• STANDARD MILEAGE RATEfor business driving remains at 55.5¢ a mile. Rate for medical and moving mileage decreases to 23¢ a mile. Rate for charitable driving remains at 14¢ a mile.
• SECTION 179 maximum deduction decreases to $139,000, with a phase-out threshold of $560,000.
• TRANSPORTATION FRINGE BENEFIT limit decreases to $125 for vehicle/transit passes and increases to $240 for qualified parking.
• SOCIAL SECURITY taxable wage limit increases to $110,100. Retirees under full retirement age can earn up to $14,640 without losing benefits.
• KIDDIE TAX threshold remains at $1,900 and applies up to age 19 (up to age 24 for full-time students).
• NANNY TAX threshold increases to $1,800.
• HSA CONTRIBUTION limit increases to $3,100 for individuals and to $6,250 for families. An additional $1,000 may be contributed by those 55 or older.
• 401(k) maximum salary deferral increases to $17,000 ($22,500 for 50 and older).
• SIMPLE maximum salary deferral remains at $11,500 ($14,000 for 50 and older).
• IRA contribution limit remains at $5,000 ($6,000 for 50 and older).
• ESTATE TAX top rate remains at 35%, and the exemption amount increases to $5,120,000.
• The ANNUAL GIFT TAX EXCLUSION remains at $13,000.
• ADOPTION TAX CREDIT decreases to $12,650 for adoption of an eligible child.

For more information on how these adjustments will affect you and your taxes, please contact our office by calling at 817.460.3143 or by scheduling a free half-hour consultation for new clients.

December 23, 2011. Though both Democrats and Republicans wanted a one-year extension of the tax cut, they could not agree on how to pay for a year-long extension and settled on a paid-for two-month extension.

The new law extends the 4.2% social security tax on wages through February 29, 2012. Without this extension, the employee tax rate would have gone to 6.2% on the first $110,100 of wages earned in 2012.

The law also extends benefits for the long-term unemployed for two months and prevents a scheduled cut in fees paid to Medicare providers from taking effect January 1, 2012.

These extensions will be paid for by an increase in fees charged by government-backed mortgage companies (Fannie Mae and Freddie Mac) for new home loans.

Included in the agreement is a requirement that President Obama make a decision within 60 days on the construction of the 1,700 mile Keystone oil pipeline.

Finally, the law calls for a House-Senate conference committee to negotiate an agreement that would extend the payroll tax cut through the end of 2012, extend unemployment benefits, and prevent cuts in payments to Medicare doctors.

For more information regarding this newsletter, please give us a call 817.460.3143

1. Make Charitable Contributions – If you itemize your deductions, your donations must be made to qualified charities no later than Dec. 31 to be deductible for 2011.  Donations charged to a credit card by Dec. 31 are deductible for 2011, even if the bill isn’t paid until 2012. If you donate clothing or household items, they must be in good used condition or better to be deductible.
2. Install Energy-Efficient Home Improvements - You still have time this year to make energy-saving and green-energy home improvements and qualify for either of two home energy credits. Installing energy efficient improvements such as insulation, new windows and water heaters to your main home can provide up to $500 in tax savings. Homeowners going green should also check out the Residential Energy Efficient Property Credit, designed to spur investment in alternative energy equipment. The credit equals 30 percent of the cost of qualifying solar, wind, geothermal, or heat pump property.
3. Consider a Portfolio Adjustment – Check your investments for gains and losses and consider sales by Dec. 31. You may normally deduct capital losses up to the amount of capital gains, plus $3,000 from other income. If your net capital losses are more than $3,000, the excess can be carried forward and deducted in future years. We would  like to invite you to a free, 30 minute consultation with our licensed investment advisor John Monaco. He can discuss financial goals, budgeting, insurance, and your brokerage and retirement accounts. If you are interested please call to set up your consultation.
4. Contribute the Maximum to Retirement Accounts – Elective deferrals you make to employer-sponsored 401(k) plans or similar workplace retirement programs for 2011 must be made by Dec. 31.
5. Make a Qualified Charitable Distribution – If you are age 70½ or over, the qualified charitable distribution (QCD) allows you to make a distribution paid directly from your individual retirement account to a qualified charity, and exclude the amount from gross income.
6. Don’t Overlook the Small Business Health Care Tax Credit - If you are a small employer who pays at least half of your employee health insurance premiums, you may qualify for a tax credit of up to 35 percent of the premiums paid. An employer with fewer than 25 full-time employees who pays an average wage of less than $50,000 a year may qualify.

For more year-end tax information please give our office a call, 817.460.3143, or please respond to this email.

Wishing you Happy Holidays and a Prosperous New Year!

Sincerley,

The Staff at K.P. Monaco & Associates

The law creates the “Returning Heroes Tax Credit” and the “Wounded Warriors Tax Credit.” Employers may qualify for a credit of up to $5,600 for hiring a veteran who has been looking for employment for more than six months. A credit of up to $2,400 applies for veterans who have been unemployed for more than four weeks but less than six months.

Employers who hire an unemployed veteran with service-connected disabilities who has been looking for work for more than six months may be eligible for a tax credit of up to $9,600.

The credits apply to new hires after November 21, 2011, through December 31, 2012. For more information about the new law, contact our office.

Also, the IRS is actively looking for retirement plans reporting a 20% or more drop in the number of participants (the agency’s threshold for when a plan partially terminates) from one year to the next. This event triggers full and immediate vesting of all the participants in the retirement plan.

Various homeowners have filed amended returns to change the year of their home puchase from 2008 to 2009 in order to avoid repaying the credit they would have owed in installments over 15 years. Some suspicious claimed were OK’d, and some appeared to be legitimate- where filers wrongly treated the date the construction loan was approved as the purchase date instead of the occupancy date. However, the IRS is tightening its controls.

