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Tax Tips Newsletter
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January 2011 - Vol 6, Issue 1
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Greetings!
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Happy New Year! I hope that 2011 will be a healthy, happy and prosperous year.

I apologize in advance, but I do want to remind you of a couple of things. I know you may be tired of hearing about these, but I feel it's important to remind you.

First of all, please do not send me any personal information for anyone by e-mail. E-mail is not safe or secure. If you must send personal information, please fax it or ask me or my staff to send you a secure link to upload it. I have established an account with Yousendit.com especially for this purpose.

The rules for issuing 1099s have changed beginning in 2011. Make sure you get a signed W9 form for all vendors BEFORE issuing them a check. The only payments that are currently exempt are charges made on credit cards. The penalties have been increased for 1099 filing so this is no joke.

In addition, if you are a landlord, you are subject to 1099 rules. My office has sent you a letter regarding this and you should be receiving it shortly.

Finally, please review the article on foreign accounts. You may realize that you do have an interest in a foreign account after all. I do need you to let me know about these so that I can properly report this to the IRS. There is a question in your organizer regarding foreign accounts, so please be aware of it.

I look forward to serving you this tax season!

Tax Coffer
After weeks of wrangling over the details, Congress passed a bill that will extend the tax rates in effect in 2010 for another two years, through December 31, 2012.

President Obama signed the "2010 Tax Relief Act" into law on December 17, 2010.

Here's an overview of the key provisions in the law.

* TAX RATES. The existing tax rates established in the 2001 and 2003 tax laws will continue for all taxpayers through 2012. This means the top tax rate for 2011 and 2012 will remain at 35% instead of reverting to 39.6%.

* CAPITAL GAINS AND DIVIDENDS. The top rate for dividends and long-term capital gains will remain at 15%. A 0% rate applies to taxpayers in the two lowest ordinary income brackets.

* ITEMIZED DEDUCTIONS AND PERSONAL EXEMPTIONS. Higher-income taxpayers will not have their itemized deductions limited and their personal exemptions phased out.

* EDUCATION TAX BREAKS. The law extends through 2012 the American Opportunity Tax Credit, the income exclusion for up to $5,250 of employer-provided education assistance to employees, and the education savings account contribution limit of $2,000.

* ALTERNATIVE MINIMUM TAX (AMT). The AMT was given another "patch" for 2010 and 2011, a move that will keep the tax from hitting millions more taxpayers. For 2010, the exemption amount is $47,450 for individuals and $72,450 for married couples filing joint returns.

* PAYROLL TAX CUT. For 2011, the employee rate for social security tax is cut from 6.2% to 4.2% on wages up to $106,800. Self-employed individuals will pay 10.4% on self-employment income up to $106,800. Employers will continue to pay 6.2% on employee wages. This payroll tax rate cut does not affect the Medicare portion of payroll taxes for either employees or employers.

* EXTENDERS. Effective for 2010 and 2011 returns, taxpayers have the option of deducting state and local sales taxes instead of state and local income taxes. The deduction for up to $4,000 of higher education expenses and the deduction for teachers who buy classroom supplies are extended. Those aged 70½ or older may again contribute up to $100,000 tax-free from an IRA to charity.

* BUSINESS PROVISIONS. The law extends the research tax credit for 2010 and 2011, and it extends the work opportunity tax credit through 2011. Bonus depreciation is increased from 50% to 100% for qualified business purchases made from September 9, 2010, through December 31, 2011. 50% bonus depreciation will be available in 2012.

ESTATE TAX. The law restores the estate tax retroactive to January 1, 2010, and continues it through December 31, 2012. It establishes a top rate of 35% and an exclusion amount of $5 million ($10 million for married couples). Estates of persons who died in 2010 have the option of applying the estate tax and receiving a step-up in basis on property passing to heirs or having no estate tax but using a carryover of the decedent's basis in property.
1040 with pen and calculator
Here's a quick update on recent IRS activities that might affect you.

* 2011 MILEAGE RATES RELEASED. The IRS has released adjustments to the mileage rates that can be used for business driving, charitable driving, or driving for medical or moving purposes. Effective January 1, 2011, the standard mileage rates for the use of a car, van, pickup, or panel truck will be 51 cents per mile for business miles, 19 cents for medical or moving purposes, and 14 cents for charitable driving.

* NEW LAW DELAYS RETURN FILING. If you itemize deductions or claim any of three restored deductions (for state and local sales tax, higher education tuition, or educator expenses), you must wait until mid to late February to file your 2010 tax return. The IRS must reprogram its computers to handle the changes made to these items by the "2010 Tax Relief Act" passed in late December.

* IRS CHANGES FILING DEADLINE. This year the deadline for filing various tax returns normally due on April 15 is being changed to April 18, 2011. The reason? Washington, D.C. is observing its Emancipation Day holiday on April 15, and though that's not a national holiday, the Treasury Department has extended Tax Day 2011 to Monday, April 18. The new deadline applies to individual and partnership tax returns, extension requests, and other tax deadlines such as making 2010 IRA and education savings account contributions, and making the first 2011 estimated tax payment.
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U.S. citizens and residents (including individuals, corporations, partnerships, trusts and estates) who have a financial interest in or signature or other authority over any financial accounts in a foreign country are required to make a separate filing if the aggregate value of these accounts exceeded $10,000 at any time during 2010. Filing requirements also apply to those with direct or indirect control over a foreign or domestic entity with foreign financial accounts, even if the taxpayer does not have foreign financial accounts of its own. Foreign financial accounts include a wide variety of items, such as: - Bank Accounts - Securities - Mutual Funds - Credit Cards - Retirement Plans - Life Insurance

Because both persons with a financial interest and persons with signature authority are required to submit filings, a single account can require multiple filings. For example, a corporate-owned foreign account would require filings by the corporation *and* by the individual corporate officers with signature authority. Unfortunately, the rules do not permit one person to submit a filing on behalf of others.

These filings must be made by June 30, and the time for filing is *not*extended by a tax return extension. There are severe civil and criminal penalties for non-compliance of these filing requirements. Even an inadvertent failure or incomplete filing can result in a $10,000 civil penalty, and the IRS has announced that it intends to enforce these penalties.

I am able to assist you in the preparation of these foreign account filings if you request. These services are beyond the scope of normal tax return preparation and will result in an additional fee. If you would like me to prepare these filings, or if you have questions concerning your filing obligations, you should answer "yes" to the question on the organizer and provide me with all requested information.
The Tax Tip of the Week talks about your ability to still make charitable contributions from your IRA..

The Business Tip of the Month gives the business owner some tips on how to survive in this recession. There are businesses who can thrive in tough economic times. Check out these helpful ideas.

The Financial Tip of the Month gives you some ideas on how to prepare an inventory of our personal possessions. This is always important to have for your insurance company and the IRS should your possessions be destroyed or lost in a disaster.

The Fraud Alert. ATM fraud is on the rise so read up on some tips to protect yourself from being robbed at the ATM.

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

Sincerely,
Linda Heineman
Linda L. Heineman, CPA

phone: 626-577-0979