To encourage taxpayers with offshore accounts to get current with their tax obligations, the IRS has reopened its “offshore voluntary disclosure program (OVDP).” Similar programs in 2009 and 2011 resulted in the collection of more than $4.4 billion of taxes owed.

The 2012 program will be similar to the 2011 program; however, one difference is that there is currently no deadline by which taxpayers must apply.

Health care legislation passed in 2010 included a tax credit for small businesses that provide health care coverage for their employees. Recent surveys have shown that the majority of small companies that might 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.

* The basic requirements. 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, contact our office.

Each year the IRS adjusts certain tax numbers for inflation and tax law changes. 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 first-year expensing 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.
• Health savings account (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.
• The annual gift tax exclusion remains at $13,000.
• Adoption tax credit decreases to $12,650 for adoption of an eligible child.
  

The only way to achieve financial security is to monitor your tax and financial affairs throughout the year. And what better way to kick off the new year than to tidy up your financial and tax house. Here are some tips to get you started.

Take control of your credit cards. Over-reliance on credit cards hurts you in several ways. With interest rates typically in double digits, it’s the most expensive way to borrow money. Think of those monthly interest payments as draining off dollars that you could be investing in a home or saving for your retirement. And too much debt can hurt your credit score and make other borrowing more difficult. It takes time and discipline to reduce credit card debt, but it’s well worth the effort.

Rid yourself of “stuff” you don’t use. Are you paying for a cell phone you rarely use? A magazine you never read? A mail-order video service you forgot about? An extra cable box for that basement TV you never watch? A membership to a gym you rarely attend? If so, now is the time to dump those wasted services and pocket the cash.

Build a cash reserve for emergencies. Your financial situation can quickly spin out of control if you can’t come up with cash when you need it. If you lose your job, you might have to live on reduced income for several months. Or there could be unplanned medical bills, car repairs, or home repair costs. Even if you have insurance, reimbursements can take time and there are deductibles to meet. Work hard to put aside at least three months’ living expenses. Invest it in a safe, liquid account, and resist the temptation to raid it for non-emergencies.

Save regularly and save smartly. Develop the habit of saving something every month, no matter how small the amount. The earlier you start, the longer your savings will have to compound for retirement. Save as intelligently as possible. If you have a 401(k) plan that your employer matches, that’s probably the best investment you’ll find. Other tax-advantaged plans usually make sense, especially for younger investors. But developing a regular savings habit is the key.

Diversify your investments. You’ll reduce your risk by spreading investments among stocks, bonds, and real estate. Within each category, diversify among different industries and companies. The worst thing you can do is to have everything tied up in stock of the company you work for.

Identify your tax opportunities for 2012. There are many credits and deductions available to you in such areas as retirement, education, home ownership, and child care. Identify those that will reduce your taxes, and make adjustments as needed to qualify for those tax breaks.

Get that new filing system started now. Purge your old files. Destroy documents that you don’t need. Create new files for your 2012 documents. Keep a tax and financial calendar that shows all deadlines for making payments and filing returns. And if you don’t have a filing system, create one in order to organize and locate your tax and financial records.

Educate yourself about financial matters. You don’t have to get a degree in finance, but read financial articles on topics that concern your affairs. Consider taking a seminar in basic investing. Ask questions of your advisors. The more you know about finance, the more you can take control of your own financial health.

A whirlwind of regulatory changes are coming in 2012 for 401(k) plans.  If you are a plan sponsor (employer), you should consider the following action items to make sure you stay up to date and are fulfilling your fiduciary responsibilities to the plan.

Benchmark Your Plan - ERISA requires the plan sponsor, as a fiduciary, to ensure that plan expenses for participants are reasonable. The best way to document your fulfillment of this obligation is to have an independent third party prepare a benchmarking study. The study should include a comparison of all fees, investment diversification and performance parameters (contribution rates, participation rate, utilization rate etc.) to those of similar plans based on total assets, number of participants, average account size and industry.

Review Your Plan’s Investment Policy - An effective written investment policy can go a long way toward avoiding plan sponsor ERISA liability. An effective investment plan should detail how the plan’s investments are chosen (diversification, performance, cost etc.) and how often they are reviewed and the review procedure. 

