IRS Offers New Penalty Relief and Expanded Installment Agreements to Taxpayers under Expanded Fresh Start Initiative

The Internal Revenue Service today announced a major expansion of its “Fresh Start” initiative to help struggling taxpayers by taking steps to provide new penalty relief to the unemployed and making Installment Agreements available to more people.

Under the new Fresh Start provisions, part of a broader effort started at the IRS in 2008, certain taxpayers who have been unemployed for 30 days or longer will be able to avoid failure-to-pay penalties. In addition, the IRS is doubling the dollar threshold for taxpayers eligible for Installment Agreements to help more people qualify for the program.

Penalty Relief
The IRS announced plans for new penalty relief for the unemployed on failure-to-pay penalties, which are one of the biggest factors a financially distressed taxpayer faces on a tax bill.

To assist those most in need, a six-month grace period on failure-to-pay penalties will be made available to certain wage earners and self-employed individuals. The request for an extension of time to pay will result in relief from the failure to pay penalty for tax year 2011 only if the tax, interest and any other penalties are fully paid by Oct. 15, 2012.

The penalty relief will be available to two categories of taxpayers:

• Wage earners who have been unemployed at least 30 consecutive days during 2011 or in 2012 up to the April 17 deadline for filing a federal tax return this year.
• Self-employed individuals who experienced a 25 percent or greater reduction in business income in 2011 due to the economy.

This penalty relief is subject to income limits. A taxpayer’s income must not exceed $200,000 if he or she files as married filing jointly or not exceed $100,000 if he or she files as single or head of household. This penalty relief is also restricted to taxpayers whose calendar year 2011 balance due does not exceed $50,000.

Taxpayers meeting the eligibility criteria will need to complete a new Form 1127A to seek the 2011 penalty relief. The new form is available on IRS.gov.

The failure-to-pay penalty is generally half of 1 percent per month with an upper limit of 25 percent. Under this new relief, taxpayers can avoid that penalty until Oct. 15, 2012, which is six months beyond this year’s filing deadline. However, the IRS is still legally required to charge interest on unpaid back taxes and does not have the authority to waive this charge, which is currently 3 percent on an annual basis.

Even with the new penalty relief becoming available, the IRS strongly encourages taxpayers to file their returns on time by April 17 or file for an extension. Failure-to-file penalties applied to unpaid taxes remain in effect and are generally 5 percent per month, also with a 25 percent cap.

Installment Agreements
The Fresh Start provisions also mean that more taxpayers will have the ability to use streamlined installment agreements to catch up on back taxes.

The IRS announced today that, effective immediately, the threshold for using an installment agreement without having to supply the IRS with a financial statement has been raised from $25,000 to $50,000. This is a significant reduction in taxpayer burden.

Taxpayers who owe up to $50,000 in back taxes will now be able to enter into a streamlined agreement with the IRS that stretches the payment out over a series of months or years. The maximum term for streamlined installment agreements has also been raised to 72 months from the current 60-month maximum.
Taxpayers seeking installment agreements exceeding $50,000 will still need to supply the IRS with a Collection Information Statement (Form 433-A or Form 433-F). Taxpayers may also pay down their balance due to $50,000 or less to take advantage of this payment option.

An installment agreement is an option for those who cannot pay their entire tax bills by the due date. Penalties are reduced, although interest continues to accrue on the outstanding balance. In order to qualify for the new expanded streamlined installment agreement, a taxpayer must agree to monthly direct debit payments.

Taxpayers can set up an installment agreement with the IRS by going to the On-line Payment Agreement (OPA) page on IRS.gov and following the instructions.

These changes supplement a number of efforts to help struggling taxpayers, including the “Fresh Start” program announced last year. The initiative includes a variety of changes to help individuals and businesses pay back taxes more easily and with less burden, including the issuance of fewer tax liens.

Offers in Compromise
Under the first round of Fresh Start, the IRS expanded a new streamlined Offer in Compromise (OIC) program to cover a larger group of struggling taxpayers. An offer-in-compromise is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed.
The IRS recognizes that many taxpayers are still struggling to pay their bills so the agency has been working to put in place more common-sense changes to the OIC program to more closely reflect real-world situations.

