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March 2011


by Andrew D. Schwartz, CPA

One of my well-paid physician clients was so bothered by the extension of the Bush tax cuts back in December that he sent a check to the US Treasury to apply towards the skyrocketing national debt. As it turns out, that payment is tax deductible as a charitable donation, so he ended up getting back one-third of the money he sent to the government as part of his tax refund.

Most people are aware that they can deduct donations made to a charitable organization.  Did you know that donations made to a local, state, or federal government count too?  According to the IRS in Publication 526, Charitable Contributions, qualified charitable organizations include:

The United States or any state, the District of Columbia, a U.S. possession (including Puerto Rico), a political subdivision of a state or U.S. possession, or an Indian tribal government or any of its subdivisions that perform substantial government functions.  Note. To be deductible, your contribution to this type of organization must be made solely for public purposes.

Example 1. You contribute cash to your city's police department to be used as a reward for information about a crime. The city police department is a qualified organization, and your contribution is for a public purpose. You can deduct your contribution.

Example 2. You make a voluntary contribution to the social security trust fund, not earmarked for a specific account. Because the trust fund is part of the U.S. Government, you contributed to a qualified organization. You can deduct your contribution.

Wondering how to make your payment to the national debt?  For starters, how much do you want to give?  Let's assume that each American wants to help pay down the US debt, and all 300 million people send in $100.   That would reduce our $14 trillion debt by just $30 billion.  You would think so many people giving money to the government would knock down the debt by more than 0.2%.

Even so, if you are equally apprehensive by the current situation as my client is and are willing to make a small dent in the federal debt, here are the instructions as provided by the federal government at

How do you make a contribution to reduce the debt?

There are two ways for you to make a contribution to reduce the debt:

  • You can make a contribution online either by credit card, checking or savings account at
  • You can write a check payable to the Bureau of the Public Debt, and in the memo section, notate that it's a Gift to reduce the Debt Held by the Public. Mail your check to:

    Attn Dept G
    Bureau of the Public Debt
    P. O. Box 2188
    Parkersburg, WV 26106-2188

In case you're wondering:

With a population of 300 million and a debt of $14 trillion, each American now owes a whopping $46,666.67.  To quote Benny Southstreet from Guys and Dolls, "That's a lot of lettuce."



by Andrew D. Schwartz, CPA

As we wrote in our June 2010 Monthly Newsletter, Congress enacted two new tax breaks for small employers last winter.  The first was the HIRE Act, which exempted employers from paying the 6.2% social security match on wages paid to any qualified employee between 3/19/10 and 12/31/10.  This tax break equaled $620 for every $10k of wages earned by qualified new hires.

The second tax credit is for small employers who provide health insurance for their staff.  This tax credit is equal to up to 35% of the health insurance premiums paid during the year.

While the HIRE act specifically excluded household employees, the opposite is true for the recently enacted health insurance tax credit through 2013.  According to the Small Business Health Care Tax Credit: Frequently Asked Questions:

1. Which employers are eligible for the small business health care tax credit?

A. Small employers that provide health care coverage to their employees and that meet certain requirements (“qualified employers”) generally are eligible for a federal income tax credit for health insurance premiums they pay for certain employees. In order to be a qualified employer, (1) the employer must have fewer than 25 full-time equivalent employees (“FTEs”) for the tax year, (2) the average annual wages of its employees for the year must be less than $50,000 per FTE, and (3) the employer must pay the premiums under a “qualifying arrangement”.

4. Can a household employer be a qualified employer, even if not directly engaged in a trade or business?

A. Yes. For tax years beginning in 2010 through 2013, an employer may still be a qualified employer even though the employees of the employer are not performing services in a trade or business.

If you employ a nanny and pay health insurance for that employee, make sure to complete and attach a Form 8941 to your federal tax return to take advantage of this new tax break.  For more information about completing that form, check out the IRS instructions to Form 8941 .



by Andrew D. Schwartz, CPA

Did you convert all of your IRAs to a Roth IRA during 2010?  If so, don't forget to continue to contribute to your non-deductible traditional IRA each year, and then immediately convert that account to your Roth IRA.

