Strauss Tax Service

THE STRAUSS REPORT

Winter 2012

FILING SEASON 2012: It could be a crazy year….

The tax-filing season is, once again, upon us. The good news is that there were no major tax bills passed at the end of 2011 and that many big tax savers - including many rates, credits and deductions that were extended at the end of 2010 are still with us for this tax season. The bad news is that there is no tax simplification for 2011, and the new Schedule D with the revised 1099B and Form 8439 for stock and mutual fund sales as well as the dramatically decreased and complex energy credit could make tax filing messy this year. In addition, the State of Illinois still has the use tax computation on your IL 1040 for internet purchases and has increased our IL income tax for 2011 to 5% permanently, effective January 1, 2011.

In this issue of The Strauss Report, we will discuss the changes for your 2011 Federal and IL returns, including the registration of all tax preparers/professionals - and the work you may need to do prior to your tax appointment. We will also review things that could trip us up this year like home sales, capital gains from stock or mutual funds and inherited money (including 401Ks and IRAs). And, finally, we will explain what we know at this moment for 2012 and beyond - subject to change all during this election year - as the President indicated in his State of the Union speech on Tuesday, January 24th.

WHAT DO YOU NEED TO KNOW FIRST?

The deadline for tax filing for both IRS and IL is April 17th (Tuesday) for this year only, since the 15th is on a Sunday and the 16th is Emancipation Day (a federal holiday in Washington D. C.).
Payroll tax cut extended: The law extends the payroll tax cut, which was set to expire on Dec. 31, through Feb. 29, 2012. That means workers will only pay 4.2% on the first $110,100 of their wages into Social Security. That is two percentage points below the normal 6.2% rate and is worth about $100+/month of extra take home pay to the average taxpayer.
Schedule D for stock and mutual fund sales has been completely revised as has the reporting form 1099B from your stock broker or Mutual Fund Company.

The 1099B has a new section (Box 3) that may or may not have the cost basis of the asset that you sold included.
You need to check this box - because the amount included may or may not be correct. It should be correct for assets bought and sold during tax year 2011.
If you brought the asset from a different broker or inherited it or transferred it or reinvested dividends, the amount, if any, is probably not correct. Check with your mutual fund company as well – often their average cost basis is not accurate.
The new Form 8439 (three for short term and three for long term) are now used to report the sales. There is a separate form for sales on Form 1099B for which the cost basis is included in Box 3 and is correct, for sales for which the cost basis is either not included or is incorrect - and a section to show the correct cost basis and back up, and for sales where there is no 1099B issues such as bankrupt stocks.
The information from the Forms 8439 is then transferred to the revised Schedule D which is now a summary form.
If you need to compute cost basis with us for a sale (especially the NICOR stock merger with AGL in December 2011), please call us and we will tell you what you and we need – and then will may need to set up an initial appointment to do the basis computations prior to your return preparation appointment. Not simple indeed!
The IRS will be matching cost basis information from the Form 1099B with that on your tax return so we need to be sure we have accurate information.

Energy Credits are still with us for 2011, but in a much reduced format. First, the total available credit on Form 5695 is $500 – but only if you have not used more than that amount on prior tax returns back to 2006. Second, each item - windows, doors, water heaters, and furnaces has a limit on the credit available if you qualify and the amount available for the credit is now only 10% of the amount spent - not 30% as it was last year! You will need to bring prior tax returns – 2006, 2007, 2009, 2010 to us at your appointment if you were not a client of Strauss Tax during those years and think you are eligible for an energy credit.
Alternative Minimum Tax or AMT ( Form 6251) that hits when you have big Schedule A deductions for taxes and if you have a large capital gain - may hit many more of us this year. This is because the IL tax rate is now 5% and that combined with your real estate taxes may trigger AMT.
The tax rate for IL is 5% for all of 2011 and going forward. ( IL has over $8.5 billion in unpaid bills as of January 2012)
IL still has a line on your IL 1040 for Use Tax (or tax on internet or out of state purchases). You will either have to indicate that you have no sales of this type, come up with an amount purchased in this manner or we will have to use the tables from the IL Dept of Revenue to add an amount to the IL tax. An extra tax, to be sure…..and we have to put either -0- or some number on this line- we cannot leave it blank!
ALL tax preparers who prepare returns for others for fees are now required to be registered with the IRS (and have a PTIN number). We at Strauss Tax are Enrolled Agents (licensed to practice before the IRS) and have had PTIN numbers for a long time; this new regulation is designed for “unenrolled preparers” like those who do taxes on the side or prepare taxes for one of the big tax preparation companies. These regulations also include requirements for testing by the IRS and continuing education credits (we are required to get 25-30 per year). The IRS recommends taxpayers check if their preparer has a PTIN number as they are working to regulate the level of expertise and ethics in the tax preparation industry – a good thing.
The IRS and IL will not mail any paper tax forms to taxpayers – forms are available online or at local libraries or Post Offices.

HERE’S WHAT’S IMPORTANT FOR 2011 RETURNS….

The deduction for IL sales tax (used by many seniors) if you itemize has been extended for this year only, as has the education tuition deduction and the teacher’s classroom expense deduction.
An AMT “patch” to exempt many middle income taxpayers from the Alternative Minimum Tax has been extended for 2011 returns only.
The enhanced Standard Deduction with additional amounts if you paid real estate taxes or bought a new car was not extended. You still get extra if you are over 65 or considered blind.
The exclusion of the first $2400 of unemployment compensation was not extended.
The lower tax rates from 2001- along with the -0%- and 15% rates on qualified dividends and long term capital gains are still in effect.
The enhanced education American Opportunity Credit (maximum of $2500 depending on income) is still in effect. The Lifetime Learning Credit and the Tuition and Fees deduction are also still with us for now.
Mileage rates for medical and business were increased on July 1.

