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NOTICE TO RESIDENTS OF MARYLAND

We are NOT affiliated with the State of Maryland. If you are looking for information about Maryland income taxes, please go to www.marylandtaxes.com.


Useful Links:

FindAGoodCPA.com - Not a healthcare professional?  Find a CPA or EA who understands the tax issues specific to you.

Nanny Taxes - Find out what's involved with complying with the Nanny Tax Rules

IRS Web Site - for tax forms, publications, and general tax information.

Exchange Authority - New England's first authority for IRC 1031 Exchanges

Cost Segregation Studies - Accelerate tax depreciation deductions on new and existing buildings through cost segregation studies

Social Security - find out the latest rules or your projected retirement benefit.

The Company Corporation offers fast, reliable & affordable incorporation and LLC services.



MONTHLY TAX NEWSLETTER

September 2012

MITT ROMNEY'S TAX POLICY

by Andrew D. Schwartz, CPA

Convention season is upon us.  And the 2012 Presidential Election is just a few months away.  Let's take a look at Mitt Romney's tax policy based on information posted on his campaign's official website, www.mittromney.com.

Extend the Bush Tax Cuts:

If Congress doesn't act by the end of the year, the 2001 Bush tax cuts will expire on December 31st causing tax rates across the board to increase. According to Mitt Romney:

While the entire tax code is in dire need of a fundamental overhaul, Mitt Romney believes in holding the line against increases in marginal tax rates. The goals that President Bush pursued in bringing rates down to their current level— to spur economic growth, encourage savings and investment, and help struggling Americans make ends meet—are just as important today as they were a decade ago. Letting them lapse, as President Obama promises to do in 2012, is a step in precisely the wrong direction. If anything, the lower rates established by President Bush should be regarded as a directional marker on the road to more fundamental reform.

Eliminate Taxes on Investment Income for People Earning Below $200k:

Romney's Tax Policy includes a provision to cut taxes for taxpayers earning less than $200k.  Let's see what the Romney Campaign calls the Middle-Class Tax Savings Plan:

As with the marginal income tax rates, Mitt Romney will seek to make permanent the lower tax rates for investment income put in place by President Bush. Another step in the right direction would be a Middle-Class Tax Savings Plan that would enable most Americans to save more for retirement. As president, Romney will seek to eliminate taxation on capital gains, dividends, and interest for any taxpayer with an adjusted gross income of under $200,000, helping Americans to prepare for retirement and enjoy the freedom that accompanies financial security. This would encourage more Americans to save and to invest for the long-term, which would in turn free up capital for investment flowing back into the economy and helping to facilitate economic growth.

Implement Tax Simplification:

Promising tax simplification is nothing new.  When I started practicing accounting in 1987, President Reagan had just signed the huge Tax Reform Act of 1986 into law.  That Tax Act really complicated the tax code, and it has continued to become increasing more complex over the past 25 years.  Remember Steve Forbes? He ran two presidential campaigns on his Flat Tax Platform.

Here is Romney's spin on tax simplification:

In the long run, Mitt Romney will pursue a conservative overhaul of the tax system that includes lower and flatter rates on a broader tax base. The approach taken by the Bowles-Simpson Commission is a good starting point for the discussion. The goal should be a simpler, more efficient, user-friendly, and less onerous tax system. Every American would be readily able to ascertain what they owed and why they owed it, and many forms of unproductive tax gamesmanship would be brought to an end. Conversely, tax reform should not be used as an under-the-radar means of raising taxes. Where reforms that simplify the code or encourage growth have the effect of increasing the tax burden, they should be offset by reductions in marginal rates. Washington’s problem is not too little revenue, but rather too much spending.

Mitt Romney also wants to eliminate the Death Tax and repeal the Alternative Minimum Tax.  You can read Mitt Romney's complete Tax Policy at www.mittromney.com/sites/default/files/shared/TaxPolicy.pdf

President Obama's Rebuttal:

There actually isn't very much information about Obama's tax policy on his campaign's official website.  Check out The President's Record on Taxes available at: www.barackobama.com/record/taxes?source=issues-nav and all you will find is mention of the Buffett rule and these four bullet points:

  • President Obama has cut taxes for middle-class families and small businesses. One of the first things he did in office was cut taxes for 95 percent of working families. He has also signed 18 tax cuts for small businesses and extended the payroll tax cut for all American workers and their families, putting an extra $1,000 in the typical middle-class family’s pocket.

  • For too long, the U.S. tax code has benefited the wealthy and well-connected at the expense of the vast majority of Americans. A third of the 400 highest income taxpayers paid an average rate of 15 percent or less in 2008.

  • That's why President Obama proposed the Buffett Rule, asking millionaires and billionaires to do their fair share. But if you're one of the 98 percent of American families who make under $250,000 a year, your taxes won’t go up.

