If spring cleaning has left you with items that you want to donate to charity, remember that donations of used clothing and household items must generally meet certain requirements to be tax-deductible. First, such items must be in “good used condition or better.” Second, a receipt from the charity is required. If the property is valued under $250 and a receipt is not available, such as at unattended drop-off locations, reliable written records are still required.

The IRS has published depreciation limits for business vehicles first placed in service this year. Because 50% bonus depreciation is allowed only for new vehicles, these limits are different for new and used vehicles.

* For new business cars, the first-year limit is $11,160; for used cars, it’s $3,160. After year one, the limits are the same for both new and used cars: $5,100 in year two, $3,050 in year three, and $1,875 in all following years.

Automobiles are among the most commonly used engine-powered vehicles (Photo credit: Wikipedia)

* The 2012 first-year depreciation limit for trucks and vans is $11,360 for new vehicles and $3,360 for used vehicles. Limits for both new and used vehicles in year two are $5,300, in year three $3,150, and in each succeeding year $1,875.

For details relating to your 2012 business vehicle purchases, contact us.

Are you receiving a tax refund this year? No doubt you’ve already heard the standard admonishment about why you should not be giving the government an interest-free loan. Maybe you’ve decided to “do better” during 2012 by revising your withholding or estimated tax payments to reduce the amount of next year’s refund — or maybe you haven’t. Read more.

Either way, set aside your guilt. Financial planning means creating effective strategies that work for you — which can include forcing yourself to save by overpaying your income tax during the year.

The more important consideration is what you do with the money you get back. Here are ideas for making the most of your refund.

* Save. The unexpected happens. The question is, how do you pay the resulting bills? Parking part of your refund in a readily accessible location, such as a bank checking, savings, or money market account, will help you weather short-term, temporary setbacks without incurring penalties or transaction fees.

* Spend. Spending your refund wisely can get your finances in shape and pay off over the long run. For instance, home improvements like energy-efficient windows or a new water heater may result in lower electric and insurance bills. Refinancing your mortgage reduces your monthly cash outlay, freeing money for investing or saving. Ditto for paying down high-interest credit cards — so long as you resist the urge to reload them.

* Self-invest. Using your refund to refresh your current career-related skills or to learn new ones can provide a double benefit: more employment opportunities and tax savings. Unsure of your job security? Put your refund to work by financing a home-based business and creating a second stream of income.

Give us a call for assistance related to your tax withholding, estimated tax payments, or tax refund.  (818) 345-7456

Related articles

• Be smart when spending your tax refund(wpri.com)

  ---

• How Americans are Spending Their Tax Refunds(dailysavings.allyou.com)

  ---

• 10 Smart Uses for Your Tax Refund (dailyfinance.com)
• The Real Reason to Adjust Your Tax Withholding (dailyfinance.com)

Taxpayers who are struggling to pay their taxes may get some relief from the IRS’s expansion of its “Fresh Start” initiative, a program started back in 2008. The new Fresh Start provisions provide penalty relief to the unemployed and make installment agreements on taxes owed available to more people.

Tax (Photo credit: 401K)

Normally, a failure-to-pay penalty of one-half of one percent per month, up to a 25% maximum, is charged for overdue taxes. The “Fresh Start Penalty Relief” initiative gives eligible taxpayers a six-month extension to fully pay 2011 taxes — that is, until October 15, 2012, before the penalty begins to apply. Interest of 3% will still be assessed starting from April 17, 2012.

The penalty 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 reduction in business income in 2011 due to the economy. Income limits apply: the relief is not available to singles with adjusted gross income over $100,000 or to couples with income over $200,000. Also, taxes due cannot exceed $50,000.

The Fresh Start program also changes the eligibility threshold for streamlined installment agreements from $25,000 to $50,000 and increases the maximum term from five to six years.

For details or assistance, please contact our office.

Related articles

• IRS offers relief for unemployed taxpayers who can’t pay(usatoday.com)

  ---

• IRS offers several options for taxpayers who can’t pay their tax bills(dontmesswithtaxes.typepad.com)

  ---

• IRS offers relief to unemployed taxpayers (money.cnn.com)

Part-time employees can play a valuable role in a small business, especially while a business is waiting for general economic recovery. Part-timers can help you deal with variations in workload without having to hire a full-time employee. And often, when there are many job applicants for any opening, you can find a person with above-average skills for the position.

