Form 1120/1120S are due THURSDAY March 15th
If you have a corporation or file a Form 1120 or 1120S with a December 31st year end and you have not filed a 2011 tax return, it is due on March 15th. If you have not yet filed your 2011 tax return call or email us to immediately to ensure we file an extension for your company.
You're probably getting ready to sort out last year's financial records and prepare for this year's recordkeeping. But what should you keep and what can you throw away? Here are some suggestions.
* Keep records that directly support income or expense items on your tax return. For income, this includes W-2s, 1099s, and Form K-1s. Also keep records of any other income you might have received from other sources. It's also a good idea to save your bank statements and investment statements from brokers.
For expense items, keep documentation that supports any itemized deductions you claim. This includes acknowledgments from charitable organizations and backup for taxes paid, mortgage interest, medical deductions, work expenses, and miscellaneous deductions. Even if you don't itemize, keep records of expenses for child care, medical insurance if you're self-employed, and any other expenses that appear on your return.
The IRS can audit you routinely for three years after you file your return. But in cases where income is underreported, they can audit for up to six years. To be safe, keep your tax records for seven years.
Keep certain other records even longer. These include records relating to your house purchase and any improvements you make. Also keep records of investment purchases, dividends reinvested, and any major gifts you make or receive. And finally, keep copies of all your tax returns and W-2s in case you ever need to prove your earnings for social security purposes.
Please call our office if you have questions about specific items.
If you’ve given up itemizing deductions, you’re not alone. These days over half of all taxpayers find they’re better off using the standard deduction. But even if you take the standard deduction, you can also deduct some individual expenses on your 2011 tax return, including the following:
* IRA and HSA contributions
On your 2011 tax return you may qualify to deduct up to $5,000 in contributions to a traditional IRA. That increases to $6,000 if you’re age 50 or older. Income limitations may apply in some cases. You can’t deduct contributions to Roth IRAs.
Health Savings Accounts (HSAs) are IRA-like accounts set up in conjunction with a high-deductible health insurance policy. The annual contributions you make to your HSA are deductible. Contributions are invested and grow tax-free, and you’re allowed to withdraw money in the account tax-free to pay for your unreimbursed medical expenses. The HSA contribution limit for 2011 is $3,050 for singles and $6,150 for couples. An additional $1,000 may be contributed by those 55 and older.
* Student loan interest and tuition fees
Deduct up to $2,500 interest on student loans for yourself, your spouse, and your dependents. For 2011, you can also deduct up to $4,000 of tuition and fees for qualified higher education courses. Income limitations apply, and you must coordinate these deductions with other education tax breaks.
* Self-employment deductions
If you’re self employed, you can generally deduct the cost of health insurance premiums, retirement plan contributions, and one-half of self-employment taxes.
* Other deductions
Don’t overlook deductions for alimony you pay, certain moving expenses, and early savings withdrawal penalties. Teachers can deduct up to $250 for classroom supplies that they purchased with their own money in 2011.
Email me at Vince@MyTexasCPA.com for more information on these and other deductions you may be entitled to take on your 2011 tax return.
The IRS is required by law to adjust certain tax numbers each year. Here are some of the adjusted numbers you'll need for your 2012 tax planning.
STANDARD MILEAGE RATE for business driving remains at 55.5¢ a mile. Rate for medical and moving mileage decreases to 23¢ a mile. Rate for charitable driving remains at 14¢ a mile.
SECTION 179 maximum deduction decreases to $139,000, with a phase-out threshold of $560,000.
TRANSPORTATION FRINGE BENEFIT limit decreases to $125 for vehicle/transit passes and increases to $240 for qualified parking.
SOCIAL SECURITY taxable wage limit increases to $110,100. Retirees under full retirement age can earn up to $14,640 without losing benefits.
KIDDIE TAX threshold remains at $1,900 and applies up to age 19 (up to age 24 for full-time students).
NANNY TAX threshold increases to $1,800.
HSA CONTRIBUTION limit increases to $3,100 for individuals and to $6,250 for families. An additional $1,000 may be contributed by those 55 or older.
401(k) maximum salary deferral increases to $17,000 ($22,500 for 50 and older).