For example, the IRS has more flexibility with financial analysis for determining reasonable collection potential for distressed taxpayers.

Generally, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement. The IRS looks at the taxpayer’s income and assets to make a determination regarding the taxpayer’s ability to pay.

Details on IRS Collection and Other Information
A series of eight short videos are available to familiarize taxpayers and practitioners with the IRS collection process. The series “Owe Taxes? Understanding IRS Collection Efforts”, is available on the IRS website, http://www.irs.gov/.

The IRS website has a variety of other online resources available to help taxpayers meet their payment obligations:

• IR-2011-20: IRS Announces New Effort to Help Struggling Taxpayers Get a Fresh Start; Major Changes Made to Lien Process
• Offer in Compromise
• Tax Tip: Ten Tips for Taxpayers Who Owe Money to the IRS
• The What If’s of an Economic Downturn
• Video on How to Complete Form 656: Offer in Compromise

IRS YouTube Video: Fresh Start: English

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Ten Facts From The IRS About Amending Your Tax Return

If you discover an error after you file your tax return, you can correct it by amending your return.  Here are ten facts from the Internal Revenue Service about amending your federal tax return:

1. When to amend a return - You should file an amended return if your filing status, your dependents, your total income or your deductions or credits were reported incorrectly.
2. When NOT to amend a return  - In some cases, you do not need to amend your tax return.  The IRS usually corrects math errors or requests missing forms – such as W-2s or schedules – when processing an original return.  In these instances, do not amend your return.
3. Form to use - Use Form 1040X, Amended U.S. Individual Income Tax Return, to amend a previously filed Form 1040, 1040A or 1040EZ.  Make sure you check the box for the year of the return you are amending on the Form 1040X. Amended tax returns cannot be filed electronically.
4. Multiple amended returns - If you are amending more than one year’s tax return, prepare a 1040X for each return and mail them in separate envelopes to the appropriate IRS processing center.
5. Form 1040X - The Form 1040X has three columns. Column A shows original figures from the original return (if however, the return was previously amended or adjusted by IRS, use the adjusted figures). Column C shows the corrected figures. The difference between Column A and C is shown in Column B.  There is an area on the back of the form to explain the specific changes and the reason for the change.
6. Other forms or schedules - If the changes involve other schedules or forms, attach them to the Form 1040X.
7. Additional refund - If you are filing to claim an additional refund, wait until you have received your original refund before filing Form 1040X.  You may cash that check while waiting for any additional refund.
8. Additional tax -If you owe additional tax, you should file Form 1040X and pay the tax as soon as possible to limit interest and penalty charges.
9. When to file - Generally, to claim a refund, you must file Form 1040X within three years from the date you filed your original return or within two years from the date you paid the tax, whichever is later.
10. Processing time - Normal processing time for amended returns is 14 weeks.

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Tax Court Rules Contractor's Transportation Expenses to Temporary Worksites are Nondeductible Commuting Expenses

The Tax Court ruled that an independent contractor′s transportation expenses to a series of temporary work locations outside of his Cherry Hill, NJ, home were nondeductible commuting expenses.

Background. Glenn Bogue lived in Cherry Hill, NJ, a township close to the Pennsylvania border, at the home of his fiancé, Janis Pannepacker. (The home is referred to throughout the case as Mr. Bogue′s "residence.") During the years in question, 2005–2006, Mr. Bogue worked with another contractor to renovate residential properties, mostly in Philadelphia and its suburbs. In all, there were five work locations ranging from four miles to twenty miles away from his Cherry Hill residence. He worked at each site for a number of months and, when the renovation was complete, went to the next work site.

On his 2005 and 2006 tax returns, Mr. Bogue claimed deductions for car and truck expenses of $9,232 and $9,657 for each year respectively. He also claimed deductions for tolls and automobile insurance for the two years.

During this time, Mr. Bogue used a room in Ms. Pannepacker′s house as his office, but did not claim an office–in–home deduction. He also kept his tools in a storage shed on the property when he was not using them.

