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April 2011 E-News

April 18 is a Major Tax Day

Monday, April 18, is a red letter day in the world of taxes. It is the deadline for filing certain returns and taking certain tax-related actions.

Here are the major deadlines.

• Filing 2010 partnership returns for calendar-year partnerships.
  
• Filing 2010 income tax returns for calendar-year trusts and estates.
  
• Filing 2010 annual gift tax returns.
  
• Making 2010 IRA contributions.
  
• Paying the first quarter installment of 2011 individual estimated tax.
  
• Amending 2007 individual tax returns (unless the 2007 return had a filing extension).
  
• Original filing of 2007 individual income tax return to claim a refund of taxes. Each year taxpayers have tax refunds due them for prior years, and unless a return is filed to claim the refund by the three-year statute of limitations, the refund becomes the property of the U.S. Treasury.

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Check The New Rules for 2011 Tax Planning Opportunities

Sunset was postponed last December, at least in the world of taxes. Many existing laws, which had been due to expire, or "sunset" at the end of 2010, were extended through 2012. At the same time, new rules that can impact your tax planning came into effect. With so many changes, you’ll want to make sure you understand the possibilities available to you as you undertake your tax planning for 2011. Here are some suggestions.

Business tax planning
There’s a new twist on an existing option for accelerated write-off of assets you purchase from September 9, 2010, through December 31, 2011. You can choose to expense 100% of the cost of new equipment, such as machinery, some vehicles, and computers, under expanded "bonus" depreciation rules.

While this sounds similar to Section 179, which also allows immediate expensing of assets you’d otherwise have to write off over several years, differences between the two methods exist. For instance, the amount of Section 179 expensing you can claim may be limited by your income. In contrast, bonus depreciation can create an operating loss that you may be able to carry back to prior years to generate a refund. Also, bonus depreciation is available only for new assets; Section 179 expensing applies to both new and used assets.

And what about the rules for Section 179? The expensing limit was increased to $500,000. Your deduction begins to shrink if you buy more than $2 million of assets.

Another depreciation break was also extended: the 15-year life for certain leasehold and retail improvements and restaurant buildings and improvements. These assets will no longer qualify for 15-year depreciation after 2011.

Check out this tax break if your business has fewer than 25 full-time employees: You might qualify for a tax credit of up to 35% of employer-paid health care costs.

Investment planning
Capital gain rates will remain at a maximum of 15% (and a minimum of 0%) through December 31, 2012. The rates apply to qualified dividends and long-term gains from investments you sell. That makes 2011 a good time to implement strategies for potential tax savings.

One example: You may be able to manage your income to stay within the 10% or 15% income tax brackets, which would allow you to take advantage of the 0% capital gain rate.

Alternatively, you could gift appreciated stock to family members in those brackets. For 2011, the cutoff for the 15% bracket is $69,000 of taxable income when you’re married filing jointly ($34,500 for singles).

Also a tax-savvy way to completely eliminate your capital gains tax might be to donate appreciated stock to charity and receive a deduction equal to the security’s current market value. Special rules apply to noncash donations, so check with us before you move forward on this strategy.

IRA planning
Thanks to the extension of the "charitable IRA rollover" rule, taxpayers age 70½ and older can again use their IRA to make a donation to their favorite charity. The distribution can be used to offset some or all of your required annual minimum distribution.

Another exciting option is a Roth IRA conversion. If you procrastinated on converting your regular IRA to a Roth last year, you can still do so in 2011. Although converting your IRA generates taxable income in the year of the transfer, later withdrawals of contributions and income from the Roth are tax-free. Making this transfer while income tax rates remain low could pay off big time. And your conversion opportunities are not limited to just traditional IRAs. You can also convert your 401(k), 403(b), or 457 plan to a Roth.

Estate and gift tax planning
The new rules for estates include a maximum tax rate of 35% and a $5 million exemption for 2011 and 2012. The exemption is the amount you can leave to heirs, tax-free, and it applies to lifetime gifts as well. Therefore, you and your spouse could gift up to $10 million of cash, investments, or ownership in a business without incurring gift tax. That’s in addition to your annual exclusion of $13,000 per recipient.

