HeimLantz team members celebrated Fat Tuesday by having a pancake breakfast.

Fat Tuesday Pancake Breakfast at HeimLantz

Tax Deadlines

February 15 – Deadline for providing 2011 Forms 1099-B and 1099-S to recipients.

February 28 – Payers must file 2011 information returns (such as 1099s) with the IRS. (Electronic filers have until April 2 to file.)

February 29 – Employers must send 2011 W-2 copies to the Social Security Administration. (Electronic filers 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.

March 15 – 2011 calendar-year corporation income tax returns are due.

Use adjusted tax numbers for your 2012 tax planning

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 cents a mile. Rate for medical and moving mileage decreases to 23 cents a mile. Rate for charitable driving remains at 14 cents a mile.
• Section 179  maximum first-year expensing deduction decreases to $139,000 with a phase-out threshold of $560,000.
• Transportation frindge benefit limit decreases to $125 for vehicle/transit passes and increases to $240 for qualified parking.
• Social security taxable wage limit increases to $110,00. 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 examption 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.    

Resolve to put your tax and financial house in order this year

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 tempation 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 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.

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 details on any article, please contact us. 

It’s tax time again! 

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.

Last-minute 2011 deal reached on payroll tax cut

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.

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.

IRS expands innocent spouse relief

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.

Watch out for scams when selling your business

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!

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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 details on any article, please contact us.

New law signed by President Obama on November 21, 2011

On November 21, 2011, President Obama signed the Three Percent Withholding Repeal and Job Creation Act into law. This new law repeals three percent withholding on certain payments to government contractors. The law, H.R. 674, was amended to include the Vow to Hire Heroes Act which provides tax credits to employers who hire unemployed veterans.

The law creates the “Returning Heroes Tax Credit” and the “Wounded Warriors Tax Credit.” Employers may qualify for a credit of up to $5,600 for hiring a veteran who has been looking for employment for more than six months. A credit of up to $2,400 applies for veterans who have been unemployed for more than four weeks but less than six months. Employers who hire an unemployed veteran with service-connected disabilities who has been looking for work for more than six months may be eligible for a tax credit of up to $9,600.

The credits apply to new hires after November 21, 2011, through December 31, 2012. For more information about the new law, contact our office.

New worker classification program offered by the IRS

Companies that have had worker classification issues are being offered a settlement program by the IRS. The program, labeled the “Voluntary Worker Classification Settlement Program,” will let employers who previously misclassified employees as independent contractors make a minimal payment to settle the tax dispute.

The program will give eligible employers substantial relief from federal payroll taxes they may have owed for past periods. Employers must agree to pay just over 1% of wages paid to reclassified workers for the past year and to treat these workers as employees going forward.

Tax tips for year-end charitable giving

As the year draws to a close, you may decide to donate cash or property to one or more worthy causes. Besides the satisfaction of helping others, there’s another reward for your benevolence: a tax deduction on your 2011 return. But keep the following points in mind:

• For starters, you may only deduct contributions made to a legitimate tax-exempt charitable organization. Note that a qualified charity cannot be established to benefit a specific individual or family.
• Generally, your deduction is limited to 50% of adjusted gross income (AGI) for the year (30% of AGI for contributions to certain charities and private foundations). Any excess may be carried over for up to five years. The deduction for gifts of property have other AGI limits.
• The tax law imposes strict substantiation requirements. No deduction is allowed for monetary gifts unless you maintain a bank record or written communication from the charity indicating your name and the amount and date of donation. For contributions of $250 or more, you must obtain a contemporaneous written acknowledgement from the charity. If you donate property valued above $500, you must provide a written description with your return. Independent appraisals are required for property donations above $5,000.
• Typically, you may deduct the fair market value of gifts of property owned longer than one year. Any appreciation in value remains untaxed. For instance, if you donate property valued at $5,000 that you acquired five years ago for $1,000, you can deduct $5,000. But the property must be used by the charity to further its tax-exempt purpose.
• For 2011, individuals age 70½ or older can transfer up to $100,000 from an IRA directly to a charity without paying any tax on the distribution. The downside is that the transfer doesn’t qualify for the charitable deduction.
• Finally, you can secure deductions late in the year by donating to charity by credit card. As long as the charge is posted in December, you can deduct it on your 2011 return, even if you don’t pay the credit card until 2012.

