Although the health care insurance mandate has received the most attention, other provisions in the law could have a major impact on your taxes. If these provisions are allowed to stand, they will take effect in 2013. Here’s a quick summary.

* The amount that you can contribute to your flexible spending account will be limited to $2,500.

* If you’re under age 65, your medical expenses will have to exceed 10% (rather than 7.5%) of your adjusted gross income to be deductible.

* A Medicare surtax of .9% will be assessed on earned income in excess of $250,000 for joint filers and $200,000 for single filers.

* A new 3.8% Medicare tax will apply to unearned income such as interest, dividends, capital gains, annuities, royalties, and rents. This new tax will kick in when your adjusted gross income exceeds $250,000 if you’re married filing a joint return or $200,000 if you’re single.

Take these scheduled changes into account in your midyear tax review. Contact our office for additional information and planning assistance.

•2011 REFUNDS ARE DELAYED. Taxpayers are waiting longer for their tax refunds this year largely due to IRS efforts to catch fraudulent filings. According to a recent IRS report, the Service has identified more than 2.1 million fraudulent tax returns, many of which involve identity theft. IRS computers have had additional screening steps added which is the major factor in the refund delays.

•PENALTY RELIEF OFFERED. Aware of the difficult financial situation many taxpayers find themselves in today, the IRS has expanded its “Fresh Start” initiative offering penalty relief to certain unemployed taxpayers.

Normally, a failure-to-pay penalty of one-half of one percent per month, up to a maximum of 25%, is charged on overdue taxes. Under the relief program, eligible taxpayers can get a six-month extension to pay their 2011 taxes before this penalty kicks in.

The relief is available to workers who have been unemployed at least 30 consecutive days during 2011 or 2012 and to self-employed individuals who experienced a 25% or larger drop in business income in 2011 due to the economy. Income limits apply, and taxes due cannot exceed $50,000.

The Fresh Start program also changes the upper limit of taxes owed for requesting a streamlined installment agreement from $25,000 to $50,000 and increases the maximum term from five to six years.

Check the three general tests to qualify for this credit:

* Employing fewer than 25 “full time equivalent” employees.

* Paying average annual wages of less than $50,000.

* Paying at least 50% of health insurance premiums for employees.

If you qualify, you can use this tax credit to offset your federal income tax liability by up to 35% of the cost of health insurance premiums you pay for employees. Since this is a tax credit, not a deduction, it will reduce your tax bill dollar-for-dollar.

For assistance in determining eligibility for this tax credit and in doing the calculations to obtain the credit, contact our office.

Because Republicans and Democrats were unable to agree on how to pay for the extended tax cut, the law included no spending cuts to offset the estimated $93 billion cost of this provision. The law also provides for long-term federal unemployment benefits, setting the maximum at 73 weeks in states with the worst unemployment and 63 weeks for other states.

Another provision in the law includes the so-called “doc fix” that prevents a scheduled 27% reduction in Medicare payments to doctors. The unemployment benefits and doctor payments will be paid for by government sales of broadband spectrum, requiring federal workers hired after this year to contribute more to their pensions, and cuts in certain health programs.

President Obama signed the bill into law on February 22. For more information on the payroll tax cut please contact us at 817.460.3143, or schedule a free half-hour consultation for new clients

• 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.