WINTER 2011-2012 UPDATE

2011 YEAR-END TAX LETTER

 

 

NEW LEGISLATION

2011 has been a rather unusual year from the perspective of tax legislation – other than repealing certain tax provisions passed in 2010, there simply has been very little tax legislation passed by Congress at the time this letter was drafted. One piece of legislation which appears to have a chance of passing before the end of the year would be a continuation of the so-called payroll tax cuts. This has been kicked around in Congress for the last several weeks, and we should know the outcome soon.

There are, however, many pieces of favorable tax legislation expiring over the next 24 months. Among those will be the $1,000 per child credit; the American Opportunity Education credit; the elimination of the 15% income tax bracket; elimination of qualified dividends being taxed at capital gains rates; long term capital gains will revert to their previous pre-2001 tax rates; more than 60 different Internal Revenue Service code sections have changed or will change during the next 24 months due to sunset provisions in the existing tax law.

 

CHECK OUT OUR NEW WEBSITE

Our new website is tentatively scheduled to launch early in 2012. Please check out the website for general information, updated tax legislation and general administrative information such as directions to our office. The web page address is www.bblankcpa.com.

 

E-FILE REQUIRED FOR 2011 RETURNS (ACT 17 I.R.C 6100(e))

We are required by the federal government and the states of Kentucky and Ohio to e-file all individual income tax returns which we prepare. For clients living in other states, each of those states has requirements which we will address on a state by state basis. 

 

ROTH CONVERSIONS

Taxpayers who converted their traditional IRA to a Roth IRA in tax year 2010, and took advantage of the (now expired) provision in the 2010 law to postpone paying tax on this conversion until 2011 and 2012, should be sure to note this on your tax organizer. If you have utilized this provision, 50% of the total conversion must be reported as income in 2011 and 50% in 2012.    

 

 

IS SOCIAL SECURITY DECISIONS IN YOUR NEAR FUTURE?

With the baby boomer's quickly approaching retirement age, this year we had several requests to meet with clients and review their Social Security decisions.  From feedback we have received, our planning conferences have been extremely well received by our clients; we wish to let all clients approaching retirement age know that we are available to help you. You will be making some very important decisions, many of which will remain with you the rest of your life so make sure you do your homework. We would be more than happy to work with you in obtaining the proper goals for your golden years. We can also assist you in determining which Medicare plan best suits your needs - a monumental decision which you generally can make each and every year.

 

DO YOU DRIVE YOUR PRIVATE VEHICLE FOR WORK?

The IRS published rate for the business use of your personal vehicle for 2012 is 55 1/2 cents per business mile. 

 When individuals utilize their private vehicles for unreimbursed business use, they may choose between the standard mileage rate and the actual expense rate method. Most individuals choosing the actual expense method are aware that when they dispose of their vehicle, other than trading it in, the disposal may be subject to depreciation recapture. Taxpayers utilizing the standard mileage rate are subject to the same depreciation recapture based upon published IRS rates.

 Please notify us if you remove from “service” any owned vehicle used in business during prior years. This is the only way we can compute this recapture.  Be sure to keep business records to track your 2011 total business miles. In addition to business miles, please track and list for us on your organizer, your 2011 commute and personal mileage.

 

 

FIRST-TIME HOME BUYERS CREDIT REPAYMENT

As a reminder, to those who took advantage of the $7,500 repayable first-time home buyer credit, this year you are required to repay $500 of that credit. Please be sure to indicate this on your income tax organizer, if it applies to you.  

 

RESIDENTIAL ENERGY CREDIT

The federal residential energy credit for individuals has been extended under IRS Code Section 25 but it is greatly curtailed when compared to the previous legislation. Taxpayers may be entitled to a tax credit up to $500. There are limits on “categories” within the $500 threshold, so please detail for us the expense category, i.e. windows, insulation, etc.

The federal geothermal and the Kentucky energy credits continue to remain available for 2011 income tax returns.

 

EARNED INCOME CREDIT EXPANSION (EIC)

In 2009, Congress expanded this credit for certain low income individuals. But with this expansion, more red tape and requirements are put upon us, the preparer. We must now question EIC recipients and record their comments in written form. They must sign our questionnaire - and the IRS may review it.  Our questions may seem like an intrusion of client privacy; but by not doing so to the satisfaction of the government, we are subject to significant penalties and EIC recipients may lose the credit.

 

KIDDE TAX

In the past, certain taxpayers placed significant amounts of investment income in their children's names and Social Security numbers so that the investment income would be taxed at the children's lower tax rate. In response, congress reacted and created what is known as a Kiddie Tax. Quite simply the Kiddie tax is an alternative tax computation which taxes a child with investment income at the parents higher marginal rate. This higher tax is imposed only on investment income generated by your child in excess of $900 - not W-2 or earned income generated by your child. This kiddie tax remains in effect until your child reaches the age where he or she can no longer be taken as your dependent (generally 18 or 24 years of age, depending on circumstances).

 

 

ALTERNATIVE MINIMUM TAX (AMT) Code Sec 55

The Internal Revenue Service code provides favorable treatment for certain types of income, deductions and credits that can significantly reduce taxpayers regular tax liability. Years ago, this caused congress to enact the AMT.  Congress, by enacting this legislation, thought it would be a sure way to ensure that both corporate and non-corporate taxpayers pay at least some tax. In spite of this, you still read or hear on news broadcasts that some taxpayers are paying little or zero tax.