Applicable law. Section 162(a) allows a deduction for all ordinary and necessary expenses paid or incurred in carrying on a trade or business. In general, expenses for traveling between one′s home and one′s place of business are commuting expenses, which are treated as nondeductible personal expenses under §262(a). There are three exceptions to this general rule:

• Travel expenses to a work site are deductible if the taxpayer′s residence is the taxpayer′s principal place of business because a home office is located at the residence. This exception is established largely through case law. However, for the exception to apply, the taxpayer must meet the "regular and exclusive use" home office deduction criteria as provided in §280A(c).
• Rev. Rul. 99–7 allows a taxpayer to deduct daily transportation expenses incurred in going between the taxpayer′s residence and a temporary work location outside the metropolitan area where the taxpayer lives and normally works.
• Rev. Rul. 90–23 allows a taxpayer with one or more regular work locations away from his residence to deduct daily transportation expenses going between his residence and a temporary work location in the same trade or business, regardless of the distance.

Discussion. The Tax Court considered each of these three exceptions in turn to determine whether Mr. Bogue′s transportation expenses were deductible business expenses or nondeductible commuting expenses.

The home office exception. Although Mr. Bogue did not claim a home office deduction, the court still considered whether his residence was his principal place of business for purposes of the exception. Mr. Bogue established that he used the desktop computer in the office for business purposes to research parts and to keep track of his billing. He also used the landline telephone in the office to contact suppliers. He presented at least some records to show that he paid Ms. Pannepacker for use of the telephone and Internet service. While it was clear that Mr. Bogue used the office for business purposes, neither he nor Ms. Pannepacker presented any credible testimony that the office was used exclusively for that purpose.

Mr. Bogue relied on an older court case (Walker v. Comm′r, 101 T.C. 537 (1993)) in which a deduction was allowed because the taxpayer′s residence was a regular work location. The court rejected his arguments, holding that the conclusion in Walker was superseded by other rulings and case law and that the principal place of business standard applied. The court also rejected Mr. Bogue′s argument that the exclusive use of the storage shed to store his tools allowed him to deduct travel expenses. While deductions may be possible for use of a separate structure in connection with the taxpayer’s business, by itself, this use does not qualify a taxpayer′s residence as his principal place of business. Because the regular and exclusive use tests for the home office under §280A(c) were not met, Mr. Bogue′s residence was not considered his principal place of business and the court concluded that the home office exception did not apply.

Temporary distant worksite exception. This exception, originally established in case law and defined in Rev. Rul. 99-7, has a two-pronged test:

• The taxpayer must travel to a temporary work location, and
• This location must be outside of the metropolitan area where the taxpayer lives and normally works.

Apparently each of the worksites met the standard in Rev. Rul. 99–7 of being a temporary work location that was expected to, and did last for less than a year; thus there were no issues about the first part of the test.

Mr. Bogue stated that because most of his worksites were across the state line in Pennsylvania, these sites were located outside of his metropolitan area. He argued that the court should refer to what he believed to be an Office of Management and Budget (OMB) definition of a metropolitan area as an urban area with more than 50,000 people.

Pointing out that his understanding of this definition was not correct, the court explained that the OMB defines a metropolitan statistical area (MSA) as an area of more than 50,000 people "containing a recognized population nucleus and adjacent communities that have a high degree of integration with that nucleus." Ironically, by that definition, Mr. Bogue′s Cherry Hill, NJ residence and all the temporary work sites are located in the Philadelphia–Camden–Wilmington MSA.

The court declined to use MSAs or any type of rigid definition of "metropolitan area" to determine if a taxpayer has or has not travelled outside the area because such definitions could lead to absurd results. One taxpayer could travel over 100 miles and be within his MSA while another could travel five miles and be outside his MSA. Such definitions therefore "frustrate the intent of the primary principal that commuting expenses are nondeductible."

Instead, the court evaluated the facts and circumstances in Mr. Bogue′s case. The court found that it was his normal practice to travel about 15 miles to a worksite and "there was nothing unusual about those trips. "Cherry Hill is about 10 miles east of Philadelphia, PA and even the farthest worksite was within the Philadelphia city limits.

