2010 Winter Newsletter

Tax Planning

Tax planning is an important step for all individuals. It does not matter how much money you make or do not make. It does not matter whether you are single or married. Tax planning is a critical part of your financial planning success. Call today for an appointment.

Don’t Panic! Things to Know If

You Receive an IRS Notice

 The Internal Revenue Service sends millions of letters and notices to taxpayers every year. If you receive a notice bring it in and we will help you take care of it. 

Section 179 Expensing

 For 2010 and 2011 the maximum Section 179 expense deduction has been raised to $500,000.  Section 179 allows for expensing of depreciable property purchased during the year.   

50% Bonus Depreciation

The Small Business Jobs Act also extends the 50% bonus depreciation for new property acquired and placed in service during 2010.

“Intaxication:  Euphoria at getting a refund from the IRS, which lasts until you realize it was your money to start with.”  ~Author unknown, from a Washington Post word contest

Dividend Tax Rates Set to Rise

 The 2001 Tax Act Reduced the highest individual federal income rate from 39.6% to 35%. The maximum rate on dividend income was the 15% capital gain rate. Because of the Act’s so-called Sunset Rule, the tax rate reduction and the special rates for taxing dividends and capital gains expire at the end of 2010 meaning higher rates are in store beginning in 2011 unless Congress acts.

With the rules as they are now, beginning in 2011, dividend income will be taxed at ordinary income tax rates just as it was prior to the 2001 Tax Act. The maximum ordinary income tax rate in 2011 is scheduled to be 39.6%.

Tax planning for 2010 should take into account the higher tax rates scheduled to take effect after 2010. However, taxpayers with dividend income should pay particular attention to the changes in how dividends are taxed after 2010. For example, in some cases it may be advantageous for owners of close-held C corporations to increase their 2010 dividend payouts.

“Next to being shot at and missed, nothing is really quite as satisfying as an income tax refund.”

  ~F.J. Raymond

Nonbusiness Energy Property Tax Credit to Expire after 2010

  Taxpayers can claim a credit for personal energy property expenditures made in 2010 but no credit is allowed for property placed in service after 2010.

The credit equals 30% of the cost of qualified energy-efficient property or improvements. The total amount of credit that can be claimed in 2009 and 2010 combined is $1,500. So, up to $5,000 of qualifying expenses made over the two-year period can qualify for the credit.

There are no AGI or income limits so all individuals can claim the credit.

Credit for residential energy efficient property available after 2010.

 Although the credit for non-business energy property is not available after 2010, the Section 25D residential energy efficient property credit is available through 2016. Qualifying property includes:

• Solar energy systems (water heating and electricity)

• Fuel cells

• Small wind energy systems

• Geothermal heat pumps

Hiring Workers

Previously Unemployed

Two new tax benefits are now available to employers hiring workers who were previously unemployed or only working part time. These provisions are part of the Hiring Incentives to Restore Employment (HIRE) Act enacted into law.

Employers who hire unemployed workers this year (after Feb. 3, 2010 and before Jan. 1, 2011) may qualify for a 6.2-percent payroll tax incentive, in effect exempting them from their share of Social Security taxes on wages paid to these workers after March 18, 2010. This reduced tax withholding will have no effect on the employee’s future Social Security benefits, and employers would still need to withhold the employee’s 6.2-percent share of Social Security taxes, as well as income taxes. The employer and employee’s shares of Medicare taxes would also still apply to these wages.

In addition, for each worker retained for at least a year, businesses may claim an additional general business tax credit, up to $1,000 per worker, when they file their 2011 income tax returns.

Employers claim the payroll tax benefit on the federal employment tax return they file, usually quarterly, with the IRS. If you qualify or have questions please call.

Business Information

Reporting

 For payments after 2011, businesses paying more then $600 during the year to corporate providers of property and services will be required to file information returns (1099’s) for with each provider.  Also, the penalty for failure to file 1099 and other information returns will double to $100 for each omission. 