  • The President has asked Congress to take action to reform our tax code and close tax loopholes for millionaires and billionaires, as well as hedge fund managers, private jet owners, and oil companies.

President Obama's official campaign site also includes a link to a report that pokes holes in the Romney Tax Policy, available at: www.taxpolicycenter.org/UploadedPDF/1001628-Base-Broadening-Tax-Reform.pdf.

Which Candidate's Tax Policy Makes the Most Sense?

Tough question.  What makes it tougher is that the President doesn't write the laws.  Instead, the President's job is to sign bills that have been passed by Congress into law.  Even so, having an understanding of the tax philosophy of the country's two presidential candidates is probably a prudent idea.

As an interesting exercise, check out President Obama's views on taxes from the prior election cycle in our article called What's The Tax Plan, Man? included in our October 2008 Newsletter, and compare his suggestions from 2008 to what's been enacted during his first term.  A few of the items that he proposed during his previous campaign, including raising the Social Security taxes on people earning more than $250k and implementing a "Make Work Pay" tax credit, have come to fruition during his first term in office.

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HOW LONG DO YOU NEED TO KEEP YOUR TAX RECORDS?

by Andrew D. Schwartz, CPA

At my firm, we get this question all the time: "How long do I need to keep my tax records?"

Here is the IRS answer to this question:

Well organized records make it easier to prepare a tax return and help provide answers if your return is selected for examination, or to prepare a response if you receive an IRS notice.

  • What to Keep - Individuals. In most cases, keep records that support items on your tax return for at least three years after that tax return has been filed.  Returns filed before the due date are treated as filed on the due date.  Examples include bills, credit card and other receipts, invoices, mileage logs, canceled, imaged or substitute checks or other proof of payment and any other records to support deductions or credits claimed.  You should typically keep records relating to property at least three years after you've sold or otherwise disposed of the property.  Examples include a home purchase or improvement, stocks and other investments, Individual Retirement Account transactions and rental property records.
  • What to Keep - Small Business Owners. Typically, keep all your employment tax records for at least four years after the tax becomes due or is paid, whichever is later.  Also, keep records documenting gross receipts, proof of purchases, expenses, and assets.  Examples include cash register tapes, bank deposit slips, receipt books, purchase and sales invoices, credit card charges and sales slips.  Forms 1099-Misc, canceled checks, accounts statements, petty cash slips and real estate closing statements.  Electronic records can included databases, saved files, e-mails, instant messages, faxes and voice messages.

There is no period of limitations to assess tax when a return is fraudulent or when no return is filed. If income that you should have reported is not reported, and it is more than 25% of the gross income shown on the return, the time to assess is 6 years from when the return is filed. For filing a claim for credit or refund, the period to make the claim generally is 3 years from the date the original return was filed, or 2 years from the date the tax was paid, whichever is later. For filing a claim for a loss from worthless securities the time to make the claim is 7 years from when the return was due.

For more information from the IRS, check out:

  • Publication 552, Recordkeeping for Individuals, provides more information on recordkeeping requirements for individuals.
  • Publication 583, Starting a Business and Keeping Records
  • Publication 463, Travel, Entertainment, Gift, and Car Expenses, provide additional information on required documentation for taxpayers with business expenses

For a more complete listing, please check out this Record Retention Guide Compiled by the Massachusetts Society of CPAs.

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TAX AND FINANCIAL PLANNING CALENDAR FOR SEPTEMBER 2012

Month

Income Taxes

Saving and Investing

 

 

September

  • 3rd qtr estimates due 9/15/12

 

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2011 & 2012 TAX FACTS

  • For 2011, the standard deduction for a single individual is $5,800 and for a married couple is $11,600. 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 2011, the personal exemption is $3,700. Individuals will claim a personal deduction for themselves, their spouse, and their dependents. 
  • The maximum earnings subject to social security taxes is $110,100 for 2012, up from $106,800 for 2011.
  • The standard mileage rate is $.555 per business mile as of July 1, 2011, up from $.51 per mile for the first six months of 2011.
  • The maximum annual salary deferral into a 401(k) plan or a 403(b) plan is $17,000 in 2012, up from $16,500 in 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 2012.  And if you turn 50 by December 31st, you can contribute an extra $1,000 that year.  You have until April 15, 2013 to make your 2012 IRA contributions. 

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This Month's Topics

Mitt Romney's Tax Policy

How Long Do You Need To Keep Your Tax Records?

The FICA Refund for Medical Residents 

2011 & 2012 Tax Facts

Tax and Financial Planning Calendar for September 2012

 

NEWSLETTER ARCHIVES
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WHAT'S NEW WITH THE FICA REFUND?

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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