Because four of the five sites travelled to during 2005 and 2006 were in Philadelphia or its suburbs (the fifth site was in Haddonfield, NJ, about five miles from Cherry Hill), the court concluded that those areas were the areas where he normally worked and the temporary distant worksite exception did not apply. Regular work location exception. This exception allows a taxpayer to deduct transportation expenses to a temporary work location if the taxpayer has a regular or main job. Because all Mr. Bogue′s worksites were temporary locations as defined in Rev. Rul. 99–7 and he did not have a regular or main job in his home town or anywhere else, the regular work location exception did not apply.

Conclusion. Mr. Bogue failed to qualify under any of the three exceptions that would allow a deduction for travel expenses between home and work, including car and truck expenses, tolls, and automobile insurance. The Tax Court held that his expenses in traveling from his residence to the temporary worksites were nondeductible commuting expenses.

Application. Taxpayers frequently misinterpret the significance of "temporary work location," believing that as long as a work location or assignment is temporary, transportation and other travel–related expenses are deductible. The Tax Court discussion painstakingly explains that for one of the two temporary location exceptions to apply, the taxpayer must be at a temporary location that is either 1) away from the metropolitan location where he normally lives and works (temporary distant worksite exception) or 2) away from his regular or main job (regular work location exception).

The discussion also explains that facts and circumstances, rather than a particular definition (such as OMB listings of Metropolitan Statistical Areas) must be considered in defining a metropolitan area and determining if the taxpayer′s work is inside or outside the area. More to the point, the decision makes it clear that the temporary work must not only be outside the metropolitan area where the taxpayer normally lives, it must also be outside the metropolitan area where the taxpayer normally works. Thus, even if Philadelphia had been found to be a different metropolitan area from the area of Mr. Bogue′s Cherry Hill residence, the Philadelphia area was where he normally worked.

Mr. Bogue might have been able to use the home office exception if he had been able to supply the court with adequate testimony as to his regular and exclusive use of the office as his principal place of business, but he did not do so. It should be noted that for similar reasons, the court denied other business deductions claimed on Mr. Bogue′s tax returns, finding that he either failed to establish a business connection to the expenses or failed to produce records or other credible substantiation to back up the deductions.

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Summer Day Camp Expenses May Qualify for a Tax Credit

Along with the lazy, hazy days of summer come some extra expenses, including summer day camp. But, the IRS has some good news for parents: those added expenses may help you qualify for a tax credit.

Many parents who work or are looking for work must arrange for care of their children under 13 years of age during the school vacation.

Here are five facts the IRS wants you to know about a tax credit available for child care expenses. The Child and Dependent Care Credit is available for expenses incurred during the summer and throughout the rest of the year.

1. The cost of day camp may count as an expense towards the child and dependent care credit.
2. Expenses for overnight camps do not qualify.
3. Whether your childcare provider is a sitter at your home or a daycare facility outside the home, you'll get some tax benefit if you qualify for the credit.
4. The credit can be up to 35 percent of your qualifying expenses, depending on your income.
5. You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.

Links:
IRS Publication 503, Child and Dependent Care Expenses

YouTube Videos:  Summer Day Camp Expenses - English  | Spanish | ASL

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10 Tips to Ease Tax Time for Military

Military personnel have some unique duties, expenses and transitions. Some special tax benefits may apply when moving to a new base, traveling to a duty station, returning from active duty and more. These tips may put military members a bit “at ease” when it comes to their taxes.