Lessons to learn from market changes:

•Keep your eye on the big picture – markets will go up and they will go down.  Everyone gets a little anxious when the markets go down but past performance (since 1949) has shown us that they do recover.  Sometimes it takes a little longer to recover but they do recover.  Don’t get excited and take your money out or move it around as then you lower your chances of recovering your money.

•Stay invested – typically your investment will grow over time if you stay invested.  Taking your money out when your investment has gone down will not help you reach your investment goals.  You will probably end up going backwards.

•Don’t try to predict the market increases or decreases – Trying to get into or out of the market at a particular time is risky.  If you have the money go ahead and invest it and let it ride and over time you should have a decent return on it.

•Don’t be scared of a down market – look at it as a time to buy stocks at a cheaper price.

Canceled Debt – Is it Taxable or Not?

Normally, debt forgiveness results in taxable income. In general, if a debt for which you are personally liable is canceled or forgiven, other than as a gift or bequest, you may have to report the canceled amount in your gross income on your Form 1040. Depending on the circumstances by which your debt was canceled, amounts over $600 are reported on Form 1099-C and may be taxable. Homeowners whose mortgage was partly or entirely forgiven may be able to claim special tax relief. Other types of debt forgiveness may need to be reported but are in some cases excluded from taxable income.

“Did you ever notice that when you put the words "The" and "IRS" together, it spells "THEIRS?"

  ~Author Unknown

Good Debt vs. Bad Debt

 Good debt (debt that it’s OK to have) is debt for things that are a necessity but you can’t afford to pay cash for.  Examples of this are house loans, vehicle loans, an emergency trip to California for a dying relative, ect. 

Bad debt includes debt that was acquired because of things that you don’t need.  A trip to Mexico that you can’t pay cash for, a new pair of pants that you didn’t have the cash for ect.

The average US household has at least one credit card with an average balance of $10,700 with “bad debt” on it.

Your monthly good debt payments should not exceed 36% of your gross monthly income.

“Taxes:  Of life's two certainties, the only one for which you can get an automatic extension.”  ~Author Unknown

Retirement Savings Contributions Tax Credit

 If you make eligible contributions to an employer-sponsored retirement plan or to an individual retirement arrangement (IRA), you may be able to take a tax credit. The amount of the saver's credit you can get is based on the contributions you make and your credit rate. If you are eligible for the tax credit, your credit rate can be as low as 10% or as high as 50% of the amount you contribute to a retirement account depending on your adjusted gross income. The lower your income, the higher the tax credit rate. You are not eligible for the credit if your adjusted gross income exceeds a certain amount.

Making Work Pay Tax Credit

 This credit – still available for 2010 – equals 6.2 percent of a taxpayer’s earned income. The maximum credit for a married couple filing a joint return is $800 and $400 for other taxpayers.

DID YOU MOVE?

Written notification. Form 8822, Change of Address, can be used as written notification of a change of address. In addition, a written statement signed by the taxpayer (and spouse if MFJ) and mailed to an appropriate IRS address informing the IRS that the taxpayer wishes to change his address of record is an acceptable notification. In addition to the new address, the statement must contain the taxpayer’s full name, old address, and taxpayer identification number.

Business Deductions:

Vehicle Not Used in Business

Taxpayers who deduct expenses related to a vehicle must show that the vehicle was used in a trade or business. The fact that a car can also be used for personal expenses makes it critical to be able to substantiate any business use.

Gifting

You can gift $13,000 or less to an individual without it becoming taxable.  The person who receives your gift doesn’t have to report it to the IRS or pay gift or income tax on its value but remember it is not a deduction on your tax return.  If you or your spouse make a gift to a third party, the gift can be considered as made half by you and half by your spouse which is called gift splitting  - this can allow you to claim even a larger exclusion – up to $26,000.

Average Premiums for Health Insurance Expense Credit

Starting in 2010, eligible small employers who provide health insurance coverage for their employees can claim a tax credit.

