* The average tax refund on returns filed for 2011 was $2,983.

* For this tax filing season, the IRS had 5,000 fewer employees than it had a year ago.

* In 1995, 114,000 IRS employees processed 205 million tax returns. This year, 91,000 employees will process 236 million returns.

* The IRS must update its computers with each tax law change. Between 2000 and 2010, Congress made 4,428 changes to the tax code.

Among the common tax issues that can trip up new business owners:

* Classification of workers. Determining whether workers are employees or independent contractors is a matter of law, not the choice of the worker or the employer.

* Federal employment tax deposits. Called trust fund taxes, these deposits must be made according to the appropriate schedule, depending on deposit amounts.

* Quarterly estimated tax payments. Business earnings are not subject to tax withholding; therefore, the owner’s income and social security tax obligations are met through quarterly estimated tax payments.

* Recordkeeping. New businesses need a good recordkeeping system to make tax filing easier and accurate.

* Disaster protection. Financial and tax records need to be protected to ensure business continuity in the event of a disaster.

* Tax scams. New business owners should be alert to the prevalence of abusive tax avoidance schemes. Falling victim to one of these schemes could result in serious tax problems.

For guidance in getting a new business off on the right tax foot, give our office a call

Normally, a failure-to-pay penalty of one-half of one percent per month, up to a 25% maximum, is charged for overdue taxes. The “Fresh Start Penalty Relief” initiative gives eligible taxpayers a six-month extension to fully pay 2011 taxes — that is, until October 15, 2012, before the penalty begins to apply. Interest of 3% will still be assessed starting from April 17, 2012.

The penalty relief is available to workers who have been unemployed at least 30 consecutive days during 2011 or 2012 and to self-employed individuals who experienced a 25% or larger reduction in business income in 2011 due to the economy. Income limits apply: the relief is not available to singles with adjusted gross income over $100,000 or to couples with income over $200,000. Also, taxes due cannot exceed $50,000.

The Fresh Start program also changes the eligibility threshold for streamlined installment agreements from $25,000 to $50,000 and increases the maximum term from five to six years.

For details or assistance, contact our office.

First, don’t panic. But do file your return as soon as possible. If you owe money on the return, the penalty for late filing and interest on the amount you owe will continue to grow until you file. E-filing is the fastest way to file, and this option is available on 2011 tax returns through October 15, 2012.

Second, pay as much of the tax you owe as you can. If you cannot pay the full amount of tax due with your return, you can ask to make monthly installment payments to the IRS. File Form 9465, “Installment Agreement Request,” or apply online using the IRS Online Payment Agreement Application available at the IRS website (www.irs.gov).

Third, any additional delay in filing will just increase any penalty and interest charges. These include a late filing penalty, a late payment penalty, and interest on taxes not paid by April 17.

If you haven’t filed your return, the problem will not go away by itself. File your return, and if you can’t pay the tax owed, inform the IRS of your current financial situation. For more information or filing assistance, contact our office.

Although the health care mandate has received the most attention, three lesser-known tax changes in the law could have a major impact. If these provisions are allowed to stand, they will take effect in 2013.

1. Medicare surtaxes. Taxpayers will owe a new 3.8% Medicare surtax on the lesser of net investment income or the amount by which modified adjusted gross income (MAGI) exceeds an annual threshold of $250,000 for joint filers and $200,000 for single filers. For this purpose, “net investment income” includes interest, dividends, royalties and annuities, rent and other passive activity income, capital gains from the sale of property not used in your business, and trading of financial instruments and commodities. It does not include business income, income from tax-free municipals, or distributions from IRAs and qualified retirement plans.

In addition, a separate 0.9% Medicare surtax applies to earned income in excess of $250,000 for joint filers and $200,000 for single filers. A taxpayer might have to pay both surtaxes.

2. Medical deductions. Currently, a taxpayer may deduct unreimbursed medical expenses in excess of 7.5% of adjusted gross income (AGI). This threshold is scheduled to increase to 10% in 2013 for those under age 65.

3. Flexible spending accounts. Currently, there is no legal limit on annual contributions to a flexible spending account (FSA) for health care expenses. Under the health care law, annual contributions to a health-care FSA are capped at $2,500. This amount will be indexed for inflation after 2013.

Faced with these looming tax changes, you may take appropriate steps before 2013. For instance, you might realize long-term capital gains in 2012 to avoid the 3.8% Medicare surtax, especially since the maximum tax rate is only 15% this year (scheduled to increase to 20% in 2013). Similarly, you might consider accelerating nonemergency medical expenses into 2012 to benefit from the lower AGI threshold or to exhaust FSA funds.

We will keep you posted on any major new developments. Don’t hesitate to contact us for tax planning guidance suited to your situation.

* Keep records that directly support income or expense items on your tax return. For income, this includes W-2s, 1099s, and Form K-1s. Also keep records of any other income you might have received from other sources. It’s also a good idea to save your bank statements and investment statements from brokers.

For expense items, keep documentation that supports any itemized deductions you claim. This includes acknowledgments from charitable organizations and backup for taxes paid, mortgage interest, medical deductions, work expenses, and miscellaneous deductions. Even if you don’t itemize, keep records of expenses for child care, medical insurance if you’re self-employed, and any other expenses that appear on your return.

The IRS can audit you routinely for three years after you file your return. But in cases where income is underreported, they can audit for up to six years. To be safe, keep your tax records for seven years.

