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If you own foreign investments, you may have an additional federal tax filing requirement this year.

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.

If you’ve given up itemizing deductions, you’re not alone. These days over half of all taxpayers find they’re better off using the standard deduction. But even if you take the standard deduction, you can also deduct some individual expenses on your 2011 tax return, including the following:

* IRA and HSA contributions

On your 2011 tax return you may qualify to deduct up to $5,000 in contributions to a traditional IRA. That increases to $6,000 if you’re age 50 or older. Income limitations may apply in some cases. You can’t deduct contributions to Roth IRAs.

Health Savings Accounts (HSAs) are IRA-like accounts set up in conjunction with a high-deductible health insurance policy. The annual contributions you make to your HSA are deductible. Contributions are invested and grow tax-free, and you’re allowed to withdraw money in the account tax-free to pay for your unreimbursed medical expenses. The HSA contribution limit for 2011 is $3,050 for singles and $6,150 for couples. An additional $1,000 may be contributed by those 55 and older.  Watch out, if you made these contributions through payroll deduction then they are already tax free so you do not get an additional deduction on your tax return.  Also, remember if you have an HSA you must complete Form 8889 with your Form 1040.

* Student loan interest and tuition fees

Deduct up to $2,500 interest on student loans for yourself, your spouse, and your dependents. For 2011, you can also deduct up to $4,000 of tuition and fees for qualified higher education courses. Income limitations apply, and you must coordinate these deductions with other education tax breaks.

* Self-employment deductions

If you’re self employed, you can generally deduct the cost of health insurance premiums, retirement plan contributions, and one-half of self-employment taxes.

* Other deductions

Don’t overlook deductions for alimony you pay, certain moving expenses, and early savings withdrawal penalties. Teachers can deduct up to $250 for classroom supplies that they purchased with their own money in 2011.

Contact our office for more information on these and other deductions you may be entitled to take on your 2011 tax return.

The IRS announced that more than $1 billion in tax refunds for the year 2008 remain unclaimed by a million taxpayers who failed to file a return for that year. The tax law provides a three-year period for claiming a refund when no return is filed. That means these individuals must file a tax return for 2008 no later than Tuesday, April 17, 2012, or their refunds will be lost.

You might know someone who was below the filing threshold, yet they had withholding that they are entitled to receive as a refund.  This is common when children have a summer job, they don’t make enough that they are required to file, but their employer withheld federal and/or state income tax.

If you reached age 70½ last year, April 2, 2012, could be an important deadline. That’s the last day you can take your required minimum distribution (RMD) for 2011 from your traditional IRAs. If you miss that deadline, the penalty could be a 50% excise tax on the amount you should have withdrawn.

Here’s how the rules work. Once you reach age 70½, you must start taking annual distributions from your traditional IRAs. Normally these distributions must occur by December 31 of each year. But a special rule lets you defer the first distribution until April of the year after you reach age 70½. So if you turned 70½ last year, April 2 is the deadline for your 2011 distribution. Be aware that you’ll still need to take your 2012 RMD before the end of this year.

Generally, the amount of the RMD for any year is based on your age. You take the balance in all your traditional IRAs as of the last day of the previous year, and divide by a factor representing your life expectancy. The IRS has published a standard life expectancy table to use in the calculation. Special rules might apply if your spouse is more than ten years younger than you are.  Your RMD for all of your IRA accounts can be taken from one IRA, you do not have to take a distribution from each account.

Because all or part of your distribution may be taxable income, it is important to include RMDs in your tax planning. Ideally you should start planning for RMDs several years before you reach age 70½. But whether you’re planning in advance or looking at a distribution on April 2, contact our office for more detailed advice.

The RMD rules don’t apply to Roth IRAs. Unless you’re still working, this deadline also applies to your other retirement accounts.

If you own a small business, you have until March 15, 2012, to choose S corporation status for this year. In order to become an S corporation, you’ll need the unanimous approval of all shareholders.

The principal advantage of an S corporation is that you avoid paying double taxes. In a traditional C corporation, profits are taxed at the corporate level and then they’re taxed again when paid to individual shareholders as dividends. In an S corporation, there are no taxes on earnings at the corporate level. Instead, profits or losses flow directly through to the shareholders. They pay taxes only once, when they report their share of earnings on their individual tax returns.

Another advantage: Doing business as an S corporation can be attractive in the early, unprofitable years of a start-up business. That’s because operating losses flow through your personal taxes, perhaps offsetting other taxable income.

There are some trade-offs for these tax benefits, though. If you’re an owner-employee and own more than two percent of the company, you’ll receive less favorable tax treatment for some fringe benefits. There are also ownership limitations. The company can have only one class of stock, there can’t be more than 100 shareholders, all of the shareholders must be U.S. citizens or residents, and the corporation must meet other restrictions.

Despite these drawbacks, doing business as an S corporation can still offer some tax planning advantages. If you can meet the ownership requirements, it might be well worth considering an S corporation election. Contact our office for an in-depth analysis of the pros and cons for your company.

