Anderson & Gilbert
333 Washington St.
Keene, NH 03431

tel: (603) 357-1928
fax: (603) 357-5024

anderson@taxfolks.net

Helpful Tax Tips For Individuals and Small Businesses

Helpful Tips For All Anderson & Gilbert Clients.

Tips for: Individuals — Businesses

Use this checklist to ensure that your tax information is complete - saving you time and earning you the largest tax refund available.

• Save Our Time & Your Money!
  
  • We scan all the documents that you bring in. To save some time, please remove the staples and discard envelopes before you drop off your tax documents.
  • If you are a returning client and your tax situation has not changed much, you may wish to drop off your tax information instead of making an appointment. Please allow a few minutes to sign some necessary documents when you drop off your information.
  • We have held our fees at the 2006 level for 6 years. We now find it necessary to raise all fees 5% beginning January 1, 2012.
• Document Checklist:
  • Income - W-2s, 1099s
  • Other Documents:
    • Mortgage interest statements
    • Real estate tax bills
    • Vehicle registrations
    • Charitable contributions
    • Medical, dental and eye care expenses
    • Job-related expenses
    • Receipts for any one-time donations over $250
  • If you have refinanced your home - closing papers and HUD settlement statements
  • If you have bought or sold property - HUD settlement statements
  • If you have stocks and/or mutual funds - 1099s AND Annual Statements
  • If you are self-employed for the first time or have a rental property for the first time, call us for a list of what to bring in.
  • All Businesses, Farms and/or Rentals filing forms 1120, 1120S, 1065, Schedule C, Schedule E or Schedule F should provide copies of all bank, credit and loan statements for the tax year plus January 2012. You should also provide copies of any new loan documents and equipment purchase documents.
  • If you use your vehicle for business, we need accurate records of business miles and total mileage for the year. Because the standard mileage rate changed on July 1, 2011, business mileage must be separated into mileage for January 1 through June 30 and July 1 through December 31.
  • If you are the non-custodial parent, claiming the dependency exemption for your child, you need a signed form 8332 from the custodial parent releasing the exemption to you. The custodial parent is the parent that the child lives with (sleeps in their home) for more than half the year, 183+ nights.

Tax Tips for Individuals

Reporting Casualty Losses

Were you hit by bad weather?

From tornados to earthquakes to hurricanes, it was one busy summer for Mother Nature. Unfortunately, this means that a lot of taxpayers experienced destruction. If you're one of them, the loss of business or personal property may provide a deduction on your individual income tax return, but first you need to determine if the loss qualifies for a deduction.

A casualty is defined as the damage, destruction or loss of property resulting from an identifiable event that is sudden, unexpected or unusual. Events that could produce a casualty loss include floods, fires, earthquakes, tornados or terrorist attacks. Events that aren't unusual, such as a pet knocking over an antique vase, would not qualify as a casualty loss.

If you have experienced a casualty loss, you'll need to figure out what the lost property was worth; this is the fair market value. You also need to know the change in value of the property before the event compared to after the event. If the decline in value is less than your cost, then the smaller amount is used to determine the loss.

This amount is decreased by any insurance or other reimbursement you receive on the property. Sometimes reimbursements can actually lead to income from the casualty instead of a loss, in which case different rules may apply limiting the reporting of that income to the IRS.

The loss after insurance reimbursement is reduced by $100 and reported on Schedule A, Itemized Deductions. The aggregate total of all casualty losses will be reduced by 10 percent of your adjusted gross income.

Tax Deductions for Teachers

Did you buy supplies for your classroom?

As a small token of appreciation, teachers are allowed to deduct up to $250 on their tax return for money they spent on classroom supplies. The deduction is an "above-the-line" deduction, which means that it's an adjustment to income; filing a Schedule A, Itemized Deductions, isn't necessary to receive the benefit.

Instructors, counselors, principals and aides employed by state-approved K-12 public and private school systems are also eligible to claim this deduction. Deductible items include unreimbursed books, supplies, computer equipment and other materials used in the classroom. The items you purchase for your classroom must be considered ordinary and necessary in order to deduct the costs. But if you receive a reimbursement for the items you purchase, you may not deduct the cost on your tax return.

