The South Bay Tax Report
December 30, 2011
Wayland & Vukadinovich LLP
Named as the 2011 South Bay's
Best Tax Preparer
by The Daily Breeze
(We're going to crow about that for as long as we can)
Happy New Year
It's near year-end here in beautiful Hermosa Beach - the Chamber of Commerce is having a big band on the Pier to celebrate the year-end!
We're planning for tax season, taking seminars, reviewing new tax law changes, ordering supplies and getting ready to find every deduction we can for you. Call Gina for an appointment or if you would like an organizer
We're changing our format this month a bit to give you many small items that may be important rather than a few longer articles.
Enjoy the New Year and consider watching those football games on New Year's Day (and after) with your tax records near -
it's a good time to get organized.
We hear you ask "Can I do Anything at the last minute?"
Be sure you make your Health Savings Account contribution;
Nail down those stock losses for potential capital loss deductions;
Convert a regular IRA to a Roth IRA if your income level supports such a move or your investments have been beaten down and you belive a Roth is a better strategy that your traditional IRA;
Accelerate those deductible contributions;
Accelerate big ticket purchases into 2011 to get the sales tax deductions;
Pre-pay qualified higher education expenses for the first quarter of 2012;
Make sure you take your required minimum distributions from your IRA;
For estate tax planning purposes, consider making year-end gifts to relatives (or us!!) of up to $13,000 per person;
Increase the amount set aside for next year's health flexible spending accounts;
Postpone income until 2012;
Pre-pay those state income taxes before the end of the year;
Bunch those medical expense payments into one year.
California Mandatory e-Pay Requirement Reminder
As the 2011 tax year comes to a close, we know that many of you make final California estimated tax payments in December to deduct the payment on your 2011 Federal tax return. Remember - if your California tax liability has been greater than $80,000 or you have ever made a payment that exceeds $20,000 to the state, you must make ALL future payments to California electronically. Taxpayers who fail to pay electronically will be subject to the mandatory e-pay penalty of one percent of the amount paid.
When in doubt, make the payment electronically, it's easy, it's quick and it's where the State is headed.
Visit www.ftb.ca.gov for information.
Educator Expenses
The IRS continues to allow you teachers a maximum deduction of $250 for expenses you incur at school -
don't forget them!
2012 Mileage Rates
The IRS announced mileage rates for 2012
Business miles are deductible at 55.5 cents per mile
Medical and moving miles are 23 cents,
Charitable miles are 14 cents
Two Deductions that May Go Away
Remember, subject to certain exceptions, you can still deduct sales tax (rather than but not in addition to state income tax) and you can still deduct mortgage insurance premiums (provided you meet certain income levels). These deductions go away at December 31, 2011.
Education Credits
The IRS continues to allow - subject to income limits - deductions or credits for tuition, fees and materials you or your college student may pay during the year. Both the American Opportunity Tax Credit and the
Lifetime Learning Credit may be available -
be sure to let us know about tuition you pay.
Understanding the Real Estate Tax Deduction
Did you know that not all real estate taxes are deductible?
Real estate tax is an allowable itemized deduction for both federal and state income tax. California conforms to federal law regarding real estate tax deductions.
Generally, only the amount of tax based on the assessed value of your property is deductible. These amounts are commonly referred to as ad valorem or general tax levy on property tax bills. For most counties, the deducible amount is identified on property tax bills as the assessed value multiplied by an associated tax rate percentage.
Many property tax bills also include non-ad valorem special assessments, special taxes, Mello-Roos levies, direct levies, fees and charges that are nondeductible. For most counties, these amounts are identified on the tax bills as amounts that do not include a tax rate percentage. These fees are NOT DEDUCTIBLE.
Your W-2s May Look Different This Year...
The Internal Revenue Service has added code "DD" to Box 12 for the 2011 Form W-2 to report the cost of employer sponsored health coverage.
Many of you request that we provide copies of tax returns we file for you to banks, loan brokers or other financial organizations. Please note that, due to Federal privacy guidelines, we are not allowed to provide information to 3rd parties without a formal authorization with AN ORIGINAL signature. Therefore, we usually honor your requests by providing the tax return copies to you directly so that you can forward the information on to the 3rd party. Note also that we do not charge a fee for providing electronic copies of your tax returns, but it often takes at least one business day before you will receive a link to a secure portal which will provide you with the information you have requested.
Schedule D Has Changed
Many of you who plunge into the stock market know about Schedule D - the capital gains and losses schedule.
The IRS has made major format changes to the schedule and we'll need detail regarding all of your stock and investment sales AND the cost basis of those sold securities AND whether you received a 1099 listing that information.
Brokers can provide us with the information directly -
check with them about whether they offer you that service.
The Social Security (FICA) wage base
The Social Security Administration has announced the first increase in the FICA wage base since 2009.
For 2012, the wage base is $110,100 - that means that your employer will withhold 6.2% of your wages on the first $110,100 in wages you earn in 2012.
Some Quick IRS Audit Stats
In 2009, 142.8 million tax returns were filed
About 1.6 million - or 1.1% were audited
About 78.3% of those that were audited were only audited by correspondence - the balance were field or office examinations.
If your income was between $100k and $200k, you had a .71% chance of being audited
If your income was between $200k and $500k, you had a 1.92% chance of audit, and
If you had income between $1 million and $5 million, you had a 6.67% chance of audit.
The IRS assessed 27.1 million penalties, over half of which were failure to pay the entire amount when due.
Foreign Bank Accounts
Remember, US taxpayers are required to report their worldwide income, that is, income from both US and foreign sources. In addition, taxpayers who have an interest in, or signature or other authority over, a financial account in a foreign country - such as a bank account, securities account or other financial account - are required to file
Form TD F 90-22.1 Report of Foreign Bank and Financial Account (and it's so easy to remember! We just call it the FBAR) if the aggregate value of all such financial accounts exceeds $10,000 at any time during the calendar year.
The FBAR is not filed with your tax return. Instead, it is filed with the Department of Treasury in Detroit, MI no later than June 30th of the year following the calendar year reported.
If you have foreign bank accounts and are unsure whether you are required to file the FBAR, we would be happy to review your portfolio and advise you.
Use (Sales) Tax Paid on California Returns
If you have purchased goods from an online source (like Amazon) and the vendor has not charged California sales tax, then you are required by law to pay that tax to California. This is nothing new - it has been the law for quite some time. One way to pay the tax owed is to pay it on your 2011 tax return. Many of us realize we bought things - we didn't keep track of what we bought and so don't know what to pay to California for the sales/use tax bill. Now, California has developed a "Safe Harbor" amount located on a table based on Adjusted Gross Income as long as the tax is paid on your individual tax return AND you do not have any single purchases of more than $1,000. As an example, if your income is between $100,000 and $149,999, the tax you might pay is $88.
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