Monica Rebella, CPA
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- 2011 year-end tax planning for
individuals in a changing landscape
- 2011 year-end tax planning for businesses: bonus
depreciation, expensing, and more available
- Washington debates raising taxes on higher-income taxpayers
to cut deficit, fund jobs program
- Using fringe benefits as an income substitute during the
- The Saver's Credit: An underused retirement savings benefit
- October 2011 Compliance Calendar
How Do I?
- Compute a 'substantial equal
- Obtain an appraisal for a noncash charitable contribution?
- Compute gain in a like-kind exchange when some cash is
- Deduct a contribution of clothing or a household item under
the new rules?
Frequently Asked Questions
- Are Social Security survivor
benefits received by children taxable income?
- When is the best time of year to contribute to an IRA?
- How does a 60-day loan from an IRA work?
- What if I owe taxes and can't pay the full amount?
- How does the new sales tax deduction for vehicle purchases
- How much proof is enough, when contributing used clothing to
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Dear Client and Friend,
As we approach the end of the year, I hope
that you can focus on some positive aspects of the past year
and look forward to a new year and new possibilities!
This issue is about "Planning" for the end
of this year and beyond. Knowing how the tax laws work can
help you acquire the best plan for both your practice’s and
personal financial success.
Let's get started...
Successful Tips For Year End Tax Planning
1. Increase your 401(k) contributions to the
maximum allowed ($16,500 or $22,000 for age 50 plus). Also
consider converting to a Roth IRA. Although the tax is due
April 15, 2012 there will be no tax on the appreciation
2. Pay January mortgage prior to 12/31/11 to
deduct that interest in 2011. Make sure your bank includes
this interest on your Form 1098.
3. Make donations by credit card prior to
12/31/11 and you can deduct this year even if you don’t pay
the credit card until 2012. Donating appreciated stock
allows you to avoid capital gains taxes on the appreciation
and get a deduction for the full market value of the stock.
If you are required to take distributions and you do not
need the income you can have your distribution transferred
to a charity. You do not report the income or the
charitable contribution. This can keep your income lower and
avoid increase in Medicare costs.
4. If you itemize, pre-pay your medical
bills if the total will exceed 7.5% of your income.
5. Take advantage of the energy efficient
home improvement credit. You can claim 10% (up to $500) of
all qualified expenditures during 2011 for such improvements
as insulation, windows, doors, roofs, heating and air
conditioning systems and water heaters. Any credits taken
in 2009-2010 will reduce your $500. Check out
www.energystar.gov to see if your purchases qualify.
6. The Residential Energy Efficient Property
Credit is another energy credit for such things as solar
electric systems, solar hot water heaters, geothermal pumps,
wind turbines and fuel cell property. The credit is 30
percent of the entire cost, generally labor included, with
no cap except for fuel cells. These are credits and reduce
tax owed dollar for dollar. You do not have to itemize
deductions. These have to be in placed into service before
Jan. 1, 2012.
7. Clean out your closets and donate
clothing and household items to charity. Be sure to keep
records of all items donated. A donation guide can be found
on Salvation Army website at www.satruck.org/donation with
estimates for non-cash donation values.
8. Look at your year-end tax situation.
This may be the year to accelerate income, defer
9. Estate and Gift Taxes are both at a $5
million lifetime allowance. This is above the annual
$13,000 gift allowance. Review your estate plan and annual
gifting provisions. This may not be around after 2012.
10. Maximize "above-the-line" deductions.
Above-the-line deductions are deductions on page 1 of your
personal tax return and are especially valuable because they
reduce your adjusted gross income (AGI) on page 1. Common
above-the-line deductions include contributions to
traditional Individual Retirement Account (IRA) and Health
Savings Account (HSA), self-employed health insurance costs,
and alimony payments.
11. Be prepared to substantiate any business
gift with the following information: Amount, time,
description of gift, business purpose, business
relationship. Maximum deduction is $25.00 per gift to
clients, customers or contacts.
12. Brokerage firms now must submit 1099’s
to the IRS that report the price of any sale and your cost.
