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Tax Changes for 2011
Whether you file as an individual, a corporation, a small business owner, or are self-employed, as the end of the year draws near, you're probably thinking ahead to tax season and filing your taxes.
Most tax provisions of course, remain the same (IRA contribution limits for example), but a few such as personal exemptions have been adjusted for inflation and others have been extended due to legislation and are set to expire at the end of 2012.
From tax credits, exemptions and deductions for individuals and Section 179 expensing for small businesses, here's what you need to know about tax changes for 2011.
From personal deductions to tax credits and educational expenses, many of the tax changes relating to individuals remain in effect through 2012 and are the result of tax provisions that were either modified or extended by the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 that became law on December 17, 2010.
The additional standard deduction for blind people and senior citizens is $1,150 for married individuals, up $50, and $1,450 for singles and heads of household, also up $50.
Income Tax Rates
Estate and Gift Taxes
Alternative Minimum Tax (AMT)
Marriage Penalty Relief
Pease and PEP (Personal Exemption Phaseout)
Flexible Spending Accounts (FSA)
Under the new standard, the cost of an over-the-counter medicine or drug cannot be reimbursed from the account unless a prescription is obtained. The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles.
The new standard applies only to purchases made on or after Jan. 1, 2011, so claims for medicines or drugs purchased without a prescription in 2010 can still be reimbursed in 2011, if allowed by the employer's plan.
A similar rule went into effect on Jan. 1, 2011 for Health Savings Accounts (HSAs), and Archer Medical Savings Accounts (Archer MSAs).
Long Term Capital Gains
Individuals - Tax Credits
A refundable credit of up to $13,360 for 2011 is available for qualified adoption expenses for each eligible child.
Child and Dependent Care Credit
For two or more qualifying dependents, you can claim up to 35 percent of $6,000 (or $2,100) of eligible expenses. For higher income earners the credit percentage is reduced, but not below 20 percent, regardless of the amount of adjusted gross income.
Child Tax Credit
Energy Tax Credits for Homeowners
Homeowners can claim an Energy Star window tax credit of up to $200 maximum as well as a water heater tax credit, which includes electric, natural gas, propane, or oil, up to a maximum of $300. The same maximum ($300) applies to air conditioners, but insulation, doors, and roof credits are capped at $500. The furnace tax credit (includes natural gas, propane, oil, or hot water) and is capped at $150 maximum and efficiency must be at 95%.
Earned Income Tax Credit (EITC)
Individuals - Education ExpensesCoverdell Education Savings Account
For two more years, you can contribute up to $2,000 a year to Coverdell savings accounts. These accounts can be used to offset the cost of elementary and secondary education, as well as post-secondary education.
American Opportunity Tax Credit (Higher Education)
Employer Provided Educational Assistance
Lifetime Learning Credit
Student Loan Interest
Tuition and Related Expenses Deduction
Individuals - Retirement
Roth IRA Conversions
BusinessesStandard Mileage Rates
The standard mileage rate increases to 51 cents per business mile driven (19 cents per mile driven for medical or moving purposes and 14 cents per mile driven in service of charitable organizations) for the first half of 2011. From July 1, 2011 to December 31, 2011 however, the rate increases to 55.5 cents per business mile. This increase is a special adjustment by the IRS and reflects higher gasoline prices.
Health Care Tax Credit for Small Businesses
Section 179 Expensing
How to Prepare for a Successful Retirement
As you approach retirement, it's vital that you pay attention to key financial matters. Here are some of the items that you should check:
If you will be eligible for Medicare at the time of your retirement, then you may want to start checking into "Medigap" coverage. Medigap insurance is a supplemental health insurance sold to individuals age 65 and older that covers medical expenses not covered or only partially covered by Medicare.
Other Types of Insurance.
Company Plan Payout.
We Can Help. Retirement is an exciting time and planning in advance can make it a much smoother transition. Please contact us if you have any questions, need assistance or just want some additional guidance.
Ensure Your Family's Security with an Estate Plan
No matter what your net worth, you should have an estate plan in place. Such a plan ensures that your family is cared for and your assets maximized upon your death. An estate plan consists of your will, health care documents, powers of attorney, life insurance coverage, and post-mortem letters.
For those of you with an estate plan already, good for you! But we have a piece of additional advice: make it a priority to review the plan every two years to see whether it needs updating.
Here are the life events that necessitate an update to your plan:
When updating your estate plan you may need to do the following:
Due to recent changes in estate tax laws, many estate plans may need to be revised. Give us a call to review your current situation.
Financial Planning Dos & Don'ts
During times of economic turmoil, planning for your financial future can be a challenge. With that in mind here are some suggestions that offer you peace of mind and also simplify your life.
Your Pension Plan - Inflation Adjustments for 2012
For 2012, there are a few cost of living adjustments for pension plans and other retirement-related items. Check out what to expect in the new year....
