Do you owe the "nanny tax"?

If you had a housekeeper, nanny, gardener, or other household worker help out in 2010, you may have payroll tax obligations (commonly called the "nanny tax"). These payroll taxes apply if you paid a household worker $1,700 or more in 2010, and filing requirements must be met by January 31, 2011. For assistance, call our office.

New tax law will delay processing of 2010 returns

The IRS has announced that it will take until mid to late February before its computers will be able to process certain income tax returns for 2010.

Individual income tax returns that (1) include Schedule A for itemized deductions, (2) claim a deduction for higher education expenses, (3) claim a deduction for educator expenses, or (4) claim a deduction for state and local sales taxes, will not be processed until the computers have been reprogrammed, which is estimated to be completed sometime in February.

This delay affects both paper and electronic filers. The IRS will announce a specific date when it will start processing tax returns impacted by the recent tax law changes. All other tax returns will be processed on the normal schedule as in past years.

IRS eliminates paper coupons for tax deposits

In December 2010, the IRS announced new regulations that effective January 1, 2011, all Federal Tax Deposits must be made using the Electronic Federal Tax Payment System (EFTPS).

The paper coupon system will no longer be available. However, taxpayers who owe minimal amounts may still send their payment along with their tax return. For example, a Form 941 filer that owes less than $2,500 can submit payment with the return or choose to use EFTPS. The minimal amount that permits payment with a return varies with the type of tax. Please contact our office if you need assistance.

2011 tax numbers are adjusted for inflation

Adjusting numbers in the federal income tax code to account for inflation, known as indexing, is an annual event. Indexing affects deductions, exemptions, exclusions, tax brackets - and your tax planning.

Here are selected changes to keep in mind as you review tax strategies for 2011.

* Personal exemptions will increase by $50 to $3,700. You can subtract that amount from your adjusted gross income for yourself, your spouse, and any dependents. In addition, there is no phase-out or reduction in personal exemptions for 2011, no matter how much income you have.

* The basic standard deduction is $11,600 when you're married and file a joint return. If you're single or married filing separately, the standard deduction is $5,800. Additional standard deductions are available for age and/or blindness. Note: The extra standard deduction for real estate taxes is not available for 2011.

* The kiddie tax threshold for 2011 is $1,900. That's how much investment income your child under age 19 (under age 24 for students) can earn before the income is taxed at your highest rate.

* The traditional and Roth IRA contribution limit is $5,000. You can contribute an additional $1,000 if you'll be age 50 or older by the end of the year.

* The annual gift tax exclusion is $13,000 ($26,000 when you elect to split gifts with your spouse).

* Standard mileage rates go up slightly. You can deduct 51¢ for each mile you drive your car for business purposes. The per-mile rate for calculating a charitable deduction is 14¢, and medical and moving mileage is deductible at a rate of 19¢.

Many other items are subject to indexing. In addition, some important figures, such as the alternative minimum tax exemption, are adjusted by Congress. Please contact us for additional information.

New law includes a payroll tax cut

There's a new tax break this year, and you'll want to update your budget to accommodate it. The compromise tax legislation passed in December included a payroll tax cut for 2011.

* How it works when you're an employee: Your employer will deduct less social security tax from your wages during 2011. Prior to the change, your employer was required to withhold social security tax from your paycheck at a rate of 6.2% of the first $106,800 of your wages. That rate was reduced to 4.2% for 2011, meaning your take-home pay will go up - with no impact on your eventual social security benefits and no payback required.

The Medicare tax rate remains unchanged at 1.45%, which your employer will continue to deduct from your check.

* How it works when you're self-employed: You'll pay less self-employment tax. In the past, you calculated self-employment tax using a 12.4% rate for the social security portion. For 2011, the rate you'll use is 10.4%. Your income tax deduction - that is, the amount of self-employment tax you subtract from ordinary income - will not be affected.

* How it works when you're an employer: The reduced rate only applies to the social security tax you deduct from employee wages in 2011. To calculate your expense, you'll continue to use the 6.2% rate for social security tax, plus Medicare tax of 1.45%, for a total of 7.65%.

You have until January 31 to implement the change, and until March 31 to refund any overwithheld social security tax to employees.

You can still make charitable donations from your IRA

The option to make a qualified charitable distribution from your Roth or traditional IRA is once again available for 2010 and 2011. And even though 2010 is officially over, you can take advantage of a special rule that treats a distribution taken in January 2011 as if you made it in 2010.

Here's a refresher on how the IRA charitable distribution works.

* You must be age 70½ or older at the time of the distribution.

* The distribution can come from your traditional and Roth IRAs, but not from SEP or SIMPLE retirement plans.

* The distribution must be made directly from your IRA to an eligible charity. Donor advised funds are not eligible recipients.

* The distribution will count as part of your required minimum distribution. You can elect to have a distribution made in January 2011 applied to your 2010 RMD.

* You can exclude the contribution from your taxable income, though you won't be able to take an itemized deduction for it.

* The maximum amount you can exclude from income as a qualified charitable distribution is $100,000. When you're married filing jointly, the limit applies to each of you separately.

Please call if you're thinking of donating money from your IRA to charity. We'll be happy to help you make sure the transfer stays within the rules.

Mark these tax deadlines on your 2011 calendar

It's time to file various tax returns once again. Among the tax deadlines you may be required to meet in the next few months are the following:
* January 18 - Due date for the fourth quarterly installment of 2010 estimated taxes for individuals unless you file your tax return and pay any taxes due by January 31.
* January 31 - Employers must furnish 2010 W-2 statements to employees. Payers must furnish payees with Form 1099s for various payments made. (The deadline for providing Form 1099B and consolidated statements to customers is February 15.)
* January 31 - Employers must generally file annual federal unemployment (FUTA) tax returns.
* February 28 - Payers must file information returns, such as Form 1099s, with the IRS. This deadline is extended to March 31 for electronic filing.
* February 28 - Employers must send Form W-2 copies to the Social Security Administration. This deadline is extended to March 31 for electronic filing.
* March 1 - Farmers and fishermen who did not make 2010 estimated tax payments must file 2010 tax returns and pay taxes in full.
* April 18 - Individual federal income tax returns for 2010 are due.