Archive for December, 2011

2011 Payroll Tax Rate Cut Extension & New Income Tax “Recapture”

Friday, December 30th, 2011

The exclusive purpose for the information which is provided from this website is to disseminate  information, and not to provide tax advice.

The information at the end of this article is VERBATIM from an e-mail which I regularly receive from the Internal Revenue Service as a tax practitioner.  Please read it and make your own interpretations.  There are two tax issues which are addressed:

1.  Payroll Tax Extension (Employee Only) – for many years the combined (total) payroll taxes which are paid by both the employee (and matched in an equal amount) and employer has been 15.3% of your gross taxable earnings (usually total earnings less your retirement plan contributions and your medical premiums deductions).  The breakdown is  as follows:  Social Security taxes – 6.2% for each contributor.  The total Social Security tax rate is 12.4%.  Your “taxable social security salary or wage base” is set an an annual maximum ($106,800.00 for 2011; $110,100.00 for 2012).    The Medicare tax rate is 1.45% for each contributor with no maximum annual earnings limitation.  The total is 2.9%.   12.4% plus 2.9% = 15.3%.

In 2011 the employee payroll tax rate was temporarily reduced from 6.2% to 4.2%.  The employer Social Security payroll tax rate has remained at 6.2%.  The media have bantered the stipulation that if the average annual income rate for an American employee is $50,000.00, then this 2% reduction in employee Social Security payroll taxes would provide about $1,000.00 less in payroll taxes and an equivalent amount to boost our economy.  The Medicare tax rates have always remained at the same 2.90% total tax rate.  This temporary employee payroll tax rate reduction was to expire on December 31, 2011.  In the past ten days the U.S. Congress has extended the employee Social Security rate reduction expiration date until February 29, 2012.  The current mindset (again as reported by the media) is to extend the payroll tax rate for the entire year.  Stay tuned.

2.  NEW Income Tax “Recapture” – it is generally acknowledged that the current administration is very passionate regarding taxing those Americans who are considered to be “high income earners.”  If you earn more than $18,350.00 during the above two month period (equals two months earnings at  the above $110,100.00 annual maximum amount), in 2013 when you file your 2012 income tax return you will be required to pay an additional income tax of 2% x your gross earnings in excess of $18,350.00 which were earned during the first two months of 2012.

Please remember that 2012 is an election year!

The entire text from the IRS follows: (more…)

IRS Tax Law Changes for 2011

Wednesday, December 21st, 2011

The exclusive purpose for the information which is provided from this website is to disseminate  information, and not to provide tax advice.

In times past there was a certain degree of stability and predictability in our tax laws.  In the past eleven years, or longer, the U.S. Congress has opted to provide U.S. Taxpayers with a continuously changing environment.  While this has provided tax preparers with a significant boost in their job security, it has created an environment of heightened stress and frustration for the taxpayers themselves.  Regardless of who prepares a tax return, the taxpayer  is responsible for its accuracy.

Each year since the 1940s the IRS has published Publication 17 (“Your Federal Income Tax for Individuals”) which is an excellent reference document to provide you with a better understanding of the tax law requirements and with the information that is required to complete and file an accurate income tax return.   It is available to you throughout the year via the Internet at:

Listed below is a summary of the key tax law provisions which are either new or which have changed for 2011:

What’s New

 This section summarizes important tax changes that took effect in 2011.  Most of these changes are discussed in more detail throughout  Publication 17.

The IRS has created a page on for information about this publication at Information about any future developments affecting this publication (such as legislation) will be posted on that page.

Due date of return. File Form 1040, 1040A, or 1040EZ by April 17, 2012. The due date is April 17, instead of April 15, because April 15 is a Sunday and April 16 is the Emancipation Day holiday in the District of Columbia.

Reporting capital gains and losses on new Form 8949. In most cases, you must report your capital gains and losses on new Form 8949. Then you report certain totals from that form on Schedule D (Form 1040). See chapter 16.

Standard mileage rates. The 2011 rate for business use of your car is 51 cents a mile for miles driven before July 1, 2011, and 55 ½ cents a mile for miles driven after June 30, 2011. See chapter 26.The 2011 rate for use of your car to get medical care is 19 cents a mile for miles driven before July 1, 2011, and 23 ½ cents a mile for miles driven after June 30, 2011. See chapter 21.The 2011 rate for use of your car to move is 19 cents a mile for miles driven before July 1, 2011, and 23 ½ cents a mile for miles driven after June 30, 2011. See Publication 521, Moving Expenses.