Be sure, especially on inherited funds, that the broker has
the correct information. If you do not, the broker may
report your cost at N/A or Unknown. The IRS will interpret
a $0. If your records are not in good order you will be
fighting with the IRS to support what you think is your
13. Prepay your practice’s expenses by
December 31, in advance for next year for vehicle leases,
rent payments on office and/or equipment and even your
business and malpractice insurance.
14. Plan on making any capital expenses for
property purchases now under Section 179. The limit for
2011 is $500,000 and going down to $125,000 in 2012! In
2013 it may completely go away. You must purchase and put
into service by the end of the year.
The "Tax Relief Act" of December 17, 2010
As we have discussed in our last issue,
President Obama’s "Tax Relief Act" passed on December 17,
2010. Here are some additional items that may be of
assistance to you in planning for this year’s tax
preparation and beyond.
Personal Deductions and Credits:
High income earners have a
break (as some may call it) through 2012, with the highest
bracket staying at 35% instead of increasing to 39%.
After 2012, anyone’s guess is good!
Deductions and personal
exemptions will not be reduced based upon income over
$150,000 through 2012
Student Loan Interest
deduction: Obama’s bill approved to increase the debt
ceiling severely limits this deduction.
Sales Tax deduction, Tuition
and Fees deduction, and Teacher’s Classroom deduction:
extended through 2011 only.
Exclusion of 100% of gains on
the sale of small business stock acquired after September
27, 2010 and before January 1, 2012, held for more than
five years. Stock must meet certain conditions.
Although the American
Opportunity credit for undergraduate education is extended
through 2012, if your income is at or over $190,000,
married, this becomes $0.
Dependent and Child Care tax
credit amounts of $3,000/one and $6,000/two or more,
extended through 2012, also applies for parents living
with you and attending adult day care. No overnight care
"Kiddie Tax" on earnings from
interest, dividends and capital gains applies at $1,900 or
over in 2011.
"Nanny Tax" for household
employees, such as live-in nannies and healthcare helpers,
applies to wages over $1,700 in 2011.
Business Deductions and Credits:
Small Business Tax Credit,
for providing health insurance to employees, is available
for up to 35% of your health care costs to employers with
less than 25 full-time employees, with annual wages
averaging no more than $50,000 and your practice pays at
least 50% of the premiums.
Bonus Depreciation of 100%
allowed for investments in qualified business property
acquired and placed in service after Sept. 8, 2010 through
Dec. 31, 2011. This bonus depreciation is reduced to 50%
for the 2012 tax year. Certain restrictions as to
"eligible" property apply, one of which is that it is
Section 179 for deducting
capital expenses continues. This is for business
purchases that are put into service in the same year.
Unlike the bonus depreciation this can be "used"
property, just new to you. For 2011, the maximum limit
for deduction is $500,000, going down to $125,000 in 2012.
2013 is uncertain. Remember, you can only expense the item
that tax year, if it is put in use in the same year.
Mileage deduction for
qualified vehicle business increased on July 1 – December
31, 2011 to 55.5 cents/mile. First half of the year is 51
THE 1099 PANIC STOPS!
No 1099 will have to be sent on corporations providing
your practice with goods and services over $600 as
previously written to start in 2012. This part of the
Health Reform Act has been repealed!
Also repealed, was the legislation that required Real
Estate investment owners to send 1099’s on service providers
paid over $600.
Estate and Gift Taxes:
With the Estate and Gift taxes continuing with high
exclusions through 2012, this may be a good time to examine
transferring business and investment assets to your children
and grandchildren tax free.
First $5 million of your
estate is not taxable, and amounts over will be taxed up
to 35% at the highest rate. This is effective through
Starting January 1, 2011, the
unused portion of the $5 million estate tax exemption can
be transferred to the spouse. It is uncertain whether
this will continue after Dec. 31, 2012.
Gift Tax exemptions, as of
January 1, 2011 and through December 31, 2012, is now
unified with the Estate Tax exemption. This means that
instead of a lifetime allowance of $1 million, you can now
gift up to $5 million per lifetime. This is a per person
limit, so for a married couple this limit is $10 million.
