November 2011 Newsletter

Posted: 1/18/2012

Dear Client:

As we accelerate to the end of another tax year, the Thanksgiving season reminds us to commemorate another successful year as well as make sure we have our tax planning house in order before the ball drops on 2011. These days have become filled with anxiety as debt continues to mount, not only for the United States but in Europe as well.

In an effort to stem the debt tide in the United States, President Obama signed the Budget Control Act of 2011 that increased the public debt limit by at least $2.1 trillion. It also enacted ten year discretionary spending caps estimated to produce almost $1 trillion in deficit reductions split evenly between defense and nondefense spending. The law did not contain revenue increases but established a “super” committee charged with making recommendations to further reduce the debt including tax reform. The deadline for recommendations was November 23rd with a Congressional vote by December 23rd. We will watch this situation closely as it would definitely impact tax law for future years.

Listed below are some of the tax changes already implemented for 2011 as they relate to businesses and investors:

  • Beginning January 1, 2011, all employers must use electronic funds transfer to make all federal tax deposits.
  • Employers may claim a “retention credit” for retaining qualifying new employees (and certain formerly unemployed workers). The amount of the credit is the lesser of $ 1,000 or 6.2% of wages paid to the retained qualified employee during a 52 consecutive week period. The qualified employee’s wages for such employment during the last 26 weeks must equal at least 80% of wages for the first 26 weeks. The credit may be claimed for a retained worker for the first tax year ending after March 18, 2010 for which the retained worker satisfies the 52 consecutive week requirement. The credit applies to qualified employees hired between February 3, 2010 and January 1, 2011.
  • Every broker is required to file an information return reporting gross proceeds and adjusted basis of securities. This reporting is done on form 1099-B and is generally effective on January 1, 2011. Mutual funds and DPR’s are covered if purchased after January 1, 2012.
  • Also effective January 1, 2011, issuers of specified securities must file a return describing any organizational action (such as a stock split, merger or acquisition) that affects the basis of the specified security.
  • Beginning in 2011, banks generally are required to file an information return with the IRS reporting the gross amount of credit and debit card payments a merchant receives during the year, along with the merchant’s name, address, and taxpayer identification number. Similar reporting is required for third party network transactions.
  • For payments made after December 31, 2010, for information reporting purposes, a person receiving rental income from real estate is treated as engaged in the trade or business of renting property. As a result, recipients of rental income real estate generally are subject to the same information reporting requirements as taxpayers engaged in a trade or business. In particular, rental income recipients making payments of $600 or more during the tax year to a service provider in the course of earning rental income must provide a 1099 to the IRS and the provider.
  • The amount of qualified property available for expensing under Internal Revenue Code Section 179 remains at $500,000 for 2011. Maximum purchases of property before phase out also remains at $2,000,000 for 2011. The expensing limit for 2012 is $139,000 with a phase-out of $560,000.
  • First year bonus depreciation for qualified property under Internal Revenue Code Section 168 remains at 100% for property purchased in 2011. In 2012 it returns to 50%.
  • The work opportunity credit is extended for individuals for most targeted groups through 2011.
  • The standard mileage rate for business travel is 51 cents per mile for the first half of 2011 and 55.5 cents per mile for the second half of 2011.

Small employers may now establish “simple cafeteria plans”. For years beginning after December 31, 2010, small employers may provide employees with a simple cafeteria plan. An employer that uses this type of plan gets a safe harbor from the nondiscrimination requirements for cafeteria plans as well as from the nondiscrimination requirements for certain types of qualified benefits offered under a cafeteria plan, including group term life insurance, benefits under a self-insured medical expense reimbursement plan and benefits under a dependent care assistance program.

Some additional changes for individuals include:

  • A payroll tax holiday is in place for 2011. Employees will pay only 4.2% for old age benefits under the social security system (instead of the usual 6.2%) on compensation received during 2011 up to the wage base of $106,800. In addition, self-employed individuals will also save the 2% on the first $106,800 for tax year 2011.
  • Stricter rules apply to energy saving home improvements in 2011. You may claim a 10% credit for qualified energy property placed in service in 2011 up to a $500 maximum lifetime limit. No more than $200 of that credit may be from windows and skylights. The lifetime limits apply to all tax years ending after December 31, 2005. The credit for residential energy property expenses can’t exceed $50 for an advanced main circulating fan, $150 for any qualified natural gas, propane, or hot water boiler, and $300 for any item of energy efficient (including advanced types of energy saving equipment such as electric heat pumps).
  • For amounts received in tax years beginning after December 31, 2010, taxpayers may partially annuitize contracts (such as an endowment or life insurance contract). This rule allows tax free recovery of basis in cases where contracts can be treated as separate contracts instead of treating payments as income before recovering basis.
  • Beginning in 2011, the cost of over the counter medicines can’t be reimbursed with excludible income through a health flexible spending arrangement, health reimbursement account, health savings account, or a medical savings account, unless the medicine is prescribed by a doctor or is insulin.
  • The individual alternative minimum tax exemption amounts for tax years beginning in 2011 increases to $48,450 for unmarried individuals, $74,450 for married individuals filing jointly, and $37,225 for married individuals filing separately.
  • Capital gain rates (0% for those in the 15% income tax bracket or lower, or 15% for those in tax brackets above 15%) remain in effect for 2011 and 2012.
  • The $1,000 per child tax credit is extended through 2012.
  • The American Opportunity tax education credit is extended through 2012. The income phase-out ranges remain the same for 2011 and 2012.
  • The Lifetime Learning tax credit is extended through 2012. The credit phases out over higher levels of modified adjusted gross income for those two years.
  • The above the line deduction for qualified tuition and related expenses is retroactively reinstated and extended through 2011.
  • The standard mileage rate for qualified medical transportation is 19 cents per mile for the first half of 2011 and 23.5 cents per mile for the second half of 2011.
  • The exclusion for estates and exemption amount for gifts is unified at $5 million for 2011. The 2012 amounts are indexed for inflation and are scheduled to be $5,120,000. However, it is scheduled to revert to $1 million in 2013 unless Congress acts otherwise.

Did you know . . . we prepare payroll checks for a number of our clients. The DataCenter is our payroll checkwirting service branch that might fit your payroll needs. Please review the enclosed brochure and call us for a quote to prepare your payroll checks.

We have included a worksheet to help you determine your net projected income for the year. Please take the time to “see where you’re at”. Time spent planning before year end could save valuable tax dollars at the tax filing deadline. We would be happy to help answer your tax or accounting questions. Call us to schedule an appointment to help plan your tax year 2011 to get the best results. The mission at Arend, Laukhuf & Stoller, Inc. is to provide tax, accounting and advisory services to enable success. Our philosophy is to provide positive results with the right combination of good tax planning, sound business strategies and practical accounting. As trusted advisors we:

  • Provide tax, financial and accounting solutions.
  • Exceed expectations for service.
  • Practice the Golden Rule.
  • Link staff and technology in a smart, effective environment.
  • Contribute to the welfare of our community.

Thank you for allowing us to assist you. May you have a bountiful Thanksgiving and blessed Christmas Season.

Sincerely,

Arend, Laukhuf & Stoller, Inc.

This letter is a brief overview of complex legislation and should not solely be relied upon to make tax decisions.  Please call our office on how to position yourself or your business in light of the changing tax landscape.

Please contact us and we will be happy to meet with you.

Back to Top >>