Even if you don’t itemize, some deductions are available.
If you’ve given up itemizing deductions, you’re not alone. These days over half of all taxpayers find they’re better off using the standard deduction. Even if you take the standard deduction, you can also deduct some individual expenses on your 2011 tax return, including the following:
* IRA and HSA contributions:
On your 2011 tax return you may qualify to deduct up to $5,000 in contributions to a traditional IRA. That increases to $6,000 if you’re age 50 or older. Income limitations may apply in some cases. You cannot deduct contributions to Roth IRAs.
Health Savings Accounts (HSAs) are IRA-like accounts set up in conjunction with a high-deductible health insurance policy. The annual contributions you make to your HSA are deductible. Contributions are invested and grow tax-free. You are also allowed to withdraw money in the account tax-free to pay for your unreimbursed medical expenses. The HSA contribution limit for 2011 is $3,050 for singles and $6,150 for couples. An additional $1,000 may be contributed by those 55 and older.
* Student loan interest and tuition fees:
Deduct up to $2,500 interest on student loans for yourself, your spouse, and your dependents. For 2011, you can also deduct up to $4,000 of tuition and fees for qualified higher education courses. Income limitations apply and you must coordinate these deductions with other education tax breaks.
* Self-employment deductions:
If you’re self employed, you can generally deduct the cost of health insurance premiums, retirement plan contributions, and one-half of self-employment taxes.
* Other deductions:
Don’t overlook deductions for alimony you payand early savings withdrawal penalties. You may also be able to deduct certain moving expenses. To find out if your moving expenses qualify, visit IRS.gov and search for form 3903 suggests Joan Brockman, Tax Specialist at Simons Bitzer. Teachers can deduct up to $250 for classroom supplies that they purchased with their own money in 2011.
Contact Simons Bitzer at (317) 782-3070 for more information on these and other deductions you may be entitled to take on your 2011 tax return.
Don’t Ignore Health Care Coverage Tax Credit
Health care legislation passed in 2010 included a tax credit for small businesses that provided health care coverage for their employees. Recent surveys have shown that the majority of small companies that could 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.
If your business or nonprofit organization might be eligible, perhaps you should take another look at the requirements. 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.
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 also 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 or for making the calculations to obtain the credit, contact Simons Bitzer at (317) 782-3070.
Upcoming Tax Deadlines
Don’t miss these deadlines if they apply to your business:
February 15 – Brokers must provide 2011 Forms 1099-B and 1099-S to customers.
February 28 – Send Forms 1099 with Form 1096 to the IRS. If you file these forms electronically, you have until April 2 to file with the IRS.
February 29 – Send Copy A of employee W-2s for 2011, along with Form W-3, to the Social Security Administration. If you file electronically, you have until April 2 to file.
March 1 – Farmers and fishermen who did not make 2011 estimated tax payments must file 2011 tax returns and pay taxes in full.
With questions or for assistance in your tax planning and preparation, please contact Simons Bitzer at (317) 782-3070.
Be Diligent About Saving Your Tax Records
You’re probably getting ready to sort out last year’s financial records and prepare for this year’s recordkeeping. But what should you keep and what can you throw away? Here are some suggestions.
Keep records that directly support income or expense items on your tax return. For income, this includes W-2s, 1099s, and Form K-1s. Also keep records of any other income you might have received from other sources. It’s also a good idea to save your bank statements and investment statements from brokers.
For expense items, keep documentation that supports any itemized deductions you claim. This includes acknowledgments from charitable organizations and backup for taxes paid, mortgage interest, medical deductions, work expenses, and miscellaneous deductions. Even if you don’t itemize, keep records of expenses for child care, medical insurance if you’re self-employed, and any other expenses that appear on your return.
The IRS can audit you routinely for three years after you file your return. In cases where income is underreported, however, they can audit for up to six years. To be safe, we suggest keeping your tax records for seven years.
Keep certain other records even longer. These include records relating to your house purchase and any improvements you make. Also keep records of investment purchases, dividends reinvested, and any major gifts you make or receive. Finally, keep copies of all your tax returns and W-2s in case you ever need to prove your earnings for social security purposes.
