MCDONNELL ACCOUNTING

McDonnell Accounting (Ph 228-374-2374) is located on the corner of Pass Road and Hiller Drive in Biloxi. Randy McDonnell, Patty Lankford, Darlene Eggert, and Cathy Broome will be preparing 2011 income tax returns. We will be open Mon-Sat, 9AM - 7PM. Randy’s appointment times are 9, 11, 1:30, 3:30, and 5:30. Clients are reminded that Randy may be called away from your appointment for a few minutes to check another return Payment for services rendered, due upon completion of the return, must be by check or cash.

There are few changes in this year’s tax returns, with one exception for working people. The making work pay credit of up to $400 S AND $800 MFJ has unfortunately been eliminated. A tip to avoid running up the fee we charge you: if we cannot complete your return because some item is missing,

do not wait weeks before providing the missing information, because we will have to review the whole return a second time.

New clients are urged to bring a copy of their 2010 tax returns and birth dates of dependents. Everyone should bring forms W-2, K-1, 1099 (incl. social security benefits), cost and selling price of real estate (two-page settlement sheets are needed) or stocks and bonds sold. Self-employed people need to bring total revenues/sales figures, expenses by category, business mileage, and ending inventory if applicable. Look over last year’s return to help you prepare for this year.

In response to frequent questions about gift and inheritance taxes—the recipients of gifts or inheritances pay no income tax on these two items. There would be income tax on any income generated by the assets of the estate before the estate is closed, although the amount is usually small in the case of my clients. Inheritance tax on the value of an estate is only possible for million-dollar estates, and the fact that a giver’s lifetime gifts would have to exceed a million dollars or more to incur any gift tax makes the $13000 annual gift tax exclusion a moot point for my clients. One more tip to address

a frequent question—if you inherit property such as real estate or investments and then sell it in the next year or two, you probably will not owe any tax on the sale because of the stepped-up basis rule.

The lesson to be learned from the results of recent tax audits, especially for taxpayers with businesses, is that we should be able to account for all deposits made to our personal and business bank accounts. The federal or state tax authorities otherwise may claim that unexplained bank deposits constitute unreported income. Make notes on your check register and retain documentation on loans, insurance proceeds, gifts, or other funds being deposited.

Every year, some of our clients take tax beatings by taking large withdrawals from pension plans. Even aside from possible 10% penalties assessed by IRS for early withdrawals, the marginal tax rate can be very costly for these taxpayers. Using a simplified example, a taxpayer with income of $50,000 will pay no income tax on the first $10,000 of his income because of the personal exemption and standard deduction. He may pay a tax rate of 15% on the next $30,000, then 25% on the final $10,000. The $7,000 of tax produces an overall rate of 14%. However, if he draws $10,000 out of a pension plan and now has a total of $60,000 income, he will be paying a marginal tax rate on the $10,000 pension money of 25% or $2,500. We recommend gradually withdrawing retirement funds after you retire when you are usually in a lower bracket. If you need money, get a low-interest home equity loan or a loan on your pension plan.

LIST OF TAX CREDITS AND DEDUCTIONS AVAILABLE WITHOUT ITEMIZING

1. Interest paid on college loans. Eligible loans cover tuition, fees, and room and board for taxpayers or dependents or former dependents.

2. Higher education credits for college tuition and required fees, books, and course materials (not room and board) for taxpayers and dependents. HOPE credit (renamed American Opportunity Tax Credit) now applies to the first four years of college. Student must be at least half-time. Lifetime learning credit is allowed for any college course, including those taken to improve job skills. Eligible amounts for these credits do not include expenses paid by grants or scholarships, but do include amounts paid with loans.

3. Child tax credit for dependent children under 17 ($1000 per child).

4. IRA contributions (with income limits on deductibility for a person covered by a pension plan). Non-working spouse can contribute to an IRA. Maximum contribution is $5,000 ($6,000 for those 50 or over). For 2011 returns, you can contribute as late as April 17, 2012.

5. Interest penalty or forfeiture due to early withdrawal of a certificate of deposit (CD).

6. Alimony. Name and social security number of ex-spouse must be listed.

7. Moving and travel expenses to take a job in another locality (includes 19 cents per travel mile for first 6 months of 2011 and 23.5 cents for second 6 months).

8. Child-care credit for expenses incurred while working, looking for work, or going to school. You must list name, address, and tax ID number of care provider. Care for disabled adults is also eligible for credit.

9. Credit for elderly or permanently disabled.

10. Medical insurance deduction for the self-employed. To safeguard this deduction, establish the insurance plan in the name of your business.

