There’s still time to cut your 2011 tax bill

March 30, 2012

Are you still dealing with your 2011 tax return? Do you owe a bigger tax bill than you expected? Are you missing a tax break because your adjusted gross income is too high? Would you like a bigger refund? Don’t despair. You might still have time to make some changes. For example:

* You have until April 17 to make a tax-deductible IRA contribution for 2011. If you qualify, you could contribute up to $5,000 and have it count as a deduction against last year’s taxes. If you were 50 years old or older last year, your maximum contribution is $6,000.

* Even if you’ve already made your 2011 contribution to a Roth IRA, it may not be too late to make a change. You may be able to recharacterize your contribution as a traditional IRA contribution and take the deduction. You’ll need to set up a traditional IRA, make a trustee-to-trustee transfer, and report it on your 2011 tax return. Get details before you try this to make sure you avoid any tax traps.

*If you’re self-employed, there’s still time to set up a SEP-IRA for your business. You have until the due date of your return, including extensions, to set up the plan and make a contribution from 2011 earnings. SEP-IRAs are relatively easy to establish and flexible to manage.

Contact our office if you’re interested in any of these ideas. We can help determine whether you qualify and guide you through the process.

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Use it or lose it – deadline approaching

March 27, 2012

If your flex plan at work allows a 2½ month grace period for using the pre-tax dollars you set aside for 2011, be aware that a final deadline is approaching. You have until March 15, 2012, to use the funds you set aside for 2011 or you forfeit any leftover dollars.

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Does this April 2 deadline apply to you?

March 23, 2012

If you reached age 70½ last year, April 2, 2012, could be an important deadline. That’s the last day you can take your required minimum distribution (RMD) for 2011 from your traditional IRAs. If you miss that deadline, the penalty could be a 50% excise tax on the amount you should have withdrawn.

Here’s how the rules work. Once you reach age 70½, you must start taking annual distributions from your traditional IRAs. Normally these distributions must occur by December 31 of each year. But a special rule lets you defer the first distribution until April of the year after you reach age 70½. So if you turned 70½ last year, April 2 is the deadline for your 2011 distribution. Be aware that you’ll still need to take your 2012 RMD before the end of this year.

Generally, the amount of the RMD for any year is based on your age. You take the balance in all your traditional IRAs as of the last day of the previous year, and divide by a factor representing your life expectancy. The IRS has published a standard life expectancy table to use in the calculation. Special rules might apply if your spouse is more than ten years younger than you are.

Because all or part of your distribution may be taxable income, it is important to include RMDs in your tax planning. Ideally you should start planning for RMDs several years before you reach age 70½. But whether you’re planning in advance or looking at a distribution on April 2, contact our office for more detailed advice.

The RMD rules don’t apply to Roth IRAs. Unless you’re still working, this deadline also applies to your other retirement accounts.

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Payroll tax cut is extended through 2012

March 20, 2012

Congress passed an extension of the 2% payroll tax cut that had been scheduled to expire at the end of February. The extension means 160 million working Americans will continue to pay social security tax on their wages at a 4.2% rate for the rest of 2012, rather than at a 6.2% rate.

Because Republicans and Democrats were unable to agree on how to pay for the extended tax cut, the law included no spending cuts to offset the estimated $93 billion cost of this provision.

The law also provides for long-term federal unemployment benefits, setting the maximum at 73 weeks in states with the worst unemployment and 63 weeks for other states.

Another provision in the law includes the so-called “doc fix” that prevents a scheduled 27% reduction in Medicare payments to doctors.

The unemployment benefits and doctor payments will be paid for by government sales of broadband spectrum, requiring federal workers hired after this year to contribute more to their pensions, and cuts in certain health programs.

President Obama signed the bill into law on February 22.

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It’s tax payback time

March 16, 2012

If you took certain actions in a prior year, you may now have additional taxes due on your 2011 tax return. Here are the details.

HOME BUYER CREDIT: If you bought a home in 2008 and took the first-time home buyer credit, you have another repayment installment due with your 2011 tax return. The 2008 tax credit was just an interest-free loan that you have to pay back over a 15-year period.

ROTH CONVERSIONS: If you converted a traditional IRA to a Roth IRA in 2010 and opted to split the tax due from the conversion between 2011 and 2012, your first half of the tax` is due on your 2011 tax return.

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Upcoming tax deadlines

March 13, 2012

March 15 – 2012 Calendar-year corporation income tax returns are due. Extensions may be filed to give until September 17, 2012, to file.

 March 15 – Deadline for calendar-year corporations to elect S corporation status for 2012.

 April 2 – Deadline for payers who file electronically to send copies of 2011 W-2s to the Social Security Administration.

 April 2 – Deadline for payers who file electronically to file 2011 information returns (such as 1099s) with the IRS.

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IRS reopens offshore voluntary disclosure initiative

March 9, 2012

To encourage taxpayers with assets in offshore accounts to bring their tax filing obligations current, the IRS has reopened its “offshore voluntary disclosure program.”

Similar programs in 2009 and 2011 resulted in the collection of more than $4.4 billion of taxes owed.

The new program has a few key differences from the previous two, including no deadline for applying and a top penalty increase from 25% to 27.5%. The IRS warns that the terms of the current program could be changed at any time.

If you have foreign accounts and need details or filing assistance, contact our office.

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IRS has $1 billion of unclaimed refunds

March 6, 2012

The IRS has just announced that more than $1 billion in tax refunds for the year 2008 remain unclaimed by a million taxpayers who failed to file a return for that year. The tax law provides a three-year period for claiming a refund when no return is filed. That means these individuals must file a tax return for 2008 no later than Tuesday, April 17, 2012, or their refunds will be lost.

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