"My philosophy is to give to each client, personalized assistance in reducing your tax burden with an honest approach. Integrity is essential in protecting your interests, as well as in earning your trust.”
- Laura Hipes
Current News
2% Reduction in
Social Security Tax
Extended for all of 2012
Employees as well as the self-employed benefitted from a 2% reduction in Social Security tax on their earnings in January and February 2012. Effective February 24, this reduction in tax is extended for the balance of 2012. Employees' 2012 wages will be taxed at 4.2% instead of the usual 6.2%; the self-employed will pay 10.4% instead of 12.4%.
Standard Mileage Rates
for 2012
Business and employment-related mileage is $0.555 per mile.
Medical and moving mileage is $0.23 per mile.
Charitable mileage remains at $0.14 per mile.
Standard Mileage Rates
July 1 - Dec 31, 2011
Business and employment-related mileage after June 30 is $0.555 per mile. Mileage rate for the first half of 2011 was $0.51 per mile.
Mileage for medical and moving after June 30 is $0.235 per mile. Mileage rate for the first half of 2011 was $0.19 per mile.
Charitable mileage remains at $0.14 per mile for all of 2011.
Comprehensive 1099
Taxpayer Protection Act
Passed Apr 14, 2011
Re: Rental Property - Owners of property who receive rental income will not be required to issue Forms 1099 to service providers for payments of $600 or more during the year.
Re: Businesses - Businesses will not be required to issue Forms 1099 to providers of goods nor to corporations (except attorneys) for payments of $600 or more during the year. Businesses will still be required to issue Forms 1099 to service providers for payments of $600 or more in a calendar year.
2010 Tax Relief Act
Passed Dec 17, 2010
Various individual income tax provisions are extended for two years. Regular and capital gains tax rates, as well as provision for qualified dividends will remain the same as 2010 in 2011 and 2012. Numerous other tax policies were extended for two more years, retroactively to 2010 and through 2011. These provisions include the child tax credit, additional child tax credit, college tuition deduction and credits, $250 deduction for teacher supplies, sales tax deduction, charitable donations from an IRA starting at age 70-1/2, AMT thresholds, and more.
Both employees and the self-employed will benefit form a 2% reduction in Social Security tax on their earnings. Employees' wages will be taxed at 4.2% instead of the usual 6.2% for one year; the self-employed will pay 10.4% instead of 12.4% in 2011.
Regarding estates, the estate tax is reinstated for 2011 and 2012, with a top rate of 35%. The 2011 exemption level for the estate tax is $5 million per person; future years will be adjusted for inflation. Estates of people who died in 2010 may use either the 2010 or 2011 estate tax rules.
Tax Tips
Deductible Mileage Isn't Just For Businesses & Employees
Moving mileage: Are you required to move because of your job or a new location for self-employment? If so, is the distance from your old home to your new employment more than 50 miles compared to the distance from your old home to your old employment? If yes, then you can deduct the mileage for transporting your household goods (using your own vehicles) to your new home at a rate of $0.23 per mile for 2012.
Medical mileage: If you have a significant amount of medical costs, you may find it beneficial to take an itemized deduction for you and your dependent's medical expenditures. In this case, you may also deduct $0.23 per mile in 2012 regarding medically-necessary travel. Don't forget that this includes visits to the doctor, dentist, optometrist, clinics, pharmacy, etc. (less any mileage that comprises a personal errand at the same time.)
Charitable mileage: In addition to documented charitable donations of money and goods, you can take a deduction for mileage at $0.14 per mile. This might include a trip to Goodwill, volunteering for a fund raiser, being a chaperone for a youth group, or various other opportunities involving charitable organizations. Do be sure that the organization itself is, in fact, a charitable organization listed in IRS' Publication 78.
Do You Have Someone Working At Your Home?
Have you hired a babysitter age 18 or over, a caregiver, a cleaning person or housekeeper, a landscaper or gardener, a construction worker, or other worker at your home who is not in their own business to provide the service? If so, you may be required to treat them as a household employee.
If you pay an individual $1,700 or more in 2011, you must withhold and pay Social Security and Medicare taxes. You are also required to pay federal and/or state unemployment taxes if you paid $1,000 or more in a quarter to household employees.