But part-timers can turn into a liability if not managed well. You could end up with poorly motivated workers, unsure of their duties, unfamiliar with the company, and unsure who they report to. Here are a few tips to prevent this situation.

* Think before you hire. Know why you’re hiring. Decide exactly what you want the person to do, what hours you want the person to work, and who he or she will report to. The position may have well-defined duties, or it may involve filling in wherever needed. Decide on the pay level and what benefits you’ll offer.

* Communicate clearly with the part-timer. Explain the person’s duties, and who his or her superior is. Be very clear on hours and benefits. The more flexibility you can offer, the easier it will be to recruit somebody and the happier the new worker is likely to be. Make sure you explain what job performance you expect.

* Communicate clearly with your full-time staff. Explain why you’re hiring a part-time person. Make it clear what that person will and won’t be expected to do. Designate who will manage and assign work to the part-timer. Otherwise you might find everyone trying to unload work on the new employee.

* Make the part-timer feel like part of the company. Provide introductory training on specific duties and on the company’s business and policies. Assign a mentor or “buddy,”  someone the new person can turn to with everyday questions. Wherever possible, include part-timers in staff meetings and company functions.

* Monitor part-timers’ progress. Provide feedback on their performance and recognition if they’re doing a good job. Consider including them in any bonus or incentive schemes. And monitor the reactions of your full-time employees. Sometimes there can be resentment of a part-timer’s shorter hours, especially if your other employees are overloaded and having to work overtime.

With attention to these points, you can make hiring a part-time employee a winning decision for your company.

Related articles

• Low-Cost Ways To Show Employees They’re Highly Valued (fastcompany.com)
• When It’s Time to Fire an Employee (smallbiztrends.com)
• Few part-timers, but more working multiple jobs (lifeinc.today.msnbc.msn.com)

Are you still dealing with your 2011 tax return? Do you owe a bigger tax bill than you expected? Are you missing a tax break because your adjusted gross income is too high? Would you like a bigger refund? Don’t despair. You might still have time to make some changes. For example:

* You have until April 17 to make a tax-deductible IRA contribution for 2011. If you qualify, you could contribute up to $5,000 and have it count as a deduction against last year’s taxes. If you were 50 years old or older last year, your maximum contribution is $6,000.

Tax (Photo credit: 401K)

* Even if you’ve already made your 2011 contribution to a Roth IRA, it may not be too late to make a change. You may be able to recharacterize your contribution as a traditional IRA contribution and take the deduction. You’ll need to set up a traditional IRA, make a trustee-to-trustee transfer, and report it on your 2011 tax return. Get details before you try this to make sure you avoid any tax traps.

*If you’re self-employed, there’s still time to set up a SEP-IRA for your business. You have until the due date of your return, including extensions, to set up the plan and make a contribution from 2011 earnings. SEP-IRAs are relatively easy to establish and flexible to manage.

Contact our office if you’re interested in any of these ideas. We can help determine whether you qualify and guide you through the process.

Related articles

• IRA Basics : Contributions & Distributions (ally.com)
• Why Invest in the Roth IRA? (fpaforfinancialplanning.org)
• Can You Still Do a Roth IRA Conversion in 2012? (bargaineering.com)
• Opt For A Roth IRA Now For Tax Savings Later (dollarversity.com)
• Opening 1st IRA can be daunting, but research helps (sfgate.com)

To encourage taxpayers with assets in offshore accounts to bring their tax filing obligations current, the IRS has reopened its “offshore voluntary disclosure program.”

Logo of the Internal Revenue Service (Photo credit: Wikipedia)

Similar programs in 2009 and 2011 resulted in the collection of more than $4.4 billion of taxes owed.

The new program has a few key differences from the previous two, including no deadline for applying and a top penalty increase from 25% to 27.5%. The IRS warns that the terms of the current program could be changed at any time.

If you have foreign accounts and need details or filing assistance, contact our office.

