2011 Tax Tips from O'Sullivan Creel

Pensacola Fort Walton Beach Destin Crestview Foley Fairhope www.osullivancreel.com

2010 Tax Season Update

Thank you for inviting O’Sullivan Creel LLP

Presented By: Mort O’Sullivan, CPA, Managing Partner


Discussion Topics

Tax In the NewsKey Changes to Tax Law

Things to Watch Out For

Other Tax Reminders

Tax In The News

2010 TAX RELIEF ACT (December 2010)•Extended the “Bush Era” tax cuts for 2011 & 2012•Added new tax benefits (e.g. 2% employee payroll tax reduction)•Impact of tax provision on the U.S. budget = $801 Billion

• Individual Tax Cuts ...........................................$ 186 billion

• AMT Relief ........................................................$ 136 billion

• Payroll Tax Deduction ...................................... $ 111 billion

• Estate/Gift Tax Relief ........................................$ 68 billion

• Capital Gains/Dividend Cuts …………………..... $ 53 billion

• Bonus Depreciation/179 Expensing ....... ......... $ 21 billion

• Other ................................................................ $ 226 billion

•Bill also included an extension of Unemployment Insurance with a cost of an additional $56 billion

Tax In The News

Tax Reform & Simplification•The Internal Revenue Code & Regulations contain 12+ million words, the Bible has less than 800,000 words•On average, more than one tax code change is made each day•Both parties have stated that significant tax reform and simplification is needed•Tax simplification will likely be a key political issue for the next couple years and may influence the next presidential election

Tax In The News

More Enforcement • The idea of a “friendlier” IRS during the recession is not reality• The number of audits seems to be increasing• Stricter enforcement of penalties for taxpayers and preparers• IRS wants to close the “tax gap” as an alternative to raising

taxes• Local IRS office has hired up to 9 new agents

Stricter Rules for Paid Preparers• All paid preparers must obtain a preparer ID number from IRS• New testing requirements for many preparers• Circular 230 expanded to cover all paid preparers


Discussion Topics

Tax In the News

Key Changes to Tax Law Things to Watch Out For

Other Tax Reminders

Key Changes to Tax Law

Bonus Depreciation • Rules vary depending on when the asset is purchased• 50% bonus = New assets purchased January 1, 2010 to

September 7, 2010 (will also apply in 2012)• 100% bonus = New assets purchased September 8, 2010

through December 31, 2011• Can be better than IRC section 179 deduction which is limited to

income before the deduction• Used equipment is not eligible for bonus depreciation, but you

may be able to expense it under IRC Section 179


Self Employment Income Tax• SE tax, the OASDI portion reduced to 10.4% for 2011• Provides self employed individuals a benefit equivalent to the

2% payroll tax reduction provided to employees for 2011• For 2010 only, qualified health insurance can be deducted from

SE income before calculating the SE tax. In the past it was only deductible for the income tax, not the SE tax


Small Business Health Insurance Credit•Qualified Small Businesses may be eligible for a tax credit up to 35% of their contribution toward employee’s health insurance premiums•Credit amount varies depending on the number of employees and their average annual compensation•To get max credit you must have less than 10 employees with average annual pay of less than $20,000•Credit is generally phased out if you have more than 25 employees or if their average annual compensation is over $50,000•Can only be claimed for two years


Charitable Contributions from Traditional IRAs• Temporary provision extended for 2011• IRA owners age 70 ½ and older can make a tax-free charitable

contribution of up to $100,000 directly from their IRA• Amount counts towards minimum required distribution• Amount is not included in income for tax purposes• Note----there is no charitable deduction for the donation


Roth IRA Conversions• Starting in 2010 anyone could convert a traditional IRA to a

Roth IRA, the old income limits no longer apply• If you converted to a Roth IRA in 2010 you can defer the income

and report ½ the income in 2011 and ½ in 2012.• If you convert to a Roth IRA in 2011 you will have to pick up all

of the income in 2011• It is possible to re-characterize the IRA back to a traditional IRA,

but it must be done before your tax return is filed • If you are not eligible to contribute to a Roth IRA, you may

consider a non-deductible contribution to a traditional IRA followed by a Roth conversion


Old Items Extended for 2011 & 2012•15% Maximum Capital Gains Tax Rate

•Qualified Dividend Income• “Qualified” dividends are taxed at capital gains rate• Year end Forms 1099 indicate if a dividend is “qualified”• Must hold stock for more than 61 days during the 121 day

period starting 60 days before the dividend and ending 60 days after

• If dividend is not “Qualified” it is taxed as ordinary income


(continued) Old Items Extended for 2011 & 2012•College Tuition and Fees Deduction

• Up to $4,000 for taxpayers with AGI of $65,000 or less ($130,000 for married persons filing jointly)

• Up to $2,000 for taxpayers with AGI of $80,000 or less ($160,000 for married persons filing jointly)

•State and Local General Sale Tax Deduction•Residential Energy Tax Credit

• Extended with reduced limits on the amount of credit

• Lifetime limits apply so you may not be able to claim the credit if you have used it in the past.