Recordkeeping is required for charitable deductions
Don’t forget to obtain the documentation you need for all of your 2011 charitable contributions. Without this documentation, you risk losing the deduction. Even gifts under $250 require a bank record or receipt from the charity.
With questions or for help in preparing your 2011 taxes, please contact our office at (317) 782-3070 to schedule a complimentary consultation with one of our tax specialists.
Gather Documents for your 2011 Tax Return
If you haven’t started already, consider gathering the items you need to file your 2011 tax return including W-2s, 1099s, and other forms you receive from your employer, broker, banker, etc. Review the documents carefully. If you detect errors, contact the sender immediately for a corrected copy.
With questions or for assistance preparing your tax returns, contact Simons Bitzer at (317) 782-3070 for a complimentary consultation with one of our tax specialists.
Does Your Child Need To File a 2011 Tax Return?
You should determine whether or not your child needs to file a 2011 tax return. A return is needed if wages exceeded $5,800, your child had self-employment income over $400, or investment income exceeded $950. If the child had both wages and investment income, other thresholds will apply.
With questions, please contact our office at (317) 782-3070 and schedule a complimentary consultation with one of our tax specialists.
Don’t Forget the “Nanny Tax”
If you paid a household worker, such as a gardener, housekeeper, or nanny more than $1700 in 2011, you may be liable for payroll taxes on the wages paid. The same applies if you will pay more than $1800 to these people in 2012.
With questions or for more information, please call (317) 782-3070 to schedule a complimentary consultation with one of our tax specialists.
Planning To Improve Your Profitability
We often say that “what you measure you can manage.” This is especially true when it comes to achieving greater profitability for your business. You should begin by focusing your profit improvement strategies into three key areas that can be measured by their impact on overall profits. Aim to increase:
1) The number of desirable customers
2) The number of times each customer makes a purchase, and
3) The average amount they spend on each purchase.
The next step to improving your profitability is to identify your Critical Success Factors. In other words, what must you achieve in your business to be successful. In order to answer that question, ask yourself the following:
1) What are your most profitable products/customers and what makes them so profitable?
2) What resources are required to support your business?
3) What are the things that keep your customers coming back, recommending you and paying a good price for your product or service?
Once these questions are answered, you will have a good idea of the factors that are critical to improving your profitability. You should then determine how you can monitor the effectiveness of your new profit improvement strategies. For example, you may establish Key Performance Indicators that you can measure on a daily, weekly or monthly basis. Be ready to adjust your strategies depending on the trending of your KPIs.
At the end of the day, a profit improvement plan is only effective if your return on investment (ROI), your net profit margin, and your bank balance are improved simultaneously. Constant review and management of your Critical Success Factors is the key to increased profit and ROI over the long term.
For help creating a profit improvement plan for your business and monitoring the results, please contact our office at 9317) 782-3070 and schedule a complimentary consultation.
Corporate Minutes Support Tax Position
Writing up the minutes of board of directors’ meetings is not usually a high priority for most business owners. Yet well-documented corporate minutes can provide valuable supporting evidence if your tax positions are ever questioned.
Minutes are especially important where any kind of related-party transactions occur, such as payments, loans, or distributions between the company and its owners. For example, the IRS may challenge the amount of compensation paid to a business owner as unreasonable. Corporate minutes that document the factors considered by the board in approving the compensation can be a strong defense against such a challenge.
Another area that receives close scrutiny from the IRS is the amount of earnings that are retained in the business rather than distributed as taxable dividends. A penalty applies to retained earnings over a certain limit unless they can be justified by business needs. Corporate minutes can be a strong piece of supporting evidence if they clearly spell out the reasons that the company needs to retain funds — for example, to purchase assets or for working capital.
If your company has a tax-qualified retirement plan or a stock option plan, the minutes should show decisions by the board adopting or modifying the plan. They should also document annual decisions on the percentage of contribution to profit-sharing plans and any decisions on fringe benefits, such as medical reimbursement accounts.
Corporate minutes need not be lengthy, but they should provide a clear record of corporate actions and the business factors that were considered when those actions were taken. You should think of your minutes as a key element of your tax planning strategy.
If your corporate minutes need updating, contact your attorney and take care of this important bit of business housekeeping. With questions about tax planning throughout the year, please contact Simons Bitzer at (317)782-3070 and speak to one of our tax specialits.
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