Keep certain other records even longer. These include records relating to your house purchase and any improvements you make. Also keep records of investment purchases, dividends reinvested, and any major gifts you make or receive. And finally, keep copies of all your tax returns and W-2s in case you ever need to prove your earnings for social security purposes.

Please call our office if you have questions about specific items.

David Bradsher, CPA is a Washington DC / Northern Virginia area CPA who works with small business owners and non profit leaders on a monthly basis to provide them with guidance and advice on how to grow their organizations, minimize their tax liabilities and increase their bottom line.

Form 8938, “Statement of Specified Foreign Financial Assets,” is due April 17, 2012, and is filed as part of your individual tax return. You’ll use Form 8938 to disclose interests in certain foreign financial accounts when your ownership exceeds the reporting requirements.

What are the reporting requirements? They vary depending on where you live and your filing status. For example, say you’re married and live in the United States, and you’ll file a joint tax return for 2011. You’ll include Form 8938 with your tax return when the total value of your reportable assets on the last day of 2011 is more than $100,000, or if the value exceeds $150,000 at any time during the year.

Tip: In some cases, you may also need to file Form 8938 for tax year 2010.

Reportable assets include investment accounts you own that are held in foreign financial institutions, interests in foreign entities, and stocks or securities issued by foreign individuals or companies.

You’ve probably noticed the reporting requirements are similar to the “Report of Foreign Bank and Financial Accounts” (FBAR), a separate return you may already be filing. Be aware the new Form 8938 does not replace the FBAR, which you’ll still need to complete by June 30.

Penalties for failure to file Form 8938 start at $10,000. We urge you to contact us so we can help you evaluate your filing requirements for foreign investments.

David Bradsher, CPA is a Washington DC / Northern Virginia area CPA who works with small business owners and non profit leaders on a monthly basis to provide them with guidance and advice on how to grow their organizations, minimize their tax liabilities and increase their bottom line.

The IRS is also trying to improve tax compliance among sole proprietors. According to a Treasury report, sole proprietors accounted for 20% of the $345 billion tax gap calculated for 2001.

David Bradsher, CPA is a Washington DC / Northern Virginia area CPA who works with small business owners and non profit leaders on a monthly basis to provide them with guidance and advice on how to grow their organizations, minimize their tax liabilities and increase their bottom line.

Form 8938, “Statement of Specified Foreign Financial Assets,” is due April 17, 2012, and is filed as part of your individual tax return. You’ll use Form 8938 to disclose interests in certain foreign financial accounts when your ownership exceeds the reporting requirements.

What are the reporting requirements? They vary depending on where you live and your filing status. For example, say you’re married and live in the United States, and you’ll file a joint tax return for 2011. You’ll include Form 8938 with your tax return when the total value of your reportable assets on the last day of 2011 is more than $100,000, or if the value exceeds $150,000 at any time during the year.

Tip: In some cases, you may also need to file Form 8938 for tax year 2010.

Reportable assets include investment accounts you own that are held in foreign financial institutions, interests in foreign entities, and stocks or securities issued by foreign individuals or companies.

You’ve probably noticed the reporting requirements are similar to the “Report of Foreign Bank and Financial Accounts” (FBAR), a separate return you may already be filing. Be aware the new Form 8938 does not replace the FBAR, which you’ll still need to complete by June 30.

Penalties for failure to file Form 8938 start at $10,000. We urge you to contact us so we can help you evaluate your filing requirements for foreign investments.

David Bradsher, CPA is a Washington DC / Northern Virginia area CPA who works with small business owners and non profit leaders on a monthly basis to provide them with guidance and advice on how to grow their organizations, minimize their tax liabilities and increase their bottom line.

The following suggestions will get you started on your financial review:

* Hold a discussion with your family. Spouses and children need to share and prioritize their financial aspirations.

* Write down your financial goals. How much money will you need to meet each goal? When will you need the money, and how will you get it?

* Do a net worth statement (a list of your assets and debts), and compare it to last year’s statement. Are you gaining or losing ground?

* With your goals (and the effects of inflation) in mind, review the performance of your investments.

* Take steps to protect what you already have. Goals may become instantly unobtainable if you lose your present assets or your income potential.

* Do you have adequate disability insurance coverage to replace take-home pay if you become incapacitated?

* Do you have the proper amount of life insurance if you or your spouse should die?

* Do you have replacement value property insurance on your home?

* Do you have adequate insurance for calamities such as automobile accidents or lawsuits?

* Make sure that you need all of the insurance that you have. Do not duplicate employer-provided coverage. Review your coverage annually; do not just automatically renew policies.

* Review your will and your estate plan. Did your situation change during 2011 (marriage, divorce, births, deaths, move to another state, for example)? This year, the top estate tax rate is 35% with a $5,120,000 exemption. Make appropriate changes to your will and estate plan.

* Review your credit use. Keep your credit card bills current. If you’re finding that hard to do, it’s probably time to cut up some of those credit cards and get your debt under control.

* Organize your records. If you had trouble assembling data for your financial review, you need a better system. Set one up.

For help with any aspect of your review, call us. We’re here to assist you in any way we can.

David Bradsher, CPA is a Washington DC / Northern Virginia area CPA who works with small business owners and non profit leaders on a monthly basis to provide them with guidance and advice on how to grow their organizations, minimize their tax liabilities and increase their bottom line.