Future Tax Increases Currently in the Law•The 2010 Health Care Reform Act included several tax increases that will go in effect in 2013 unless the law is changed.

• 3.8% Medicare “contribution” tax on Investment Income in excess of $200,000 per year for individuals ($250,000 for joint returns).

• Investment income includes interest, dividends, royalties, rents and income from most passive investments.

• 0.9% additional income tax on earned income in excess of $200,000 per year for individuals ($250,000 for joint returns).


Discussion Topics

Tax In the News


Things to Watch Out ForOther Tax Reminders

THINGS TO WATCH OUT FOR

BP Claims • Don’t forget that money received from BP is taxable• Forms 1099 are being issued telling the IRS how much you

received• Cash basis taxpayers will report BP claim money in the year

received even if the claim is for the prior year


Charitable Contributions• IRS continues to focus on improper charitable contributions• Keeping the proper documentation is essential• For contributions of $250 or more you are required to get a

receipt from the charity before claiming the deduction• Bank records can be used to support contributions of less than

$250• The IRS website has a list of all qualified charities if you need to

confirm you are donating to a registered charity


“Kiddie Tax” • While the kiddie tax has been around a long time, the income

and age limits were changed a couple years ago so that it applies to more people

• Applies to children under the age of 19 and full-time students under age 24 that are dependents of their parents

• When applicable, Unearned Income in excess of $1,700 must generally be taxed at the parents highest marginal tax rate


Prior Year AMT Credit Refunds• AMT credits that are more than 3 years old are considered

“Unused Long Term AMT credits” and may be refundable• If you have paid AMT in prior years, make sure the credit

carryovers are tracked on your tax return (especially if you have changed CPAs)


Gift Tax Returns• Gifts valued at more than $13,000 per year must be reported to IRS

• Married couples can each gift $13,000, for a total of $26,000 to one person

• Exceptions generally include gifts for:• Tuition or Medical Expenses paid directly to the educational or medical

institution• Gifts to your Spouse, Political Organizations or Charities

• The tax (if any) is paid by the person giving the gift not the recipient

• Applicability of taxes depends on how much you have gifted in your lifetime.

• For 2011 & 2012, no Gift tax is due until lifetime gifts exceed $5M.

• Get help if you have made or plan to make large gift


Discussion Topics

Tax In the News


Things to Watch Out For

Other Tax Reminders

OTHER TAX REMINDERS

Foreign Bank Account Information Reporting• If you have a financial interest in or signature authority over a

foreign bank account you must file Form TD F 90-22.1 every year

• It isn’t a tax return and no tax is due, but you can be penalized for not providing the information

• Penalties can be up to 100% of the account balance for each year you fail to report

OTHER TAX REMINDERS

Tax Shelters and Tax Fraud• IRS knows about most of the ways people avoid taxes• If it sounds too good to be true, it probably is

Do Not be Fooled by Con-Artist and Identity Thieves• The IRS will not send you unsolicited emails• Fake IRS emails may say you have an unclaimed tax refund or

that you must provide personal information in order to claim the 2008 tax rebate

• Be careful and make sure you always go to www.irs.gov and not www.irs.com

OTHER TAX REMINDERS

Taxpayer Advocate• Independent organization within the IRS• You may be eligible for assistance if:

• You are experiencing economic harm or significant cost

• You have experienced a delay of more than 30 days to resolve your tax issue, or

• You have not received a response or resolution to the problem by the date promised by the IRS

IRS Free File • If your adjusted gross income was $58,000 or less in 2010 you can use

IRS’s Free File system to file to prepare and e-file your taxes online (www.irs.gov)

• Make sure you go to the irs.gov website and not irs.com

IRS Circular 230 Disclosure: Any statements or tax advice contained in this document are not intended to be used and cannot be used by the recipient or any other party for the purpose of avoiding any penalty that may be imposed under the Internal Revenue Code.

2011 Tax Tips from O'Sullivan Creel

Economy & Finance

Transcript of 2011 Tax Tips from O'Sullivan Creel