SIMPLE maximum salary deferral remains at $11,500 ($14,000 for 50 and older).
IRA contribution limit remains at $5,000 ($6,000 for 50 and older).
ESTATE TAX top rate remains at 35%, and the exemption amount increases to $5,120,000.
ANNUAL GIFT TAX EXCLUSION remains at $13,000.
ADOPTION TAX CREDIT decreases to $12,650 for adoption of an eligible child.
ALTERNATIVE MINIMUM TAX (AMT) exemption decreases to $33,750 for singles and to $45,000 for married couples.
Health care legislation passed in 2010 included a tax credit for small businesses that provided health care coverage for their employees. Recent surveys have shown that the majority of small companies that could qualify for the credit have failed to take it. The reasons given for ignoring the credit ranged from being unaware of it to finding the credit
too complicated to compute.
* Take another look
If your business or nonprofit organization might be eligible, perhaps you should take another look at the requirements and be sure you're taking advantage of this tax break. If you qualify, you can use this tax credit to offset your federal income tax liability by up to 35% of the cost of health insurance premiums you pay for employees. Since this is a tax credit, not a deduction, it will reduce your tax bill dollar-for-dollar.
* Can your business qualify?
In general, the credit is available to employers that have fewer than 25 full-time equivalent (FTE) employees paying average annual wages of less than $50,000 per employee. Eligibility is based partially on FTEs, not the number of employees; therefore, an employer with fewer than 50 half-time workers could qualify for the credit. The maximum credit goes to those employers with ten or fewer employees who pay annual average wages of $25,000 or less.
When you're self-employed, either as a partner or a sole proprietor, or if you own more than 2% of an S corporation, you're not considered an employee for purposes of the credit.
Tax-exempt organizations can use the credit to offset payroll tax liability (up to 25% of qualified premiums paid).
For assistance in determining eligibility for this tax credit and in doing the calculations to obtain the credit, email me at Vince@MyTexasCPA.com
Congress passed a $150 billion economic package Friday, extending for the rest of the year a payroll-tax cut for 160 million workers and unemployment benefits for millions of others.
The rare bipartisan agreement also would preserve Medicare payment rates to physicians.
The House voted 293-132 to approve the plan. Minutes later, the Senate agreed, 60-36. President Obama has promised to sign it. After the vote, lawmakers began a one-week recess.
Under the bill, Social Security taxes for workers would remain at their current 4.2 percent level this year on wages up to $110,100. Friday's votes ensure that the average worker earning $50,000 a year would continue to receive a weekly break of $20.
Medicare payments to doctors, scheduled to drop by 27.4 percent, would stay at current levels. Extended unemployment benefits for people who have been out of work for long stretches would continue, though for shorter periods.
The bill has three major components:
• The payroll tax: The extended tax cut could provide about a 0.6 percent increase in the gross domestic product, the sum of all goods and services produced in a year, some economists said, enough to help give the still-fragile economy a boost.
• Medicare: The "doc fix" would keep payments to physicians and other health-care providers at current rates for 10 months.
• Unemployment benefits: Most Democrats have argued there's no need to pay for such aid with budget cuts elsewhere or increases in revenue during tough economic times; Republicans insisted not only on paying for the benefits, however, but also on making changes. The current maximum duration of benefits, 99 weeks, would remain until May. The maximum then would drop in stages, in most cases to 79 weeks during the summer and 73 in September. The maximums depend on a state's unemployment rate.
States would be allowed to drug-screen applicants who lost their jobs because of drug use or are required to get drug tests for their jobs.
Not everyone was pleased about the compromise bill.
The payroll-tax break would cost about $94.5 billion, and it wouldn't be paid for. The other provisions, costing about $49.5 billion, would be offset by a series of budget reductions and revenue raisers, including auctioning part of the electromagnetic spectrum that TV broadcasters use, cutting money aimed at improving preventive health care and increasing new federal employees' pension contributions.
Some Democrats complained the biggest cut hit federal workers because of a plan to produce $15 billion in savings by requiring new federal employees to contribute an additional 2.3 percent to their pension plans.