Estates of persons who died in 2010 have the option of applying the restored estate tax rules 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 December tax law contains other provisions that offer planning opportunities – almost all of which are temporary. Please give us a call for details and planning guidance.

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Saving for Retirement and a Child's Education
 at the Same Time

You want to retire comfortably when the time comes. You also want to help your child go to college. So how do you juggle the two?

Know what your financial needs are.

 The first basic step is to determine what your financial needs are for each goal.
Answering the following questions can help you get started:

For retirement:
 - How many years until you retire? 
 - Does your company offer an employer-sponsored retirement plan or a pension plan? Do you participate? If so, what's your balance? Can you estimate what your balance will be when you retire? 
 - How much do you expect to receive in Social Security benefits? 
 - What kind of lifestyle do you hope to have in retirement? For example, do you want to travel extensively, or will you be happy to stay in one place and live more simply? 
 - Do you or your spouse expect to work part-time in retirement?

For college:
 - How many years away is college? 
 - Will your child attend a public or private college? What's the expected cost? 
 - Do you have more than one child? 
 - Does your child have any special skills that could lead to a scholarship? 
 - Do you expect your child to qualify for financial aid?

Figure out what you can afford to put aside each month.
After you know what your financial needs are, the next step is to determine what you can afford to put aside each month. To do so, you'll need to prepare a detailed family budget that lists all of your income and expenses. Once you've come up with a dollar amount, you'll need to decide how to divvy up your funds.

Retirement takes priority.
Though college is certainly an important goal, you should probably focus on your retirement if you have limited funds. With generous corporate pensions mostly a thing of the past, the burden is primarily on you to fund your retirement. But if you wait until your child is in college to start saving, you'll miss out on years of tax-deferred growth and compounding of your money. Remember, your child can always attend college by taking out loans (or maybe even with scholarships), but there's no such thing as a retirement loan!

Help! I can't meet both goals.
If the numbers say that you can't afford to educate your child or retire with the lifestyle you expected, you'll have to make some sacrifices. Here are some things you can consider.

Defer retirement: The longer you work, the more money you'll earn and the later you'll need to dip into your retirement savings. Or, consider working part-time during retirement.

Make changes to your lifestyle now or in retirement: You might be able to adjust your spending habits now, or you may consider cutting back in retirement.

Increase your earnings now: Consider increasing your hours at your current job, finding a new job with better pay, taking a second job, or having a previously stay-at-home spouse return to the workforce.

Invest more aggressively: But remember that aggressive investments mean a greater risk of loss.

Send your child to a less expensive school: Don't feel guilty--a lesser-known liberal arts college or a state university may provide your child with a similar quality education at a far lower cost.

Copyright Forefield 2011 in Partnership with The AICPA

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News to Share About RLH Partner
Thomas E. Houck, Jr., CPA, MBA 

 RLH would like to congratulate Thomas Houck, Jr., CPA on his recent election as Treasurer to the Carroll Community College Foundation Board of Directors and also his election as Board Treasurer to the Greater Carroll Lions Club.

As an Officer of the Carroll Community College Foundation, Tom will team with other board members to provide time, talent and resources to support the foundation. The CCC Foundation is a non-profit corporation dedicated to the development of financial resources for the college to support the educational needs of all students, businesses, and the entire community. If you would like to learn more about the College or contributing to the Foundation visit their web page at www.carrollcc.edu/foundation.

Tom has been an active member of the Greater Carroll Lions Club for 2 5 years. While the Lions Clubs International's vision "to be the global leader in community and humanitarian service" is very broad, the local order of Greater Carroll really gets the job done. If you would like to find out more information about any of the club's activities, give Tom a call. His enthusiasm for the organization and its community projects will be instantly recognizable!

We know Tom's interest and 27+ years of finance and accounting expertise will benefit these organizations and the communities they serve! Congratulations and thank you Tom for being such a dynamic citizen!

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  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
Managing Principal 
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.