If you have any questions concerning year-end charitable donations, contact our office.

Face the alternative minimum tax (AMT) head-on

The alternative minimum tax (AMT) – often called a “stealth tax” – snares unsuspecting or uninformed taxpayers each year. With a better understanding of the rules, you may be able to avoid or reduce adverse tax consequences.

Overview: The AMT is a separate tax system that runs parallel to the regular income tax system. This complex calculation includes additions for “tax preference items” and reductions for personal exemptions and certain tax deductions. There are five basic steps to computing the AMT.

Determine your taxable income for regular income tax purposes. 

• Make the technical AMT adjustments required by law. 
• Subtract a special “exemption amount” based on tax filing status ($48,450 for single filers, $74,450 for joint filers, and $37,225 for marrieds filing separately). These exemption amounts are reduced for high-income taxpayers. 
• Apply the AMT rate to the result. The rate is 26% on the first $175,000 of AMT income and 28% for amounts above $175,000. 
• Compare your AMT liability to your regular tax liability. You pay whichever tax is greater. 

Best approach: Estimate your AMT exposure before year-end. Depending on your situation, it may make sense to avoid tax preference items or postpone certain deductions. Caution: This is a complex area of the tax law, so contact our office if you need more information or planning guidance.　

Happy Holidays

Thank you for the opportunity to serve you this past year. Your business is appreciated, and your referrals are welcome. Please mention our name to friends and business associates who may need our services.

Warmest wishes for a happy holiday season and a prosperous 2012.

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 details on any article, please contact us.

Recently, HeimLantz hosted their annual open house event. It was attended by over eighty clients, guests and associates. Guests enjoyed food and refreshments, seated massages, and a baseball cap to take with them. The winner of the IPad2 was Bruce Eppard of Sun Trust Bank. Thanks to everyone who attended. See you next year!

Make time for a year-end tax review

Time is running out for moves you can make to reduce your 2011 tax bill. Some actions to consider right now:

• Be sure to max out your 401(k) plan at work. This year you can sock away $16,500 ($22,000 if you’re 50 or older). 

• Establish a pension plan for your small business. You may qualify for a tax credit of up to $500 in each of the plan’s first three years. 

• Plan year-end purchases of new or used business equipment to take full advantage of the expensing limit of $500,000 for 2011. Purchases of new equipment (not used) can qualify for first-year 100% bonus depreciation. 

• Get your investment records in order so you can make wise year-end sell decisions, either to rebalance your portfolio at the lowest tax cost or to offset gains and losses. 

• Track down reinvested dividends for any stock sold in 2011. They’ll add to your cost basis and reduce taxable gain or increase deductible loss on the sale.  

If you’d like to discuss tax-cutting options that fit your particular situation, please contact us soon for a year-end planning review. 

Are you prepared for these common business problems? 

When the economy is uncertain, you must be extra-careful to avoid the types of disasters that could ultimately lead to your company’s demise. Fortunately, some advance planning may prevent or alleviate severe problems. Here are seven common scenarios facing owners and managers of small to mid-sized businesses. 

• A natural disaster damages the premises. 

Of course, you can’t control the weather or other unforeseen circumstances. But damage to a business building caused by a natural disaster could temporarily shut down the operation. It can even ultimately put you out of business. Make sure that you have adequate insurance and that valuable business data is stored at a secure site. 

• A key employee joins a competitor. 

There is always the risk that one of your top employees will switch jobs. However, this can be especially troublesome if the employee goes to work for your main competitor. Avoid this possibility by having key employees sign noncompete agreements. Typically, such an agreement will prohibit an employee from working for a competitor for a certain period. 

• An employee embezzles company funds. 

