits.

    Here are six tax-saving tips for you to consider before the calendar turns to 2012:

    1. Make Charitable Contributions – If you itemize deductions, your donations must be made to qualified charities no later than Dec. 31 to be deductible for 2011. You must have a canceled check, a bank statement, credit card statement or a written statement from the charity, showing the name of the charity and the date and amount of the contribution for all cash donations. Donations charged to a credit card by Dec. 31 are deductible for 2011, even if the bill isn't paid until 2012. If you donate clothing or household items, they must be in good used condition or better to be deductible.

    2. Install Energy-Efficient Home Improvements – You still have time this year to make energy-saving and green-energy home improvements and qualify for either of two home energy credits. Installing energy efficient improvements such as insulation, new windows and water heaters to your main home can provide up to $500 in tax savings. Homeowners going green should also check out the Residential Energy Efficient Property Credit, designed to spur investment in alternative energy equipment. The credit equals 30 percent of the cost of qualifying solar, wind, geothermal, or heat pump property. For details see Special Edition Tax Tip 2011-08, Home Energy Credits Still Available for 2011 on the IRS.gov website.

    3. Consider a Portfolio Adjustment – Check your investments for gains and losses and consider sales by Dec. 31. You may normally deduct capital losses up to the amount of capital gains, plus $3,000 from other income. If your net capital losses are more than $3,000, the excess can be carried forward forever and deducted in future years.

    4. Contribute the Maximum to Retirement Accounts – Elective deferrals you make to employer-sponsored 401(k) plans or similar workplace retirement programs for 2011 must be made by Dec. 31. However, you have until April 17, 2012, to set up a new IRA or add money to an existing IRA and still have it count for 2011. You normally can contribute up to $5,000 to a traditional or Roth IRA, and up to $6,000 if age 50 or over. The Saver’s Credit, also known as the Retirement Savings Contribution Credit, is also available to low- and moderate-income workers who voluntarily contribute to an IRA or workplace retirement plan. The maximum Saver’s Credit is $1,000, and $2,000 for married couples, but the amount allowed could be reduced or eliminated for some taxpayers in part because of the impact of other deductions and credits.

    5. Make a Qualified Charitable Distribution – If you are age 70½ or over, the qualified charitable distribution (QCD) allows you to make a distribution paid directly from your individual retirement account to a qualified charity, and exclude the amount from gross income. The maximum annual exclusion for QCDs is $100,000. The excluded amount can be used to satisfy any required minimum distributions that the individual must otherwise receive from their IRAs in 2011. This benefit is available even if you do not itemize deductions.

    6. Don't Overlook the Small Business Health Care Tax Credit – If you are a small employer who pays at least half of your employee health insurance premiums, you may qualify for a tax credit of up to 35 percent of the premiums paid. An employer with fewer than 25 full-time employees who pays an average wage of less than $50,000 a year may qualify.

    And here is one final tip to remember: you should always save receipts and records related to your taxes. Good recordkeeping is a must because you need records to prepare your tax return, and it will help you to file quickly and accurately next year.  Charles always says "It's more about proof than truth!" Under audit, it may be true that you drove 25,000 business miles...but without the proof, the deduction is lost!

    For information on how to lower that tax bill, or any other tax or bookkeeping issues, please feel free to contact us.  We would love to help you.

  • Standard Mileage for 2012 Released!

    19 December 2011 / Uncategorized / Comments Off on Standard Mileage for 2012 Released!

    The IRS on Friday released standard mileage rates for use in 2012 (Notice 2012-1). Taxpayers can use the optional standard mileage rates to calculate the deductible costs of operating an automobile.

    For business use of an automobile remains at 55½ cents per mile.

    For medical or moving expenses, it is 23 cents per mile (a half-cent decrease from the second half of 2011).

    For services to charitable organizations, the rate (which is set by statute) is 14 cents per mile.

    Rather than using the standard mileage rates, taxpayers may instead use their actual costs if they maintain adequate records and can substantiate their expenses. The rules for substantiating these amounts appear in Rev. Proc. 2010-51.

    As always, no matter which method you use to deduct your auto expenses, you must keep mileage logs to ensure that those deductions are able to withstand IRS scrutiny!  If you need some help in making this daunting task easier, please feel free to call us!

  • It's time for year-end tax planning!

    07 November 2011 / Uncategorized / Comments Off on It's time for year-end tax planning!

     It's that time of year again. Thanksgiving, Christmas, Hanukkah, Kwanza and the upcoming New Year are all right around the corner. This season signals the end of another tax year! Over the next few weeks, there's plenty you can do to make next April 15 seem like another holiday. Here are some steps to take now to make tax filing season easier and more productive:

    • Review your records. Good tax planning can only be accomplished if you have kept good records throughout the year. Review your checkbook and credit card records now, and make lists of your tax-deductible expenses: charitable contributions, medical expenses and business expenses. Determine if you will benefit by making additional contributions or business expenses prior to year-end so that you can reduce your 2011 tax bill.
    • If you own rental property, total your rent income and expenses and determine where you stand this year. You may want to make needed repairs or improvements in 2010 to obtain the deductions this year.  Ensure that you have a good idea of what your depreciation deductions will amount to and investigate ways to accelerate your depreciation, if possible.
    • Sole proprietors and home-based business owners may have the opportunity to make investments in computers or other equipment, or to accelerate or delay billings for services. And, taxable income can be increased or decreased by paying or deferring ongoing business expenses.
    • Investors in stocks and bonds held outside of retirement plans should review their year-to-date gain or loss positions to determine if any gains or losses should be harvested before year-end. Remember that each year you can deduct up to $3,000 of excess capital losses against ordinary income. If you have a loss position in a stock or mutual fund, consider selling that security to recognize the loss in 2010. If your tax bracket is 28%, a $3,000 net loss will cut your tax by $840.
    • Consider making an IRA contribution. Depending on your level of income and age, you may be entitled to a $5,000 tax deduction ($6,000 for those age 50 or older) for your contribution to a traditional IRA.
    •  If your goal is to increase your taxable income, you can elect to convert your traditional IRA to a Roth IRA. This will create taxable income this year but future withdrawals from your IRA, including the buildup of earnings, will be tax-free.
    • If you are eligible to participate in a 401(k) or 403(b) plan at work, you may want to max out your contribution to the plan before year-end. This is another excellent way to shelter current income from taxation.Don't forget to review your cafeteria plan at work if you have set aside funds in 2011 for medical expenses or dependent care. Remember, if you don't use the amounts you set aside by year-end, you will lose them.

     

     

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