1. Moving Expenses If you are a member of the Armed Forces on active duty and you move because of a permanent change of station, you can deduct the reasonable unreimbursed expenses of moving you and members of your household.
2. Combat Pay If you serve in a combat zone as an enlisted person or as a warrant officer for any part of a month, all your military pay received for military service that month is not taxable. For officers, the monthly exclusion is capped at the highest enlisted pay, plus any hostile fire or imminent danger pay received.
3. Extension of Deadlines The time for taking care of certain tax matters can be postponed. The deadline for filing tax returns, paying taxes, filing claims for refund, and taking other actions with the IRS is automatically extended for qualifying members of the military.
4. Uniform Cost and Upkeep If military regulations prohibit you from wearing certain uniforms when off duty, you can deduct the cost and upkeep of those uniforms, but you must reduce your expenses by any allowance or reimbursement you receive.
5. Joint Returns Generally, joint returns must be signed by both spouses. However, when one spouse may not be available due to military duty, a power of attorney may be used to file a joint return.
6. Travel to Reserve Duty If you are a member of the US Armed Forces Reserves, you can deduct unreimbursed travel expenses for traveling more than 100 miles away from home to perform your reserve duties.
7. ROTC Students Subsistence allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay – such as pay received during summer advanced camp – is taxable.
8. Transitioning Back to Civilian Life You may be able to deduct some costs you incur while looking for a new job. Expenses may include travel, resume preparation fees, and outplacement agency fees. Moving expenses may be deductible if your move is closely related to the start of work at a new job location, and you meet certain tests.
9. Tax Help Most military installations offer free tax filing and preparation assistance during the filing season.

Links:

• Tax Information for Members of the U.S. Armed Forces
• IRS Publication 3, Armed Forces’ Tax Guide (PDF)

YouTube Videos:    Military Tax Tips: English | Spanish |  ASL

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Don't Be Scammed By Fake IRS Communications

The IRS does not initiate contact with taxpayers by email to request personal or financial information.

The Internal Revenue Service receives thousands of reports each year from taxpayers who receive suspicious emails, phone calls, faxes or notices claiming to be from the IRS. Many of these scams fraudulently use the IRS name or logo as a lure to make the communication appear more authentic and enticing. The goal of these scams – known as phishing – is to trick you into revealing your personal and financial information. The scammers can then use your information – like your Social Security number, bank account or credit card numbers – to commit identity theft or steal your money.

Bogus email scams are resurfacing, including one involving payments allegedly rejected by IRS' e-file system. The email has a link that may download malicious software.

Here are five things the IRS wants you to know about phishing scams.

1. The IRS never asks for detailed personal and financial information like PIN numbers, passwords or similar secret access information for credit card, bank or other financial accounts.

2. The IRS does not initiate contact with taxpayers by email to request personal or financial information. If you receive an e-mail from someone claiming to be the IRS or directing you to an IRS site:

• Do not reply to the message. 
• Do not open any attachments. Attachments may contain malicious code that will infect your computer.    
• Do not click on any links. If you clicked on links in a suspicious e-mail or phishing website and entered confidential information, visit the IRS website and enter the search term 'identity theft' for more information and resources to help.

3. The address of the official IRS website is www.irs.gov. Do not be confused or misled by sites claiming to be the IRS but ending in .com, .net, .org or other designations instead of .gov. If you discover a website that claims to be the IRS but you suspect it is bogus, do not provide any personal information on the suspicious site and report it to the IRS at phishing@irs.gov.

4. If you received a scam e-mail claiming to be from the IRS, forward it to the IRS at phishing@irs.gov. If you receive a phone call, fax or letter in the mail from an individual claiming to be from the IRS but you suspect they are not an IRS employee, contact the IRS at 1-800-829-1040 to determine if the IRS has a legitimate need to contact you. Report any bogus correspondence. 
 
5. You can help shut down these schemes and prevent others from being victimized. Details on how to report specific types of scams and what to do if you’ve been victimized are available at www.irs.gov. Click on "phishing" on the home page.

Links:

• Protect your personal information! The IRS does not initiate taxpayer communications through e-mail
• Suspicious e-Mails and Identity Theft
• FS-2012-07, Protect Yourself from Identity Theft
• FS-2012-08, Taxpayer Guide to Identity Theft
• IR-2011-39, Don't Fall Prey to the 2011 "Dirty Dozen" Tax Scams
• IR-2011-73, IRS Urges Taxpayers to Avoid Becoming Victims of Tax Scams
• Protect Your Personal Information! 
• Create e-mail for phishing@irs.gov   
• How Do You Report Suspected Tax Fraud Activity?

YouTube Videos: 
Phishing Scams - English | Spanish | ASL
Dirty Dozen: English | Spanish | ASL

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Six Important Facts About Dependents & Exemptions

Even though each individual tax return is different, some tax rules affect every person who may have to file a federal income tax return. These rules include dependents and exemptions. The IRS has six important facts about dependents and exemptions that will help you with your2011 tax return.


