February 1

Employers. Semi-weekly depositors must deposit employment taxes for payroll dates January 25–27.

February 3

Employers. Semi-weekly depositors must deposit employment taxes for payroll dates January 28–31.

February 8

Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 1–3.

February 10

Employees who work for tips. Employees who received $20 or more in tips during November must report them to their employer using Form 4070.

Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 4–7.

February 15

Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 8–10.

Monthly depositors. Monthly depositors must deposit employment taxes for payments in January.

February 17

Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 11–14.

February 23

Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 15–17.

February 24

Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 18–21.

February 29

Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 22–24.

March 2

Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 25–28.

March 7

Employers. Semi-weekly depositors must deposit employment taxes for payroll dates February 29–March 2.

Offset

If an individual owes money to the federal government because of a delinquent debt, the Treasury Department’s Financial Management Service (FMS) can offset that individual’s tax refund (and certain other federal payments) to satisfy the debt. The debtor will be notified in advance of the offset.

A taxpayer’s refund may be reduced by FMS and offset to pay:

Past-due child support

Federal agency non-tax debts

State income tax obligations, or

Certain unemployment compensation debts owed a state.

FMS advises taxpayers by written notice of an offset. FMS has explained that the notice will reflect the original refund amount, the taxpayer’s offset amount, the agency receiving the payment, and the address and telephone number of the agency. FMS will notify the IRS of the amount taken from your refund.

Form 8379

If a taxpayer filed a joint return and is not responsible for the debt of his or her spouse, the taxpayer may request his or her portion of the refund by filing Form 8379, Injured Spouse Allocation, with the IRS. Form 8379 may be filed with the original return or by itself after the taxpayer is aware of the offset.

The IRS has instructed taxpayers filing Form 8379 by itself to attach a copy of all Forms W-2 and W-2G for both spouses, and any Forms 1099 showing federal income tax withholding to Form 8379. Failure to attach these items may result in a delay in processing by the IRS.

The IRS has reported on its website that it generally processes Forms 8379 that are filed after a joint return has been filed in approximately eight weeks. The timeframe for processing a Form 8379 that is attached to a joint return is approximately 11 weeks (14 weeks if the joint return is filed on paper).

Dependency Exemption

In addition to the personal exemption an individual taxpayer may take for him or herself to reduce taxable income (Line 42 on Form 1040), that taxpayer may also take an exemption for each qualifying dependent who has lived with the taxpayer for more than half of the tax year. A dependent may be a natural child, step-child, step-sibling, half-sibling, adopted child, eligible foster child, or grandchild, and generally must be under age 19, a full-time student under age 24, or have special needs. The amount of the exemption is the same as the taxpayer’s personal exemption, $3,700 for the 2011 tax year and $3,800 for the 2012 tax year.

Child Tax Credit

Parents of children who are under age 17 at the end of the tax year may qualify for a refundable $1,000 tax credit. The credit is a dollar-for-dollar reduction of tax liability, and may be listed on Line 51 of Form 1040. For every $1,000 of adjusted gross income above the threshold limit ($110,000 for married joint filers; $75,000 for single filers), the amount of the credit decreases by $50.

Child and Dependent Care Credit

If a taxpayer must pay for childcare for a child under age 13 in order to pursue or maintain gainful employment, he or she may claim up to $3,000 of his or her eligible expenses for dependent care. If one parent stays home full-time, however, no child care costs are eligible for the credit.

Adoption Credit

Taxpayers who have incurred qualified adoption expenses in 2011 may claim either a $13,360 credit against tax owed or a $13,360 income exclusion if the taxpayer has received payments or reimbursements from his or her employer for adoption expenses. For 2012, the amount of the credit will decrease to $12,650, and in 2013 to $5,000.

Higher Education Credits

There are two education-related credits available for 2012: the American Opportunity credit and the lifetime learning credit. The American Opportunity credit amount is the sum of 100 percent of the first $2,000 of qualified tuition and related expenses plus 25 percent of the next $2,000 of qualified tuition and related expenses, for a total maximum credit of $2,500 per eligible student per year. The credit is available for the first four years of a student’s post-secondary education. The credit amount phases out ratably for taxpayers with modified AGI between $80,000 and $90,000 ($160,000 and $180,000 for joint filers). The lifetime learning credit is equal to 20 percent of the amount of qualified tuition expenses paid on the first $10,000 of tuition per family. The phaseout for 2012 ranges from $52,000 to $62,000 ($104,000 to $124,000 for joint filers). Parents also find tax relief in saving for college though Coverdell accounts, section 529 plans and specified U.S.. savings bonds.