If have tax questions or have been considering adopting a family pet and want to take advantatge of our Dogs, Cats & Taxes offer, contact our office at 817.460.3143 or schedule a free half-hour consultation for new clients.

The K.P. Monaco Team

A recent U.S. Tax Court judge ruled that a taxpayer who fostered feral and stray cats in her home could deduct amounts she spent for food, veterinarian bills, litter, and other unreimbursed expenses incurred to help the charity in its mission.

An important requirement for such expenses to be deductible: the taxpayer must keep records of the expenses, and if they exceed $250, the charity must provide a contemporaneous written acknowledgment of the expenses as a charitable donation. The Humane Society hopes to get the word out on this case, stating that thousands of members do volunteer work such as this and spend their own money to support the mission of local animal shelters and rescue groups.

If have tax questions or have been considering adopting a family pet and want to take advantatge of our Dogs, Cats & Taxes offer, contact our office at 817.460.3143 or schedule a free half-hour consultation.

The K.P. Monaco & Associates Team

Are you planning to tap into your Section 529 college savings plan for education expenses this fall?

Before you do, you may want to take a quick refresher course on the tax consequences of withdrawals.

• Qualified distributions of contributions and plan earnings are tax-free, as long as you use withdrawn amounts to pay qualified higher education expenses.

•  Qualified higher education expenses include your out-of-pocket expenses for tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution. Also included is a limited, reasonable amount of room and board costs when you attend at least half-time (defined as half the school’s standard full-time course load). Expenses for special-needs services in connection with enrollment or attendance qualify too.

• As a general rule, an eligible educational institution is a college, university, graduate, technical or vocational school.

•  A 10% additional tax applies to the earnings portion of distributions that fail to meet the tax-free criteria – unless an exception applies. Exceptions include withdrawals in cases of a beneficiary’s death, disability or attendance at specified military schools, and certain rollovers or transfers to other 529 plans.

Please call us for more information, including the most tax-efficient way to take distributions from your 529 plan and the interaction of withdrawals with educational tax credits and amounts taken from other tax-advantaged accounts.

• September 15 – Due date for third quarter installment of 2011 individual estimated income tax.

• September 15 – Filing deadline for 2010 tax returns for calendar-year corporations that received an automatic extension of the March 15 filing deadline.

• September 15 – Filing deadline for 2010 partnership tax returns that received an extension of the April 18 filing deadline.

• October 3 – Generally, the deadline for self-employed individuals and small businesses to establish a SIMPLE retirement plan for 2011.

• October 17 – Filing deadline for 2010 individual income tax returns that received an extension of the April 18 filing deadline.

• October 17 – Deadline for undoing a 2010 conversion of a regular IRA to a Roth IRA and switching the Roth back to a regular IRA without penalty.

If you need more information or filing assistance, contact our office, 817.460.3143, or reply to this email.

Scholarships/Fellowships– As a general rule, monies received to cover tuition, books, and fees are non-taxable.

Roth IRA Earnings– As long as you meet the requirements of your Roth IRA, its earnings are tax-free.

Child Support Revenue– While alimony received IS taxable income, child support income is not deemed as taxable income by the IRS.

Gifts– Gifts you receive are tax-free income. They are also non-taxable for the giver as long as the gifts you receive in one year from that person do not exceed $13,000.

Inheritance– Typically, beneficiaries do not pay tax on the value of their inheritance. However, when inherited property is sold by the beneficiary, there may be a capital gains tax obligation.

Home Sales Gains– Up to $250,000 ($500,000 for married filing jointly) in gains on the sale of a qualified principal residence is tax-free income.

Rental Income– If you rent your home or vacation condo for up to 14 days, the rental income need not be reported. (So, if you rented your house during the Superbowl weekend, that income is tax-free.)

Life Insurance Received– The full value of life insurance payments received is tax-free income. However, the proceeds may be taxable within the estate of the deceased policy holder.

Child’s Income– For 2011, up to the standard deduction amount of $5,800 in earned income (wages) or $950 in unearned income (interest) to children is not taxable. Earnings above these amounts may be taxed.

Refunds– Of course, federal refunds and most state refunds for non-itemizers are also tax free (since you’ve already accounted for this income).

For the first time in several years, key tax laws appear to be in place before the tax year is over, giving most of us the opportunity to take a more active role in tax planning. However, many of the changes brought about in the tax legislation of December 2010 are only temporary. This makes reviewing your tax planning stategies more important than ever.

For new clients, we offer a free review of your 2010 return with one of our experienced CPA’s. To schedule your meeting, please contact our office at 817.460.3143
Best Regards,

The K.P. Monaco Team

Is there anything you can do to help recoup either loss? Absolutely! The IRS will allow you to take a tax deduction for both business and nonbusiness bad debts if you have properly structured the original transaction. Following their rules from the beginning will help ensure a tax deduction down the road.

As a general rule, a business debt is created or acquired in connection with a trade or business. A nonbusiness debt, however, is any debt other than a business debt. It is always better to have bad debts classified by the facts as business debts because they are deductible against ordinary income and only have to be partly worthless to take a deduction. Nonbusiness bad debts must be entirely worthless, and they are treated as short-term capital losses.

Here are some guidelines to follow to have your bad debt deduction meet IRS scrutiny:
Set up the transaction as a valid debt. There should be a signed, written agreement that specifies amounts, interest, and repayment terms. Be sure there is documentation that there was an obligation to repay and that you also had the right to enforce it.
The debt must have become worthless during the year of your deduction. Document that you took reasonable action to collect the debt, and show that the action failed.
Complete documentation is the key to getting your rightful tax deduction. Please contact our office at 817.460.3143 for more details on bad debts loss.