March 15 – 2011 calendar-year corporation income tax returns are due. This includes C Corporations and S Corporations.  Deadline may be extended to September 17, 2012 if you file an extension by March 15th.

March 15 – Deadline for calendar-year corporations to elect S corporation status for 2012.

April 2 – Deadline for payers who file electronically to send copies of 2011 W-2s to the Social Security Administration.

April 2 – Deadline for payers who file electronically to file 2011 information returns (such as 1099s) with the IRS.

Use it or lose it

If your flex plan at work allows a 2½ month grace period for using the pre-tax dollars you set aside for 2011, be aware that a final deadline is approaching. You have until March 15, 2012, to use the funds you set aside for 2011 or you forfeit any leftover dollars.

If you also have a Health Savings Account (HSA), you are limited to what expenses you can use your Flex Spending Account (FSA) for.  Please check your plan to make sure that you are using the funds for expenses that qualify.  Remember that the “Use it or lose it” rule only applies to FSA, not HSA.

Your broker statement for 2011 reported the basis in the stocks you acquired last year. This basis reporting requirement expands in 2012 to include mutual fund shares and stock acquired in a dividend reinvestment plan. The cost basis for these investments is included in reports that brokers send to the IRS. The IRS will compare this information with the basis you report on your tax return when you sell the investment.  As a result of this change you will notice that the Schedule D looks different and there is a new Form 8949.

Most brokerage firms were required to send out their statements by February 15^th.  Please review your statements to see if the brokerage firms expect to be sending amended forms.

To increase transparency for the more than 72 million 401k plan participants, the US Department of Labor issued new regulations regarding fees paid to advisors by the plan participants and sponsors.  The intent of the new regulations is for plan participants to be better equipped to make informed decisions about their investment choices.  Considering that many plan participants believe they pay nothing for the services provided in their 401(k) plan, the new quarterly disclosures will be quite an eye-opener for those future retirees.

Beginning in 2012, plan fees and expenses are required to be disclosed to participants in dollars and cents.  Often, the fees associated with a participant’s account are a function of some complex formula.  Fees are sometimes paid out of earnings and not easy to identify or quantify.  Now, quarterly statements will very plainly disclose the fees from a participant’s account. 

Department of Labor Employee Benefits Security Administration Assistant Secretary Phyllis C. Borzi  was quoted in a news release dated October 14, 2010 as saying “We are giving workers the tools they need to make the best possible decision about investing the nearly $3 trillion held in their 401(k)-type plans.  Now they will have information about different investment options to help them make wise decisions.” 

Initial disclosures must be made by May 31, 2012 and subsequent disclosures by the 45^th day following the end of the calendar quarter.  The regulations require the following to be disclosed on participant statements:

1.  Quarterly statements will reflect plan fees and expenses deducted from a participant’s account

2.  Provide information about investments available under their plan, including the cost of those investments

3.  Use standard methodologies when calculating  and disclosing expense and return information to achieve uniformity across the spectrum of investments that exist in plans

4.  Present the information in a format that makes it easier for participants to comparison shop among the plan’s investment options

5.  Give access to supplemental investment information in addition to the basic information required under the final rule

Plan administrators who fail to provide participants with the required information may be deemed to have violated their fiduciary duty under the Employee Retirement Income Security Act.  In that case, the administrator may be held liable for monetary damages to participants. However, as a result of the new regulations, plan participants will much better equipped to make informed decisions about their investment choices. 

Today Congress passed a deal to extend the payroll tax cut through December 31.

Last December, the 4.2% social security tax rate that workers pay on wages was extended through February 29, 2012.

Writing up the minutes of board of directors’ meetings is not exactly a high priority for most business owners. Yet well-documented corporate minutes can provide valuable supporting evidence if your tax positions are ever questioned.

Owner Compensation

Minutes are especially important where any kind of related-party transactions occur, such as payments, loans, or distributions between the company and its owners. For example, the IRS may challenge the amount of compensation paid to a business owner as unreasonable. Corporate minutes that document the factors considered by the board in approving the compensation can be a strong defense against such a challenge.

Retained Earnings & Dividends

Another area that receives close scrutiny from the IRS is the amount of earnings that are retained in the business rather than distributed as taxable dividends. A penalty applies to retained earnings over a certain limit unless they can be justified by business needs. Corporate minutes can be a strong piece of supporting evidence if they clearly spell out the reasons that the company needs to retain funds — for example, to purchase assets or for working capital.

Retirement plans & fringe benefits

If your company has a tax-qualified retirement plan or a stock option plan, the minutes should show decisions by the board adopting or modifying the plan. They should also document annual decisions on the percentage of contribution to profit-sharing plans and any decisions on fringe benefits, such as medical reimbursement accounts.

Corporate minutes need not be lengthy, but they should provide a clear record of corporate actions and the business factors that were considered when those actions were taken. You should think of your minutes as a key element of your tax planning strategy.

If your corporate minutes need updating, contact your attorney and take care of this important bit of business housekeeping.