Seminar provided by Christe Jennings, Enrolled Agent

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Tax Due Date

2011 Federal Tax Returns or requests for extensions are due:

APRIL 17, 2012(due to Emancipation Day)

What You Can Expect

> Wide-ranging tax-law changes in 2011

> The Basics

> Tax Strategies

> Educational Teacher Strategies

Estate Tax - New Law, New Options

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> 2011 and 2012: $5 million exemption, top rate of 35%

> No change in gift tax in 2012 (annual exclusion $13,000)

Mortgage Debt Forgiveness

> Mortgage liability post-foreclosure

> Tax-free debt discharge on/after Jan. 1, 2007, and before Jan. 1, 2013

> Primary resident requirement

> $2 million debt limit ($1 million if married filing separately)

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Employer-Provided Educational Assistance

> Exclude up to $5,250 from W-2 wages

> Includes tuition, fees and similar expenses, books, supplies and equipment

> Undergraduate or graduate-level courses

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Making Work Pay Credit

> $400 tax credit ($800 if married filing jointly) is no longer in effect

> Payroll Tax Holiday

> 2012?

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Child Tax Credit

> $1,000 credit per qualifying child

> Child:

– Younger than age 17

– Qualified dependent

– U.S. citizen or resident

> Phaseout for higher-income families

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The Basics

> Filing Status

> Tax Rates

> Standard Deduction

> Standard Deduction Additions

> Itemizing Deductions

> Personal Exemptions

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Filing Status

> Single

> Married Filing Jointly

> Married Filing Separately

> Head of Household

> Qualifying Widow(er)/Surviving Spouse

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Tax Rates for 2011

> 10%

> 15%

> 25%

> 28%

> 33%

> 35%

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Personal Exemptions

Top Tax Bracket Exemption Value

10% $370

15% $555

25% $925

28% $1,036

33% $1,221

35% $1,295

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Standard Deduction for 2011

Filing Status Standard Deduction

Single $5,800

Married Filing Separately $5,800

Married Filing Jointly $11,600

Qualifying Widow(er) $11,600

Head of Household $8,500

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Additional deduction ($1,150 – MFJ/QW/MFS; $1,450 – S/HH) if blind or 65 or over

Itemizing Deductions

> Alternative to standard deduction

> Use when total itemized deductions exceed standard deductions

> Advance planning reduces tax liability

- Medical Expenses (out of pocket)

- Mortgage Interest

- Property Taxes

- State & Local Sales Tax Deduction (may expire 12/31/11)

- Charitable Contributions

- Appreciated Stock (held more than one year)

- Unreimbursed Employee Expenses (Educational Teachers) – subject to limitation

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Tax Strategies for Life

> Family

> Education

> Job

> Home

> Investments

> Retirement

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Family Strategies

> Kiddie Tax

> Adoption Credit

> Dependent Care Credit

> Long-Term Care Premium

> Earned Income Credit

> Shifting Income

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Kiddie Tax

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> Makes income shifting to children less beneficial

> Applies to

– All children younger than age 18

– Most children who are age 18

– Most full-time students between ages 19-23

Adoption Credit

> Up to $13,360 per eligible child

> Must attach adoption-related documents to return which will delay refund

> Fully refundable for 2011, not 2012

> Phaseout rules apply

> Special-needs child — full credit regardless of actual expenses

> Rules for U.S. and foreign adoptions differ

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Dependent Care Tax Credit

> Child must be younger than age 13 and a dependent

> 20% to 35% of qualifying expenses (up to $2,100)

> Up to $3,000 of expenses ($6,000 for two or more dependents)

> AGI considered

> May also apply to other dependents, not just children

> Employer-provided day care benefit

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Long-Term Care Premium

> Tax deduction for portion of insurance costs

> Age-based deduction amount

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Family Size Maximum Credit

Three or More Children $5,751

Two Children $5,112

One Child $3,094

No Children $464

Earned Income Credit

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Phaseout rules apply

Shifting Income

> Kiddie Tax option

> Gifts:

– Up to $13,000 not subject to gift tax ($26,000 if split with spouse)

> Family business (hiring your minor children):

– First $5,800 earned is tax-free

– Earned income not subject to Kiddie Tax

– W-2 and other tax forms

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Education Strategies

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> Tax Credits

- American Opportunity Credit

- Lifetime Learning Credit

> Student Loan Deduction

> Higher Education Tuition and Fees Deduction

> 529 Plans

> Coverdell Education Savings Accounts

> Prepaid Tuition Plans

> U.S. Savings Bonds

American Opportunity Tax Credit> Applies to first four years of college/

postsecondary school

> For tax years 2011 and 2012

> $2,500 per student per year

> Expanded qualified tuition and related expenses

> Phaseout ranges* and not MFS

– $160,000 to $180,00 (married filing jointly)

– $80,000 to $90,000 (other filers)

> Includes books and computer

> Claim in year of expenses, not when paid

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*MAGI

Lifetime Learning Credit

> Worth up to $2,000 per year

> Applies to all years of post-secondary education and for courses to acquire or improve job skills

> Not limited to any number of years

> Not available to all taxpayers (phaseouts, MFS)

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Student Loan Deduction

> Deduct up to $2,500

> Includes undergraduate and graduate student loan interest

> No limit on repayment period

> Can’t file as MFS

> No need to itemize

> Phaseout range* — $40,000 to $55,000 ($110,000 to $140,000 for joint filers)

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*MAGI

Higher Education Tuition and Fees Deduction

> Deduct up to $4,000

– Modified AGI

• Does not exceed $65,000

• Does not exceed $130,000 (married/filing jointly)