Prepare for the U.S. Dept. of Labor’s New Regulation on Participant Fee Disclosure - Even though the regulation stipulates that the Plan Administrator (employer) is responsible for compliance, realistically the plan record keeper is going to have to provide this data to plan participants. Ask your record keeper to provide you, in writing, with details of how your plan will comply.  Get estimates of what your employees will see on those disclosures and be prepared for their questions. Many will be surprised that there are any costs associated with their 401(k).

Review Your Fiduciary Risk Exposure from Your 401(k) Plan - ERISA bestows on the plan sponsor a fiduciary duty to act in the best interests of the plans participants and to see that the plan is operated for their sole benefit. Many plan providers and consultants provide a fiduciary checklist to help you spot weaknesses and deficiencies in plan operations, investments and investment advice. Many times these checklists are free and can save you a lot of headaches should DOL drop by for a plan audit.

Talk To Your Employees about Your Plan - Face it, ERISA lawsuits are initiated by unhappy participants. Are your employees happy with your 401(k) plan? Is it the benefit it was intended to be?  What are your employees’ experiences like when they seek advice and guidance?  Is your plan focused on positive outcomes, i.e. successful retirements?

Shop Your Plan - The 401(k) landscape is changing rapidly due to increased regulation, competitive pressure and litigation. The positive side to this is that costs are being driven down and both the availability and quality of investment advice are increasing. It has never been more possible to obtain a better deal, both for you and for your employees.

We have free resources available to help you analyze and benchmark your 401(k) plan and review your fiduciary risk exposure. We can help guide you through the tasks above to ensure that you are protecting both yourself and your employees. Contact us at ryan.hastings@rlhcpa.com 

It’s time to file various tax returns once again. If any of the following tax deadlines will apply to you, circle the dates on your 2012 calendar.

• January 17 – Due date for the fourth quarterly installment of 2011 estimated taxes for individuals unless you file your tax return and pay any taxes due by January 31.
  
• January 31 – Employers must furnish 2011 W-2 statements to employees. Payers must furnish payees with Form 1099s for various payments made. The deadline for providing Form 1099-B and consolidated statements to customers is February 15.
  
• January 31 – Employers must generally file annual federal unemployment tax returns.
  
• February 28 – Payers must file information returns, such as Form 1099s, with the IRS. This deadline is extended to April 2 for electronic filing.
  
• February 29 – Employers must send Form W-2 copies to the Social Security Administration. This deadline is extended to April 2 for electronic filing.
  
• March 1 – Farmers and fishermen who did not make 2011 estimated tax payments must file 2011 tax returns and pay taxes in full.
  
• April 17 – Individual income tax returns for 2011 are due.
  

On December 23, 2011, Congress finally approved a two-month extension of the payroll tax cut for American workers. The agreement was reached after weeks of partisan bickering. Though both Democrats and Republicans wanted a one-year extension of the tax cut, they could not agree on how to pay for a year-long extension and settled on a paid-for two-month extension.

The new law extends the 4.2% social security tax on wages through February 29, 2012. Without this extension, the tax rate would have gone to 6.2% on the first $110,100 of wages earned in 2012.  There is a recapture provision which applies to individuals who receive more than $18,350 during the two-month extension period.  The recapture tax would be payable when the employee files his or her 2012 income tax return.  The House Ways and Means Committee has reported that the recapture provision will only apply if the payroll tax reduction is not extended for the remainder of 2012.

The law also extends benefits for the long-term unemployed for two months and prevents a scheduled cut in fees paid to Medicare providers from taking effect January 1, 2012.

These extensions will be paid for by an increase in fees charged by government-backed mortgage companies (Fannie Mae and Freddie Mac) for new home loans.

Included in the agreement is a requirement that President Obama make a decision within 60 days on the construction of the 1,700 mile Keystone oil pipeline.

Finally, the agreement calls for a House-Senate conference committee to negotiate an agreement that would extend the payroll tax cut through the end of 2012, extend unemployment benefits, and prevent cuts in payments to Medicare doctors.  