All too often, business owners are swindled by seemingly trustworthy employees. Don’t think you are immune. To safeguard your assets, pay close attention to monetary transactions. Divide responsibilities so that one person doesn’t have complete control over the books. Set up a system of “checks and balances.” 

• You lose your biggest customer. 

One of your main customers might choose to do business elsewhere or will no longer need your products or services. Don’t put yourself in a position of depending on just one or two accounts. Take steps now to diversify the business to protect against a severe downturn in cash flow. 

• You become disabled. 

If your services are integral to the company’s success, your fortunes will likely suffer should you ever become disabled. Consider taking out “key-person” insurance that can provide funding until you’re back on the job or the necessary provisions are made. Such a policy may also cover employees who are vital to the operation. 

• Your company or partnership splits up. 

Even relatives and the best of friends should develop contingency plans for a business break-up. The sale of a party’s interest, including a forced sale upon the death of one of the shareholders or partners, may be addressed in a buy-sell agreement. This document could establish the terms of a buy-out and set a value for the respective business interests. 

• Your computer system crashes. 

If your business is like most, it relies heavily on technology to run more efficiently. You can well imagine the repercussions if your computer system fails or it is damaged by a virus or hackers. Have a plan that provides optimal security and creates regular back-ups.

Scams against the elderly: Know the danger signs

News of yet another investment scam is alarming enough, but when the victim is elderly, the crime seems especially offensive. Senior citizens are a favorite target of con artists for a variety of reasons. Here are some popular schemes to look out for.

Scams take many forms, but those involving gold and precious metals are especially problematic right now. Buying gold is trendy, and it can appeal to a senior’s desire for tangible security. Naturally, scammers will take advantage of this appeal. If someone you know is elderly and considering a gold-related investment, make sure they do their homework and work with a reputable company. Anyone pitching gold as a safety net against doomsday scenarios or hyperinflation should be carefully vetted.

Of course, more traditional investment vehicles can also be dangerous. Life insurance, annuities, and other potentially complex deals can be marketed to prey on an elderly person’s fear of running out of money. Investment advisors should only offer products suitable for the age, health, and financial wherewithal of their client. A perfectly legitimate investment can still be all wrong given certain circumstances.

By now, repetitive e-mail requests from some foreigner to wire funds to your bank account might seem almost comical, but to those who fall victim to a carefully crafted ploy, it is all too serious. Some very smart people – young and old – have been taken in by these types of scams, and when it happens to an elderly person, the fear of looking stupid and incompetent often adds to the problem. Educate the senior in your life to always reject these offers.

Not only do the elderly dread running out of money, they sometimes have an unhealthy concern for being a burden to others. This can manifest itself in attempts to prepay for certain services, or sign up for strategies that will pay for bills owed at the time of death. Every so often, when the time comes to cash in these plans, the company is nowhere to be found, or the policy doesn’t cover nearly as much as was expected. Like any other investment, the company behind the pitch should be scrutinized.

So, can you protect your senior from all the criminals out there? Probably not. But creating a fire wall around your loved one might call for a softer touch. Stay connected to their daily routine. Who are they spending time with? What are they reading? Become a stronger presence in their life, and the fears and loneliness that often initiate a wrong financial move could be reduced.

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 details on any article, please contact us.

Recently the Annapolis Light House Shelter held their 4th Annual Run for Shelter. HeimLantz was proud to be a sponsor of the event. The HeimLantz team members contributed to a donation for the shelter and HeimLantz matched their donations.  It was an unusually cold morning for early October. Kathi Lynch (pictured) is shown at the event.   

Tax Filing Reminders

• October 3 – Generally, the deadline for businesses to adopt a SIMPLE retirement plan for 2011.
• October 17 – Deadline for filing 2010 individual tax returns on extension.
• October 17 – If you converted a regular IRA to a Roth in 2010 and now want to switch back to a regular IRA, you have until October 17, 2011, to do so without penalty.

Consider four tax-smart ways to save for college

The cost of sending a child to college is daunting. According to the latest figures from the independent College Board, the total average cost for the 2010/2011 academic year – including tuition and fees, room and board, books and supplies, transportation and other sundries – for in-state students at four-year public colleges was $20,339. For out-of-state students, the average cost jumped to $32,329. The cost at four-year private colleges averaged $40,476. And costs are expected to keep rising.

