CHARLES A. KERNER

Certified Public Accountant

A Professional Corporation

261 West 35th Street

Floor 14, Suite 1401FAX (212) 675-5660

New York, NY10001

Tax Year 2012

Table of Contents

Tips to Get Organized, Be Informed, and Save Money

Income

Gifts

Adjustments to Income

Deductions

Itemized Deductions

Personal Exemptions

Child Tax Credits

Tax Rates

The Quick Ten

Year-End Tax Planning for Individuals

Sharing Your Stock Market Losses with Uncle Sam.

Charge deductible expenses on your credit card

Prepay your January mortgage payment in December 2012

Review your 1099’s

Energy Savings Home Improvement Tax Credit

Donate high-flying stock

Make a donation from your IRA

Keep better records

Dump your losers

Boost your retirement savings

Drain flexible spending accounts

Be wary of mutual funds

Adjust your timing

Non-Cash and Cash Contributions

Exhaust Flexible Spending Accounts (FSAs).

Health Savings Accounts (HSAs)

Kiddie Tax

The 529 Plans

Seniors

Estate Tax Planning

Deductions and Credits

First-Time Homebuyer Credit.

Sales tax deduction

Job search expenses

Medical insurance

Treatment for alcoholism

Investment advisor fees

Interest on margin accounts

Safe deposit box fees

Labor union dues

Subscriptions

Penalties

Real estate taxes

Your state’s personal property taxes

Medical and Charitable mileage deductions

Student Loan Interest

College tuition tax credits

Electric Vehicle:

Non-reimbursed employee business expenses

Year-End Tax Planning for Individuals and Businesses

If you pay an individual for services rendered

For cash basis taxpayers

Mark down slow moving inventory

For accrual basis taxpayers

Changing the status from a C-Corporation

Employers can reimburse employee business expenses

S-Corporation owners who need additional capital

New per diem rates

The IRS does not require receipts

Deposits in bank for cash basis taxpayers

For equipment placed in service in 2012

For business travel, meals, and entertainment

Auto mileage for business use

Social Security Cap

Retirement Planning

In Your Year-End Board Meeting

Tax Advice Disclosure:

Tips to Get Organized, Be Informed, and Save Money

Income

From whatever source derived.

Gifts

Gifts received are not taxable to you. Gifts paid out are not deductible from the payer. The amount of gift you may payout per year is $13,000 per person. With your spouse, you may give an additional $13,000. So, if you and your spouse wanted to give $13,000 each to five people, you could reduce your estate by $130,000. This strategy is for the liquid taxpayer and allows the recipient of the gift to report the earnings.

Adjustments to Income

Included as deductible are IRA’s/ SEP’s/ KEOGH’s/ Student Loan Interest/ Medical Savings Accounts/ Certain Moving Expenses/ Self-Employed Health Insurance. For IRA contributions, SEP’s, KEOGH’s for 2012, the amount must be funded on or before April 15, 2013.

Deductions

Filing Status20122011 20102009

Single$5,950$5,800$5,700$5,700

Married$11,900$11,600$11,400$11,400

Head of Household$8,700$8,500$8,400$8,350

Married File Separate$5,950$5,800$5,700$5,700

Itemized Deductions

Medical- Greater than 7.5% of Adjusted Gross Income

Taxes- State Income or Sales; Real Estate; Personnel Property

Interest- Mortgage/ Points/ Investment Interest Expense

Charity- Cash and/or checks

Non-Cash Items Please be able to support the value claimed. Receipts to a qualified charity should be a part of your annual tax return. For the Thrift Value Method greater than $500, we will file form 8283, which indicates to whom, with their address; a description of the donated items; the date acquired; the cost; and the (THRIFT VALUE) of the donated property. All the donated property must be in good condition. Please include your mileage for charity. It is deductible at $0.14 per mile.

Personal Exemptions

2012 2011 2010 2000

Per Person $3,800 $3,700 $3,650 $2,800

Child Tax Credits

2013 2012 20112010

Per Child (under 17) $500 $1,000 $1,000 $1,000

There are phase-outs all for large incomes.