January 1- June 30 Medical: 19 cents/mile Business: 51cents
July 1 – December 31 Medical:23.5cents/mile Business: 55.5 cents
Charitable stays the same @ 14 cents/mile

STILL MORE THINGS TO WATCH OUT FOR THIS YEAR….

Home Sales. Most of us stayed put in 2011 and were thankful we did not have a huge mortgage. However, some of us sold vacation homes or land - often in another state. These are not eligible for the exclusion for principal residences. There will be capital gains on the sale (and no deduction for any loss unless the property/home was used as an investment and not for personal use) as well as a tax return for another state if the property was located outside of IL.

Medical Expenses. Our out of pocket medical expenses keep increasing - especially dental, prescription drugs, long term care insurance and nursing home fees. If you are retired, check how much is deducted from your pension for medical insurance; if you are working, only post tax medical expenses (not pretax or Section 125 flexible spending accounts) are tax deductible as medical. Exercise and physical therapy for rehabilitation count if for medical conditions such as heart disease. Many more clients are itemizing than in the last few years. Be sure to get the medical percentage letter from the nursing or retirement home and a listing of expenses per month with the expense codes. Pharmacies and many doctors can also provide annual statements of expenses paid out of pocket - so call them ahead of your appointment. In addition, check if you received reimbursement for Long Term Care and received a 1099LTC; we will need it to complete your tax return.

Investment Advisory Fees. Fees for managing your investment portfolio (for taxable income) paid to a bank or brokerage firm are MISC itemized deductions.

K-1s. If you are the beneficiary of a Trust or an Estate, a partner in a Partnership or a shareholder in a Corporation, watch out for K-1s. These are forms from the tax return of the tax entity that show the income and deductions credited to you and required to be included on your personal income tax return. We prepare many, many Estate and Trust tax returns (1041 forms) as well as final 1040 returns when someone passes on - and can explain what needs to be done. Call for our Estate and Trust Check off List

UNCERTAINTY IS THE WORD FOR 2012 - AND 2013 too....

Congress is back in session as of January 23rd, revisiting the bruising battle over the extension of the 2% payroll tax deduction after February 29th - and the extension of unemployment benefits as well. In addition, for 2012, the following individual tax breaks have expired - (out of a total of 53!) - unless Congress renews them retroactively:

Teacher Classroom expense deduction
State and Local Sales tax deduction
IRA Distributions for Charitable purposes
Energy Credits
Qualified Tuition Deduction

For 2013, many tax savers from the "Bush tax cuts" may be gone......unless Congress acts to extend them this year. This may not occur until after the election in November.

Individual tax rate reductions
Reduced tax rate on qualified dividends and LT Capital Gains
Marriage penalty abatement
American Opportunity Education tax credit
Overall limitation on itemized deductions.

JUDI STRAUSS IN PRINT, ON MEDIA

Our Website - www.strausstax.com - is now in its 14th year – offering tax tips and as well as workshop dates. The newsletter and Tax Alerts are also posted - if you misplace your hard copy! Check it often - we update with new IRS information and tax law changes – as well as updates about any new 2012 changes. We are also on Facebook. Please watch for breaking tax news- as well as links to interesting and important tax and financial articles. Be sure to "like us" and tell your friends as well.

Debra Evans, E.A. continues with us as a Tax Associate. She is working with us year - round to meet the increasing needs of both current and new clients.

TAX TIDBITS …

Sometimes 1099 forms are delayed or not final. Please make sure you have all final 1099 forms when you call for your appointment.
The Estate Tax for 2012 is $5 million. Gifts are still $13,000/person.
Social Security payments increased 3.6% for 2012 - the first increase since 2009. The wage base for paying SSA taxes increased from $106,800 to $110,000. All W-2 and self employment income is taxable for Medicare.
Annuities and Managed Investment accounts are being “sold” by brokers and investment advisors as an alternative to CDs since the interest rates are so low now and the stock market can be uncertain. Check if the returns (after fees) are worth it - and look at any surrender charges. We work with clients to review broker proposals and help you plan your pre tax (401K) and post tax portfolios on our per hour basis.
Strauss Tax Service is a registered IRS and IL E filer. With E filing, we call you when your return has been received and was “accepted” without any errors in preparation. Your refund is deposited in your bank account usually within a week to ten days. We can also debit amounts due – this is best since snail mail payments have been known to get lost! We are now required to E file all returns to both the IRS and IL.
In addition to checks, we also accept credit cards - VISA and MASTERCARD - for your fee.
If you have a short tax question, we can answer it at your tax appointment. Otherwise, consider a separate tax planning appointment, - after April 17th.

DON’T FORGET TO BRING – FOR YOUR APPOINTMENT:

All original documents
Histories or stock/mutual fund sales
Medical expenses and Charitable contributions - to check itemized
Sales Tax information
Closing Statements on old and new houses
Parcel number - principal residence
1098T ( tuition) forms for credit or adjustment
Year – end IRA statements – and previous 8606 forms if filed
ES payments and cancelled checks
Bank information (routing number/ account number) for refund or withdrawal
Any new information for 2012 withholding or Estimated Taxes

STRAUSS TAX SERVICE

624 62nd Street

Downers Grove, IL 60516