Kristen Smith, CPA is expecting and due on April 15!

We are proud to announce that Mrs. Kristen Smith is expecting her second child! The baby boy is due on April 15th which, oddly enough, is tax day. Here in the office we have been joking that the baby’s first name should start with an “I” and middle name with an “R” – I.R.S. No matter the name, we know that he will be a fabulous addition to an already terrific family!

How Kristen’s clients will be affected by the baby’s delivery
Kristen has asked that her clients please provide her with their tax information no later than March 31, 2012. For clients that are unable to provide information by that date, an extension will be filed and their return will be completed after the baby’s delivery.

Tax Organizer Availability

Tax organizers will be available to pick-up in our office on January 2, 2012. Organizers that are not picked up in office will be mailed out during the week of January 15, 2012.

Tax Form Availability

Miscellaneous blank tax forms will be available to pick up in our office starting on January 2, 2012. Forms included are W-2s and W-3s, 1099-MISC and 1096s. Other forms available upon request. Please give us two weeks notice to procure any forms your may require. Our payroll clients need not stop in and pick up blank forms as we will be completing the preparation of these forms for you.

Individual Income Tax Law Changes

Lower Tax Rates Extended

The Tax Relief Act of 2010 will extend through the end of 2012.Therefore the income tax rates in effect in 2010 will continue through 2012. They had been scheduled to increase to the higher tax rates that were in effect prior to 2001.

Estate Tax

For individuals who have passed away after 2010, the federal estate tax continues with a $5 million exemption and a 35% maximum rate. The current federal rules are set to expire after 2012.

Mortgage Insurance Premiums

The special itemized deduction for mortgage insurance premiums paid on mortgages taken out after 2006 expired on Dec. 31, 2010.

Dividend & Capital Gains Tax Rates Extended Through 2012

The tax rate reductions for long-term capital gains remain in effect for 2011 and 2012.

Child Tax Credit
The credit of $1,000 per eligible child continues through 2012. The Tax Relief Act of 2010 extended the credit an additional two years.

Section 179 Expense Deduction (Depreciation)

The $500,000 maximum amount of equipment placed in service that businesses can expense and the annual investment limit of $2,000,000 remain in effect for 2011.

American Opportunity Tax Credit
This college tuition tax Credit will remain in effect through 2012.

Earned Income Credit (EIC)

Temporary increases in the Earned Income Tax Credit for filers with three or more children and the higher income levels for the phase-out of the credit have been extended through the end of 2012.

Payroll Tax Credit

Beginning in 2011, the partial credit for payroll taxes paid by employers is no longer available.

Credit for Energy-Saving Home Improvements

The 30 percent tax credit of the cost of energy-saving home improvements was extended by the Tax Relief Act of 2010 through 2011.

Your withholding is different in 2011

The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, enacted on December 17, 2010, included several changes affecting take-home pay and pension checks for 2011:
The Tax Relief Act extended for two years the income tax rates that were scheduled to expire at the end of 2010. That extension prevented a large increase in federal income tax withholding.

The Tax Relief Act did not extend the Making Work Pay Credit that had been available for 2009 and 2010. If you had earned income, your federal income tax withholding decreased slightly for those tax years, and with the expiration of the credit, your federal income tax withholding increased.

Your overall withholding may not have changed much since the Tax Relief act also reduced Social Security tax withholding from 6.2% to 4.2%, for one year. For most employees, the net effect of these two changes will result in less total tax being withheld from their checks. The Social Security tax reduction does not affect pension payments.

Once employers implemented the changes, there was a net increase in take-home pay for most employees.

Once pension plan administrators implement the 2011 changes, the retirement check payments for some pensioners may be lower, depending on how their plan administrators calculated withholding in 2010. Because the Making Work Pay Credit did not apply to pensioners, the IRS published a table for 2009 and 2010 giving plan administrators the option of increasing withholding for their pension recipients. Not all plan administrators made the optional adjustment and instead allowed pensioners to make the adjustment when they filed their tax returns. Since the 2011 withholding tables do not reflect the expired credit, pension recipients in this situation are likely to see the withholding for their 2011 pension payments increase by approximately $7 to $50 per payment, depending on filing status, the amount of the payment, and how often the payment is made.

1099-MISC

1099-MISC is more important than ever this year. If you have an independent contractor that receives $600.00 or more in compensation during the tax year, you are required to give them a 1099-MISC. The IRS is cracking down on taxpayers who fail to provide 1099’s. The IRS is also increasing penalties assessed to paid preparers who fail to advise taxpayers about these rules. Beginning this year, All clients who are subject to Form 1099 filing rules must sign a statement that they have complied. If you have any questions about these rules, please ask us.