Extended Health Care Coverage

Effective since September 23, 2010, the new health care law requires plans to provide coverage for children until they attain age 26. Further, effective on or after March 30, 2010, children under the age of 27 are considered dependents of a taxpayer for purposes of the general exclusion from income for reimbursements for medical care expenses of an employee, spouse, and dependents under an employer-provided accident or health plan. Therefore, a plan must provide coverage to a child who is still a dependent up to age 26; but can do so up to age 27 without income tax consequences. A child includes a son, daughter, stepson, or stepdaughter of the taxpayer; a foster child placed with the taxpayer by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction; and a legally adopted child of the taxpayer or a child who has been lawfully placed with the taxpayer for legal adoption.

Child Care Assistance Credit (for businesses)

Employers may take up to $150,000 of the eligible costs of providing employees with child care assistance as tax credit. These costs may include a portion of the costs of acquiring, constructing, improving, and operating a child care facility.

If you have any questions about these provisions and how they may benefit you, please contact our office.

Previous disclosure programs

The IRS launched two previous offshore disclosure initiatives: one in 2009 and another in 2011. Both programs offered reduced penalties in exchange for full disclosure. In early 2012, the IRS reported it received 33,000 voluntary disclosures from the 2009 and 2011 offshore initiatives. The government has collected over $4.4 billion from the 2009 and 2011 programs. The IRS predicted it will collect more revenue as it continues to work cases.

Reopened program

The reopened program operates very similarly to the 2009 and 2011 programs but with some key differences. The previous programs were temporary. The 2011 program ended in mid-September 2011. The reopened program has no set end date. The IRS cautioned, however, that it could close the program at some future date. The decision to end the program is solely at the discretion of the IRS.

The reopened program requires taxpayers to file all original and amended tax returns and include payment for back-taxes and interest for up to eight years as well as pay accuracy-related and/or delinquency penalties. Additionally, taxpayers must pay a penalty of 27.5 percent of the highest aggregate balance in foreign bank accounts/entities or value of foreign assets during the eight full tax years prior to the disclosure. In comparison, the highest penalty in the 2011 program was 25 percent. IRS officials have said that the penalty was increased because the agency does not want to reward taxpayers who did not participate in the 2009 or 2011 disclosure programs because they anticipated that a future penalty would be lower.

In limited circumstances, taxpayers may qualify for a 12.5 percent penalty or a five percent penalty. Generally, taxpayers whose offshore accounts or assets did not surpass $75,000 in any calendar year may qualify for the 12.5 percent penalty.

The requirements for the five percent penalty are very narrow. The IRS has explained that taxpayers must meet four conditions: (1) The taxpayer did not open or cause the account to be opened; (2) the taxpayer exercised minimal, infrequent contact with the account, for example, to request the account balance, or update account holder information such as a change in address, contact person, or email address; (3) except for a withdrawal closing the account and transferring the funds to an account in the United States, the taxpayer did not withdraw more than $1,000 from the account in any year for which the taxpayer was non-compliant; and (4) the taxpayer can show that all applicable U.S. taxes have been paid on funds deposited to the account (only account earnings have escaped U.S. taxation).

The penalty amounts in the reopened program are not set in stone, the IRS cautioned. It may eventually increase penalties in the program for all or some taxpayers or defined classes of taxpayers.

Quiet disclosures

One goal of the three programs is to caution taxpayers against so-called “quiet disclosures.” A quiet disclosure occurs when a taxpayer files an amended return and pays any tax delinquency without making a formal voluntary disclosure. The IRS warned taxpayers making quiet disclosures that they risked being sanctioned to the fullest extent allowed by law.

Critics

The offshore disclosure programs were not without their critics. The National Taxpayer Advocate recently told Congress that the IRS should streamline what is a very complicated process. The National Taxpayer Advocate also reported that IRS examiners were assuming that all violations were willful unless a taxpayer presented evidence to the contrary. It is possible that the IRS may revisit some of the terms and conditions of the reopened program in light of the National Taxpayer Advocate’s report.