Tax Rates

For your information, the tax rates for 2011 are as follows:

Year

201210%15%25%28%33%35%

The Quick Ten

(Please attach (enclose) the following if applicable)

1.)Forms.W2

2.)Forms1099 & 1098. Self-Employed; Dividends; Interest & Mortgage Interest.

3.)Stock trades default to first in first out unless you specifically designate the stocks. You may want to include your broker’s name and telephone number for better clarification if needed.

4.)Interest Income.For seller-financed mortgages, please supply the name, address, and Social Security number.

5.)Estimated Tax Payments. (Please include)Date; to whom paid; Tax Year; and Amount. Please remember that state tax payments remitted in 2012 are deductible in 2012.

6.)Retirement Contributions.SEP’s/ IRA’s/ ROTH IRA’s/ 401K’s/ 403B’s/ etc. We would assist you and your broker (if applicable) in calculating the above contributions for you. In certain instances, your contributions may be limited. Please call for clarification.

7.)Dependants.Name; Date of Birth; Social Security number; and months lived with you.

8.)Childcare Credit.We are required to report the Name; Address; and TAX I.D. number of the provider, as well as the amount paid.

9.)Principle Residence. In addition to the mortgage interest received by the mortgager, please supply the closing statements of the purchase, sale and refinancing statement if it occurred in 2012.

10.) Flow Throughs. K-1’s from corporations, partnerships, trusts and LLC’s.

Year-End Tax Planning for Individuals

  • Sharing Your Stock Market Losses with Uncle Sam.

If you've lost money in the stock market, you should be aware of the tax breaks that capital losses can generate and how to avoid the tricky wash sale trap. Uncle Sam is always happy to tax you when you make money. But what happens to your tax situation when you experience losses? Not every investment will be a winner, so learning how to take advantage of the tax treatment of capital losses may be as important to you as the recent run-up in the major stock indexes.

Generally speaking, capital gains and capital losses are reported on federal Form 1040, Schedule D, for the year in which the actual sale of capital assets such as stocks, bonds, and mutual funds occurs. A temporary decrease (or increase) in the value of an asset is not reported on your tax return; the asset must actually be disposed of. In the eyes of the federal government, the old Wall Street adage applies: "You don't make a profit or take a loss until you sell."

Net capital gains and losses are aggregated, and up to $3,000 of a net capital loss may be deducted against ordinary income items such as wages, interest, and dividends. Capital losses in excess of $3,000 are carried forward and deducted in future years, subject to the same limitation.

Gains and losses from the sale or disposition of capital assets are classified as long-term or short-term, depending on how long you held the asset. For example, a long-term capital asset is currently defined as an asset you have held for more than one year. Long-term capital gains generally receive favorable tax treatment. While the top tax bracket for ordinary income items such as wages is 35%, the maximum tax rate for long-term capital gains is capped at 15%. Short-term capital gains are taxed at ordinary income tax rates.
* Note: Some taxpayers may effectively pay 0% longterm capital gains tax if their income is below certain threshold levels for 2012.

In addition to netting rules that apply when there are both capital losses and gains, you need to understand the "wash sale" loss limits, especially if you engage in frequent or "day" trading. The wash sale rule is intended to prevent you from selling assets to claim a tax loss and quickly reacquiring them. The rule stipulates that your loss will be disallowed if you purchase substantially identical stock or securities, including put and call options, within 30 days of the original sale.