Standard deduction increased. The standard deduction for some taxpayers who do not itemize their deductions on Schedule A (Form 1040) is higher for 2011 than it was for 2010. The amount depends on your filing status. See chapter 20.

Exemption amount. The amount you can deduct for each exemption has increased. It was $3,650 for 2010. It is $3,700 for 2011. See chapter 3.

Self-employed health insurance deduction. This deduction is no longer allowed on Schedule SE (Form 1040). However, you can still take it on Form 1040, line 29. See chapter 21.

Alternative minimum tax (AMT) exemption amount increased. The AMT exemption amount has increased to $48,450 ($74,450 if married filing jointly or a qualifying widow(er); $37,225 if married filing separately).

Health savings accounts (HSAs) and Archer MSAs. For distributions after 2010, the additional tax on distributions from HSAs and Archer MSAs not used for qualified medical expenses has increased to 20%.Also beginning in 2011, amounts paid for medicine or a drug are qualified medical expenses only if the medicine or drug is a prescribed drug or is insulin.See the instructions for Form 8889 or Form 8853 for details.

Roth IRAs. If you converted or rolled over an amount to a Roth IRA in 2010 and did not elect to report the taxable amount on your 2010 return, you generally must report half of it on your 2011 return and the rest on your 2012 return. See Publication 575 for details.

Designated Roth accounts. If you rolled over an amount from a 401(k) or 403(b) plan to a designated Roth account in 2010 and did not elect to report the taxable amount on your 2010 return, you generally must report half of it on your 2011 return and the rest on your 2012 return. See Publication 575 for details.

Alternative motor vehicle credit. You cannot claim the alternative motor vehicle credit for a vehicle you bought in 2011, unless the vehicle is a new fuel cell motor vehicle. See chapter 36.

First-time homebuyer credit. To claim the first-time homebuyer credit for 2011, you (or your spouse if married) must have been a member of the uniformed services or Foreign Service or an employee of the intelligence community on qualified official extended duty outside the United States for at least 90 days during the period beginning after December 31, 2008, and ending before May 1, 2010. See chapter 36.

Repayment of first-time homebuyer credit. If you have to repay the credit, you may be able to do so without attaching Form 5405. See chapter 36.

Nonbusiness energy property credit. This credit is figured differently for 2011 than it was for 2010. See chapter 36 for details.

Health coverage tax credit. This credit has been extended, and the amount has changed. See chapter 36 for details.

Foreign financial assets. If you had foreign financial assets in 2011, you may have to file new Form 8938 with your return. Check for details.

Schedule L. Schedule L is no longer in use. You do not need it to figure your 2011 standard deduction. Instead, see chapter 20 for information about your 2011 standard deduction.

Making work pay credit. The making work pay credit has expired. You cannot claim it on your 2011 return. Schedule M is no longer in use.

Mailing your return. If you are filing a paper return, you may be mailing it to a different address this year because the IRS has changed the filing location for several areas. See Where To File near the end of this publication for a list of IRS addresses.



Six Opportunities To Reduce Your 2011 Taxes

Wednesday, December 21st, 2011

The exclusive purpose for the information which is provided from this website is to disseminate  information, and not to provide tax advice.

As indicated in the above statement, this section of my website is devoted to the timely dissemination of information related to the provisions of important tax law changes, including those provisions which may benefit you.  This information will be posted as soon as it is available from the Internal Revenue Service.  While each state exercises the right to follow, or not follow, the IRS rules, for the most part they do implement very similar tax regulations.

From a timing perspective, these changes are provided each year between now and the middle of January.  Reviewing the information before you file your 2011 tax returns will allow you to avoid having to file amended tax returns later.  Below are six opportunities which may permit you to reduce your 2011 tax liability:

Six Year-End Tips to Reduce 2011 Taxes

The IRS wants to remind all taxpayers that with the New Year fast approaching, there is still time for you to take steps that can lower your 2011 taxes.  However, you usually need to take action no later than Dec. 31 in order to claim certain tax benefits.  Here are six tax-saving tips for you to consider before the calendar turns to 2012:

1. Make Charitable Contributions – If you itemize deductions, your donations must be made to qualified charities no later than Dec. 31 to be deductible for 2011. You must have a canceled check, a bank statement, credit card statement or a written statement from the charity, showing the name of the charity and the date and amount of the contribution for all cash donations. Donations charged to a credit card by Dec. 31 are deductible for 2011, even if the bill isn’t paid until 2012. If you donate clothing or household items, they must be in good used condition or better to be deductible.

