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A Brief IRS Tax Code Update
By Children’s Home Society of Florida Foundation
In an information letter, the IRS outlined seven specific changes in the 2011 law that will be useful to doctors and all taxpayers filing their tax returns this year. And, some of these 2011 tax law changes may reduce your taxes:
1. Energy Credits – The energy credit was reduced from the $1,500 limit for 2010 to a maximum of $500 for 2011. Up to 10% of qualified expenditures for high-efficiency heating and air conditioning systems, water heaters, biomass stoves, energy-efficient windows and doors and other energy improvements will qualify. The 2011 limit is $500. This credit is reduced by previously-taken energy credits and will generally be available for taxpayers who made their first energy improvements in 2011.
2. 2008 Homebuyer Credits – Some purchasers of new homes in 2008 qualified for a first-time homebuyer credit. The credit was essentially an interest-free loan to be paid back over 15 years. For these taxpayers, the second repayment of the credit amount will apply for 2011.
3. Capital Gains and Losses – Previously, capital gains and losses were recorded on Schedule D. There is a new Form 8949 to report gains and losses. Schedule D will still be used for a summary of capital gains and losses.
4. Roth Conversions – Those individuals who converted a traditional IRA to a Roth IRA in 2011 must report their taxable income. In previous years, only half of the income was reported each year for two years. However, for 2011 conversions the full amount is reportable.
5. Standard Mileage Rates – The standard mileage rates changed on July 1 for business use, medical travel, moving or charitable services. For the first half of 2011, the rates are business travel at 51 cents, medical and moving travel at 19 cents, and charitable travel at 14 cents per mile. For July 1 through the end of the year, business travel is 55.5 cents, medical and moving travel at 23.5 cents and charitable travel remains 14 cents per mile.
6. Alternative Minimum Tax Exemption – The AMT exemption for 2011 will be $74,450 for a married couple, $37,225 for married persons filing separately and $48,450 for single person or heads of household.
7. Health Insurance – Generally, self employed persons who operate a small business will qualify for deduction of health insurance premiums.
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Filed under: Taxation | Tagged: A Brief IRS Tax Code Update, Children's Home Society of Florida Foundation, IRS, Save Taxes with These 2011 Changes, tax code |
The Leading Business Education Network for Doctors, Financial Advisors and Health Industry Consultants 
IRS Over-Worked?
Did you know that a government watchdog says the Internal Revenue Service can’t fully handle identity theft cases and fraudulent tax refund claims or adequately answer taxpayers’ questions because its budget is too small to deal with its growing workload.
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What do you think of that?
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IRS Gives U.S. Citizens Chance To Come Clean
Good news, Anti-Tax Man – The Internal Revenue Service is giving U.S. citizens who have shielded assets offshore a third opportunity to come clean, pay a penalty and avoid criminal prosecution.
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Lower Your Tax Bill
Maybe Warren Buffett, the second richest man on the planet, doesn’t care how much he pays in taxes. For the rest of us, what our investments earn after taxes is much more important than what they earn before taxes. Federal and state income taxes, capital gains taxes, and alternative minimum taxes can reduce your investment earnings by up to 50%.
It doesn’t take much to substantially reduce your nest egg. If you earned an average of 8% and were taxed at 28%, your after-tax rate of return is 5.76%. A $50,000 investment earning 5.76% grows to $87,536 in 10 years. If that same $50,000 investment isn’t subject to taxes, it grows to $107,946. The higher tax bracket you are in, the more important it is for you to seek out ways to lower your tax bill.
One of the best tax maneuvers is to invest your money where it will grow tax-free, meaning you will never pay any taxes on the income or accumulation. One way to do this is via a Roth IRA or a Roth 401k plan. All earnings compound tax-free and are not subject to tax or penalties when you take them out of the Roth after age 59½. The downside is that your contribution is not deductible from current earnings.
Another tax-free investment is interest from municipal bonds. The higher income bracket a person is in, the more an investment in municipal bonds makes sense. For someone in the 33% tax bracket, a 5% interest rate on a municipal bond is equivalent to a 7.46% rate on a taxable bond. But for someone in the 15% tax bracket, it’s only equivalent to a taxable rate of 5.88%. Don’t make the mistake of investing in municipal bonds only because they have tax free income. Be sure the investment makes sense for you.
After tax-free investing comes tax-deferred investing. This includes traditional retirement vehicles like IRA’s, 401k’s, 403b’s, pension plans, and annuities. Contributions to these plans are pre-tax, while contributions to annuities are after-tax. The earnings are not taxed until taken out, usually after retirement when you may be in a lower tax bracket.
If you anticipate your overall tax rate (the average percentage of income taxes you pay for the year) in retirement to be over 15%, you’ll want to evaluate whether investments that earn most of their returns in the form of long-term capital gains might be better held outside of a tax-deferred account. That’s because withdrawals from tax-deferred accounts generally are taxed at your ordinary income tax rate, which may be higher than your capitals gains tax rate (currently 15%).
Look for advice from investment advisors who manage investments in ways that can help reduce the taxable distributions. Investment managers can employ a combination of tactics, such as investing in stocks that don’t pay dividends, counterbalancing the sale of stocks with gains against those with losses, tax harvesting, and minimizing portfolio turnover. As important as minimizing tax is, be careful not to let the tax tail wag the dog. A poor investment doesn’t become a good one just because it’s tax-free.
Finally, keep good records of purchases, sales, and distributions so you can accurately calculate the tax basis of your investments. Not keeping good records could mean paying more tax than you should when you eventually sell.
While you can’t control the direction of the economy and markets, you can have a lot of control over where you invest your retirement funds, the taxes you will pay, and the costs. The tax consequences of investment choices matter to the rich. They matter even more to small investors.
Rick Kahler CFP® MS ChFC CCIM
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Medical Practices Can Get Tax Breaks for Hiring Vets
Many veterans work in the health sector, including medical practices, and a 2011 law makes additional tax credits available from the Internal Revenue Service for hiring them.
Experts working with medical practices on financial matters say the biggest challenge is a lack of awareness that as much as $9,600 is available for hiring an unemployed veteran.
Click to access f8850.pdf
The size of the credit is affected by the length of time a veteran has been unemployed and whether he or she has a service-related disability.
Hope Rachel Hetico RN MHA
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Impending Tax Hikes Make Clients Consider Roth Conversions and Other Strategies
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http://www.fa-mag.com/fa-news/10421-impending-tax-hikes-shape-clients-questions-planners-advice.html
Milton
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