Back in 2006, President Bush signed the Tax Increase Prevention and Reconciliation Act into law. This Tax Act included a provision that eliminated the income limitation for people looking to convert their IRAs and other eligible retirement accounts to a Roth IRA as of 2010.  As we wrote in our June 2006 Newsletter:

Income Limitation for Roth Conversions Disappears in 2010:  Under the current rules, you can only convert your IRAs to a Roth IRA if your income is less than $100,000.  The same threshold of $100,000 applies to single individuals and to married couples alike.  Starting in 2010, the income limitation disappears, and anyone can convert their IRAs to a Roth IRA.  For 2010 Roth conversions, you'll also have the option to pay the taxes due in 2010, or to spread the tax liability over two years starting in 2011. 

What's interesting is that many people misread this rule and figured that this opportunity would only be available through the end of 2010.  While the one provision that allows for you to elect to split the income from the Roth Conversion over the following two tax years applies to 2010 only, there is no mention that the $100k income threshold returns in 2011. 

Contribute then Convert

Starting in 2010, there is no rule prohibiting high-income taxpayers from completing a Roth Conversion each year.  So while married couples who earn more than $179k and single individuals who earn more than $120k can't contribute directly to a Roth IRA, those who have no other IRA money can indirectly contribute to a Roth without owing any taxes. 

Just make sure to first contribute $5k into a traditional IRA, and then convert that IRA to a Roth IRA soon after. As long as you have no other traditional IRA, SEP IRAs, or SIMPLE IRAs, you shouldn't be taxed on this Roth Conversion.

I'm not sure that was the intent of this provision of the Tax Act when issued back in 2006.   But these are the rules as they currently stand, so you might as well use this two-step approach to fund your Roth IRAs until Congress decides to change this rule down the road.




Income Taxes

Saving and Investing



  • To have your returns completed by 4/15, please get your information to one of the MDTAXES CPAs during March
  • Use your tax refund to pay off some debts, fund an IRA, and/or invest.


2010 & 2011 TAX FACTS

  • For 2010, the standard deduction for a single individual is $5,700 and for a married couple is $11,400. A person will benefit by itemizing once allowable deductions exceed the applicable standard deduction. Itemized deductions include state and local income taxes (or sales taxes), real estate taxes, mortgage interest, charitable contributions, and unreimbursed employee business expenses.
  • For 2010, the personal exemption is $3,650. Individuals will claim a personal deduction for themselves, their spouse, and their dependents. 
  • The maximum earnings subject to social security taxes is $106,800 for 2010 and 2011.
  • The standard mileage rate is $.51 per business mile as of January 1, 2011, up from $.50 per mile for 2010.
  • The maximum annual contribution into a 401(k) plan or a 403(b) plan is $16,500 in 2010 and 2011.  And if you'll be 50 or older by December 31st, you can contribute an extra $5,500 into your 401(k) or 403(b) account that year.
  • The maximum annual contribution to your IRA is $5,000 for 2010.  And if you turn 50 by December 31st, you can contribute an extra $1,000 that year.  You have until April 15, 2011 to make your 2010 IRA contributions. 


Need Help With Your Nanny Payroll?

This Month's Topics

Deduct a Donation Towards the National Debt

Tax Credit for Household Employers Who Provide Health Insurance For a Nanny

Keep On Converting Into 2011 and Beyond

The FICA Refund for Medical Residents 

2010 & 2011 Tax Facts

Tax and Financial Planning Calendar for March 2011


Browse our index of previous months' newsletter topics

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In a shocking development, the IRS recently announced that they will be honoring the FICA tax refunds submitted by residency programs and individual doctors.  The catch is that only FICA taxes paid prior to 4/1/05 qualify.

For more information, go to our April 2010 Newsletter, our January 2009 Newsletter, or our February 2001 Newsletter or read through the IRS' Chief Counsel Advice Memorandum on this issue.

Let's work together to keep current on this hugely valuable tax break.  Please post whatever you read or hear regarding this FICA issue on our new Message Board we set up just for this topic.

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