1. Exemptions reduce your taxable income. There are two types of exemptions: personal exemptions and exemptions for dependents. For each exemption you can deduct $3,700 on your 2011 tax return.


2. Your spouse is never considered your dependent. On a joint return, you may claim one exemption for yourself and one for your spouse. If you’re filing a separate return, you may claim the exemption for your spouse only if they had no gross income, are not filing a joint return, and were not the dependent of another taxpayer.


3. Exemptions for dependents. You generally can take an exemption for each of your dependents. A dependent is your qualifying child or qualifying relative. You must list the Social Security number of any dependent for whom you claim an exemption.


4. If someone else claims you as a dependent, you may still be required to file your own tax return. Whether you must file a return depends on several factors including the amount of your unearned, earned or gross income, your marital status and any special taxes you owe.


5. If you are a dependent, you may not claim an exemption. If someone else – such as your parent – claims you as a dependent, you may not claim your personal exemption on your own tax return.


6. Some people cannot be claimed as your dependent. Generally, you may not claim a married person as a dependent if they file a joint return with their spouse. Also, to claim someone as a dependent, that person must be a U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico for some part of the year. There is an exception to this rule for certain adopted children.


IRS Publication 501: http://www.irs.gov/pub/irs-pdf/p501.pdf

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Tax Refund? Get Your Money The Fastest Way Possible

Are you expecting a tax refund from the IRS this year? Get your refund money back the fastest way possible.  Once we file your tax return electronically, you can expect to get your refund in as little as 7 to 14 days* – even faster when you choose direct deposit. You can also receive your refund check at our office or have the preperation fees deducted from your refund for an additional fee of $64.95.

You can check on the status of your refund seven days after your return was e-filed.  There are several ways to check the status of your refund.  You will need your Social Security, your filing status and the amount of the refund.

• Where's My Refund: The fastest, easiest way to find out about your current year refund.  (https://sa2.www4.irs.gov/irfof/lang/en/irfofgetstatus.jsp)

• IRS2Go: IRS goes mobile.  Download the IRS2Go App for free at the iTunes app store or   Android Marketplace. 

• Refund Hotline: Call the IRS Refund Hotline at 1-800-829–1954

If you do not get a date for your refund, wait a couple of days and check again.

In some circumstances, you may not receive your refund as quickly as you expected. Refund delays can be caused by a variety of reasons. If so, IRS will mail you an explanation or you may contact the IRS for further details.

*The IRS does not guarantee a specific date that a refund will be deposited into a taxpayer's financial institution account or mailed.

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Begin Your Year With These Top 12 Tax Saving Tips

This is a great time to help our clients lower their tax bills or get a larger refund from the IRS.

      1)      Paperwork - Gather your tax data as soon as possible. For many, the biggest hassle at tax time is getting all of the documentation together. This includes last year’s tax return, this year’s W-2s and 1099s, receipts and so on.  Keep all the information that comes in the mail in January, such as W-2s, 1099s and mortgage interest statements. Be careful not to throw out any tax-related documents, even if they don’t look very important. Round up all receipts and canceled checks, such as those from charities; check latest brokerage statements for year-to-date gains or losses, if any, when they arrive; and get medical receipts and insurance reimbursement forms in order. Group similar documents together, put them in different file folders or envelopes so they are organized. If you start organizing your files now, it will be easier to avoid a last-minute rush to our office.

2)   AMT – For tax-year 2011, the alternative minimum tax exemption increases to the following levels:

• $74,450 for a married couple filing a joint return and qualifying widows and widowers, up from $72,450 in 2010.
• $37,225 for a married person filing separately, up from $36,225.

• $48,450 for singles and heads of household, up from $47,450.

Taxpayers who are or might be affected by the AMT have additional factors to consider when attempting to reduce the overall tax bill. Certain items of income can trigger an AMT liability such as the exercise of incentive stock options, interest from certain municipal bonds and large, long-term capital gains, qualified dividends and/or cashing out on a 401k.   Also, different itemized deductions are subject to different phase-out limits for regular tax purposes as it relates to the AMT.