Child Tax Credit

Your tax preparer can determine if you qualify

The Child Tax Credit has been extended through 2012. The maximum credit is $1,000 for each qualifying child. All or a portion of this credit may be refundable. A qualifying child must satisfy six tests:

• Relationship. This is your child or step-child (whether by blood or adoption), foster child, sibling or step-sibling, or a descendant of one of these (for example: grandchild, niece or nephew).
• Residence. The child must have the same principal residence as you for more than half the tax year. In certain cases, exceptions apply for children of divorced or separated parents, kidnapped children, temporary absences and for children who were born or died during the year.
• Age. The child is under the age of 17 at the end of 2011.
• Support. The child must not have provided more than one-half of his/her own support for the year.
• Dependent. The child must be claimed as a dependent on your tax return.
• Citizen. The child is a U.S. citizen, resident or U.S. national.

For further information on determining whether or not you can claim the Child Tax Credit, speak with your tax professional.

Have You Adopted a Child?

You may qualify for a special tax credit

If you adopted or attempted to adopt a child in 2010 or 2011, you may qualify for the adoption tax credit. The credit was created to help those who may not have been able to complete the adoption due to the expense associated with the process. For 2010, the credit offsets the qualified adoption expenses, up to $13,170.

You may be able to claim the credit even if the adoption does not become final. Also, if you adopt a special needs child and the adoption becomes final, you may qualify for the full amount of the adoption credit even if you paid few or no adoption-related expenses.

Qualified adoption expenses are reasonable and necessary expenses directly related to the legal adoption of a child who is under 18 years old, or physically or mentally incapable of caring for him- or herself. These expenses may include adoption fees, court costs, attorney fees and travel expenses.

To claim the credit, set up an appointment with your tax professional and bring any necessary documents, which may include a final adoption decree, placement agreement from an authorized agency, court documents and the state's determination for special needs children.

Education Expenses

Do you qualify for a tax credit?

Education credits are available for qualifying education expenses beyond high school for taxpayers, their spouses and their dependents. The American Opportunity Tax Credit is available to those who have not completed the first four years of education beyond high school as of the start of the tax year. For 2011, the maximum American Opportunity Credit is 100 percent of the first $2,000 of qualified higher-education tuition and related expenses, plus 25 percent of the next $2,000 of such expenses paid during the tax year. The maximum credit allowed is $2,500. Up to 40 percent of this credit may be refundable, computed after AGI phase-out limitation and subject to the Kiddie Tax provisions.

The Lifetime Learning Credit is available for one or more post high-school courses taken by the student during the year, including graduate courses and courses taken to improve or acquire job skills. For 2011, the maximum Lifetime Learning Credit available is $2,000.

2011 Standard Mileage Rate

Higher gas prices lead to adjustments

Beginning each calendar year the IRS releases an optional standard mileage rate that taxpayers can use when calculating the deductible costs of operating an automobile for business-use and medical, moving and charitable purposes. The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs.

Due to the significant increase of gasoline prices from the beginning to the middle of the year, the IRS adjusted the mileage rate in June.

Are You Planning to Sell Your Home?

Know the tax consequences

If you are planning to sell your home, there are a couple of things you need to do in addition to packing and cleaning. For tax purposes you'll need to determine whether or not the home you are selling is your main residence. Your main home is usually the one that you live in most of the time.

You should determine whether or not you have a gain on the sale of your home. To determine this, you will need to figure out your adjusted basis. Your adjusted basis is the original purchase price of the residence, purchase expenses, improvements, additions, assessments and more. Consult with your tax professional for help in determining the items that may affect your home's adjusted basis. Take the final selling price and reduce it by your adjusted basis to calculate your gain or loss from the sale.

If you have a gain from the sale of your main home, you may qualify for an exclusion of income for all or part of the gain. In general, if you have owned and used your home as your main residence for two out of the last five years, you are eligible to exclude $250,000 of gain from income ($500,000 for married taxpayers filing jointly). You are not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home.

If you received the first-time homebuyer credit and within 36 months of the date of purchase you no longer use the property as your principal residence, you may be required to repay the credit. Repayment of the credit is due with the income tax return for the year the home ceased to be your principal residence. The repayment amount is determined by the gain associated with the sale; if there is a loss the credit may not be required. Consult with your tax professional to determine if a repayment is required.

