FAQs

WHAT ARE THE NEW GIFT AND ESTATE TAX EXCLUSIONS?

Beginning January 1, 2011
• Estate tax exclusion - $5,000,000
• Annual gift tax exclusion - $13,000
• Lifetime gift tax exclusion (in excess of annual exclusions) - $5,000,000

Note: There were no changes to the annual or lifetime exclusions in 2012

WHAT IF I RECEIVE A NOTICE FROM THE INTERNAL REVENUE SERVICE OR A STATE TAX AGENCY?

ALWAYS send us a copy of the notice. Even if it is a bill for a small interest or penalty amount, we like to have all correspondence from tax agencies in our files. The worst consequences occur when taxpayers ignore the correspondence or simply do not respond to it.

The most common unexpected "bill" from the IRS is a CP-2000 notice. These notices are generated when IRS can not match the data sent to them with the data on your tax return. All tax documents such as W-2s, 1099s and 1098s are sent to IRS by the issuer of the document. We can usually determine the source of the discrepancy within a few minutes and write a response on your behalf when IRS is incorrect. All adjustments are reported to the state tax agencies so they may also issue bills based on those adjustments.

The California Franchise Tax Board is conducting its own matching program, but the most common notice is the Head of Household Audit Letter. This is a routine approach to verify qualification for Head of Household filing status. If you have any questions on how to complete the questionnaire, contact us.

HOW LONG SHOULD I KEEP MY TAX RECORDS?

The statute of limitations for the IRS is three years from the due date (or date filed, if later) of the tax return. California’s statute of limitations is four years. If you keep records for five years, you will be covered for both. You should keep documentation of assets purchased (real estate or personal property) until five years after you dispose of the asset. There is no statute of limitations for returns that are based on fraudulent information.

WHAT IS THE STANDARD MILEAGE RATE?

The 2011 mileage rates are as follows:
• 51 cents per mile driven for business (July 1 to December 31, 2011)
• 55.5 cents per mile driven for business (July 1 to December 31, 2011)
• 19 cents per mile driven for medical or moving pruposes (July 1 to December 31, 2011)
• 23.5 cents per mile driven for medical or moving purposes (July 1 to December 31, 2011)
• 14 cents per mile driven in service of charitable organizations

The 2012 mileage rates are as follows:
• 55.5 cents per mile driven for business
• 23 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

HOW MUCH CAN I CONTRIBUTE TO AN IRA OR ROTH-IRA?

For 2011 & 2012 - $5,000 plus an additional $1,000 for those 50 or older.

NOTE: These amounts cannot exceed earned income (except for spousal IRAs) and may be limited by high income.

HOW MUCH CAN I CONTRIBUTE TO A 401(K), 403(B) OR 457 PLAN?

For 2011 - $16,500 plus an additional $5,500 for those 50 or older
For 2012 - $17,000 plus an additional $5,500 for those 50 or older

NOTE: These amounts cannot exceed earned income and may be limited by top-heavy or other plan rules.

WHAT IS THE AMOUNT OF WAGES SUBJECT TO SOCIAL SECURITY TAX?

For 2011 - $106,800
For 2012 - $110,100

NOTE: The Social Security tax (OASDI) rate for wages paid in 2011 was 4.2 percent for employees and 6.2 percent for employers. Congress has extended these rates through February 2012, and we will keep you updated on any further extensions or changes.

WHAT IS AN ENROLLED AGENT?

An Enrolled Agent (EA) is a federally-authorized tax practitioner who has technical expertise in the field of taxation and who is empowered by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service and state tax agencies for audits, collections, and appeals.

REMINDERS FOR TAX SEASON

As you begin to gather and prepare year-end tax information please keep the below points in mind:

In order for us to efficiently prepare your tax returns please make sure to submit all of your tax documents together (e.g. W-2s, 1099s of all types, 1098s for mortgage interest, and 1098-T for college tuition paid.

Online financial services companies such as Ameritrade and E*trade do not issue paper 1099s. When gathering your year-end tax documents make sure to print out your 1099s from your online account. Also, print your statement of gains and losses when you access your account. both of these documents are necessary for us to prepare your tax returns.

If you sold any securities (e.g. stocks, mutual funds, etc.) during 2011 and the year-end statement or tax documents provided by your broker do not include the cost basis of the securities please provide the cost of the securities when purchased when you submit your tax materials to us. If you are unable to obtain that information please contact us for guidance.

For those operating a business or real estate activity be sure to let us know early in January if you would like us to assist you in the issuance of Forms 1099. These forms are required to be prepared for all service contractors paid in excess of $600 for the 2011 calendar year.

Registered Domestic Partners (RDPs) are now required to file their California tax returns as a married couple (married filing jointly or married filing separately). IRS will not conform to this, so RDPs will have a different filing status for IRS and California. RDPs are same sex couples over age 18 or opposite sex couples where one of the partners is over age 62. The repercussions and questions arising from this new requirement will impact all RDPs. We strongly recommend that all RDPs contact us to determine the consequences for you and your partner.

Charitable contributions must have a receipt or cancelled check to be deductible. Contributions over $250 must also have a letter of acknowledgement from the charity, and additional documentation is required when your total non-cash contributions exceed $500 for the year. We require our clients to attest to understanding these documentation rules and to having the associated records. For your convenience, we have included a worksheet to track charitable contributions and a valuation guide for donated property under "Useful Forms & Tools".