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Tax Tips Newsletter
Serving you since 1993
December 2010 - Vol 5, Issue 11
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Greetings!
Simon Santa

I hope that you are having a lovely holiday season. As you can tell from Simon's smiling face in his Santa hat, he's having a great time!

I want to take a minute to express my gratitute to my clients and staff.

To my clients, I am so grateful for your continued business. I think that I have the best clients in the world. You are each very special to me and my staff. I appreciate your confidence in me and appreciate your referrals.

To my staff, you are irreplaceable. You are talented, competent, intelligent and very, very fun. It is a pleasure coming to work and seeing you everyday. I think we are an incredible team.

Our tax organizers for individual will be mailed at the beginning of January. If you would like to have your organizer delivered electronically, please call or e-mail me and let me know BEFORE December 15, 2010. The electronic organizer is only a PDF file. It is not a fill-in form. You will have to print it out and fill it in.

I have added a couple of additional articles for this month. One is a short article about the tax bill compromise that is currently on the table. There are a couple of provisions that may affect you starting January 1, 2010.

The other is a short potpourri of tax nuggets that may affect you in 2010. Please take a few minutes to look them both over.

Checklist
No matter how crowded your calendar is this month, be sure to make time to consider some tax-saving possibilities.

* Check your 2010 tax payments, and if you haven't met the minimum requirement, increase your withholding before year-end to eliminate or reduce underpayment penalties.

* Consider converting your traditional IRA to a Roth before year-end. You can elect to pay the tax over two years' tax returns, 2011 and 2012, or pay in full on your 2010 return.

* Buy needed equipment for your business before year-end to utilize the first-year expensing option of up to $500,000. Bonus depreciation of 50% of the cost of equipment is also available for 2010 purchases. Expensing applies to both new and used items; bonus depreciation can only be taken on new equipment.

* Use your credit card to pay tax-deductible expenses by December 31 if you're short of cash. You can deduct the expenses on your 2010 tax return even though you pay the credit card bill in 2011.

* Review your investment portfolio to decide whether youshould sell some losers to offset gains already taken or vice versa. Any excess loss can offset up to $3,000 of ordinary income.

* Make energy-saving improvements to your home that will qualify you for a tax credit of up to $1,500.

Contact me for details on any of these suggestions or to discuss the tax-cutting options best suited to your situation
Coins on blue background
Starting in 2011, new reporting rules could make it easier for you to report the tax consequences of selling a stock. Thanks to a 2008 law, responsibility for establishing your "basis" is being shifted to brokers and other financial institutions. But don't discard your records just yet; the new rules are being phased in gradually and don't apply to any securities acquired before 2011.

Form 1099-B (Proceeds from Broker and Barter Exchange Transactions) will be expanded to include the cost or other basis of stock sold during 2011. The form must also report whether the gain or loss on the stock sale is short-term or long-term. The expanded Form 1099-B will be used to report calendar-year 2011 sales and must be filed with the IRS and furnished to investors in early 2012.

The new reporting rules were passed by Congress not only to make it easier for investors to calculate capital gains taxes, but also to make it harder for investors to underreport capital gains.

For details or assistance with the new reporting rules, contact my office.
Happy Businessman
Basically, all of the Bush tax cuts stay in place for 2 more years. In addition, there are some additional provisions to sweeten the pot.

For employers and the self-employed, the Social Security tax rate for 2010 will be reduced by 2%. That means that the rate goes down from 6.2% to 4.2%. This is a really nice tax break for just about anyone who works or has a business.

Business will now be able to expense ALL new investments in capital goods. These are the same things that would be subject to the Sec. 179 tax breaks. Equipment, furniture and other fixed assets.

Estates that are over $5 million will be subject to an estate tax, but at a top rate of 35%.

Of course, all of these have not been passed yet so don't get too excited. Stay tuned for future newsletters for the status of these provisions.
Gingerbread Houses
The Tax Tip of the Week talks about the RMD's (required minimum distributions) for certain retirement accounts. Read this if you're 70 1/2 or older. You got a break in 2009 because you were not required to take a distribution, but that is not true in 2010. You must take your distribution by December 31,2010 if you qualify.

The Business Tip of the Month gives suggestions to business owners in how to control their costs. In any business climate, being vigilant in controlling your costs can determine the success of your business.

The Financial Tip of the Month talks about TIPS (Treasury inflation-protected securities). Check out if this investment avenue is for you.

The Fraud Alert. Tis the season for joy and giving but it's also the season for thieves who are hard at work finding new ways to steal from you. Here are some cautionary tips if you are shopping on line or in the mall.
Tax Coffer
If you own rental property, you will now have to issue 1099s to your vendors. Please make sure you read the following and also refer to my August 2010 newsletter.

For business owners and landlords, beginning January 1, 2010 you will have to issue 1099s to ALL vendors, unless you paid for the service or product with a credit card. Make sure you have a completed W-9 form for ALL vendors. My suggestion is that you do not issue a check to a vendor without having a completed W-9 on file. Now is the time to get those signed forms.

In addition, if you are using Quickbooks for your bookkeeping, you can set it up to keep track of these payment so you can easily issue 1099s. However, you MUST set up this feature before January 1, 2010 in order for Quickbooks to accumulate the costs correctly. Please contact me for assistance in setting this feature up.

As of January 1, 2010, you can no longer use Form 8109 to pay Federal taxes at the bank. (This is for businesses only). You must pay them through the Federal EFTPS site. Please refer to my June 2010 newsletter for more information.

The IRS has stated that they are going to be asking for copies of Quickbooks files as part of their audit procedures for businesses. If you use Quickbooks, I would recommend that you review your Quickbooks general ledger and make sure that the descriptions in your memo fields match the accounts that they are coded to.

This time of the year would be a good time to begin to organize your income and expenses. As you are doing that, please look for the following:
1. Look for purchases that are subject to use tax. Make a list of those items so that the use tax can either be filed directly with the State Board of Equalization or reported on your personal tax return.
2. If you earned money from both W-2s and 1099s, you should divide your expenses so that your W-2 related expenses and 1099-related expenses are separated. You will still need to give me a list of each by expense category.
3. If you worked in more than one state, you will have to separate your expenses by state also.

For more information on any of these points, please contact me.

Photos © Bigstockphotos.com, istockphoto.com, Felix Orona

Sincerely,
Linda Heineman
Linda L. Heineman, CPA

phone: 626-577-0979
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