Nevertheless, you can lighten the financial burden of putting your children through school by taking advantage of certain tax-favored vehicles. These techniques are generally available to grandparents as well as parents. Here are four prime examples.

1. Section 529 plans: There are two main types of Section 529 plans. With a “college savings plan,” you can make generous contributions to a special account established for a designated beneficiary. Every state offers its own versions of these plans. With the second type, you may arrange to pay future tuition costs in today’s dollars through a “prepaid tuition plan.”

Funds contributed to a Section 529 plan may accumulate without any current tax, and distributions are tax-free if the money is used to pay for qualified higher education expenses. When an older beneficiary (such as your first-born child or grandchild) graduates, you can transfer the remaining balance in the account to a younger beneficiary.

2. Custodial accounts: A custodial account established under controlling state law is a more traditional way to save for college. Typically, you create a bank account in a child’s name and manage the assets until he or she reaches the state-mandated age. The income is taxed at the child’s tax rate, which is usually lower than your rate. Caveat: Under the “kiddie tax,” unearned income above an annual threshold ($1,900 for 2011) received by a child under age 19, or a full-time student under age 24, is generally taxed at the top marginal tax rate of the parents.

3. Section 2503(c) trust: This type of trust (sometimes called a “minor’s trust”) avoids kiddie tax problems because the income it generates is taxed directly to the trust. Furthermore, unlike a custodial account, you can set up the trust to continue past the state age of majority, as long the child doesn’t exercise a limited right to withdraw the funds.

The trust must comply with all the legal requirements.

4. Coverdell ESAs: The Coverdell Education Savings Account (ESA), initially dubbed the “Education IRA,” is essentially an IRA used to pay for education expenses. This type of account may be used for elementary and secondary school expenses as well as college. However, the annual contribution limit for Coverdell ESAs is only $2,000, as opposed to Section 529 limits usually reaching six figures. Also, eligibility is phased out for high-income taxpayers.

Contact us if you would like to determine the best approach for your situation.

Charitable contributions: More than just cash might be deductible

Many taxpayers give much more than just cash to their favorite charity. Many also provide their time, travel, meals, and other “out of pocket” expenses in order to assist the charity in doing good work. And while you can’t take a charitable deduction for your time, you are allowed to deduct other expenses incurred in support of a charity, such as vet bills for your local humane society, or wood and nails for a “habitat” charity.

Let’s examine your house of worship. It’s possible for members to deduct evangelism travel expenses, even if the charity (a church in this example) never initiated, controlled, supervised, or assisted with the trips. The church fostered missionary work in general. Before the trip, the church provided the taxpayers with letters of commendation serving as introductions to other interfaith groups during the trip. And after the trip, the charity publicized the member’s efforts to the other congregations. This allowed the taxpayers to deduct mileage at the prescribed IRS rate, air fare, lodging, and meals while on their missionary trip.

Consider the potential deductions for those taxpayers involved as board members to a charity, or simply significantly involved. In a recent decision, the Tax Court noted “control” by the charity is only one of the factors to be considered. You don’t have to necessarily be controlled or directed by the charity to make your deductions stand up. But there should be a strong affiliation with the charity, and the taxpayer must be accountable to the charity.

There are recordkeeping requirements. Noncash contributions greater than $250 must be acknowledged by the charity. The taxpayer will likely have to request this from the charity with a simple form, one which the charity will to be happy to complete in order to secure your deduction and advance the mission of the charity.

Contact us soon for a year-end tax review

An important part of our service to you is to help identify actions you can take before year-end to minimize your 2011 income tax bill. Accelerating or delaying income and deductions, contributing to retirement plans, and taking investment losses are just a few of the strategies you might want to consider. There are also tax credits that require careful planning or they may be lost. If you’d like to discuss tax-cutting options that fit your particular situation, please contact us soon for a year-end planning review.

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 details on any article, please contact us.