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2011 TAX LAW UPDATES

Charitable Contributions:
Please remember that ALL cash donations MUST have a cancelled check, a credit card statement, or a receipt. In the event of an audit, no receipt means the cash contribution deductions will be denied. Cash contributions of $250 or more to a single charitable organization must have a receipt from the receiving organization.

Non-cash contributions of used clothing and household items will also need a receipt in order to claim the deduction. If the total value of any type of non-cash donation is over $5,000, you need an appraisal.

New this year – individuals who volunteer must obtain written acknowledgement from the receiving organization that describes the services provided. This would include out of pocket expenses incurred while volunteering on mission trips or for foster care.

Charitable contribution receipts must be in your possession by the time your return is filed or the deduction may be disallowed.

Residential Energy Credit Changes:
These credits continued for 2011. Please let us know if you have made any energy saving home improvements during 2011 that may qualify for these credits such as windows, exterior doors, furnace or geothermal heat pump, A/C unit, water heater or insulation. The IRS indicates that taxpayers may rely on the certification of the property from the manufacturer. This credit is subject to a lifetime maximum of $500. Please take into account any credits previously claimed for years 2006-2010.

Kiddie Tax:
There is a kiddie tax on unearned income such as interest, dividends and capital gains, if a child is under 19 years old or is a full time student up to 23 years of age. A child can earn up to $1,900 of unearned income and pay relatively low tax. However, after $1,900, they will be taxed at their parent’s tax rate. In 2011, most full-time students between the ages of 18 and 23 who have investment income over $1,900 will be exposed to this kiddie tax unless the student can prove they provide over half of their own support. If you are a business owner and pay your child a wage, it may eliminate the potential for kiddie tax by increasing their earnings. Please call us to discuss this option if you think it may apply to you.

The expansion of the kiddie tax provisions will require the tax return coordination of the child’s return with the parent’s return. If there is a possibility that your child’s unearned income will be over $1,900, both of your tax returns will need to be prepared together. You need to be aware that certain income information from your tax return will be included in the tax return of your child.

Deductible Mileage Rates:
Most of the mileage rates increased from 2011 to 2012. The chart below summarizes these changes.

MILEAGE RATES	2011 1/1-6/30	2011 7/1-12/31	2012
BUSINESS VEHICLE	51⊄	55½⊄	55½⊄
MEDICAL	19⊄	23½⊄	23⊄
MOVING	19⊄	23½⊄	23⊄
CHARITABLE	14⊄	14⊄	14⊄

Long Term Care Costs:
A recent court decision clarified that payments made to caregivers for providing physician-ordered assistance and supervision to a patient suffering from dementia qualified as long-term care services, and are therefore deductible as a medical expense, despite the fact that the patient was not ADL certified (unable to perform at least two of six activities of daily living: eating, toileting, transferring, bathing, dressing and continence) and the caregivers were not licensed health care providers. Also, if a patient is ADL certified the full cost of an assisted living facility is deductible as a medical expense.

Business Depreciation:
The IRS Sec.179 fast write-off of the cost of new and used equipment is $500,000 for 2011 but will be decreased to $125,000 for 2012. For Minnesota the expense limit is $25,000 with 80% of the difference added back in the current year. 20% of this add-back will be subtracted in the succeeding five years.

When to Start Collecting Social Security Benefits?
If you are considering beginning to collect social security in the next year, please call us to discuss your options. It may be advantageous to wait longer than you planned.

Health Savings Accounts
HSAs are gaining in popularity. In order to set up an HSA, you needed to be covered under a high-deductible health insurance plan during 2011. The maximum contribution in 2011 for self coverage was $ 3,050 and for a family $6,150. You have until 4/17/12 to make this deposit. If you have attained 55 years of age by year end, you may make additional catch-up contributions of $1,000 for 2011. For 2012 the contribution limits are $3,100 and $6,250 respectively.

Pension Contribution Limits:
Most retirement plans have been amended to allow for catch-up contributions for those 50 and over. Check with your plan sponsor to see if you are able to utilize this increased deduction.

RETIREMENT PLAN (under age 70½)	2011	2012
IRA* (under age 50)	$5,000	$5,000
IRA* (over age 49)	$6,000	$6,000
Roth** IRA* (under age 50)	$5,000	$5,000
Roth** IRA* (over age 49)	$6,000	$6,000
Maximum 401(K) deferral (under age 50)	$16,500	$17,000
Maximum 401(K) deferral (over age 49)	$22,000	$22,500
Maximum SIMPLE deferral (under age 50)	$11,500	$11,500
Maximum SIMPLE deferral (over age 49)	$14,000	$14,000
*A single dollar limit applies to the sum of your contributions to your Roth and regular IRAs. **Roth IRA contributions are never deductible.

American Opportunity Credit:
The maximum credit is $ 2,500 per student per year and is available for the first four years of a student’s post-secondary education. Eligible expenses include tuition, fees, course materials and books. The income phase-out for single taxpayers is $80,000 - $90,000 and for joint filers $160,000 - $180,000.

Expanded Tax-free 529 Plan Withdrawals:
If you have a 529 Plan for education expenses, tax free withdrawals may now be taken for the purchase of any computer technology or equipment or internet access and related services. These items must be used by the beneficiary of the Plan or the beneficiary’s family during the time the beneficiary is enrolled in a post-secondary educational institution.

Off campus room and board is considered a qualified education expense and includes rent, utilities and food but is limited to the institution’s on campus living cost.

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