If you have any questions about the reopened offshore voluntary disclosure program, please contact our office.

Payroll tax cut

The Temporary Payroll Tax Cut Continuation Act of 2011 extended the employee-side OASDI tax cut through the end of February 2012. The employee-share of OASDI taxes is 4.2 percent for the two-month period, rather than 6.2 percent. The employer-share of OASDI taxes remains at 6.2 percent for the two month period. Self-employed individuals also benefit from a two percentage point reduction in OASDI taxes.

Unless extended, the employee-share of OASDI taxes is scheduled to revert to 6.2 percent after February 29, 2012. The White House and the leaders of the two parties in Congress agree that the payroll tax cut should be extended a full-year. They disagree, however, how to pay for the extension; even if it should be paid for at all.

Congress could extend the two-month payroll tax cut through the end of 2012 without paying for it. The 2011 payroll tax cut was unfunded. Congress appropriated to the Social Security trust funds amounts equal to the reduction in payroll tax revenues. The 2011 payroll tax cut was estimated by the Congressional Budget Office cost approximately $111 billion. Extending it through the end of 2012 is estimated to cost just as much if not more.

House Republicans reportedly have proposed a number of revenue raisers to offset the cost of extending the payroll tax cut through the end of 2012. One GOP proposal would extend the current pay freeze for employees of the federal government. Another GOP proposal would require higher-income individuals to pay increased Medicare premiums.

One possible revenue raiser, increasingly under discussion by Democrats, is a change in the taxation of so-called carried interest. Current law generally taxes carried interest as capital gains and not as ordinary income. Past efforts to change the tax treatment of carried interest have failed to pass Congress.

Extenders

The so-called tax extenders, popular but temporary tax provisions, expired at the end of 2011. Many taxpayers are surprised to learn that their particular tax break, whether it be the state or local sales tax deduction, the teachers’ classroom expense deduction, or the research tax credit, are temporary. The extenders have been routinely revived many times in the past. This year, however, could be different. Faced with record federal budget deficits, lawmakers may decide to extend only some of the expired provisions.

President Obama’s FY 2013 proposals

President Obama is expected to release his fiscal year (FY) 2013 federal budget proposals in early February, which will reignite debate over the Bush-era tax cuts. President Obama is expected to urge Congress to allow the Bush-era tax cuts to expire after 2012 for higher-income taxpayers, which President Obama defines as individuals earning more than $200,000 or families earning more than $250,000. In recent weeks, there has been speculation that President Obama may revisit those definitions in his FY 2013 budget, possibly raising the amounts.

Few Capitol Hill observers expect Congress to take any action on the Bush-era tax cuts before the November elections. Instead, Congress may take up some of President Obama’s other proposals. As in past budgets, President Obama will likely propose to extend some energy tax breaks for individuals and businesses, extend tax incentives for education and provide some targeted-tax breaks to businesses. President Obama has also promised to introduce proposals to encourage U.S. companies to “insource” jobs at home.

On some issues, such as energy and education, lawmakers may find common ground but negotiations are likely to go down to the wire. Our office will keep you posted of developments.

If you have any questions about the payroll tax cut, tax extenders or the various tax proposals under discussion, please contact our office.

These so-called “repair regulations” are broad and comprehensive. They apply not only to repairs, but to the capitalization of amounts paid to acquire, produce or improve tangible property. They are intended to clarify and expand existing regulations, set out some bright-line tests, and provide some safe harbors for deducting payments.

The regulations are an ambitious effort to address capitalization of specific expenses associated with tangible property. The regulations affect manufacturers, wholesalers, distributors, and retailers—everyone who uses tangible property, whether the property is owned or leased. The rules provide a more defined framework for determining capital expenditures.

Most taxpayers will have to make changes to their method of accounting to comply with the temporary regulations and will need to file Form 3115. Taxpayers who filed for a change of accounting method following the issuance of the 2008 proposed regulations will probably have to change their accounting method again.

The IRS has promised to issue two revenue procedures that will provide transition rules for taxpayers changing their method of accounting, including the granting of automatic consent to make the change. The regulations require taxpayers to make a Code Sec. 481(a) adjustment; this means that taxpayers will have to apply the regulations to costs incurred both prior to and after the effective date of the regulations.

