2011 NEWSLETTER     Reminders 1)  We have to admit to having a very busy year.  The oil production in the area has added many new positives and negatives to all of our lives.  But it has made our office a bit busier.  We ask that you work with us during this busy time and bring in your payroll and 1099 information as soon as possible after year end.   Your prompt attention to our calls for information to complete this process will be greatly appreciated. 2)  We'd like to take this opportunity to remind you to make sure that you've completed your annual meeting for your corporation.  Make sure the corporate book has a copy of the minutes to those meetings for the year.  Any major decisions for the corporation should be written down in the minutes as a record of the directors' wishes and intentions. 3)  We've been informed, by those in the know, that the IRS intends to issue more 1099 matching letters this year than ever before.  They've included new questions on the Sch. C for businesses and Sch. F for farmers asking if you've paid anyone during the year that needs to be issued a 1099.  They go one step further and ask if those 1099s have been issued.  Be sure to send out all 1099s that are required.  If you have questions about who should get them, please let us know.  Make sure that you bring in all the year end notifications you receive from everyone so you don't get an IRS matching letter this coming summer.  This includes, but is not limited to, W-2s, 1099s, social security benefit statements, 1098T (college tuition statements), 8832 forms (custodial parent releases), work opportunity tax credit certificates and insure Montana tax credit certificates.  4)  If you qualify for the employee small business health insurance credit (i.e. the employer payees 50% or more of their employee's health insurance cost) there is quite a bit of additional information we will need for filling out the form.  Let us know if we need to discuss this credit during your tax interview. 5)  During 2010, if you had any employees that qualified for the W-11 new hire retention form and you reduced your social security paid on your 941 form for those W-11 employees, please let us know at your tax interview.   There is a $1,000 tax credit per qualifying employee that goes with this social security deduction and it needs to be claimed on the 2011 tax return.  If you have questions on what information we need to complete this credit form, please contact us.  Tax saving options to consider 1) Pay out corporate dividends to closely held C corporation shareholders to capitalize on the lower tax rates which are due to expire after December 31, 2012. 2) Maximize your HSA and retirement accounts (IRA, SEP, Simple). 3) Due to the uncertainty of future tax rates, it may be better to forego the bonus and section 179 deductions and save the depreciation expense for years with higher tax rates. Good to Know Many of the economic relief tax breaks will be continuing into 2012.  We have no way of knowing what will happen for 2013, but we are safe in stating the following: 1)  The capital gains rates for this year are extended through 2012.  This means lower than ordinary income tax rates for qualified dividends and capital gain income. 2)  The child tax credit scheduled to decrease to $500 per child is still $1,000 per child for 2012. 3)  Earned income credit has been extended through 2012. 4)  Section 179 expensing  deduction  on  farm/business asset  purchases is available on $500,000 worth of purchases for the 2011 tax year but decreases to $139,000 for 2012.  It's scheduled to drop to $25,000 in 2013. 5)  The bonus depreciation on new farm/business assets purchased in 2011 is 100% but will fall to 50% in 2012. 6)  The business mileage rate changed to 55.5 cents per mile July 1, 2011, and continues into 2012 at the same rate. 7)  The work opportunity credit on new hires in designated rural communities is due to expire on December 31, 2011. Keep in Mind Roth rollovers made in 2010 with the election to pay income taxes over the next two years will be taxed on your 2011 and 2012 tax returns. The penalty for non-medical withdrawals, made before you reach age 65, from your health savings account (HSA) or Archer MSA has been increased to 20% from 10%.  After age 65 the withdrawal for non-medical purposes is liable for income tax but not the penalty. There is no working pay credit in 2011.  This credit was rewritten as a reduction in the employee social security withholding from 6.2% to 4.2%.  Thus employees have received the credit on their regular paychecks throughout the year instead of on their tax return.    PROFORMA FORMS:  For ease in the preparation of your tax information, we have placed tax data worksheets (proformas) on our web site at www.bacopc.com.  Click on the "Client Organizers" link on the right side to get to the forms. Of course, these are just the basics.  Most of these provisions have special rules, conditions and exceptions.  Please call us to see how you can make the most of the tax law in your circumstances.