You can still gift up to the
$13,000/year tax-free to any one person and that will not
count against your lifetime $5 million allowance, but any
gift over that amount will go against the $5 million
estate tax exclusion or be subject to gift tax.
Therefore, the aggregate exclusion for both Estate and
Gift is $5 million.
Executors of estates for
those who died in 2010, that filed an extension by
Sept.19, have until March 19, 2012 to file the estate tax
Form 706 for 2010 and pay any tax with no penalties, but
with interest on tax paid after Sept. 19. Additionally,
executors now have until Jan. 17, 2012 to file Form 8939
to report basis allocation for inherited assets in 2010.
Workers Compensation Insurance Carrier - New
Process and Clarification
I often reach out to other professionals to
assist my clients in many ways. Recently, I had a call and
e-mail from one client regarding concerns of an upcoming
Workers Compensation audit by their insurance carrier. I
sat down with State Farm agent, Ron Esparza, whom I have
worked with for years, to address my client’s concerns. Ron
clarified the new audit process being taken by Workers
Compensation Insurance Carriers. I would like to share this
The reason for these audits, Ron explained,
is that certain employers are paying people as independent
contractors when the individuals are really employees for
purposes of Workers Compensation. Just because you issue a
Form 1099 does not automatically mean there will be an
adjustment to your Workers Compensation policy. The
following is the criteria of the Workers Compensation
Insurers for paying as employees versus independent
1. The employee needs to report directly
to you as their supervisor
2. The employee needs to work for 52 or
more hours in a 90 day period
3. The employee needs to be paid over $100
in a 90-day period
According to Ron, the audit process is
usually a very short review. The insurers are asking to
check your financials, including payroll records, check
registers, and tax returns. This should not be a problem if
you are keeping good financial records or if we handle your
Remember, if you are audited, relax. You
most likely don’t have anything to worry about. If you have
any further questions regarding this topic, Ron Esparza has
been kind enough to welcome my clients’ calls at (714)
How Are Others Continuing to Prosper?
I am asked this question often by my dental
clients. I called and asked my clients who continue to
prosper what they are doing and what seems to be working.
Here are some points they made.
1. Get ready with the new advertising
trends. Yellow pages and direct mail advertising are
yesterday’s charms. Today new patients find you when they
"Google" a dentist in their area. My successful clients are
making sure patients that had a good experience are writing
reviews for the doctor as they check out. Post the reviews
immediately. A constant stream of positive , current
reviews will keep you at the top of Google when people use
it to find a dentist in your area.
2. Keep overhead expenses down. A well
run dental practice should have overhead at below 60%. You
must win the overhead war.
Do You Have Back-up Dentist(s) To Step In –
I have written before about Dr. Phil Potter.
Dr. Potter is successfully retired, but continues to assist
fellow dentists. Recently, Dr. Potter was called in to help
a dentist, in South Orange County, put together a team of
dentists who will step into each other’s practice and keep
production going when one of them was ill. Are you
prepared? If not, call me for further assistance.
AVOID THE IRS MONSTER:
As many have heard reported, the IRS is
looking to increase their revenue by monitoring tax returns
with an eagle eye! Here are some ways you can avoid falling
into the traps.
1) Are you a corporation?
a) S or C corps that made officer loans, must have
correct documentation. Loans over $25,000 require a
separate loan document with interest and repayment
b) S-corps that pay little or no salaries to their
owners are BIG targets!
2) Do you generate Form 1099s?
a) Be sure to file this form for any unincorporated
service provider that you pay over $600/yr.
b) Use a Form W-9 to get the correct identification
information to send with the 1099. The information must
match what the IRS has with exact name, address, social
security number. If you are notified of an error,
follow up with the service provider or you may be
required to withhold $28% on every payment and send it
to the IRS.
c) The IRS is targeting types of businesses who are
likely issuing 1099s vs. W-2s to workers.
