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2011 Tax Tips from O'Sullivan Creel


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2011 Tax Tips from O'Sullivan Creel

  1. 1. 2010 Tax Season Update Thank you for inviting O’Sullivan Creel LLP Presented By: Mort O’Sullivan, CPA, Managing Partner
  2. 2. Discussion Topics Tax In the News Key Changes to Tax Law Things to Watch Out For Other Tax Reminders
  3. 3. Tax In The News <ul><li>2010 TAX RELIEF ACT (December 2010) </li></ul><ul><li>Extended the “Bush Era” tax cuts for 2011 & 2012 </li></ul><ul><li>Added new tax benefits (e.g. 2% employee payroll tax reduction) </li></ul><ul><li>Impact of tax provision on the U.S. budget = $801 Billion </li></ul><ul><ul><li>Individual Tax Cuts ...........................................$ 186 billion </li></ul></ul><ul><ul><li>AMT Relief ........................................................$ 136 billion </li></ul></ul><ul><ul><li>Payroll Tax Deduction ...................................... $ 111 billion </li></ul></ul><ul><ul><li>Estate/Gift Tax Relief ........................................$ 68 billion </li></ul></ul><ul><ul><li>Capital Gains/Dividend Cuts …………………..... $ 53 billion </li></ul></ul><ul><ul><li>Bonus Depreciation/179 Expensing ....... ......... $ 21 billion </li></ul></ul><ul><ul><li>Other ................................................................ $ 226 billion </li></ul></ul><ul><li>Bill also included an extension of Unemployment Insurance with a cost of an additional $56 billion </li></ul>
  4. 4. Tax In The News <ul><li>Tax Reform & Simplification </li></ul><ul><li>The Internal Revenue Code & Regulations contain 12+ million words, the Bible has less than 800,000 words </li></ul><ul><li>On average, more than one tax code change is made each day </li></ul><ul><li>Both parties have stated that significant tax reform and simplification is needed </li></ul><ul><li>Tax simplification will likely be a key political issue for the next couple years and may influence the next presidential election </li></ul>
  5. 5. Tax In The News <ul><li>More Enforcement </li></ul><ul><ul><li>The idea of a “friendlier” IRS during the recession is not reality </li></ul></ul><ul><ul><li>The number of audits seems to be increasing </li></ul></ul><ul><ul><li>Stricter enforcement of penalties for taxpayers and preparers </li></ul></ul><ul><ul><li>IRS wants to close the “tax gap” as an alternative to raising taxes </li></ul></ul><ul><ul><li>Local IRS office has hired up to 9 new agents </li></ul></ul><ul><li>Stricter Rules for Paid Preparers </li></ul><ul><ul><li>All paid preparers must obtain a preparer ID number from IRS </li></ul></ul><ul><ul><li>New testing requirements for many preparers </li></ul></ul><ul><ul><li>Circular 230 expanded to cover all paid preparers </li></ul></ul>
  6. 6. Discussion Topics Tax In the News Key Changes to Tax Law Things to Watch Out For Other Tax Reminders
  7. 7. Key Changes to Tax Law <ul><li>Bonus Depreciation </li></ul><ul><ul><li>Rules vary depending on when the asset is purchased </li></ul></ul><ul><ul><li>50% bonus = New assets purchased January 1, 2010 to September 7, 2010 (will also apply in 2012) </li></ul></ul><ul><ul><li>100% bonus = New assets purchased September 8, 2010 through December 31, 2011 </li></ul></ul><ul><ul><li>Can be better than IRC section 179 deduction which is limited to income before the deduction </li></ul></ul><ul><ul><li>Used equipment is not eligible for bonus depreciation, but you may be able to expense it under IRC Section 179 </li></ul></ul>
  8. 8. Key Changes to Tax Law <ul><li>Self Employment Income Tax </li></ul><ul><ul><li>SE tax, the OASDI portion reduced to 10.4% for 2011 </li></ul></ul><ul><ul><li>Provides self employed individuals a benefit equivalent to the 2% payroll tax reduction provided to employees for 2011 </li></ul></ul><ul><ul><li>For 2010 only, qualified health insurance can be deducted from SE income before calculating the SE tax. In the past it was only deductible for the income tax, not the SE tax </li></ul></ul>
  9. 9. Key Changes to Tax Law <ul><li>Small Business Health Insurance Credit </li></ul><ul><li>Qualified Small Businesses may be eligible for a tax credit up to 35% of their contribution toward employee’s health insurance premiums </li></ul><ul><li>Credit amount varies depending on the number of employees and their average annual compensation </li></ul><ul><li>To get max credit you must have less than 10 employees with average annual pay of less than $20,000 </li></ul><ul><li>Credit is generally phased out if you have more than 25 employees or if their average annual compensation is over $50,000 </li></ul><ul><li>Can only be claimed for two years </li></ul>
