Dear Clients & Friends:

INDIVIDUALS:

• Must report all foreign bank accounts. Form TDF90-22.1 is required by June 30 (no extension) if the aggregate value of foreign financial accounts exceeds $10,000 at any time during the year. The penalties are enormous for those who fail to report.

• Foreign financial assets disclosure form for 2011 must be attached to tax return for those with foreign assets exceeding $50,000. Again the penalties are harsh for non-compliance.

• Foreign gifts over $100,000 must be reported on Form 3520.

• Those who have receipts from foreign sources of more than $10,000 in cash (includes 2 or more related transactions) must file form 8300 with the IRS within 15 days of transaction.

• For 2011, the federal estate tax exclusion is $5 million with a 35% rate, and inherited assets get a stepped-up basis. The 2012 exclusion will be indexed. In 2013, the exclusion is scheduled to fall again to $1 million with a 55% top rate, unless Congress acts.

• IRA maximum contribution is $5,000 in 2011 with catch-up of $1,000 if over age 50. Adjusted gross income may limit your contribution. Some withdrawals, if you are under 59½, may be subject to 10% additional tax.

• SIMPLE retirement plan maximum contribution is $11,500 in 2011 and 2012 with $2,500 catch-up if over age 50.

• 401K maximum contribution is $16,500 for 2011 and $17,000 in 2012 with $5,500 catch-up if over age 50.

• The maximum annual gift exclusion per person stays at $13,000. After the $5 million life-time exclusion is used, gifts are taxed at 35%.

• For 2011 the standard mileage rates for the use of a car or truck are:

• Many new breaks for college costs, up to $4,000, if you meet the income limits.

• Debit cancellation may create income.

• Hope credit renamed “American Opportunity Tax Credit” increased to $2,500 and extended through 2012, income limits apply, refundable. Lifetime Learning credit phases out over higher levels of modified AGI.

• Dependent children under age 17 at year-end get a credit of $1,000 through 2011. AGI limits apply.

• Net stock losses limited to $3,000 per year with carryover of balance.

• Long-term capital gains are still 15%, as well as qualified dividends through 2012.

• Mortgage interest deduction is limited to mortgages under $1,100,000. Refinanced mortgage interest is only deductible up to the balance of acquisition debt before refinancing.

• Need proof for charitable deductions, cancelled checks, appraisals, and letter of acknowledgement from authorized recipients.

• Living expenses incurred at distant job sites are not always deductible.

• You may consider converting your IRA to a ROTH. Income taxes apply.

• Adoption credit available up to $13,360 against expenses paid.

• Part B Medicare is going up again for high incomes.

• Social Security tax cut for 2011 and maybe for 2012. The reduction from 6.2% to 4.2% could save as much as $2,136.

• Sales tax paid in excess of table amounts may be deducted.
  

BUSINESSES:

• Must segregate credit/debit card sales from cash sales in 2011.

• S Firms with profits must take a reasonable officer salary or face IRS rercharacterization of distributions as salary, otherwise severe penalties up to 100% of social security tax not paid may be incurred.

• S Firms and Partnerships that file late will be fined $195 per owner, or partner, per month for up to 12 months. S Corp due March 15, 2012, Partnerships due April 16, 2012.

• An LLC member may be subject to self-employment tax. The member agreement should define.

• Cell phones – The new law removes strict substantiation rules for cell phones used in business.

• Some new business “start-up expenses” can be deducted up to $10,000. The balance is amortized over 15 years.

• Invest in your business, the Section 179 depreciation of Equipment (including trucks of 6,000 pounds or more) write off for companies with profits doubles to $500,000 for new or used equipment purchased in 2011.

• Major changes in health care act.

• You are required to keep 4 years copies of W-2 and 1099 forms you tried to deliver but could not.

• Responsible persons are personally liable for corporate payroll taxes.

Try to keep and maintain your records in an orderly and detailed manner. Organization can save you money, time and stress when it is time to prepare your tax return or endure the dreaded IRS audit.

In closing, our words of advice to you are: ORGANIZE your records in a timely manner, DOCUMENT your deductions, and PLAN wisely for possible tax situations. We are always available to assist you.

COPYRIGHT 2000 - 2012 John Van Vorst, CPA, P.A.