December 15, 2011
Happy Holidays from the Baker Milligan Team
We would like to wish all of our clients and friends a happy holiday season. We have been honored to serve you in the past year and we are looking forward to a wonderful and successful 2012 for each one of you. As the year is winding down, we wanted to take a little extra time to thank you for your continued patronage.
Just like in years past, 2011 brought some important changes that will affect your 2012 tax planning. Congress was active again, meaning there have been changes to the tax law. There are new tax saving opportunities and some important changes that will help you stay on the right side of compliance. Helping you navigate complicated issues while identifying new tax saving opportunities is very important to us.
Our end of the year tax organizer is now available. If you received a tax organizer last year, you will receive one again in 2011. If you didn’t receive one last year, call or send us an email and we’ll get one to you as soon as possible.
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2012 Due Dates for Businesses and Individuals
Tax time is coming. Be sure you are prepared. Mark these important dates on your calendar to ensure that you don’t miss the deadlines:
Energy-Efficient Credit for Existing Homes
The credit for energy-efficient improvements to existing homes is available through the end of 2011. The maximum lifetime credit is $500 in 2011. If a taxpayer received more than $500 from the credit in any prior year, no credit is available.
In hopes of spurring economic growth in 2011, Congress created valuable incentives for businesses to purchase assets. Under Section 179, a business can deduct the cost of certain qualified property placed in service during the year. The Small Business Jobs Act of 2010 increased the maximum Section 179 deduction to $500,000 for 2011 with a phase-out threshold of $2 million. Eligible assets include computers, office equipment, and furniture. Certain real estate improvement costs now also qualify for Section 179 deductions of up to $250,000.
The Tax Relief Act of 2010 amended the rules to allow 100 percent bonus depreciation for qualifying new assets (must be first-time use assets, meaning used equipment will not qualify) acquired and placed-in-service through the end of 2011. To be eligible for 100 percent bonus depreciation, an asset must pass all of the following tests:
Bonus depreciation and Section 179 can both be used in the same year, meaning many taxpayers will receive substantial tax savings on their 2011 filings. If you made significant asset purchases in 2011, be sure to provide us with the details.
Businesses will need to fill out a Form 1099-MISC for persons, vendors, subcontractors, or independent contractors, if $600 or more per yearis paid forcash payments to fishermen, crop insurance proceeds, medical and health care payments, prizes and awards, proceeds paid to attorneys, rents, services (including parts and materials), and other types of payments not covered by another information reporting document.
1099’s should be issued to recipients by January 31, 2012 and mailed to the IRS by February 28, 2012. 1099’s may be electronically filed by March 31. Penalties for failing to file required 1099’s have recently been increased. Penalties start at $30 per late filed 1099 form and can be as much as $500 for each 1099 not provided.
Mileage Rate Changes for 2011
The standard mileage rates increased from 2010 to 2011. Then, in response to rising fuel costs, on June 23, 2011, the IRS announced another increase in the standard optional mileage rates for the remaining six months of 2011. The rates are below:
New Employment Credits
The Three Percent Withholding and Job Creation Act established The Returning Heroes and Wounded Warrior tax credits. These credits are available for businesses which hire qualifying veterans who begin work after November 21, 2011. The Returning Heroes credit provides a credit to businesses for hiring unemployed veterans. Short-term unemployed veteran hires (unemployed for at least four weeks) can generate credits of up to $2,400 each. Long-term unemployed veteran hires (unemployed longer than six months) can generate credits up to $5,600 for each qualifying new hire.
The Wounded Warrior credit extended the existing Work Opportunity Tax Credit (WOTC) of up to $4,800 for each new qualifying veteran hire with a service-related disability. It also established a new credit of up to $9,600 for each qualifying hire of a long-term unemployed veteran with service-related disabilities. Like other WOTCs, these credits can be obtained for each qualifying hire, so credits can add up quickly.
General Business Credits
In 2010, Congress radically changed the way that general business credits can be applied to small businesses. General business credits include the research and development tax credit, work opportunity tax credit, low-income housing creditand many others. Prior to 2010, alternative minimum tax (AMT) served as a floor for tax liability that even business credits couldn’t reduce. Beginning in 2010, general business credits can now offset AMT.
Even if you haven’t previously claimed credits, it is critical that you evaluate the potential opportunities from general business credits. If you qualify for credits, failing to identify and claim them could be very costly. We’re always available to help you analyze which opportunities may apply to you.
S-Corps Pay Shareholder Salaries
The fastest way to get audited as an S-Corporation is to file an 1120S with no amount showing on Form 1120S Line 7 (Officer Compensation) Active shareholders, or “shareholder-employees,” should receive a reasonable wage. As an owner-employee of the S-Corporation, you must pay yourself a salary, and pay payroll taxes on your salary.
Estate tax rates and exemption amounts are set through 2012, but beyond that, uncertainty remains. Now is the time to take advantage of current tax savings, while planning for the uncertainty of the future. Not only does current tax law provide for increased estate tax exemptions, but provides for a 5 million dollar lifetime gift tax exemption. While current estate tax expiring after 2012, the lifetime gift tax exemption provides opportunity to shift significant wealth tax-free while still living. Planning and ongoing review of your estate structure will help minimize overall tax liability and maximize the transferred value of the estate.
It’s never too early or too late to plan for your retirement. If you don’t have a detailed plan in place, now is the time to get one. If you already have a plan, there are some excellent cost saving opportunities you may want to explore. Now may be the time to consider a ROTH conversion and evaluate the many tax deferred strategies available.
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