  10. 10. Key Changes to Tax Law <ul><li>Charitable Contributions from Traditional IRAs </li></ul><ul><ul><li>Temporary provision extended for 2011 </li></ul></ul><ul><ul><li>IRA owners age 70 ½ and older can make a tax-free charitable contribution of up to $100,000 directly from their IRA </li></ul></ul><ul><ul><li>Amount counts towards minimum required distribution </li></ul></ul><ul><ul><li>Amount is not included in income for tax purposes </li></ul></ul><ul><ul><li>Note----there is no charitable deduction for the donation </li></ul></ul>
  11. 11. Key Changes to Tax Law <ul><li>Roth IRA Conversions </li></ul><ul><ul><li>Starting in 2010 anyone could convert a traditional IRA to a Roth IRA, the old income limits no longer apply </li></ul></ul><ul><ul><li>If you converted to a Roth IRA in 2010 you can defer the income and report ½ the income in 2011 and ½ in 2012. </li></ul></ul><ul><ul><li>If you convert to a Roth IRA in 2011 you will have to pick up all of the income in 2011 </li></ul></ul><ul><ul><li>It is possible to re-characterize the IRA back to a traditional IRA, but it must be done before your tax return is filed </li></ul></ul><ul><ul><li>If you are not eligible to contribute to a Roth IRA, you may consider a non-deductible contribution to a traditional IRA followed by a Roth conversion </li></ul></ul>
  12. 12. Key Changes to Tax Law <ul><li>Old Items Extended for 2011 & 2012 </li></ul><ul><li>15% Maximum Capital Gains Tax Rate </li></ul><ul><li>Qualified Dividend Income </li></ul><ul><ul><li>“ Qualified” dividends are taxed at capital gains rate </li></ul></ul><ul><ul><li>Year end Forms 1099 indicate if a dividend is “qualified” </li></ul></ul><ul><ul><li>Must hold stock for more than 61 days during the 121 day period starting 60 days before the dividend and ending 60 days after </li></ul></ul><ul><ul><li>If dividend is not “Qualified” it is taxed as ordinary income </li></ul></ul>
  13. 13. Key Changes to Tax Law <ul><li>(continued) Old Items Extended for 2011 & 2012 </li></ul><ul><li>College Tuition and Fees Deduction </li></ul><ul><ul><li>Up to $4,000 for taxpayers with AGI of $65,000 or less ($130,000 for married persons filing jointly) </li></ul></ul><ul><ul><li>Up to $2,000 for taxpayers with AGI of $80,000 or less ($160,000 for married persons filing jointly) </li></ul></ul><ul><li>State and Local General Sale Tax Deduction </li></ul><ul><li>Residential Energy Tax Credit </li></ul><ul><ul><li>Extended with reduced limits on the amount of credit </li></ul></ul><ul><ul><li>Lifetime limits apply so you may not be able to claim the credit if you have used it in the past. </li></ul></ul>
  14. 14. Key Changes to Tax Law <ul><li>Future Tax Increases Currently in the Law </li></ul><ul><li>The 2010 Health Care Reform Act included several tax increases that will go in effect in 2013 unless the law is changed. </li></ul><ul><ul><li>3.8% Medicare “contribution” tax on Investment Income in excess of $200,000 per year for individuals ($250,000 for joint returns). </li></ul></ul><ul><ul><li>Investment income includes interest, dividends, royalties, rents and income from most passive investments. </li></ul></ul><ul><ul><li>0.9% additional income tax on earned income in excess of $200,000 per year for individuals ($250,000 for joint returns). </li></ul></ul>
  15. 15. Discussion Topics Tax In the News Key Changes to Tax Law Things to Watch Out For Other Tax Reminders
  16. 16. THINGS TO WATCH OUT FOR <ul><li>BP Claims </li></ul><ul><ul><li>Don’t forget that money received from BP is taxable </li></ul></ul><ul><ul><li>Forms 1099 are being issued telling the IRS how much you received </li></ul></ul><ul><ul><li>Cash basis taxpayers will report BP claim money in the year received even if the claim is for the prior year </li></ul></ul>
  17. 17. THINGS TO WATCH OUT FOR <ul><li>Charitable Contributions </li></ul><ul><ul><li>IRS continues to focus on improper charitable contributions </li></ul></ul><ul><ul><li>Keeping the proper documentation is essential </li></ul></ul><ul><ul><li>For contributions of $250 or more you are required to get a receipt from the charity before claiming the deduction </li></ul></ul><ul><ul><li>Bank records can be used to support contributions of less than $250 </li></ul></ul><ul><ul><li>The IRS website has a list of all qualified charities if you need to confirm you are donating to a registered charity </li></ul></ul>