These rules do not apply if the payments are to your child under age 21 or to your spouse. These rules could apply if the payments are to another child who is under age 18 or to your parent; there are exceptions. Note that a parent is not subject to unemployment tax. Household employees are an area for your tax preparer to address . . . be sure that your tax professional knows the rules!
The worker is only in his own business if he meets certain criteria established by the IRS; do not assume that one is in their own business without consulting a tax professional regarding these criteria. If you already know that one is not in a business, do not risk ignoring these rules for the sake of the worker; you are both subject to audit by the IRS.
Charitable Contributions After Age 70-1/2
There is a special tax savings opportunity still effective in 2011 for persons over the age of 70-1/2. Rather than donating directly to their favorite charity, they can make a direct transfer of retirement income from an IRA to the charitable organization, tax-free. Many seniors are unable to itemize anyway, so this effectively allows for the charitable contribution to reduce their taxable income without having to itemize.
Even when the taxpayer still has itemized deductions, reducing the taxable portion of an IRA lowers the person's AGI (adjustable gross income); thus, the 7-1/2% of AGI limitation on medical expenses is also lower, allowing for a larger deduction of medical costs.
In some cases, these "pre-tax" charitable donations will reduce the taxpayer's itemized deductions below the standard deduction. In this case, more of the "free" deduction provided by the IRS can be taken and less effort is required to prepare the return, since itemizing is no longer necessary to produce a larger deduction. If the standard deduction is obvious, this also should result in lowering one's tax preparation fees.
Urban Legends in Taxation
Urban legends abound . . . even in the tax world. Two of them have often been brought to my attention. One is regarding health insurance premiums on the W-2; the other has to do with a 1% tax on bank transactions. The health insurance premium which must be reported on your W-2 by 2012 is for informational purposes only. Your health insurance premiums continue to be non-taxable.
As for the 1% tax on bank transactions, this is NOT a law buried in one of the recently passed tax acts nor is it expected to become law. The person who introduced this bill to the House in 2010 has been proposing this bill since 2004 to no avail. Further, this proposal has no co-sponsors and is receiving no endorsements. Note that even if it were to pass (which is highly unlikely), it would have no tax effect for most taxpayers. Anyone with income less than $250,000 would receive an equivalent tax credit causing a zero tax effect on their tax return.
Use Tax on Purchases
Use tax on purchases is not a new concept in Illinois, and a similar tax exists in most of the other states as well. When you purchase items from outside of your resident state without paying sales tax, you are required to remit the respective use tax to your state (for purposes of this writing, let's say that you reside in Illinois.)
Illinois' use tax rate is generally 6.25%; the rate is 1% for non-prescription drugs, medical appliances, and qualifying food (which does not include candy!) Any purchase without sales tax (e.g., online, mail order, phone order, etc.) or taxed at less than 6.25% (e.g., purchased in another state and shipped home while traveling) must be considered for the use tax calculation. In Illinois, this tax is paid once a year on April 15 and is now reported directly on your Illinois personal income tax return. (The use tax was previously reported on a separate return, Form ST-44; this form should still be used if your annual tax due is over $600.)
In order to calculate the tax, you will need to keep the respective receipts and add them up at year end. If you prefer not to keep receipts and do not incur major non-taxed purchases in any one year, you may choose to utilize Illinois' use tax table based on your AGI. This calculation is intended to estimate your liability without the burden of record keeping. (Note that I do not necessarily endorse the tax table method in lieu of record keeping, especially if you do not make a lot of these sort of purchases.)
Charitable Contributions
Charitable contributions are a popular deduction, but do you have the required support? All cash contributions now require either a receipt or your canceled check; your own written record is no longer sufficient. And if the cash donation is over $250, you absolutely must have a receipt, even with a canceled check. On the flip side, don't overlook donations of property and don't short yourself on the value given. List what you are giving - take pictures if necessary. Use thrift store values; don't under value by using garage sale amounts!
Is Your Payroll Withholding Adequate?
It's well past mid-year. Have you reviewed the withholding on your payroll and pension checks? If money is tight for you right now, consider increasing the federal payroll exemptions reported to your employer. Tax tables changed in 2011 and are withholding more than in 2010. If you had a sizeable refund in 2010, there is a source of funds waiting for you in your paychecks! All you have to do is contact your employer to change the withholding. Why wait for tax time to get it all back?
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