The IRS of course is on the watch for wash sale violations. The wash-sale period runs for a total of 61 days -- 30 days before and 30 days after the date of the claimed loss. Year-end sales made in December also do not escape this treatment. Even if the tax year ends during the 61-day wash sale period, the loss will be disallowed if the wash sale period is violated.
Here's a coordinated investment and tax strategy you may want to consider.
While the wash sale rule prohibits you from reacquiring substantially identical securities during the specified time period, it does not prohibit you from reacquiring comparable securities. For example, you could sell shares of an industrial stock like Caterpillar, claim the loss for tax purposes subject to the rules discussed above, and immediately acquire shares of a comparable security such as Deere. This is known as tax loss swapping. Some investors recently have been selling municipal bonds at a loss, thus nailing down capital losses that can be used to cut taxes, and then reinvesting the proceeds in other municipal bonds with similar credit ratings and durations. The theory behind it is that if Caterpillar (the security sold at a loss) subsequently rises, so will Deere (the comparable replacement security), giving you both an economic gain and the benefit of the tax loss.

In theory, tax loss swapping is an excellent strategy, but it can prove risky in the real world. For example, the replacement security could go down even if the disposed-of security recovers. On the other hand, the replacement security could increase a small amount, while the disposed-of security enjoys bigger gains. The acceptable risk and return ratio and performance spread for tax loss swapping depends on your tax bracket, liquidity, net worth, and risk tolerance.
Fundamental economics of investment decisions should not be ignored in pursuit of tax benefits. The laws and risks applicable to wash sales and tax loss swapping are complex, and mistakes can be expensive.