  18. 18. THINGS TO WATCH OUT FOR <ul><li>“ Kiddie Tax” </li></ul><ul><ul><li>While the kiddie tax has been around a long time, the income and age limits were changed a couple years ago so that it applies to more people </li></ul></ul><ul><ul><li>Applies to children under the age of 19 and full-time students under age 24 that are dependents of their parents </li></ul></ul><ul><ul><li>When applicable, Unearned Income in excess of $1,700 must generally be taxed at the parents highest marginal tax rate </li></ul></ul>
  19. 19. THINGS TO WATCH OUT FOR <ul><li>Prior Year AMT Credit Refunds </li></ul><ul><ul><li>AMT credits that are more than 3 years old are considered “Unused Long Term AMT credits” and may be refundable </li></ul></ul><ul><ul><li>If you have paid AMT in prior years, make sure the credit carryovers are tracked on your tax return (especially if you have changed CPAs) </li></ul></ul>
  20. 20. THINGS TO WATCH OUT FOR <ul><li>Gift Tax Returns </li></ul><ul><ul><li>Gifts valued at more than $13,000 per year must be reported to IRS </li></ul></ul><ul><ul><li>Married couples can each gift $13,000, for a total of $26,000 to one person </li></ul></ul><ul><ul><li>Exceptions generally include gifts for: </li></ul></ul><ul><ul><ul><li>Tuition or Medical Expenses paid directly to the educational or medical institution </li></ul></ul></ul><ul><ul><ul><li>Gifts to your Spouse, Political Organizations or Charities </li></ul></ul></ul><ul><ul><li>The tax (if any) is paid by the person giving the gift not the recipient </li></ul></ul><ul><ul><li>Applicability of taxes depends on how much you have gifted in your lifetime. </li></ul></ul><ul><ul><li>For 2011 & 2012, no Gift tax is due until lifetime gifts exceed $5M. </li></ul></ul><ul><ul><li>Get help if you have made or plan to make large gift </li></ul></ul>
  21. 21. Discussion Topics Tax In the News Key Changes to Tax Law Things to Watch Out For Other Tax Reminders
  22. 22. OTHER TAX REMINDERS <ul><li>Foreign Bank Account Information Reporting </li></ul><ul><ul><li>If you have a financial interest in or signature authority over a foreign bank account you must file Form TD F 90-22.1 every year </li></ul></ul><ul><ul><li>It isn’t a tax return and no tax is due, but you can be penalized for not providing the information </li></ul></ul><ul><ul><li>Penalties can be up to 100% of the account balance for each year you fail to report </li></ul></ul>
  23. 23. OTHER TAX REMINDERS <ul><li>Tax Shelters and Tax Fraud </li></ul><ul><ul><li>IRS knows about most of the ways people avoid taxes </li></ul></ul><ul><ul><li>If it sounds too good to be true, it probably is </li></ul></ul><ul><li>Do Not be Fooled by Con-Artist and Identity Thieves </li></ul><ul><ul><li>The IRS will not send you unsolicited emails </li></ul></ul><ul><ul><li>Fake IRS emails may say you have an unclaimed tax refund or that you must provide personal information in order to claim the 2008 tax rebate </li></ul></ul><ul><ul><li>Be careful and make sure you always go to and not </li></ul></ul>
  24. 24. OTHER TAX REMINDERS <ul><li>Taxpayer Advocate </li></ul><ul><ul><li>Independent organization within the IRS </li></ul></ul><ul><ul><li>You may be eligible for assistance if: </li></ul></ul><ul><ul><ul><li>You are experiencing economic harm or significant cost </li></ul></ul></ul><ul><ul><ul><li>You have experienced a delay of more than 30 days to resolve your tax issue, or </li></ul></ul></ul><ul><ul><ul><li>You have not received a response or resolution to the problem by the date promised by the IRS </li></ul></ul></ul><ul><li>IRS Free File </li></ul><ul><ul><li>If your adjusted gross income was $58,000 or less in 2010 you can use IRS’s Free File system to file to prepare and e-file your taxes online ( ) </li></ul></ul><ul><ul><li>Make sure you go to the website and not </li></ul></ul>
  25. 25. <ul><li>IRS Circular 230 Disclosure: Any statements or tax advice contained in this document are not intended to be used and cannot be used by the recipient or any other party for the purpose of avoiding any penalty that may be imposed under the Internal Revenue Code. </li></ul>