The credit is based on a percentage of the lesser of:

1.   1.  Health insurance premiums paid on behalf of employees during the year or

2.  Premiums that would have been paid if each employee were enrolled in a plan whose premium equaled the average premium for the small group market in the state in which the employer offers health insurance coverage.

Flex System

Employers – save an average of $300 per employee and give your employees an average of $900 raise in take home pay.  FlexSystem, also known as a Section 125 Cafeteria Plan, is now easier than ever.  There are now debit cards which can be used to pay for flex expenses such as dental, vision, and medications. 

FlexSystem enables employers to offer employee benefits for healthcare and dependent care on a pretax basis, while controlling benefit costs and saving payroll tax dollars.  With FlexSystem, both employees and employers save lots of tax dollars.  Give us a call if you have additional questions.

Series EE Bonds

Cash-basis individuals generally report interest earned on Series EE bonds in the year of maturity (or in the year redeemed, if earlier).  Alternatively, they can elect to report the interest on the accrual method (as it is earned). An election, once made, applies to all U. S. savings bonds owned currently and subsequently acquired.  In the year of election, the taxpayer reports all income accrued on the bonds from the date of disposition.

The election to report a deceased individual’s savings bond  interest income on his final Form 1040 can be also made. The election can be made on behalf of a decedent by the person responsible for filing the decedent’s final return.

Business Use of Your Home

Whether you are self-employed or are an employee, you may be able to deduct certain expenses for the part of your home you use for business despite the general denial of business expense deductions for the home.

To deduct expenses for business use of the home, part of your home must be used regularly and exclusively as one of the following:

1. The principal place of business for your trade or business

2. The place where you meet and deal with your patients, clients, or customers in the normal course of your trade or business; or

In connection with your trade or business, if you use a separate structure that is not attached to your home.

Kinner & Company

Special Needs Fund

This fund is from the employees of Kinner and Company Ltd. They elect to withhold a percentage of their paycheck which we then send to families and individuals who are in need of some assistance.  We have sent out 57 checks totaling $9,183. We are glad we can help out.

If you have any questions, please feel free to give us a call.

In the meantime …..

                     …Have a great day from Kinner & Company Ltd!

1-800-858-5410    Wabasso          507-342-5126

1-800-692-2515    Brookings       605-692-2515

1-877-537-2711    Marshall         507-537-0681

1-877-542-2711    Pipestone        507-825-5274

1-800-858-5410    Tracy               507-629-3662

1-877-542-2711    Elkton             605-542-2711

1-877-542-2711    Flandreau       605-997-3797

1-877-542-2711    Lake Benton    507-368-2711

email:  kkinner@itctel.com

Visit our website www.kinner.ws

Keith Kinner, CPA

Nicole Larson, CPA

Dave Nester, CPA

Results Accountants

Jennifer Nordmeyer         Darci Anderson

Tracey Zmuda                    Cindy Foerster

Mary Lebert                       Deborah Kinner

Diana Kocourek                Dianne Foster

Carla VanDewiele            Charity Kuehl

Donna Geringer                Carley Osland

Diane Anderson                Ann Fodness

Ashley Koehne

             CPA’s…Making sense out of a changing and complex world.

Keeping Records

Here is a list detailing which records must be kept permanently and which can be discarded after a period of time. 

Permanent Records

Annual Financial Statements

Articles of Incorporation

Pension Records

Company Stocks and Bonds

Property Records (including appraisals, plans and sales)

Tax Returns (estate, gift and income)

Title Papers and Deeds

Contracts, Changes and Specifications

Minutes of Meetings

Ten Years

Check Registers

Corporate Contracts

Sales and Use Tax Returns

Franchise Agreements

Workers’ Compensation Reports

Seven Years

Accident Reports

Bank Statements and Checks

Options

Correspondences

Property Damage Reports

Depreciation Schedules

Payroll Tax Returns

Five Years

Bills of Lading

Fire Damage Reports

Expense Reports

Three Years

Bank Deposit Slips and Reconciliations

Insurance Policies (after expiration)

Surety Bonds

Garnishments