               

Currently, the impact of the AMT on individual taxpayers can be quite significant. Introduced into the IRS code over 25 years ago, many of the  computation thresholds of  AMT have not been adjusted, or been minimally adjusted  for cost-of-living increases over the years. As a result more and more taxpayers find themselves in the AMT trap.  For 2011 married taxpayers making over $72,450 and single taxpayers making over $47,450 need to be concerned with the alternative minimum tax. Those figures represent the exemption amount which automatically exempt you from the AMT.

 

 

SOCIAL MEDICARE/MEDICARE ISSUES

We feel certain it is not news to any taxpayer who receives Social Security benefits, that treasury will increase these benefits by 3.6% effective January 1, 2012.  But others, particularly caretakers, please be aware of this increase.

 

We have received numerous calls about premium increases for Medicare part B and part D, effective January 1, 2012. Unfortunately, this is correct and part of tax legislation passed several years ago; this provision has a potentially progressive effect upon your Medicare premiums; as your income increases, your premium may also increase.

 

CHARITABLE DONATION DOCUMENTATION

For years, we have been recommending that clients document each non-cash item donated to charity utilizing values listed by Goodwill Industries web site at www.Cincinnati goodwill.org/shop/FairMarketValueSheet.pdf. We further suggested taking digital photos of the items and absolutely obtaining a receipt from the charity. Well, it now appears from recent IRS action, that this is simply not enough. We now recommend that you obtain a signed receipt from the charity.

You prepare the receipt, list the items and the condition and require the charity to sign the receipt when you deliver the items or when they pick them up. We have a form that we feel will adequately document such donations. Ask for it when you are in our office.

 

 

LIMITED LIABILITY COMPANY INFORMATION (LLC's)

Several clients phoned us last summer because they received penalty notices from Kentucky because they did not file a LLC return. In each case, the client created a LLC and failed to notify us since their LLC had no activity, never got off the ground or otherwise was considered “dead,” so not having any knowledge of the LLC, no return was filed.

 

For Kentucky LLC's, regardless of activity, a return and  minimum tax of $175 is required even if it was dissolved January 1^st of the involved tax year. Please make us aware of any new limited liability you create so that we may assist you in steering clear of any future tax penalties.

 

Companies (including LLC's), with Ohio gross taxable sales exceeding $150,000 are also subject to a special additional tax known as the Comprehensive Activity Tax (CAT).  Ohio companies subject to the CAT tax must register with the Ohio Business Gateway; failure to do so may result in a penalty of $100 a month up to a maximum of $1000. Ohio has no special forms to file for single-member limited liability companies.

 

If you have created any new company(s), regardless of its status, please let us know so we can advise you on its requirements. 

 

General Information

APPOINTMENTS

No appointment is necessary to drop off your tax information.

Appointments will be scheduled once your return is completed – we will contact you. We encourage clients who want an early appointment date to submit their information to us as early as possible. Phone calls to us to check on the status of your return, after your information is dropped off, significantly slows us down - when your return is ready and/or if we need additional information or clarification, we will call you. Drop offs may be made in a secure slot located in our front door (which comes securely into our office).

 

We ask that all tax information be in our office by March 15^th to provide us processing time for the last minute rush. Also if you are planning an April vacation spanning over the 15^th due date, please let us know this when you drop your information off.

RETURN PICK UP

It has been a long-held office practice to personally meet with as many clients as possible and review your return with you, making financial recommendations to you when appropriate. We feel this is an important courtesy to you our clients, and believe this distinguishes us from other accounting firms where such meeting quite possibly may not occur.

 

With this in mind, it is becoming more and more difficult to balance time between return preparation and client meetings while achieving quick return turn-around. Clearly, such meetings take away from our valuable preparation time and results in slower turnaround, but we, and most clients continue to believe it is well worth it.  Conversely, we have heard some unfavorable comments about turnaround time, but we hope the tradeoff of a personal meeting with you outweigh the processing slowdown. We solicit your comments and feelings concerning this issue.   

 

As the April 15th deadline approaches, we must forgo client meetings and go into exclusive return preparation to meet the April 15th deadline. Because of this, we will likely be unable to personally meet with April filers.  If this occurs, and you want a meeting we will be available for a meeting with you to review your return and answer your tax questions pertaining to your return during the first two weeks after April 18^th. This courtesy meeting will be available at no cost to those clients we are unable to meet with during busy season.

 

TAX ORGANIZER

Tax organizers will be e-mailed to clients with current e-mail addresses on file or mailed to those clients without e-mail capabilities, but use the organizer.  If you have not received an organizer this year and desire to use it, please call our office or send a request to mail@bblankcp.com.

 

OTHER INFORMATION

We will begin filing returns on January 17^th. Information may be provided to us via drop-off delivery, mail, fax, or e-mail. If you fax or e-mail information, remember we will need an original copy of any document on which federal or state tax is withheld.

 

HOURS OF OPERATION

Our office will generally be open between 8:30 a.m. and 5:00 p.m. Monday - Saturday with hours outside this timeframe reserved for client appointments or reserved for return processing.