Should You File a Tax Return?
Do you ever wonder whether your income is high enough to warrant the filing of a tax return? Because the minimum income level varies depending on filing status, age, and the type of income you receive, it can be a bit complicated. The following guide is based on minimum income requirements from tax year 2011.
Married Filing Jointly
If you are not living with your spouse at the end of the year or you weren't living with them on the day they passed away, the IRS requires you to file a return if your gross income is at least $3,700. This is based on the personal exemptiion, which in tax year 2011 was $3,700.
For married persons filing a separate return, no matter what age, you must file a return if gross income is at least $3,700.
Head of Household
Qualifying Widow or Widower
Other Situations That Require Filing
Other situations include:
You Owe Certain Taxes. If you owe FICA or Medicare taxes (also called payroll taxes) on unreported tips or other reported income that were not collected, you must file a return. You must also file a tax return if you are liable for any alternative minimum tax. Finally, you must file a return if you owe taxes on individual retirement accounts, Archer MSA accounts, or an employer-sponsored retirement plan.
Advance Earned Income Tax Credit Payments. The Earned Income Tax Credit is a federal income tax credit for eligible low-income workers. The credit reduces the amount of tax an individual owes, which may be returned in the form of a refund. If you receive advance payments for the earned income credit from your employer, you must file a return.
Self-Employment Earnings. If your net earnings from self-employment are $400 or more, you must file a return.
Church Income. If you earn employee income of at least $108.28 from either a church or a qualified church-controlled organization that is exempt from employer-paid FICA and Medicare taxes, you must file a return.
Filing Status - What You Need to Know
Your federal tax filing status is based on your marital and family situation. It is an important factor in determining your standard deduction and your correct amount of tax, and whether you must file a return.
Your marital status on the last day of the year determines your status for the entire year. If more than one filing status applies to you, you may choose the one that gives you the lowest tax obligation.
There are five filing status options:
We can definitely help you determine which filing status is best for your situation. Just call us up or send an email.
QuickBooks Tips And Tricks: Make it Yours
No matter which version of QuickBooks you're using, there are always ways to make your workday easier. As with any software, we tend to learn the features we need and not much more. But small changes in the way you operate can add up to significant time savings and more accurate files. If you jumped into QuickBooks without a thorough introduction, consider these tips.
Use the Open Window list
Spend some time in Preferences, and you'll be surprised to learn that you have more flexibility than you knew. QuickBooks is designed to work for a tremendously wide variety of businesses, so it comes with some features activated but many dormant.
The Open Window list is a good example. Do you tire of closing windows to find a screen that you used several tasks ago? Make sure that you're in one-window view (View | One Window), and then click View | Open Window List. Click on any entry to move to that page.
Make account assignment mandatory
QuickBooks lets you enter transactions without assigning them to accounts. So your Chart of Accounts has two accounts labeled Uncategorized Income and Uncategorized Expenses that serve as repositories for these transactions. This means that when you run reports or prepare for taxes, you may have a hard time remembering the circumstances of those transactions and will find it difficult to assign them to accounts.
Do yourself a favor. Set up QuickBooks so that you must assign an account to every transaction. This will take extra time upfront, but not as much as if you try to recall the transaction three months from now. Go to Edit | Preferences | Accounting | Company Preferences and make sure that Require Accounts is checked. If you have questions on this, please call or email us.
Use the Account Prefill fieldsSpeaking of accounts, here's a little time-saving tip. If you have vendors that are always assigned to the same account(s), you can establish this constant in the vendor record. Simply open the Edit Vendor window for a client and click the Account Prefill tab. Select the appropriate selection(s) from the drop-down lists. If a payment is sometimes split between multiple accounts, you'll handle this division when you add transactions.
Use "Pending Sales"
Invoices, sales receipts and credit memos can be earmarked as "pending." These sales do not show up in registers or reports (except for the Pending Sales report) and can't be used for transactions where payment has already been applied. Create the transaction and click Edit | Mark [form name] As Pending. To finalize it, open the form and click Edit | Mark [form name] As Final.
This action can be useful in multiple situations, including:
Be kind to your accountant: Set a closing date
Once we've worked with your QuickBooks file up to a certain date, entering, editing or deleting transactions prior to that date wreaks havoc with the balance of your books. To be safe, your administrator should password-protect the ability to do this, so that no one does this intentionally or unintentionally. Go to Edit | Preferences | Accounting | Company Preferences and enter a closing date and password. We will change the date each time we complete our work.
These are just a few examples of ways you can customize QuickBooks to make your workdays more productive and your record-keeping safer and more reflective of your business. We can help you further tailor the software to make it a better fit.
If you have questions on this or any other QuickBooks feature, call or email us. We're your partner and we're here to make your business better.
Tax Due Dates for December 2011
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