3) Are you using a Schedule C or Schedule E?
a) Documentation is crucial if you are deducting
business expenses or rental property losses. The IRS
has a priority on reviewing these schedules on your
4) Are you making charitable donations?
a) Don’t overvalue your donations. Keep
documentation and pictures of items donated. You can
find a nice listing of values for items donated at the
Salvation Army website.
b) Choose the organizations that you donate to
wisely. Those that over value or allow donors to buy
back items are being scrutinized carefully by the IRS.
5) Do you have offshore investments?
a) IRS and Department of Justice are looking for U.S.
citizens’ bank account, credit cards, wire transfers and
all other financial activities outside the U.S. borders.
The amnesty program ended this past August.
6) Do you have a retirement plan?
a) IRS is targeting retirement plans or IRAs that
have loans to owners, self-directed investments or
highly appreciated assets. Choose your plan advisors
carefully and stay clear of those promoting this
DOCUMENT, DOCUMENT, DOCUMENT AND MORE !
I can’t say it enough, even though you may
tire of it, but documentation of expenses is extremely
important and vital to, avoidance of or being successful in,
an IRS audit! Here are some how-to tips.
Make detailed lists of items
and their value for any donation of personal goods
(non-cash charitable donations)and they must be in "good"
condition. Take pictures. Written appraisals are
necessary on any item $5,000 or over. Cars donated require
the organization’s paperwork with the price they sold the
car for as your deduction amount. Also, donating the
right to use a timeshare unit does not allow any
Keep track of business
expenses as you go. Use an appointment book to keep a
record of the 5Ws (who, what, where, when, why) of every
appointment. Transfer anything from your electronic
devises. You will then have a full written accounting at
the end of the year.
Itemize your out-of-pocket,
business expenses with a monthly expense report that the
practice will reimburse you for monthly instead of
annually. Keep track of your cash spent daily. Mark cash
spent on tips, parking meters, valets, etc. in your
appointment book and get receipts if possible. Cash
expenses for your practice can be over $2,000 per year.
Reduce your compensation by
having the practice pay for items such as PDA’s, mobile
phone, computers, etc. and include the amount as
reimbursed expense in your salary. You won’t need to pay
additional taxes for this.
Credit card statements are
not proof enough for deductions. The IRS wants details,
logs, receipts to support expenses especially on auto,
meals, travel and entertainment. Provide the 5W’s!
- For those with "Smart" phones, check out the following
applications you can use
1. www.expensify.com – links your credit card account
and imports your purchase history. Generates IRS ready
receipts for expenses under $75.
2. www.lemon.com – takes photos of your receipts,
digitized and creates a master list online.
3. www.proongo.com – Allows exportation of receipts
and details to QuickBooks or Excel. Can fill out an
expense report based o photo of receipts.
Check out Google for more applications available.
SPEAKING OF HEALTHCARE
The Supreme Court has decided it will be
taking up the issue of the 2010 Healthcare Legislation next
year. Things may change!
Some additional information going into the
future, as we know it now, is:
a) You may no longer deduct
over-the-counter medication and drug costs on your
medical reimbursement plans including Flexible Spending
Accounts, Health Savings Account, and Archer Medical
b) Beginning in 2011, Employers may
voluntarily include the costs of Health Care Benefits on
employees Form W-2, but it becomes mandatory in 2012
c) Sole-proprietors can opt for a Health
Reimbursement Arrangement for a tax savings advantage.
Through this program, your family’s out of pocket medical
expenses that exceed the FSA or Cafeteria Plan limits of
$5,000 can become a business deduction. However, your
business must offer this program to all employees with the
exclusion of those that are less than age 25; work less
than 25 hours/week; work less than 7 months/year or less
than 3 years for you. Furthermore, the benefits may be
reduced for single employees to as much as 20% of married
employee’s benefits. This is an excellent way for those
who have high medical costs, due to ongoing medical
conditions or planned surgeries to recover those expenses.
d) S-Corporation owners must show costs
for health insurance on your W-2 form as either taxable
wages (if you do not pay for your employees’ insurance) or
wages exempt from FICA and Medicare (if you do pay for
your employees’ insurance).