FOREIGN TRANSACTIONS

With increased foreign transaction scrutiny, it is imperative that clients inform us of all foreign transactions and/or foreign accounts that reach a balance of $10,000.00 or more at ANY time during 2011. Moreover, if you have paid any taxes to any foreign government there is a federal tax credit that we can use on your return.

ITEMIZED DEDUCTIONS (Schedule A)

As always, it’s very important to retain documentation of your itemized deductions. Things like charitable contributions, medical expenses, vehicle mileage or misc. deductions like broker management fees can lead to big deductions. Lack of documentation, however, can lead to big penalties in the occurrence of an audit. Now more than ever, protect yourself by retaining the documents that prove you are entitled to these deductions.

2012 ESTIMATED TAX DATES

FOURTH QUARTER 2011 (SEP. 1 – DEC. 31)
DUE: MONDAY, JANUARY 18, 2012
You may delay making this payment (using form 1040-ES) until Jan. 31 if you file your 2011 return (Form 1040 and pay any tax due by Jan. 31.

FIRST QUARTER 2012 (JANUARY 1 – MARCH 31)
DUE: MONDAY, APRIL 18, 2012
Use form 1040-ES.

SECOND QUARTER 2012 (APRIL 1 – MAY 31)
DUE: WEDNESDAY, JUNE 15, 2012
Use form 1040-ES.

THIRD QUARTER 2012 (JUNE 1 – AUGUST 31)
DUE: THURSDAY, SEPTEMBER 15, 2012
Use form 1040-ES.

SOCIAL SECURITY BENEFITS

When benefits are taxable

Social Security income or equivalent railroad retirement benefit amounts you received may or may not be taxable, depending on other income you or your spouse received in the tax year.
If you received no other income during the year, it is likely your benefits will not be taxable.
If you did receive other income, your benefits will be taxed if one-half of your benefits plus all other income, including tax-exempt interest, exceeds the base amount for your filing status.

The base amounts are:

• $25,000 if your filing status is single, head of household, or qualifying widow(er)

• $25,000 if your filing status is married filing separately and you lived apart from your spouse all of the tax year

• $32,000 if your filing status is married filing jointly

• $0 if your filing status is married filing separately and you lived with your spouse at any time during the tax year

If your filing status is married filing jointly, you must include benefits and income received by both you and your spouse when determining whether the benefits are taxable. If the benefits are deemed taxable they must be included in the gross income of the person who has the legal right to receive the benefits. If both you and your child receive benefits, and the check for your child's portion is made out to you, you do not include the benefits in your portion when determining if any amount is taxable. The child's portion must be added to the child's other income to determine if the benefits are taxable to your child.

How Much Is Taxable?
Generally up to 50% of benefits that are deemed taxable are subject to tax. However, up to 85% of your benefits are taxable if:

• The total of one-half of your benefits and all other income is more than $34,000, or $44,000 if your filing status is married filing jointly.

• Your filing status is married filing separately and you lived with your spouse at any time during the tax year.

Social Security benefits are reported on Form SSA-1099.Railroad retirement benefits are reported on Form RRB-1099.

MORE WAYS TO MINIMIZE YOUR TAX LIABILITY IN 2011

ARIZONA SCHOOLS TAX CREDIT

You can help Southern Arizona children, from kindergarten through senior high, by taking advantage of Arizona’s public school tax credit. By making a donation to ($200 filing single; $400 filing married) the school of your choice you can reduce your state income taxes dollar for dollar.

ARIZONA TUITION GRANTING TAX CREDIT

This credit is similar to the Arizona Schools Credit only this credit is for private schools. It is still a dollar for dollar reduction in your Arizona state taxes. There is a $500 limit on the credit. For information on how to take advantage of this credit see WWW.AZTO.ORG or ask your favorite accountant.

CHARITABLE CONTRIBUTIONS

When donating to your favorite charity don’t forget to obtain a receipt. Those donations are a great way to give back to your community and they are also tax deductible. For non-cash items, it is up to you to determine the value of the item at time of donation. Bring us this info with your 2011 income tax documents.

Interesting Tax Facts

2010 Filing Season Statistics

* The average income tax return for 2010 was $3,097

* Nearly 77% of American taxpayers received a refund of some amount in 2010

* $328 billion was refunded to taxpayers in 2010

* 69% of taxpayers filed electronically in 2010

* 75% of electronically filed returns were direct deposited

* Taxpayers who elected to have their returns deposited directly received on average $188 more dollars than those who received their returns via check

* There were 142m taxpayers last year and 297m visits to the IRS website

* 17% of American taxpayers required an extension in 2010