2. Install Energy-Efficient Home Improvements – You still have time this year to make energy-saving and green-energy home improvements and qualify for either of two home energy credits. Installing energy efficient improvements such as insulation, new windows and water heaters to your main home can provide up to $500 in tax savings. Homeowners going green should also check out the Residential Energy Efficient Property Credit, designed to spur investment in alternative energy equipment. The credit equals 30 percent of the cost of qualifying solar, wind, geothermal, or heat pump property. For details see Special Edition Tax Tip 2011-08, Home Energy Credits Still Available for 2011 on the website.

3. Consider a Portfolio Adjustment – Check your investments for gains and losses and consider sales by Dec. 31. You may normally deduct capital losses up to the amount of capital gains, plus $3,000 from other income. If your net capital losses are more than $3,000, the excess can be carried forward and deducted in future years.

4. Contribute the Maximum to Retirement Accounts – Elective deferrals you make to employer-sponsored 401(k) plans or similar workplace retirement programs for 2011 must be made by Dec. 31. However, you have until April 17, 2012, to set up a new IRA or add money to an existing IRA and still have it count for 2011. You normally can contribute up to $5,000 to a traditional or Roth IRA, and up to $6,000 if age 50 or over. The Saver’s Credit, also known as the Retirement Savings Contribution Credit, is also available to low- and moderate-income workers who voluntarily contribute to an IRA or workplace retirement plan. The maximum Saver’s Credit is $1,000, and $2,000 for married couples, but the amount allowed could be reduced or eliminated for some taxpayers in part because of the impact of other deductions and credits.

5. Make a Qualified Charitable Distribution – If you are age 70½ or over, the qualified charitable distribution (QCD) allows you to make a distribution paid directly from your individual retirement account to a qualified charity, and exclude the amount from gross income. The maximum annual exclusion for QCDs is $100,000. The excluded amount can be used to satisfy any required minimum distributions that the individual must otherwise receive from their IRAs in 2011. This benefit is available even if you do not itemize deductions.

6. Don’t Overlook the Small Business Health Care Tax Credit – If you are a small employer who pays at least half of your employee health insurance premiums, you may qualify for a tax credit of up to 35 percent of the premiums paid. An employer with fewer than 25 full-time employees who pays an average wage of less than $50,000 a year may qualify. For more information see the Small Business Health Care Tax Credit page on

And here is one final tip to remember: you should always save receipts and records related to your taxes. Good recordkeeping is a must because you need records to prepare your tax return, and it will help you to file quickly and accurately next year.

For more year-end tax information and to access all IRS forms and publications, visit the IRS website at


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Year-End Tax Tips – December 2011 English | Spanish | ASL


IRS Announces 2012 Standard Mileage Rates

Friday, December 9th, 2011

The exclusive purpose for the information which is provided from this website is to disseminate  information, and not to provide tax advice.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.  The “standard mileage rates” provide a basis for accumulating and claiming the costs for operating motor vehicles while simultaneously avoiding the administrative burden of maintaining a system to document the actual vehicle operating costs.  Additionally, if  accurate written records have been maintained throughout the year, taxpayers have the option to use the method which provides the greater tax deduction.  The IRS rate standards provide for a “per mile” rate for three major categories of vehicle operating expenses:

  • Business miles driven
  • Medical and moving purposes, and
  • Charitable organization activity support

While the rates for each major activity are usually set at the end of the previous tax year for the coming year, in the past several years the IRS has revised the rates during the calendar year (usually mid year) to reflect the higher cost per gallon for fuel.   (more…)

Quick Reference Guide for Small Business Owners

Thursday, December 8th, 2011

The exclusive purpose for the information which is provided from this website is to disseminate  information, and not to provide tax advice.

In many situations small business owners are held to some pretty lofty standards.  In order to achieve these standards and always remain  compliant the small business owner may require more human resources than are actually available.  If you are a business owner, these requirements dictate that you must first know and understand the standards, then you must carefully allocate your time and resources to efficiently and effectively operate your business. 

The Internal Revenue Service has consolidated most of these requirements in to Publication 4591 which is a single, two-page document.  Entitled “Small Business Federal Tax Responsibilities”, this document contains a wealth of information for the small business owner.  It is available at no cost from the IRS website: