Special Tax Tips

LATE 2011 Tax Legislation Highlights

Tax rates are the same as 2009 and earlier years.

Child tax credit is the same-$1,000 for each child.

Capital gain's and dividend's reduced tax rates are extended for 2 more years (through the end of 2012).

Teacher's still get their non-itemized maximum $250.00 deduction.

Sales tax deductions-state and local- are extended for 2011.

Student loan interest payments are still deductible, subject to income limits.

Personal home energy credits are reduced, but available.

Alternative Minimum Tax relief is extended.

Higher education deductions and the HOPE credit renamed, are still around.

Tax free distributions from IRA's to charities are renewed.

The IRA higher contribution limits are still available. IRA's and DCB's can be funded up to April 17, 2012.

Tax News

2011-2012 TAX LAW CHANGES


These are tax law changes to take into consideration as you prepare your tax info for us. It will speed things along and make for a smoother tax preparation experience for you. Our records keeping emails start Tuesday morning.

Here are the changes that most likely will affect your returns this year:

Due date of personal and trust tax returns. File your federal tax return by April 17, 2012. The due date is April 17, instead of April 15, because April 15 is a Sunday and April 16 is the Emancipation Day holiday in the District of Columbia.

Due date for most business returns. The deadline for partnerships and corporations is March 15. 2012.

New forms. In most cases, you must report your capital gains and losses on the new Form 8949, Sales and Other Dispositions of Capital Assets. Then, you report certain totals from that form on Schedule D (Form 1040). If you had foreign financial assets in 2011, you may have to file the new Form 8938, Statement of Foreign Financial Assets, with your return.

Standard mileage rates. (The year is split in half again, so please give us your total miles and your business, medical or charitable portions in two halves: 1/1 to 6/30 and 7/1 thru 12/31).  The 2011 rates for mileage are different for January 1 through June 30 than for July 1 through December 31. For business use of your car, you can deduct 51 cents a mile for miles driven the first half of the year and 55 ½ cents for the second half. Medical and moving mileage are both 19 cents per mile for the early half of the year and 23 ½ cents in the latter half.

Self-employed health insurance deduction. This deduction is no longer allowed on Schedule SE (Form 1040), but you can still take it on Form 1040.

Health savings accounts (HSAs) and Archer MSAs. The additional tax on distributions from HSAs and Archer MSAs not used for qualified medical expenses increased to 20 percent. Beginning in 2011, only prescribed drugs or insulin are qualified medical expenses.

Roth IRAs. If you converted or rolled over an amount from a traditional IRA to a Roth IRA or designated Roth in 2010 and did not elect to report the taxable amount on your 2010 return, you generally must report half of it on your 2011 return and the rest on your 2012 return.

Alternative motor vehicle credit. You can claim the alternative motor vehicle credit for a 2011 purchase only if the vehicle is a new fuel cell motor vehicle.

First-time homebuyer credit. The credit expired for most taxpayers for 2011. Some military personnel and members of the intelligence community can still claim the credit in 2011 for qualified purchases.

Health coverage tax credit. Recent legislation changed the amount of this credit, which pays qualified health insurance premiums for eligible individuals and their families. Participants who received the 65 percent tax credit in any month from March to December 2011 may claim an additional 7.5 percent retroactive credit when they file their 2011 tax return.

Educator expense deductions. Educators of K through 12 can still get their $250.00 1040 deduction with proper records that meet the list of expenses that qualify.

Hope this helps some folks. Call us if your eyes are crossed. Thanks.

Ron Fetzer, EA

2011 Employee Business Expenses



Employee business expenses are those that you are not reimbursed for by your employer and/or those that are only partially reimbursed, such as bu means of an auto allowance. They may include expenses from a cell phone to a business meal in New York to a rented auto in Chicago to an office in your home or a computer, books, 8 track tapes (some humor) or any number of deductions that are deemed "ordinary and necessary" in the tax code.

This phrase is important to preparers. An expense is ordinary if it is common and accepted in your trade, business, or profession. An expense is necessary if it is appropriate and helpful to your business. An expense does not have to be required in order to be necessary.

Here are some items that may qualify as unreimbursed employee expenses.
  • Business bad debt of an employee.
  • Business liability insurance premiums. You can deduct insurance premiums you paid for protection against personal liability for wrongful acts on the job.
  • Damages paid to a former employer for breach of an employment contract.
  • Dues to a chamber of commerce if membership helps you do your job.
  • Dues to professional societies.
  • Educator expenses. (If a K through 12 teacher, you may take up to $250.00 in 2011 as an adjustment to income).
  • Home office or part of your home used regularly and exclusively in your work. (See note below).
  • Job search expenses in your present occupation.
  • Laboratory breakage fees.
  • Licenses and regulatory fees. This may also include fingerprinting costs.
  • Malpractice insurance premiums.
  • Medical examinations required by an employer.
  • Occupational taxes.
  • Passport for a business trip.
  • Research expenses of a college professor.
  • Rural mail carriers’ vehicle expenses.
  • Subscriptions to professional journals and trade magazines related to your work.
  • Tools and supplies used in your work.
  • Travel, transportation, meals, entertainment, and gifts.
  • Union dues and expenses.


SOME GUIDANCE ON SOME OF THESE EXPENSES

Cell Phones: For tax years beginning after 2009, cellular telephones and similar telecommunications equipment have been removed from the definition of listed property. Beginning in 2010, you may be able to deduct job-related expenses related to using a cell phone even though the use was not for the convenience of your employer and required as a condition of your employment.

Depreciation on Computers: You can claim a depreciation deduction for a computer that you use in your work as an employee if its use is:
  • For the convenience of your employer, and
  • Required as a condition of your employment.

You must keep records to prove your percentage of business and investment use.

Required as a condition of your employment. This means that you cannot properly perform your duties without, for example, the computer. Whether you can properly perform your duties without it depends on all the facts and circumstances.  It is not necessary that your employer explicitly require you to use your computer. But neither is it enough that your employer merely states that your use of the item is a condition of your employment.

Home Office Rules:

If you use a part of your home regularly and exclusively for business purposes, you may be able to deduct a part of the operating expenses and depreciation of your home. You can claim this deduction for the business use of a part of your home only if you use that part of your home regularly and exclusively:

1. As your principal place of business for any trade or business,

2. As a place to meet or deal with your patients, clients, or customers in the normal course of your trade or business,

3. In the case of a separate structure not attached to your home, in connection with your trade or business.

The regular and exclusive business use must be for convenience of your employer and not just helpful in your job. Regular usage means just that - often, not seldom. Exclusive means that this is an area that any reasonable person could conclude is a place for doing business. It is not a part-personal area. It is an ALL business part of your home. It may include exclusive business storage areas such as closets, basements or attics.

Principal place of business. If you have more than one place of business, the business part of your home is your principal place of business if:
  • You use it regularly and exclusively for administrative or management activities of your trade or business, and
  • You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Otherwise, the location of your principal place of business generally depends on the relative importance of the activities performed at each location and the time spent at each location.

Record Keeping Tips:

You should keep records that will give the information needed to figure the deduction according to these rules, such as bills and invoices from others to you. Also keep canceled checks, substitute checks, or account statements and cash and credit card receipts of the expenses paid to prove the deductions you claim. The home office and the computer expense deductions require an extra effort to sustain them in an audit. An annual letter from your employer stating the business reasons, necessity and job continuance requirements will help. It is strongly suggested that you consider keeping written records of your business/investment usage that clearly shows personal versus business use of the computer and reflects hours of usage of your home office area. I recommend that you record your home office and related storage areas with photgraphs (in any format) stored away from loss due to hazards. A copy of your apartment or home floor plan with square footage dimensions is also an absolute.

Record Keeping For Itemizers



The Schedule A itemized deductions consist of medical, state and local tax, interest, charitable contributions, casualty loss and miscellaneous expenses. These deductions, when taken, must be substantiated by proofs of payment, invoices and other documents needed if and when you are asked to prove them to a tax authority.

First, a word about document storage and how long to keep them. The IRS has three years from the date you file a return, or its due date, whichever is later. Many states, such as Arizona, have four years. So, keep your expense and deduction proofs for four years from the due date of that tax year's return. For example, this April 17, I will file my personal returns. Four years later , to the day, I may destroy many of them. I recommend shredding and burning (legally, of course) any related tax documents. As far as where you keep these documents, any form of storage that will make them available upon demand will work. As for me, nothing beats real paper. You HAVE to have it for your audit. Computers and their related storage media go bad often. One electromagnetic solar storm can erase a hard drive while you sleep (Well, maybe once every 5,000 years).

Now, what does it take to get medical expenses to stay on your return if audited (if you reside in Arizona, this is especially important as you can deduct ALL of these costs if itemizing)? Insurance policy's (other than medicare), canceled checks, printouts from pharmacies of your Rx payments, the same if from doctor's and dentists. Hospital bills, insurance notices as to your share to be paid, ambulance bills and any other type document that proves that you have a medical expense and that you paid it during 2011. Medical mileage will stay if you kept a log of your trips to druggists, etc. that will show the amount of miles for each visit/trip. To this amount, add parking and tolls. (Gas/oil receipts are okay, but how do you prove the medical part of those costs? Same way, a log.

The interest expense is usually a mortgage on a home and/or a second home. The documents needed are the lender issued 1098's. By the way, the IRS get these too and they are in your tax earnings reports they keep. But, you still have to have them!

Taxes such as income tax withheld are on your W-2's, etc. If deducting estimated taxes, you must have proof that you paid them. This goes for any type of tax except the sales tax deduction. A bill or invoice is also required in most cases, for registration, property tax and real estate tax. If your 1098 shows your realty tax amount paid in escrow, then that is all you need for the one. The sales tax deduction is based upon a table unless you total up all of your receipts for the year not deducted elsewhere. Keep those receipts if you go there.

Casualty losses and Miscellaneous deductions will be dealt with by private interview only. The charitable donations rules are so complex now that I will only sort this out as I prepare your returns. Keep your records for four years.

What is new for 2011, or sort of new?

Medicines must be prescribed - no more over the counter. Vitamins have never been allowed. Medical appliances must have an Rx and a doctor's letter.

Medical expenses for dependents or someone who would be a dependent except that their gross income is $3,700 or more are deductible.

Only the ad valorem tax part of registration can be deducted. The emissions test and the fee for vehicle weight is not.

Do not pay the taxes for someone else and expect to write them off. You must owe the taxes you pay for and deduct.

Sales tax: The homeowners' repairs and maintenance tax addition is gone. Improvements and renovations with sales tax proofs are still okay, but subject to some really tight rules and qualifiers. Vehicles, boats, airplanes still can have sales tax paid added subject to local tax rate limits. Must have the proofs.

Mortgage Insurance Premiums connected to a home can be deducted for 2011 IF issued after 12/31/2006. See me on this one. the rules are tight.

One miscellaneous deduction tip: Any proven cost connected to the payment of or the determination of income taxes is going to be allowed.



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