3)   IRA - A traditional IRA offers tax-deferred savings while a Roth IRA offers tax-free savings for retirement. But Roth IRA contributions are limited based on household income. In 2012, those younger than age 50 can contribute a maximum of $5,000 and if you are 50 and older you can contribute up to $6,000. If you are consider rolling over a traditional IRA to a Roth IRA remember that balances in a Roth IRA grow tax free and distributions from Roth accounts are generally not taxable after a five-year holding period. Unlike traditional IRAs, there is no minimum distribution requirement for Roth IRAs.  However, conversion comes with a current-year tax bill and must be paid from money outside of the IRA account for the transaction to make sense. Roth conversions/roll over’s can be a very powerful planning tool, but they are not for everyone.  Individuals who did Roth conversions in 2010 and elected to spread the tax payment over 2011 and 2012 will have to pay one-half of the tax owed on their 2011 income tax return.

4)   Disaster-Related Losses - Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving depending on other income factors.

5)   Homeowners - Pay your property taxes early, make an extra mortgage payment (the interest portion is deductible).

6)   Credit Cards Payments - Using a credit card is the same as using cash—the deduction (tax related deductions only) is taken in the year the charge is incurred, not the year the credit card balance is paid off.

7)   Marital Status — If you got married last year or are getting married this year keep in mind that taxpayers are considered married for the entire calendar year even if they get married on December 31.

8)   Health Care — There were lots of changes in 2011 in health care deductions as a result of the Affordable Care Act Tax Provisions.  For instance, the cost of an over-the-counter medicine cannot be reimbursed from a flexible spending account unless it’s for insulin or you have a prescription.

9)   Mileage allowance — The standard mileage rate for business use of a car, van, pick-up or panel truck is 51 cents a mile for miles driven during the first  six months of 2011 (January through June) and 55.5 cents a mile for the rest of the year, up from 50 cents for 2010.

10) Energy Property Credit  -  This credit generally equals 10 percent (down from 30 percent the past two years) of what a homeowner spends on eligible energy-saving improvements, up to a maximum tax credit of $500 (down from the $1,500 combined limit that applied for 2009 and 2010). In addition, the energy standards are increased for most property; windows, exterior doors and skylights, for example, must meet Energy Star Program requirements. The cost of energy-efficient windows and skylights, energy-efficient doors, qualifying insulation and certain roofs also qualify for the credit, though the cost of installing these items do not.

11) Health insurance deduction for self-employed people - In 2011, eligible self-employed individuals and S corporation shareholders can use the self-employed health insurance deduction to reduce their income tax liability. Eligible taxpayers can also still claim this deduction on Form 1040. Premiums paid for health insurance covering the taxpayer, spouse and dependents generally qualify for this deduction. In addition, premiums paid to cover an adult child under age 27 at the end of the year, also qualify, even if the child is not the taxpayer’s dependent. However, the deduction from self-employment income for determining self-employment tax, which was available only in tax-year 2010, no longer applies. As before, the insurance plan must be set up under the taxpayer’s business, and the taxpayer cannot be eligible to participate in an employer-sponsored health plan.

12) Tuition Credit - Maximum credit for the American Opportunity Credit is $2,500 per student in 2011 and 2012 (covers 100% of the first $2,000 and 25% of the next $2,000) for tuition, fees and course materials (books) for the first 4 years of post-secondary education in a degree or certificate program.  Also, Eligible taxpayer, spouse or dependent enrolled in an eligible postsecondary institution may deduct up to $4,000 paid for tuition and fees in 2011.

Finally, the penalties for failure to file and late filing of information returns have increased.  In some cases it has doubled. This depends on the return and date of late filing.

Residential Appliance Rebate Program

Energy Sense Rebate Program Starts Today!! To be eligible for the rebate you must pre-register by phone or on the web. Then you have to purchase a new appliance before November 4th. Finally you must recycle your old appliance.

For information on how to register by phone 954-357-7328 (Broward) and 3-1-1- (Miami-Dade) or visit http://www.broward.org/gogreen or http://green.miamidade.gov/appliancerebate.htm for further details.