Related articles

• Offshore Voluntary Disclosure Program Reopens (californiataxattorneyblog.com)
• Details of Newest IRS Voluntary Offshore Disclosure Program (getirshelp.com)
• 3rd Offshore Voluntary Disclosure Program Reopens – this time for indefinite period! (ascpa.wordpress.com)
• Offshore Voluntary Disclosure Part III — Yet Another Last Chance for Taxpayers (forbes.com)
• Lederman Presents Voluntary Disclosure and Offshore Tax Evasion Today at Florida (taxprof.typepad.com)

Payroll tax cuts

Congress passed an extension of the 2% payroll tax cut that had been scheduled to expire at the end of February. The extension means 160 million working Americans will continue to pay social security tax on their wages at a 4.2% rate for the rest of 2012, rather than at a 6.2% rate.

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.

Related articles

• Meetings Underway on Payroll Tax Cut Extension (knowtaxes.com)
• Last-Minute 2011 Deal Reached on Payroll Tax Cut (knowtaxes.com)
• Under pressure, Republicans concede on unemployment benefits and doc fix (hotair.com)
• Payroll Tax Cut Extended (bargaineering.com)

Image via Wikipedia

If you reached age 70½ last year, April 2, 2012, could be an important deadline. That’s the last day you can take your required minimum distribution (RMD) for 2011 from your traditional IRAs. If you miss that deadline, the penalty could be a 50% excise tax on the amount you should have withdrawn.

If you reached age 70½ last year, April 2, 2012, could be an important deadline. That’s the last day you can take your required minimum distribution (RMD) for 2011 from your traditional IRAs. If you miss that deadline, the penalty could be a 50% excise tax on the amount you should have withdrawn.

Here’s how the rules work. Once you reach age 70½, you must start taking annual distributions from your traditional IRAs. Normally these distributions must occur by December 31 of each year. But a special rule lets you defer the first distribution until April of the year after you reach age 70½. So if you turned 70½ last year, April 2 is the deadline for your 2011 distribution. Be aware that you’ll still need to take your 2012 RMD before the end of this year.

Generally, the amount of the RMD for any year is based on your age. You take the balance in all your traditional IRAs as of the last day of the previous year, and divide by a factor representing your life expectancy. The IRS has published a standard life expectancy table to use in the calculation. Special rules might apply if your spouse is more than ten years younger than you are.

Because all or part of your distribution may be taxable income, it is important to include RMDs in your tax planning. Ideally you should start planning for RMDs several years before you reach age 70½. But whether you’re planning in advance or looking at a distribution on April 2, contact our office for more detailed advice.

The RMD rules don’t apply to Roth IRAs. Unless you’re still working, this deadline also applies to your other retirement accounts.

Related articles

• Unraveling Required Minimum Distributions (money.usnews.com)
• Deductions possible on property improvement (knoxnews.com)
• Jason Alderman: Deadline Approaches for Mandatory IRA Withdrawals (huffingtonpost.com)

Image via Wikipedia

If you own foreign investments, you may have an additional federal tax filing requirement this year.

Form 8938, “Statement of Specified Foreign Financial Assets,” is due April 17, 2012, and is filed as part of your individual tax return. You’ll use Form 8938 to disclose interests in certain foreign financial accounts when your ownership exceeds the reporting requirements.

What are the reporting requirements? They vary depending on where you live and your filing status. For example, say you’re married and live in the United States, and you’ll file a joint return for 2011. You’ll include Form 8938 with your tax return when the total value of your reportable assets on the last day of 2011 is more than $100,000, or if the value exceeds $150,000 at any time during the year.

Tip: In some cases, you may also need to file Form 8938 for tax year 2010.

Reportable assets include investment accounts you own that are held in foreign financial institutions, interests in foreign entities, and stocks or securities issued by foreign individuals or companies.

You’ve probably noticed the reporting requirements are similar to the “Report of Foreign Bank and Financial Accounts” (FBAR), a separate return you may already be filing. Be aware the new Form 8938 does not replace the FBAR, which you’ll still need to complete by June 30.

Penalties for failure to file Form 8938 start at $10,000. We urge you to contact us so we can help you evaluate your filing requirements for foreign investments.

Related articles

• IRS Exempts Many Expats From FATCA (forbes.com)
• New Reporting Requirement for Individuals with Foreign Financial Assets (tigertail6.wordpress.com)
• Get Ready For More FBAR Rules (forbes.com)
• Last week at my other blog: Foreign account reporting; E-file fears grow (dontmesswithtaxes.typepad.com)