Dear Clients,

It's hard to believe that we are approaching the middle of 2011! With the busy tax season behind us, this is a great opportunity for Robert Palmer & Associates to inform you of some simple habits that will alleviate headaches for next tax season.  It's been a busy year for Congress as well, and we'd like to take this time to inform you of the current changes and how they might affect you.  As always, don't hesitate to contact us with any questions you may have. We look forward to hearing from you.

What's Happened Lately With Congress

• First of all, great news from both houses, on April 5 the 1099 legislation which was to go into effect this year has been repealed.  This repeal is going to reduce the reporting burden on small business and certain taxpayers as the prior legislation would have required increased collection of data and reporting.  This returns the reporting requirement for form 1099 to only payment aggregating to $600 or more to service providers.  The reporting exemption for payments to corporations remains intact.
• Remember, 2011 brings the mandatory reporting of health care benefits on form W2. While this is a new reporting requirement, it is only a reporting requirement, the benefits reported should not affect taxable income.  Employers must report health insurance paid by employee to their payroll company to allow for this reporting.  Be sure to check with your health care provider to ensure this data is available and communicate it to your payroll provider.
• Additional reporting legislation has been put in place for those with foreign assets worth more than $50,000 and yes Canada is a foreign country.
• Don't forget to adjust your estimated tax payments for the additional tax which will be due on Roth IRA conversions.

Want to learn more about how these changes affect you? Send us an email, we will be more than happy to answer your questions.  Alternatively, call 803.547.7676 to schedule an appointment.

• The majority of small business accounting packages including QuickBooks do not have security to protect the business owner from disclosing private client (Customer) information.
• Providing such data in an electronic format may allow the IRS to review periods which are not included in the audit engagement greatly increasing audit liability.
• We as taxpayers understand this electronic format greatly speeds up the examination process, but we should be provided with reasonable safeguards to protect our clients as well as ourselves from items not included in the examination period.
  

• Wedding reception as entertainment expense: "Hey I invited my customers to the wedding" – Not likely.
• Real estate: "My real estate agent told me if I purchased this rental home, I can deduct the entire cost in 2010" – Let's say he was disappointed to hear this deduction is taken over 27.5 years.
• The real estate agent who wanted to claim his haircuts as a business expense – Not likely.
• Someone in NJ had a client who tried to claim their dogs and cats as security expense – Let's just say it didn't work for them.
• Home office: A portion of the home specifically used for business. The new pool in the back yard doesn't work as part of the home office.
• Hate to focus on real estate agents, but let's all agree HOA dues are not deductible unless you are using a portion of the home as a home office and then only a portion of the HOA dues are deductible.  At least 20 times a year, we get the question, "Aren't my HOA dues deductible?"  When we say no, the client gets upset, even to the point this year of getting on the telephone to make sure their Real Estate Agent who sold them the home knew their disappointment.

We All Need To Pledge In 2011
Let's make all of our lives easier by alleviating some headaches for next year by taking the following pledge:

• We pledge to keep track of our goodwill donations by keeping an itemized list of what was donated along with the receipt for the donation.
• Yes, vehicle taxes are deductible. We pledge to keep the receipts for payment with our tax documents.
• For those deducting medical expenses, we pledge to keep a mileage log containing the miles to and from the doctor and pharmacist.   Also, we will form a filing system to keep track of both our prescription payments, as well as payments for over the counter drugs.
• We pledge to keep track of our mileage expenses in mileage logs for 2011 to backup the mileage deduction taken in our tax return.

• Heavy SUVs are back on the block as a full write off in 2011, but only if you buy a new one.

• S Corporation owners who fail to take a "reasonable" salary are back on the audit list.  The deduction for owner's salaries is shown on the front page of the tax return making audit selection extremely easy.  Continuing to take distributions of profits to avoid paying SECA tax has a substantial risk for audit.
• Audit risk continues to increase on those filers with gross receipts of $25,000 or more on a Schedule C, especially if the earned income credit was claimed.