Example for married taxpayers filing jointly selling home:

Quick Tips

1. Capital gains rates are taxed at 0 percent and 15 percent for 2008 through 2012.
2. Qualified dividends are taxed at 0 percent and 15 percent for 2008 through 2012.
3. Beginning after 2010, the Advanced Earned Income Credit is no longer available.
4. The 2011 annual deductible health savings account (HSA) contribution is $3,050 for individuals and $6,150 for families. For a high-deductible health plan (HDHP), the minimum deductible is $1,200 for individuals and $2,400 for families. The HDHP maximum out-of-pocket expense is $5,900 for individuals and $11,900 for families.
5. The 2012 annual deductible HSA contribution is $3,100 for individuals and $6,250 for families. For an HDHP the minimum deductible is $1,200 for individuals and $2,400 for families. The HDHP maximum out-of-pocket expense is $6,050 for individuals and $12,100 for families.
6. For 2011, the contribution limit to a traditional or Roth IRA is $5,000 ($6,000 for taxpayers age 50 and over).

The information contained in this newsletter is not intended to provide specific tax advice or to take the place of either the written law or regulations.

Tax Tips for Small Business

Business Trips and Conventions

Mixing business with pleasure

It's not uncommon for business meetings and conventions to be located in vacation destinations such as Las Vegas, Orlando or Honolulu. If the trip is 100 percent business, there's little question as to whether or not the cost of the trip is deductible. However, when it comes to a mix of work and play, it becomes harder to determine what is and is not deductible. It is very important to keep accurate records to substantiate what are business expenses and what are personal expenses during your trip.

If your trip was primarily for business purposes and you only spent some personal time while away, you should be able to fully deduct transportation expenses. Hotel costs are only deductible for the business days; the same is true for meal expenses, with a 50 percent limitation. Hotel and meal costs are not deductible on personal days. However, if your convention or meeting takes place on Thursday, Friday and Monday, the weekend days are deductible, even if you spend the time enjoying personal activities.

There are additional caveats when it comes to annual shareholder meetings, traveling on a cruise or to a resort, as well as traveling abroad. Consult with your tax professional to learn more.

Do You Outsource Your Payroll?

Be careful of scams

Many businesses find it cost effective to outsource their payroll functions to a third-party payroll company. It is important to ensure that the company you are partnering with is reputable, because ultimately it's your responsibility to pay federal tax liabilities. If the third-party fails to make your federal tax deposits, the IRS may assess penalties and interest that you, the employer, will be responsible for paying.

When working with a third-party, choose a payroll service that uses the Electronic Federal Tax Payment System (EFTPS). This way, you can log onto the system and verify that the tax deposits were made on time. Also, be sure to list your address on the account, so that the IRS will send all correspondence directly to you, keeping you informed.

Auto Expenses

Do you use your car for business purposes?

If you use an automobile for business, you may be able to receive a tax deduction to lower your income tax. Unless your car is used 100 percent for business, some of your expenses aren't deductible. The IRS is quick to question a vehicle used 100 percent for business. Do you, for example, keep the car at the company headquarters over night?

Deducting auto expenses requires diligent record-keeping. There are two ways to calculate your auto deductions - the standard mileage rate or actual expenses. These methods are available whether you own or lease your vehicle. Taxpayers who wish to use the standard mileage rate in lieu of actual expenses for computing deductible vehicle expenses must elect to do so in the first year. Switching to the standard mileage rate in a later year is not an option.

The actual expense method is as exactly as it sounds. Actual expenses, such as the cost of gas, oil, insurance, repairs, maintenance, tires, washing, licenses and depreciation or lease payments, are eligible. For the standard mileage rate method, instead of tracking the above expenses, you track the business mileage you accrue and use a standard rate. For January 1 through June 30, 2011, the standard rate is 51 cents per mile; for July 1 through December 31, 2011, the rate is 55.5 cents per mile.

You'll need to keep accurate records of the miles incurred for business purposes, dates of business use, destinations and the business purpose. Also, you'll need to note the odometer readings at the beginning and end of the year to determine the total miles for the year for all uses. The important aspect is to make sure you maintain accurate records. The IRS may disallow a deduction for mileage if you are unable to substantiate your deduction.

It's important to note that you cannot deduct commuting mileage (mileage from your home to your regular job). It is necessary to determine your tax home. If you are self-employed and maintain an eligible office in your home, you can deduct the mileage to and from your client's or customer's place of business, as well as between jobs. As an employee, you can deduct mileage between jobs or to a temporary assignment. If you do not have a regular place of business, you can only deduct your transportation expenses to a temporary location outside your general area of employment.

