2011 Tax Planning Seminar

1. 2011 Tax Planning Seminar Presented by Darren J Szendre, CPA

2. Tax Rate Forecast

3. 2011/2012 Child Tax Credit$1,000 per child

4. Education Credits Hope Scholarship Credit Replaced With (American Opportunity Tax Credit) = $2,500 maximum • $1,000 is refundable • Phases out at $160,000 AGI • Extended only through 2011 • Includes first 4 years undergraduate • Includes textbooks, supplies, computers, etc. • No room and board Lifetime Learning Credit = $2,000 maximum

5. Making Work Pay Credit • $400 or $800 has been eliminated for 2011. • Replaced with Payroll Tax Cut • Social Security rate for an employee is now at 4.2% • If you make $106,800 it will save you $2136 in 2011. • Expires December 31, 2011.

6. Standard Deduction 2011 • Single Filers: $5,800 • Joint Filers: $11,600 • Married Filing Separately: $5,800 • Head of Household: $8,500

7. Other Deductions • Teachers continue to get $250 above the line deduction – remainder goes on Sch A. • National guard expenses – travel, uniforms, etc. • HSA deduction – up to $6150 • Moving expenses • Tuition and fees above the line

8. Itemized Deductions Reduce Taxable Income • Medical expenses • Property, sales tax(expires 12/31/11), state income, personal property • Interest expenses • Investment expenses • Charitable contributions -- documentation

9. Donating to Charity? • Donations of cash or property to qualified charities are deductible. • Charitable donations are limited to 50% of your adjusted gross income. • Deductions for vehicle donations are limited for vehicles worth more than $500.

10. 2012 Limits • 401k salary deferral is $17,000 • Social security wage base is $110,100 • HSA Individual is $3100 • HSA Family is $6250

11. 401(k) Contribution Limits Under Age 50: $16,500/$17,000 in 2012 Additional “Catch-Up” for those Age 50 and Older: $5,500

12. The Roth 401(k) • Contributions are made with after-tax dollars. • Earnings grow tax free. • Distributions are tax free in retirement.

13. Roth IRAs • Make contributions with after-tax dollars • Receive tax-free distributions

14. Roth IRA Income Limits*

15. Taxes Reduced for Capital Gains and Dividends through 2011

16. AMT Danger Zones • Large capital gains • Numerous dependency exemptions • Large state income tax deductions • Large deductions for unreimbursed employee business expenses or miscellaneous expenses • Substantial medical expenses • Incentive stock options

17. Dividend Tax Rates • 15% for investors in the top four brackets • Zero tax through 2011 for investors in the 10% and 15% brackets

18. Dividend vs. Ordinary Income Ordinary income rates 10% – 35% Dividend rates 0% – 15% Rates apply for both regular tax and AMT.

19. Business Owners Increased Section 179 expensing **2011 $500K of Section 179, $2 Million phaseout, 100% bonus depreciation **2012 $125K of Section 179, $500 phaseout, $0 Bonus **2013 $25K of Section 179, $200K Phaseout, $0 Bonus

20. QUARTERLY & ANNUAL REPORTS • DO IT RIGHT THE FIRST TIME AND EVERY TIME!!! • File the reports correctly and timely • Do not postpone the report filing even if you don’t have the funds to pay • Many local CPAs offer this service for a low fee • Quarterly and/or Annual reports are due with: • Washington State Department of Revenue • Washington Employment Security • Labor & Industries • Federal Form 941/W2/W3/1099 AND MORE

21. PAYROLL ISSUES • DO IT RIGHT THE FIRST TIME AND EVERY TIME!!! • Set up a separate payroll account at the bank. • Withhold the correct Federal income tax, social security, and Medicare • Transfer funds to payroll account • Remit and deposit the funds – TIMELY!!! • Do not spend your employees Federal and/or state withholdings – THIS WILL SINK YOUR COMPANY!! • Withholdings do not belong to you – you are the trustee for the money

22. Business Pitfalls • Monthly Reconciliation – Why? • Guard your cash, assets, and other resources (proprietary information, patents, etc.) • Cash oriented businesses – setup internal controls, basic procedures, or controls within your accounting software or point of sale system. • Fraud can occur at any stage of your business – don’t wait to set up controls (Separation of Duties) and perform reconciliation • Do you look at the bank statement monthly – review cancelled checks?

23. PENALTIES – pay or play mandate • 2014: 1% of household income or $95, whichever is more • 2015: 2% of household income of $325, whichever is more • 2016 and after: 2.5% of household income or $695, whichever is more.

24. PENALTIES – EMPLOYER – pay or play • 2014: annual penalty is equal to total number of FT employees minus 30 times $2,000 • 2015: penalty payment will be indexed by a premium percentage

25. PENALTIES – EMPLOYER – 2nd Penalty • 2014: annual penalty is equal to total number of FT employees times $3,000 • 2015: penalty payment will be indexed by a premium percentage

26. Why Plan? • Your estate may be larger than you think. • Changes in tax laws do not eliminate the need for estate planning. • Failure to plan your estate may result in legal and financial problems for your heirs.

27. Gift and Estate Tax Exemptions

28. “Gifting” Your Way to Savings • You can make tax-free gifts of up to $13,000 per person, per year. • Married couples can gift a total of $26,000 per person, per year. • You can make unlimited tax-free gifts by setting up direct payments to educational institutions and medical providers.

29. Gifting Advantages • Post-gift appreciation escapes estate tax. • To the extent of the $13,000/$26,000 per donee, per year annual exclusion, no transfer tax is ever imposed. • Gift tax paid reduces your taxable estate. • Post-gift income is taxed to the recipient.

30. 2011 Tax Planning Seminar Presented by Tri-Cities Tax LLC – Darren Szendre, CPA 509-582-2000