The new regulations provide rules for materials and supplies that can be deducted, rather than capitalized. The rules provide several methods of accounting for rotable and temporary spare parts, and allow taxpayers to apply a de minimis rule so that they can deduct materials and supplies when they are purchased, not when they are consumed.

Costs to acquire, produce or improve tangible property must be capitalized. The regulations address moving and reinstallation costs, work performed prior to placing property into service, and transaction costs. Generally, costs of simply removing property can be deducted, but costs of moving and then reinstalling property may have to be capitalized.

To determine whether a cost incurred for property is an improvement, it is necessary to determine the unit of property. Generally, the larger the unit of property, the easier it is to deduct expenses, rather than have to capitalize them. The regulations provide detailed rules for determining the unit of property for buildings and for non-building tangible property. For buildings, the IRS identified eight component systems as separate units of property, requiring more costs to be capitalized. However, the new rules also provide for deducting the costs of property taken out of service, by treating the retirement as a disposition.

The new regulations require virtually every business to review how repairs, maintenance, improvements and replacements are handled for tax purposes, with both mandatory and optional adjustments made to past treatment as appropriate.

Please feel free to call this office for a more targeted explanation of how these new regulations impact your business operations.

Most recently, a federal case involving Twitter hit the headlines for its ruling on freedom of speech and the Internet. Here’s what you need to know.

The case in question involved criminal charges brought against a man accused of stalking a religious leader on the Internet via Twitter. The original basis for the legal action centered on the idea of “stalking” and “causing harm in the form of emotional distress.” The man was accused of creating distress by posting thousands of messages about the religious leader – some predicting violent death under a variety of different user names. Although the FBI arrested the accused because of the “substantial emotional distress” he caused and not because of his opinions, the federal judge dismissed the case based on the accused’s constitutional right of freedom of expression – the right to express anonymous opinions addressing religious matters.

The judge acknowledged that the accused person might have caused emotional distress but added that this did not deter the court from making a ruling based on the issue of “protected speech.” He noted that the First Amendment protects free speech even when the subject or manner of expression is “uncomfortable,” challenges conventional religious or political beliefs or oversteps standards of “good taste.”

In doing so, he made a significant comparison – likening a blog to a bulletin board located in someone’s front yard. Referring to the Colonial period when the Bill of Rights was drafted, the judge noted that a colonist would have had to walk over to a bulletin board in a neighbor’s yard to see what was posted. He concluded that Twitter is like a bulletin board, in that it can be disregarded.

Significantly, the judge distinguished between Twitter and other forms of communication – phone calls, letters or emails – that are specifically addressed to and directed at specific recipients.

The debate is far from over on this and other related legal battles concerning freedom of speech online. Cases as varied as amendments to anti-stalking legislation and criminal charges against tweeters involved in ‘pranks’ could end up redefining freedom of expression in the cyber age.

The technology that created this latest headache has also produced some new ways to counter the problem. And, it’s no small wonder that a slew of new monitoring services have been launched to help companies safeguard their reputations. Some monitoring services provide their clients with the ability to tap into blogs and forums that are talking about their companies or products. Subscribers may monitor “chatter” and reply in real time or set up follow-up assignments for their employees. These real-time services monitor blogs, Twitter, social media and online forums in dozens of languages.

Whether long term or short term, temporary or permanent, by design or by accident, it is possible for your family to live on a single income. If you’re accustomed to having two earners, you will need to make some changes in your lifestyle. The following are some tips on how to prepare for living on one income, as well as some suggestions on how to make the most of being a single-income family.

Prepare in Advance

If you’re planning on downsizing to one income, now is the time to start preparing for the transition. Even if you don’t expect to be living on just one income, you should be prepared for the possibility. It might not happen, but if it does you can slash the stress by following a couple of simple steps.

Set aside an emergency fund. Aim to save enough money to pay for at least three months of income as a contingency fund. If you intend to downsize to one income on purpose, talk to your financial advisor to learn how much money you should set aside to make the transition easier.
Make sure you’re covered with the appropriate insurance, especially life and disability. If possible, ensure that you can continue to pay for family health insurance even if one spouse loses his or her job. If you’re laid off, COBRA can help to temporarily maintain coverage while you look for a new job; however, if you are choosing the single-income lifestyle, you’ll need to find a more permanent solution.