Day Care Providers Allowed a Per Diem

New rates for 2011

Taxpayers who provide day care services in their home may find it difficult to track the cost of meals they provide to the children. Therefore, the IRS allows day care providers to deduct a standard meal allowance, per child, in lieu of actual expenses. Following are the standard rates for 2011:

Small Business Health Care Tax Credit

Do you qualify?

The small business health care tax credit was included in the Affordable Care Act enacted last year and is designed to encourage small businesses to offer health insurance coverage to their employees for the first time or maintain coverage they already provide.

Small businesses that pay at least 50 percent of the premiums for employee health insurance coverage under a qualifying arrangement may be eligible for this tax credit. The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ 25 or fewer fulltime equivalent employees with average incomes of $50,000 or less. For 2010 through 2013, the credit may offset up to 35 percent of premiums paid by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations.

IRS Discontinues Mailing of Certain Packages

Technology eliminates the need for paper copies

With the advent of e-filing, the IRS will no longer send business taxpayers certain tax packages through snail mail. The IRS made this decision due to the continued growth of e-filing as well as to help reduce costs. Some forms that will no longer be mailed include:

• Form 940, Employer's Annual Federal Unemployment Tax Return
• Form 941, Employer's Quarterly Federal Tax Return
• Form 944, Employer's Annual Federal Tax Return
• Form 2290, Heavy Highway Vehicle Use Tax Return
• Form 5500, Annual Report/Report of Employee Benefit Plan

Self-Employed Health Insurance

Are you eligible for a deduction?

Generally, sole-proprietors may not deduct the cost of health insurance when calculating self-employment tax. However, under the Small Business Jobs Act, self-employed business owners may be able to deduct the cost of health insurance for themselves and their family.

The deduction is not available if the self-employed individual is eligible to participate in an employer-subsidized health plan maintained by the employer of the taxpayer or the employer of the taxpayer's spouse.

Those who can claim the self-employed health insurance deduction include:

• Small businesses and sole-proprietors reporting income on Schedule C;
• Farmers reporting income on Schedule F;
• General partners in a partnership and actively participating members in an LLC treated as a partnership who have self-employed income; and
• Employees of an S Corporation who own 2 percent or more of the S corporation's stock.

Beware of Email Scams

The IRS does not solicit tax payments through email

Emails said to be from IRS agencies are not new, however this year they seem to be more abundant. One of the newer scams sent to business owners are allegedly from the Electronic Federal Tax Payment System (EFTPS). The email is supposedly a notification letting you know that your tax payment has been rejected and needs to be re-submitted. Please be aware that the IRS does not solicit tax payments via email.

When you click the links in the scam emails, malware/viruses are loaded onto your computer. The malware sends information stored on your computer back to the scammer, putting you at risk.

What do you need to know to keep safe? The IRS will never request financial information, passwords, PINs or any other sensitive information from you via email. The IRS sends paper notices to taxpayers to discuss tax account information. Never provide your bank information to someone via email or click links that are suspicious!

If you ever receive one of these scam emails, do not reply. Do not open any attachments since they might contain malicious code that could infect your computer. Also, do not click any links provided in the email. These websites could also give your computer a virus or malware. Instead, forward the email to phishing@irs.gov.

Quick Tips

1. The depreciation limit for a business-use automobile placed in service in 2011 for which bonus depreciation does not apply is $3,260.
2. For 2011, taxpayers may expense up to $500,000 of qualifying property acquired for use in a trade or business under ¤179.
3. Qualified property purchased after September 9, 2010, and before January 1, 2012, may be eligible for 100 percent bonus depreciation.
4. Each person engaged in a trade or business who, in the course of that trade or business, receives more than $10,000 in cash in one transaction or in two or more related transactions, must file Form 8300.
5. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 has temporarily reduced the rate of social security tax withholding (for employees only) from 6.2% to 4.2% for wage payments made in 2011. The rate of social security tax withholding (for employees only) will tentatively be restored to 6.2% for wage payments made in 2012.
6. Congress has repealed the Form 1099 reporting requirements that were supposed to take effect in 2011 and reinstated the old reporting requirements. Business owners are required to issue Form 1099-MISC for payments of $600 or more for rents, services, prizes and awards or other income payments, excluding payments to corporations.