Accounting & Bookkeeping
Business Development & Consulting
Estate & Trust Planning
Financial Statements & Review
Forecast & Projection
January 2011 E-News
Mark These Tax Deadlines on Your 2011 Calendar
It's time to file various tax returns once again. Among the tax deadlines you may be required to meet in the next few months are the following:
January 18 - Due date for the fourth quarterly installment of 2010 estimated taxes for individuals unless you file your tax return and pay any taxes due by January 31.
January 31 - Employers must furnish 2010 W-2 statements to employees. Payers must furnish payees with Form 1099s for various payments made. (The deadline for providing Form 1099B 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 March 31 for electronic filing.
February 28 - Employers must send Form W-2 copies to the Social Security Administration. This deadline is extended to March 31 for electronic filing.
March 1 - Farmers and fishermen who did not make 2010 estimated tax payments must file 2010 tax returns and pay taxes in full.
April 18 - Individual federal income tax returns for 2010 are due.
IRS Delays Start of Filing Season for Some
For most taxpayers, the 2011 tax filing season starts on schedule. However, tax law changes enacted by Congress and signed by President Obama in December mean some people need to wait until mid- to late February to file their tax returns in order to give the IRS time to reprogram its processing systems.
Some taxpayers - including those who itemize deductions on Form 1040 Schedule A - will need to wait to file. This includes taxpayers impacted by any of three tax provisions that expired at the end of 2009 and were renewed by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act Of 2010 enacted Dec. 17.
Those who need to wait to file include:
New Law Extends Bush-Era Tax Rates For Two Years
Recently, Rager, Lehman & Houck sent out communication highlighting this new law. Since this legislation is wide-ranging, here's a refresher for you that outlines the key provisions in the law.
After weeks of wrangling over the details, both the Senate and the House passed a bill that will extend the tax rates in effect in 2010 for another two years, through December 31, 2012. President Obama signed the 2010 Tax Relief Act into law on December 17, 2010.
Tax rates. The existing tax rates established in the 2001 and 2003 tax laws will continue for all taxpayers through 2012. This means the top tax rate for 2011 and 2012 will remain at 35% instead of reverting to 39.6% as it would have done had the 2010 Tax Relief Act not passed.
Capital gains and dividends. The top rate for long-term capital gains will remain at 15% for taxpayers in all but the two lowest ordinary income brackets; those taxpayers will continue to have a 0% rate on capital gains. Dividends will continue to be taxed at the 15% and 0% rates instead of reverting to ordinary income rates as high as 39.6%.
Itemized deductions and personal exemptions. Higher-income taxpayers will not have their itemized deductions limited and their personal exemptions phased out.
Education tax breaks. The law extends the American Opportunity Tax Credit through 2012. The income exclusion for up to $5,250 of employer-provided education assistance to employees is continued for two years. The higher contribution limit of $2,000 and other enhancements to Coverdell Education Savings Accounts were extended for two years.
Alternative minimum tax (AMT). The AMT was given another "patch" for 2010 and 2011, a move that will keep the tax from hitting millions more taxpayers. For 2010, the exemption amount is $47,450 for individuals and $72,450 for married couples filing joint returns. For 2011, the exemption is $48,450 for singles and $74,450 for couples. Without this adjustment, the exemption amounts for 2010 and 2011 would have been $33,750 for singles and $45,000 for couples.
Payroll tax. A new tax break is created for workers who pay social security taxes. For 2011, the employee rate for social security tax is cut from 6.2% to 4.2% on wages up to $106,800. Self-employed individuals will pay 10.4% on self-employment income up to $106,800. Employers will continue to pay 6.2% on employee wages. This payroll tax rate cut does not affect the Medicare portion of payroll taxes for either employees or employers.
Extenders. Tax breaks that have come to be called "extenders" because they're typically extended retroactively every year, but just for a year, are again extended by the new law.
Effective for 2010 and 2011 returns, taxpayers have the option of deducting state and local sales taxes instead of state and local income taxes. The deduction for up to $4,000 of higher education expenses and the deduction for teachers who buy classroom supplies are extended. Those age 70½ or older may again contribute up to $100,000 tax-free from an IRA to a charity. Note that the deduction for real estate taxes paid by nonitemizers was not extended.