> Deduct up to $2,000

– Phaseout limits apply*

• $65,000 – $80,000

• $130,000 – $160,000 (married/filing jointly)

> Barred in certain circumstances (MFS)

> Cannot claim Tuition Deduction AND Education Tax Credit

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*MAGI

529 Plans

> Tax-advantaged way to save money for college expenses

> Money grows tax-free

> Qualified tax-free withdrawals

> Wide range of qualified expenses (no set dollar limit)

> Can be used for gifts from family members

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Coverdell Education Savings Account

> Annual contribution limit of $2,000 (vs $500) was extended for 2011 and 2012

> Contribution not deductible; tax free distributions

> Age requirement (contribution and distribution)

> Must be designated as Coverdell ESA when created

> No limit to number of accounts for beneficiary

> Total of $2,000

> Can be transferred

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Prepaid Tuition Plans

> State-instituted plan

> Plan inception date and child’s age key factors to amount contributed

> Tuition costs covered — not room, board or books

> In-state vs. out-of-state schools

> Tax treatment similar to 529 Plans

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U.S. Savings Bonds

> Tax benefits for qualified higher-education expenses

> Benefit limited in certain circumstances

> Phaseouts

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*MAGI

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Job Strategies

> Health Flexible Spending Arrangements

> Health Savings Accounts

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Health Flexible Spending Arrangements (HFSA)

> Tax-free contributions from wages

> Fully accessible for certain medical expenses

> Terms and limits determined by company plan

> Use or lose component

> Distributions to reservists or active duty in certain circumstances

> OTC medications

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Health Savings Accounts

> Eligibility requirements

> Tax advantages – contributions, withdrawals and earnings

> Minimum annual HDHP deductible: $1,200 (self only) and $2,400 (family)

> Maximum annual deductible/other out-of-pocket expenses: $5,950 (self only) and $11,900 (family)

> Employee and employer contributions

> Contribution limits

- Self-only coverage is $3,050 ($4,050 if 55 or older)

- Family coverage is $6,150 ($7,150 if 55 or older; $8,150 if spouse is also 55 or older)

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Homeowner Strategies

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> Deductions

> Selling Your Home

> Repayment of First Time Homebuyer Credit

> Energy Incentives

Deductions

> Mortgage Interest Deduction

– Limited amount

– No restrictions on use of proceeds

– Points deductions

> Real Estate Taxes

– No limits on dollar amount or number of homes

– Prepay/delay choice

> Mortgage Insurance Premiums

– VA

– FHA

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Selling Your Home

> Exclude up to $250,000 in capital gains; $500,000 if married filing jointly or surviving spouse in certain cases

> Home owned/used as principal residence at least two of five years preceding sale

> Special exceptions available

> Available once every two years

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Repayment of First Time Homebuyer Credit

> 2008 credit; 15-year Interest-free Loan

> Repayment

> Review Withholdings

> Exceptions

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Energy Incentives

> Nonbusiness Energy Property Credit

- Energy Star . . . But not all!

- 10% of cost

- Up to $500 lifetime limit

- Qualifying Property (insulation, exterior windows/doors, etc.)

- Credit Caps

- Expires 12/31/11

> Residential Energy Efficiency Property Credit

- Larger Improvements

- 30%

> Vehicle Credit

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Retirement Strategies

> Employer-Sponsored Plans

> IRAs

> Traditional IRA to Roth IRA

> Inherited IRA

> Saver’s Credit

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Employer-Sponsored Plans

> Pre-tax contributions help reduce tax bill

> Employer matches

> $16,500 maximum contribution (younger than age 50)

> $5,500 additional “catch-up” contribution (age 50 or older)

> No minimum distribution requirement

> Roth 401(k) option

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Individual Retirement Accounts (IRAs)

> $5,000 maximum contribution

> $1,000 additional “catch-up” contribution (age 50 or older)

> Two types: Traditional and Roth

> Phaseout rules apply

> No minimum distribution requirement

> Open/contribution deadline: April 17, 2012

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Traditional IRA to Roth IRA

> No dollar limit on conversion amount

> No early-distribution penalty in certain circumstances

> Percentage of conversion income deferred to future years

> No modified AGI requirement

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Inherited IRA

> Taxable distributions to beneficiaries

> Exceptions apply

> 10% early distribution penalty not applicableto taxable distributions

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Saver’s Credit

> Nonrefundable tax credit for qualified taxpayers

> 10%, 20% or 50% of AGI (first $2,000 of contributions)

> AGI requirements are less than:

– $55,500 (married filing jointly)

– $41,625 (head of household)

– $27,750 (single, married filing separately or qualifying widow/er)

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Record Keeping

> Tax Return – ALWAYS

> W-2’s, 1099’s, receipts, etc. – 3 years

> Fire-proof safe

> Electronic images

> Dropbox

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Key Takeaways

> Follow accountant’s advice

> Don’t wait until it’s too late

> Plan for tax savings year-round

- Delay receipt of payment

- Postpone the sale of assets

- Delay the sale of appreciated stocks

- Installment basis

- Tax-deferred income

- Hobby income

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Educational Teachers

$250 deduction; no need to itemize; may expire

Designated Roth contributions for governmental 403(b) and 457(b) plan participants

Keep track of all expenses incurred for your profession and the classroom

Can claim all expenses over $250 if able to itemize

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403(b) Tax Deferred Annuities

> Effective 1/1/09

- Employer Contributions

- Loan Provisions

- Roth Contributions

Max Contribution - $16,500 for 2011, $17,000 for 2012

- 50 or older = additional $5,500

Reduce Taxable Income

Contribute to more than one Retirement Account

Withdrawal Exceptions

Name Beneficiaries

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Thank you!

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