The IRS instructed employers to implement the reduced payroll tax rate as soon as possible in 2012 but no later than January 31, 2012. For any Social Security tax over-withheld during January, employers should make an offsetting adjustment in employees’ pay as soon as possible but no later than March 31, 2012, the IRS advised.

If you file a joint income tax return with your spouse, you are considered “jointly and severally” liable for the payment of all taxes owed. The IRS can come after either you or your spouse for the entire amount of tax due, plus any penalties and interest due.

The law has “innocent spouse” rules that may limit an individual’s responsibility for unpaid taxes resulting from filing a joint return. If the “innocent spouse” can establish that he or she did not know, or have reason to know, that there was an understatement of tax when signing the joint return, relief can be requested. Under previous rules, this relief had to be requested within two years after collection proceedings were initiated by the IRS.

In a new 2011 ruling, the IRS has decided to eliminate the two-year time limit for requesting innocent spouse status under the “equitable relief” provision in the law.

You’ve spent years developing your business, building its value, enhancing its reputation. Now you’re ready to move on. You place a “Business for Sale” advertisement in the Internet classifieds, and the next day an eager – overly eager – buyer approaches you with a deal that seems too good to be true. The buyer offers full price and wants to structure the deal as a stock sale. A stock sale means the buyer will get the entire business, including all its assets (cash, checking accounts, receivables, inventory and so on) at closing. The buyer doesn’t ask tough questions about the firm and seems in a hurry to close the sale. He or she offers a 10% down payment and says the full balance will be paid off within a year.

Seller beware! Business owners and regulators have found that scam artists use these types of transactions to strip value from companies, pulling out cash, and leaving the seller with a fistful of worthless stock. Within days of closing the sale, the buyer factors (sells) the receivables for cash, runs up company credit cards, sells off inventory, and empties cash accounts. The firm’s creditors don’t get paid. Your formerly prosperous business becomes an empty shell.

How can you avoid these types of scams when selling your business? Here are a few suggestions.

Perform an extensive background check on any potential buyer, including a review of the person’s credit reports, litigation history, tax liens, and so forth. A skilled attorney can often help with this research.

Beware of sales that go too smoothly. Legitimate buyers will perform due diligence, asking tough questions, inspecting financial records, and calling customers and vendors. If the buyer wants to close the sale in a hurry and doesn’t seem interested in the firm’s ongoing prospects, beware!

You may have already started to receive important tax-related documents in the mail. They serve as a reminder that the deadline for submitting your tax return is looming ahead on April 17. Here is some advice on what you can do to better ensure that your return is completed on time and accurately:

Get Organized
You will be receiving many of the documents we will need to complete your return within the next month or two. This may include a W-2 from your employer showing what you've earned this year, Forms 1099 reporting any additional earnings and investment income you've received and statements from your mortgage company, bank or other lender with details that will need to be reported on your return.

You may also receive other paperwork, documenting medical bills you've paid and charitable donations or financial investments you have made. We recommend that you set aside all of this material as soon as you receive it in a special folder or envelope so that you don't have to search for it when it is time to come in for your tax appointment. 

Make Order Out of Chaos
Gathering your documentation is a good first step, but it's also important to put it in workable order. Take statements and papers out of the envelopes in which they were mailed so they are easier to identify and access. Sort the paperwork into different files or folders based on whether it relates, for example, to income or deductions. You might also want to make a list of the documents you have and the amounts involved in each case. We can certainly help you with this process if you have any questions. 

Note:  If you are a current client of our firm, we have recently sent you an organizer to assist you with the organization process.

Prepare Throughout the Year
Not all of the documents we require to prepare your tax return will come in the mail in January and February. For example, we may need credit card or bank statements and records of cancelled checks that you receive during the year that show purchases or transactions you have made. We might also use receipts that verify items you're deducting or donations you have made.

You should also set aside documents relating to major events during the last year, including the closing documents and mortgage information for a home purchase. That's why it's a good idea to create a tax file for next year today, to gather the material we'll need for next year's return now.

Please call us with any questions you may have about what is needed to prepare your 2011 tax returns.
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