Business provisions. The law extends the research tax credit for 2010 and 2011, and it extends the work opportunity tax credit through 2011. Bonus depreciation is increased from 50% to 100% for qualified business purchases made from September 9, 2010, through December 31, 2011. 50% bonus depreciation will be available in 2012.
Estate tax. The estate tax was perhaps the most contentious issue in the law, and it came close to unraveling the deal. The compromise that was agreed upon restores the estate tax retroactive to January 1, 2010, and continues it through December 31, 2012. It establishes a top rate of 35% and an exclusion amount of $5 million ($10 million for married couples). Estates of persons who died in 2010 have the option of applying the estate tax and receiving a step-up in basis on property passing to heirs or having no estate tax but using a carryover of the decedent's basis in property.
The 2010 Tax Relief Act also provides an additional 13 months of benefits to the unemployed.
Most of the provisions in the new law will probably go unnoticed by the majority of taxpayers since the law basically keeps things as they were for another two years. However, there are several significant changes that are likely to affect you or your business. For more information and planning guidance as you begin sorting out your tax situation for 2011, contact our office.
New Reporting Rules Coming for Your Stock Sales
Starting in 2011, new reporting rules could make it easier for you to report the tax consequences of selling a stock. Thanks to a 2008 law, responsibility for establishing your "basis" is being shifted to brokers and other financial institutions. But don't discard your records just yet; the new rules are being phased in gradually and don't apply to any securities acquired before 2011.
Form 1099-B (Proceeds from Broker and Barter Exchange Transactions) will be expanded to include the cost or other basis of stock sold during 2011. The form must also report whether the gain or loss on the stock sale is short-term or long-term. The expanded Form 1099-B will be used to report calendar-year 2011 sales and must be filed with the IRS and furnished to investors in early 2012.
The new reporting rules were passed by Congress not only to make it easier for investors to calculate capital gains taxes, but also to make it harder for investors to underreport capital gains.
For details or assistance with the new reporting rules, contact our office.
Starting Jan. 1, 2011, Rager, Lehman & Houck, P.C. will be required by a new law to file all 1040 and 1041 returns electronically for our clients. For many of you, this will not be a change from prior years as you are already filing your returns electronically.
For those of our clients who remain opposed to electronic filing, there is a waiver that can be filed with the IRS to circumvent this requirement. As in the past, we will continue to recommend e-filing of all tax returns whenever possible.
"Electronic filing is the safest, fastest and easiest way for taxpayers to file their tax returns. E-filing is good for the tax system, good for taxpayers and good for the tax preparation industry," said IRS Commissioner Doug Shulman. "This requirement reflects the realities of the modern world where technology has evolved to the point that everyone should be filing their tax returns electronically."
RLH in the Community
Rager, Lehman & Houck, P.C. team members played an integral part in the annual Hanover Area Jaycees Children's Shopping Tour which took place in December. Steve Kline, Senior Accountant at RLH, chaired the event which provided a $100 clothing shopping spree for over 75 underprivileged children in the Hanover area. Also volunteering to chaperone a child for the event were RLH Team Members - Nicole Murphy, Pamela Becker, and Michelle Adams. In addition to chaperoning with her son Timmy, Pamela Becker, our Director of First Impressions in the Hanover office, helped with the mailing of donation letters, the thank you letters, and with communication to chaperones and volunteers. The fun-filled day included breakfast donated by McDonald's, shopping in the morning, lunch provided by several local pizzerias, a visit from Santa that included toys and books for the kids, and concluded with a trip to Faloon's Family Fun Center.
Thank you for selecting our firm for your tax and accounting needs. We appreciate the confidence you have shown in us, and we remain ready to assist you at any time.
Karl A. Lehman, CPA
Rager, Lehman & Houck, P.C.
P.S. Also, thank you for recommending us to your family, friends, and associates. We appreciate your referrals!
This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further detail on any article, please contact us.