Examine your budget

Living on one income means living on less, so you will need to spend accordingly and adjust your lifestyle as needed. Figure a baseline budget (what it takes each month for the essentials), and then add in the extra budgetary items. Don’t guess. Use your bank, credit and debit card statements to realistically estimate your expenses and to help you avoid overlooking smaller items. A streamlined budget might seem like an obvious consideration, one that goes without saying, but it leads logically to the next point.

Resist the Urge to Charge

Since you’re living on less, it can be tempting to use credit to make up the difference. Fight the temptation. If you’re unable to pay off the balances each month, you will be faced with recurring monthly payments and interest charges. If you can’t keep up, it will cost you even more in late fees and your credit will be damaged.

If you have an emergency fund, use it wisely and find ways to cut spending. Buy secondhand clothing, eat at home instead of dining out, drive a used car, live without cable or satellite TV, clip coupons and ask your cell phone provider if they can set you up with a more economical plan. Look for ways to save money on the basics, and limit the extras to what you can truly afford. Take advantage of the savings you will enjoy because only one spouse is working: reduced automobile expenses, no outside childcare, downgraded clothing expenses and other savings that result from the situation.

Innovate and Diversify

Just because you’re living on one spouse’s income does not mean one or both partners can’t earn some extra household money if the opportunity arises. If a part-time job is feasible for the nonworking partner, you might be surprised at how many basic bills a few hours each week can pay for. The working spouse can volunteer for overtime or try to earn a sales bonus. If you have unwanted items, sell them online or have a garage sale. Living on a single income sometimes requires innovation and creativity. If you keep a positive attitude and enjoy a challenge, you can even make it fun.

Remember Retirement

Finally, even though your income might not be what it was with two earners, it is important to keep investing and planning for the future. Part of your income might have gone away, but the need for funding your eventual retirement has not.

Talk to a financial planner or tax professional to help prepare for the possibility of your family living on a single income. With some smart financial planning, a single-income lifestyle does not have to be a financial hardship.

So what are the majority of investment advisors suggesting for 2012? Perhaps more than ever, analysts are urging investors to stick with a plan rather than responding to market fluctuations. Avoiding extreme philosophies, advisors are suggesting that investors add more stocks to their portfolios – paying special attention to dividend paying stocks. Of course, there is still plenty of concern regarding the global reverberations from the Eurozone defaulters, but experts suggest that investors who are waiting to jump back into the markets, do so now – or risk missing the boat. Companies are cash-rich and 10 years plus of variable performance have given us market valuations at affordable rates. The pros note that by the time the economic news is undeniably good, stock prices will have increased noticeably.

While encouraging clients to return to the stock market, investment gurus also caution clients to fit their portfolio allocations to match their age brackets and their respective aversion to risks. Likewise, investment advisors who are suggesting that older Americans and retirees revert to their long-favored municipal bonds are also recommending a little caution alongside careful selection of munis linked to cities with high credit ratings.

Perhaps we have become accustomed to expecting bad news – so much so that we can’t see some visible positive changes that have been happening as 2011 drew to a close. We’ve been getting some increasingly good economic news, but perhaps we’ve not really digested it yet. Here are some positive trends that might have been overlooked amid the dire headlines:

Consumer spending on cars and construction has begun to increase; retailers are reporting better-than-expected sales.

The U.S. economy expanded at 2.5 percent in the third quarter of 2011, which means that the nation’s gross domestic product reached almost $13.4 trillion – a little higher than its peak in 2007. This means there is money for spending on corporate equipment and technology.

Jobs are being added to the private sector – albeit slowly. There are 7 percent more job openings than there were at this time last year.

Of course, an improving U.S. economy is only part of the picture. There are still many global issues – financial and geopolitical – that could affect the U.S. markets in the New Year. Even the most optimistic of Wall Street’s gurus are not predicting a swift return to less troubled times. However, many believe that U.S. stocks are a good bet over the next few years. There will be some volatility and some bumps in the road ahead, but experts agree that many of the uncertainties and fears have been priced into current valuations in the stock market. Experts indicate that waiting for Europe’s problems to resolve or for our own presidential elections to conclude would be a mistake.

Things are looking up, and it is time for investors to get back into the market for the long haul.