We’re Keeping Current To Continue To Best Serve You
Everyone at McMahon & Associates is committed to staying current in all aspects of tax law and accounting pronouncements. Terry McMahon CPA and Karen McMahon EA attended the two day American Institute of Certified Public Accountants (AICPA) National Tax Conference in Washington DC which included a presentation by the Commissioner of the IRS while Christine Valenti CPA, Tax Manager, participated in an intensive two day presentation at Notre Dame University Law School on current developments in estates and trusts. Jill Jones, CPA and Audit Partner, attended the AICPA National Healthcare Industry Conference strengthening her knowledge in this field amidst a new and complicated set of regulations.
New Members of Our Staff
Marisa R. Malave CPA recently joined the firm as the Assistant Tax Manager after gaining valuable experience working in the corporate tax department of a Chicago accounting firm. Marisa graduated from Indiana University Bloomington with a major in Accounting. Marisa brings years of experience in the preparation of Federal and State Tax returns for corporations, individuals, partnerships and not-for-profit organizations and can assist you and your organization through the mine field of the tax code.Olivia Gutierrez has joined our firm as a Staff Accountant after working for the last several years at two local public accounting firms. Olivia has several years of valuable practical experience assisting business and individual clients with their tax and accounting needs. We are certain she can help all of our clients in both of these areas.
Peer Review
We are proud to announce that our firm recently completed and passed Peer Review. This extensive assessment encompasses a comprehensive review of the system of quality controls within our accounting and auditing practice. Accounting firms that participate in Peer Review are responsible for designing and complying with a system of quality controls that provide a reasonable assurance of performing and reporting in conformity with applicable professional standards in all material respects. Successful passing of Peer Review allows McMahon & Associates to issue Audited, Reviewed and Compiled financial statements differentiating the firm from the majority of other accounting firms in the area.
Hot Tax Topics - 2011
College 529 Plans: Before this year, computers and related technology, along with Internet access, were considered qualified expenses for 529 plans. That’s no longer the case: Unless a college requires students to have a computer in order to attend, the use of 529 plan money to buy one will result in a 10% penalty.
Estate Tax: The tax act passed at year end reinstates the estate tax with a tax rate of 35% and an exemption of $5 million. As you recall, there was no estate tax in the year of 2010.
All Taxpayers: All individual tax rates remain unchanged from 2010 including those related to capital gains. You’ll see no change in the basic tax you pay on earned income; those rates will top out at 35 percent. Payroll Tax: The employee’s share of FICA has been reduced from 6.2% to 4.2%. The employer’s share of FICA remains unchanged at 6.2%.
Alternative Minimum Tax: The existing AMT “patch” will be extended for two more years, saving some 21 million middle class taxpayers from getting hit with these higher rates.
Business Investment in Plant & Equipment: Up to100% expensing on such investments; call for details.
Jobless Benefits: Long-term jobless benefits are revived (extended) for another 13 months.
Expanded 1099 Reporting: Beginning in 2011, owners of property who receive rental income will be required to issue 1099s to service providers for payments of $600 or more during the year. While rental property owners will not actually issue the required 1099s until early 2012, they need to start keeping adequate records of payments starting Jan. 1, 2011, so they will be prepared to issue correct 1099s. They will also need to obtain the name, address and taxpayer identification number of the service provider, using Form W-9 or a similar form.
Tax Credits: The refundable child-care tax credit, the earned income tax credit and tuition tax credits have been renewed and are the same as last year.
Long-Term Capital Gains: If you’ve been hanging on to some investments, and you are contemplating selling them, now might be a good time. Through the end of 2011, there is no long term capital gains tax for those in the 10% and 15% tax brackets. For everyone else, capital gains top out at 15%.
Retirement Plan Contributions: If you have a traditional IRA or a regular 401k, it might be a good idea to put a little more in. The money is pre-tax, so it amounts to a tax deduction. The more you contribute, the bigger the deduction but there are very specific dollar limits. These contribution limits for pension plans and other retirement-related items for tax year 2011 either remain unchanged or the inflation adjustments for 2011 is small. There are numerous and specific rules covering these contributions as well as for Roth IRAs. Make sure you contact us first to ensure your contribution is deductible.
If you do not have a retirement account, it is a good time to open one and claim your deduction.
Electronic Funds Transfer of Depository Taxes: New rulesrequire taxpayers to use Electronic Funds Transfer (EFT) for all deposits and eliminate the use of coupons. Taxpayers now using coupons will be pre-enrolled in the Electronic Federal Tax Payment System and the IRS will increase efforts to notify affected taxpayers of the EFT requirement. Taxpayers that do not want to use EFTPS can arrange for their tax professional, financial institution, payroll service, or other third party to make the deposit on their behalf.
Health Care Reform
Health Savings Accounts: Consider setting up a high-deductible health-insurance plan for medical expenses. Contributions are tax-deductible and the money you put into them earns tax-exempt interest. Singles can contribute $3,050 to an account, tax-free; families, $6,150. For those 50 and older a $1,000 additional catch up contribution is allowed. As with all other parts of the tax code, the rules dictating these accounts need to be well understood before proceeding. Let us help you through this maze.
Changes Scheduled for 2011 Implementation
Flexible Spending & Health Reimbursement Arrangements: Effective January 1, 2011, the cost of an over-the-counter medicine or drug cannot be reimbursed from the account unless a prescription is obtained. The change does not apply to insulin, medical devices, eye glasses, contact lenses, co-payments and deductibles.
Medicare Prescription Drug Coverage (Part D): Starting in 2011, the doughnut hole will begin to shrink. Drug companies will provide a 50% discount on brand-name drugs in the coverage gap next year. After that, Part D beneficiaries will pay a smaller portion of their drug costs in the doughnut hole each year until 2020, when they have to pay just 25% of those costs. Also in 2011, individuals who earn more than $85,000 (or $170,000 if married filing jointly) will have to pay a high-income surcharge for Part D premiums, as they do for Part B. And the government will start to reduce subsidies to Medicare Advantage plans, which could cause some private plans to raise premiums, reduce coverage or shut down.
Health Care Benefits on W-2’s: Businesses were to be required to include the value of the health care benefits they provide to employees on W-2s. In October, a one-year delay was announced. Employers may voluntarily report the value of health benefits they provide on 2011 W-2s, but this will not be mandatory until 2012. The amount reported is not considered taxable income.
Health Savings Accounts: The penalty will double for nonqualified distributions from health savings accounts, to 20%.
The First-time Homebuyer Tax Credit from 2008
Americans who bought homes in 2008 using the government’s tax credit will be required to start repaying the credit beginning with their 2010 tax return, according to the Internal Revenue Service. In an odd twist, those who took advantage of a nearly identical tax credit in 2009 or 2010 will not be required to pay it back. Under the terms of the 2008 tax credit, the credit must be paid back over a 15-year period, beginning with this year’s return.
That means anyone who took the maximum $7,500 credit will have to add $500 to their income tax liability for 15 years. If you sell your house before the 15 years are up, the entire tax credit bill will be due the year the house is sold. The Internal Revenue Service describes the 2008 program as “like an interest-free loan.” This may come as a shock to some people, who may have forgotten the terms of the so-called credit, which was really more of a tax deferral. The IRS said it is sending reminders.