"Nobody is targeted in this bill other than federal employees," House Minority Whip Steny Hoyer, D-Md., said during debate. "Enough is enough," said Rep. Chris Van Hollen, D-Md., who negotiated the plan to wall off current federal employees from the pension-payment increase. Both voted against the bill.
Financial aid season has begun, and this year parents and students looking for federal grants and loans have an electronic tool to help them fill out the form.
The IRS Data Retrieval Tool allows students and parents to access the IRS tax return information needed to complete the Free Application for Federal Student Aid (FAFSA). Students and parents may transfer the data directly into their FAFSA.
If you are eligible to use the IRS Data Retrieval Tool, we highly recommend using the tool for several reasons:
If you do not use the IRS Data Retrieval Tool to provide tax information and your college requests a copy of your tax return or your parents’ tax return, you may be required to obtain an official tax transcript from the IRS.
The first step to using the new tool is to file your taxes and soon. If you file your taxes electronically, give it two weeks before you fill out the FAFSA, There is a tiny delay to be able to use it. If you don't e-file, it will take even longer before you can use the retrieval tool to fill out your FAFSA, she says.
To use the new IRS tool, you need a valid Social Security number and a filed tax return from the previous year. A box on the FAFSA website, www.FAFSA.ed.gov, will port you to the IRS website, where you will be asked some security questions. Then the tax information will be automatically downloaded to your FAFSA form.
http://www.fafsa.ed.gov/index.htm
If you own foreign investments, you may have an additional federal tax filing requirement this year.
Form 8938, "Statement of Specified Foreign Financial Assets," is due April 17, 2012, and is filed as part of your individual tax return. You'll use Form 8938 to disclose interests in certain foreign financial accounts when your ownership exceeds the reporting requirements.
What are the reporting requirements? They vary depending on where you live and your filing status. For example, say you’re married and live in the United States, and you'll file a joint tax return for 2011. You'll include Form 8938 with your tax return when the total value of your reportable assets on the last day of 2011 is more than $100,000, or if the value exceeds $150,000 at any time during the year.
Tip: In some cases, you may also need to file Form 8938 for tax year 2010.
Reportable assets include investment accounts you own that are held in foreign financial institutions, interests in foreign entities, and stocks or securities issued by foreign individuals or companies.
You've probably noticed the reporting requirements are similar to the "Report of Foreign Bank and Financial Accounts" (FBAR), a separate return you may already be filing. Be aware the new Form 8938 does not replace the FBAR, which you'll still need to complete by June 30.
Penalties for failure to file Form 8938 start at $10,000. We urge you to contact us so we can help you evaluate your filing requirements for foreign investments.
Changing from a C corporation setup to the S corporation setup can be beneficial, but there are numerous factors to consider. With the March 15, 2012 deadline for 2011 fast approaching, you should seek guidance for your situation.
Basic benefits of a switch: If a C Corporation owner elects S corp status, the corporation’s income and deduction items are passed through to the owner, reported on his or her 1040 and taxed at personal rates. Significantly, switching to S status would avoid any threat of double taxation on: (1) future corporate operating profits and (2) future appreciation in corporate assets that occurs after the switch.
As you may know, double taxation occurs when a C corporation pays corporate-level tax on its income and gains. Then the owner pays tax again at the shareholder level when those income and gains are distributed as taxable dividends.
In contrast, a business owner is only taxed once under the S corp form of doing business, while retaining other benefits such as corporate protection from personal liability.
Basic drawbacks to a switch: The decision to switch isn’t always a slam-dunk. If the owner has substantial income from other sources or if the company is quite profitable, he or she may be forced to pay the 35% maximum rate on most or all of the incremental income passed through. Rule of thumb: With the current tax brackets in effect, the owner often fares better if the company generates annual profits of less than $100,000.
In addition, beware of the onerous "built-in gains" (BIG) tax. It comes into play if the corporation owns appreciated assets when it switches from C to S status. When this corporate-level tax applies, the rate is 35%.
We can help you with this determination. Email me at mailto:Vince@MyTexasCPA.com to discuss your situation.
wages was extended through February 29, 2012.
