January 2012

Dear Client:

There were not many significant tax changes enacted in 2011, but I will summarize some of the more relevant tax developments to keep in mind.

Temporary Social Security Tax Cut:  For 2011, the withholding rate for the employee’s share of the Social Security tax was reduced from 6.2% to 4.2%.  For self-employed individuals, the Social Security tax component of the self-employment tax was also reduced from 12.4% to 10.4%.  The maximum savings from the cut was $2,136 (2% x $106,800).  Anyone with wages and/or self-employment income benefits to some degree from this arrangement.

The provision for self-employed health insurance premiums deductible against self-employment tax expires in 2011.

The Making Work Pay Credit of $400 expires in 2011.

The Personal Energy Property Credit is extended for one year, through 2011.  However, the energy efficiency standards and the credit limits that existed before 2009 apply.  The non-business energy credit applies to energy saving improvements that individual taxpayers make to their homes, such as the installation of insulation material, air circulating fan or a heat pump.  The rate that gets applied to the expenditures to arrive at the credit has been reduced to 10% in 2011.  The lifetime credit limit has been reduced to $500 in 2011.  No more than $200 can be attributable to windows and skylights. Consequently, the taxpayer must look back at all the years that the credit was in effect (2006-2007, 2009-2010) and find out how much was claimed on the tax return.  The taxpayer is allowed to claim only the balance of the credit that remains after applying the $500 aggregate limit to any credits claimed in the prior years.

Form 1099-B-Required Information:  Brokers who are otherwise required to file a Form 1099-B to report gross proceeds from the sale of stocks, bonds or other securities must also include the following on the Form 1099-B for securities acquired after 2010:

·      The customer’s adjusted basis in the security and whether gain or loss is long or short term.

Foreign Financial Assets-Tax Return Reporting:  Individuals who hold any interest in a specified foreign financial asset during the tax year must attach Form 8938, Statement of Specified Foreign Financial Assets, to their income tax return if the total value exceeds $50,000 ($100,000 if married) on the last day of the tax year or $100,000 ($200,000 if married) at any time during the year.  Failure to do so results in a minimum $10,000 penalty.

A specified foreign financial asset is defined as either (1) a financial account maintained by a financial institution that is not a U.S. entity or (2) any of the following assets not held in an account maintained by a financial institution:

·      Stocks issued by a person other than a U.S. person.

·      Financial instruments held for investments that have an issuer other than a U.S. person.

·      Interests in a foreign entity.

This new reporting requirement does not affect the requirement to file Form TD F 90-22.1. (Report of Foreign Bank and Financial Accounts) which may be required if the taxpayer has an interest in a bank account located outside of the U.S.  Thus, some taxpayers may have to file both forms.

If you have any questions, please feel free to call me at 845-483-0027 or email at elena@elenacpa.com.  I look forward to working with you again!

Sincerely,

Elena M. Dyer, CPA