It Still May Be a Good Time for an IRA
Regardless of your AGI, it is still possible
for your traditional IRA to be converted to a Roth IRA. If
the valuation of the IRA is low you may want to convert now
to a Roth IRA for the lower income tax liability. You will
have the opportunity to reconvert back to the traditional
IRA up until October 15, 2012. You may want to do this
depending on the value of the assets or the increase in tax
THE MANY BENEFITS OF HIRING YOUR CHILDREN!
Besides the benefits of establishing a sense
of responsibility, accomplishment and good work ethics,
hiring your children can also save your practice in taxes
and start building a college fund for your child.
Here are reasons for consideration:
1. If you are a
sole-proprietor or a husband and wife partnership,
consider hiring your children for a tax break. Child
labor laws, with some exceptions of dangerous tasks, do
not apply here. There is no minimum age and as long as
you follow the guidelines (appropriate tasks and pay level
i.e. minimum wage or skill level wage), you can pay your
children, under 18 yrs. old, as employees without the
payroll taxes. (Single member LLC or corporations must pay
these taxes.) You must keep documentation as to the tasks
performed and hours. Timesheets are best to keep this
information on. They must be paid with a payroll check.
2. Consider opening an IRA
account for your child. Have them put their earnings
up to the maximum of $5,000/year (becomes tax deduction
from their earnings) and use it for college tuition,
penalty free. Extra bonus - many private colleges do not
consider this as an asset when deciding on financial aid.
You may also consider a Roth IRA. Although there is no
tax deduction for the Roth IRA contribution, up to $5,000
a year of your earned income can grow tax free.
Steps to build your audit-proof support:
1. Get an employer ID
2. Require a time sheet from the child
3. Document the pay scale
4. Pay with a payroll check
5. Complete the federal and state payroll forms; W-4,
W-2, 941, 940
While on this topic, there was recently a court case that
allowed a wife to be paid to paint her husband’s office with
no payroll taxes and no self-employment tax charged. The
court decided that there was no employee/employer
relationship and since this was one time only and not her
vocation, they allowed it. This can work for your spouse and
PURCHASING A NEW VEHICLE? THINK BIG! QUALIFY FOR HUGE
Did you know that you can get 100% first year
depreciation on your practice’s vehicle? It’s true for the
crossover vehicle (SUV) classified with "truck" status that
has an over 6,000 pounds Gross Vehicle Weight Rating (GVWR).
The vehicle qualifies as truck status by being able to
create flat, floor-level surface from front to rear using
simple tools (screwdrivers and wrenches). If this does not
apply, then if it has (a) four-wheel drive or (b) a GVWR of
6,000 pounds, 4 or more of the following it qualifies:
1. Approach angle of not less than 28 degrees
2. Breakover angle of not less than 14 degrees
3. Departure angle of not less than 20 degrees
4. Running clearance of not less than 20 centimeters
5. Front and rear axle clearances of not less than 18
Also, if the manufacturer classifies the vehicle as a
truck, it is usually so. You might find this information on
a website. Remember, you must prove the "truck" status.
What is the GVWR? It means the "loaded weight of the
vehicle" and it includes the actual weight of the crossover
vehicle, government-declared weight for passengers, and the
government-declared weight for the cargo. You can find the
GVWR on the driver-side door or door frame or on the
If your vehicle meets these standards and is new, for
2011 you can take a full 100% depreciation, or take a 179
expense up to $25,000 and depreciate the rest in the first
year!! Something to think about prior to making your next
vehicle purchase. In 2012 this goes down to 50%
I hope you have found this information useful to you for
planning out your year end strategies for your dental
practice and/or personal life. I am always available to
assist you further in your tax or financial needs.
feel free to call the office at 714-619-0667 or visit
my website at www.mydentalcpa.com where you will find
additional information and many tools for you to use for
your tax needs.
Remember, your success is our business!
Monica Rebella, CPA
Monica Rebella, CPA | President -
Rebella Accountancy | Certified Public Accountants
507 E. First Street, Suite A | Tustin, CA 92780 | Phone:
714-619-0667 | Fax: 714-544-0236
Email: email@example.com | www.RebellaCPA.com |