  • Charge deductible expenses on your credit card.
    For example, charge medical bills and charity- if charged in 2012 and paid for in 2013, it is still deductible in 2013.
  • Prepay your January mortgage payment in December 2012.
    The interest is deductible when paid. If you choose to prepay the January mortgage payment, keep a copy of the check and it should be received by the mortgage company in 2012. Otherwise, send the payment return receipt requested on or before December 31, 2012.
  • Review your 1099’s.
    Historically 10% of the ones issued are inaccurate.
  • Personal Injury Lawsuit.
    When you are involved in a personal injury lawsuit, make sure that any settlement compensates you for physical injuries, not emotional injuries. Physical injuries are not taxable.
  • Energy Savings Home Improvement Tax Credit.
    If you purchase an energy-efficient product or renewable energy system for your home, you may be eligible for a federal tax credit.Please inform us of such purchase
  • Donate high-flying stock.
    If you itemize your deductions instead of claiming the standard deduction, consider making last-minute gifts to qualified charities. But don’t just write out a check. Think about donating shares of stock or mutual funds that have risen sharply in value over the years. That way, you won’t owe capital-gains tax on the gain and you typically can deduct the full market value of your gift.
  • Keep better records.
    If you itemize your deductions and want to claim charitable donations, pay close attention to new recordkeeping rules. Cash contributions made in 2012, regardless of the amount, can’t be deducted unless you have a “bank record,” such as a canceled check, or a detailed receipt from the charity that includes the amount and date of your gift. (For more details, see IRS Publication 526 at
    This rule has altered the way some people donate cash to charities such as religious organizations. Instead of dropping cash into the plate begin using pew envelopes, noting name, etc.
  • Dump your losers.
    Take a fresh look at your investments. Look for stocks, mutual-fund shares and other securities that are now selling for less than you paid for them. If you have some and have been considering bailing out, now could be a good time to do so.
    There are some powerful advantages. First, you can use your losses to soak up your gains on a dollar-for-dollar basis with no limit. Second, if your losses exceed your gains, you typically can deduct as much as $3,000 a year of net capital losses from wages and other ordinary income. (The limit is $1,500 a year if you’re married and filing separately from your spouse.) Additional net losses are carried over into future years.
    Please avoid the Wash Sale Rule (see discussion of this rule on page 5). If you sold a stock at a loss and bought it back within 31 days, the loss is disallowed. Do not overlook capital gains from mutual funds when calculating your gains for the year.
  • Boost your retirement savings.
    This year, millions of workers who are under age 50 can sock away as much as $17,000 in a 401(k) plan. Those who are 50 or older by the end of this month can put away an additional $5,500. Thus, the limit for 2012 is $22,500.
  • Drain flexible spending accounts.
    These accounts allow millions of people to pay for health-care and dependent-care with pretax dollars. But there’s a catch: you have to spend every penny you set aside or lose whatever you haven’t spent.
    If you signed up for an account, check with your employer to see what the closing date is for draining your account. The treasury allows employers to extend the deadline for 2 ½ months beyond the end of the plan year. (That would mean, for example, that an employer with a plan-year deadline of Dec. 31 could give employees until mid-March next year to incur expenses and drain their account for 2012.) But employers aren’t required to grant the extra time, and some haven’t.
  • Be wary of mutual funds.
    Be especially careful this month before you invest significant amounts of money in mutual funds, especially those that invest in stocks, through a taxable account. Otherwise, you could wind up getting hit with a tax bill that could easily have been avoided. It’s especially important this year, because fund managers say this could be the biggest year ever for year-end distributions- and this is the time of year when many mutual funds distribute capital gains to shareholders.
    If you get a payout, it’s typically taxable- unless you’re investing through a tax-favored account. Thus, before you invest, check the fund’s web site, or call the fund, to see if it’s planning a year-end distribution. If so, find out how much the payout will be when and whether it will result in a significant tax bill for you. If the distribution will drive up your taxes significantly, consider waiting to invest in that fund until after the date to qualify for the payment.
  • Adjust your timing.
    Try to time income and deductions, whenever possible to achieve the maximum tax savings. For example, if you’re a consultant or free-lance writer, it may pay to defer income into 2013 by waiting to send out bills until then. Conversely, if you know you won’t have enough medical expenses to qualify for medical expense deductions for fall 2012- but are relatively sure you will qualify for the deduction for 2013- consider delaying non-urgent medical visits and payments until next year, whenever possible.
  • Non-Cash and Cash Contributions.
    Non-cash contributions before year-end consist of personal items wherein you can deduct the fair market value of the items donated and appreciated long-term stock instead of cash. When donating appreciated securities, you get to deduct the full fair market value of the shares and you will not owe Capital Gains Tax on the build-up since you bought it. Non-cash charitable contributions are generally deductible up to 35% of the cost of the donated property. This is referred to as the Thrift Value Method.
    The Internal Revenue Service has added the term “good used condition” for items donated after August 17, 2006. If you have donated after this date, please be prepared to prove the items meet the conditions test or exception. The definition of “good” has not yet been determined.
    Please enclose your log of items with the fair market values, date of purchase, and date of contribution for non-cash donations when you send in your information. When deducting a gift greater than $250, you need to get an acknowledgement from the charity. (Cash or a cancelled check is not enough). If you donated a vehicle and the charity or agent sells it, the value of the donation for tax purposes is limited to the sales proceeds. Charities must report to both you and the Internal Revenue Services what the sales proceeds were. In order to maximize your deduction, contribute your car to an organization that intends to use it in its charitable activities.
  • Exhaust Flexible Spending Accounts (FSAs).
    If you have a medical or dependent-care FSA at work, spend all your contributions to it by year-end. You can also now use your FSAs for buying over-the-counter drugs when purchased with a doctor’s prescription. You may be able to use expenses up through March 15, 2013 to absorb your 2012balance. Check it with your Employer since it is at their discretion. Otherwise, if not spent by December 31, 2012, the remaining money is forfeited.
  • Health Savings Accounts (HSAs).
    Contributions to an HSA are tax deductable and withdrawals to pay medical expenses are not taxed.
    For 2012, the maximum annual HSA contribution for an eligible individual with self-only coverage is $3,100. For family coverage, the maximum annual HSA contribution is $6,250.

Catch up contribution for individual who are 55 or older is increased by statute to $1,000 for 2012 and all years going forward. Individuals who are eligible individuals on the first day of the last month of the taxable year (December for most taxpayers) are allowed the full annual contribution (plus catch up contribution, if 55 or older by year end); regardless of the number of months the individual was an eligible individual in the year. For individuals who are no longer eligible individuals on that date, both the HSA contribution and catch up contribution apply pro rata based on the number of months of the year a taxpayer is an eligible individual.