11. Have you remembered all possible dependents? Are you 65 or older or blind?

12. Did you pay any estimated tax to IRS or your state during the year, or do you have a credit from overpayment of last year’s tax?

13. Did you prepay college tuition under Mississippi programs IMPACT or MACS?

14. Retirement savings contributions credit for IRA, ROTH, 401-K if income under $56500 MFJ, $28250 S or $42375 HH.

15. School teachers can deduct up to $250 of school supplies.

16. Residential energy credit for insulation, exterior doors and windows, and high-efficiency central air conditioners. If you obtained a $500 credit in past years, you are not eligible.

ITEMIZED DEDUCTIONS

Minimum needed $11600 MFJ, $5800 S, or $8500 HH. Be aware that only the amounts exceeding these standard deduction figures will reduce taxable income and thus the tax because the standard deduction applies regardless.

1. Ad valorem part of vehicle license plate fees.

2. Real estate taxes (property taxes).

3. State and local income taxes paid by check or withheld from paycheck in 2011. If you made a major purchase such as a vehicle or boat, tell us what the sales tax was--as this may result in a bigger deduction.

4. Medical expenses not reimbursed by insurance--hospital, doctor, dentist, nurse, chiropractor, physical therapist, psychologist, lab fees, prescription drugs, insulin, eyeglasses, contact lens and solutions, hearing aid, dentures, crutches, wheelchair, ambulance, transportation (estimate round-trip mileage—19 cents per mile for the first 6 months of 2011 and 23.5 cents per mile for the last 6 months of 2011), lodging, health/dental/cancer/long-time care insurance premiums, nursing home (if a principal reason for residence is the availability of medical care), etc. A portion of the pay of a housekeeper helping an invalid at the invalid’s home is deductible if it involves bathing and dressing wounds, changing pads, administering medicine, and seeing as to proper nutrition.

5. Interest on debt--mortgage or home equity loans, investment loans, and loan origination fees or “points” (points paid on a simple refinancing must be deducted over life of new loan). Interest paid on second homes is also deductible. A boat may qualify as a second home if it has cooking, sleeping, and toilet facilities. For houses bought or refinanced after 2006, mortgage insurance premiums are deductible as mortgage interest.

6. Casualty losses--storm, fire, theft, collision, flood, vandalism, etc. Loss must exceed 10% of income.

7. Charitable donations in money or goods--church, United Way, Salvation Army, Goodwill, Homes of Grace, out of pocket expenses and 14 cents per mile for volunteer work (church choir, scouts, Red Cross). Non-monetary donations like old clothes must be in good condition. Congress has declared that loose change in the church plate is no longer deductible without a receipt.

8. Unreimbursed employee expenses while out of town including travel, local transportation, meals and lodging, laundry, and telephone. An out-of-town temporary job site is considered indefinite, and thus nondeductible if the job lasts one year or more.

9. Unreimbursed employee transportation expenses in home area including work at temporary job sites (if you have a regular workplace). You may count commuting from home to temporary job sites but not to regular workplace. Take business percentage of actual vehicle expenses or 51 cents per mile for first six months of 2011 and 55.5 cents a mile for the second six months of 2011.

10. Job-hunting expenses (if in same trade or business). Local mileage and travel away from home. Please estimate mileage (51/55.5 cents per mile). Employment agency, typing, postage, long-distance calls.

11. Union and professional dues and trade magazines, uniforms, safety equipment, tools and supplies used on a job, licenses, malpractice insurance, required physical exams, business entertainment.

12. Expenses for education or training to maintain or improve skills in your present occupation or which is required by your employer. Commuting to the education site is deductible if the training is short-term.

13. Legal and other professional fees for investments or for protection of income. Tax preparation fee, casualty loss appraisal, safe deposit box, IRA custodial fees, other investor expenses.

14. Business/employee telephone calls--long distance, work-related portion of cellular phone. Basic home service is not deductible.

15. Gambling losses, but only to extent of winnings.

TAX TIPS AND ADVICE

Taxpayers no longer have to buy a new residence to avoid income tax on the sale of old residence. If they lived in the old house for two of the previous five years, in most cases the sale need not be reported whether a gain or loss.

Always mail in a tax return or extension by April 15 even if you cannot pay the tax due.

If you gamble, keep records of all winnings and losses. If you receive a W-2G on your winnings, you will want to have proof of your losses in case of an audit.

Your dependent child with only W-2 or interest/dividend income must file a tax return if he earned over $300 of interest or dividends and his total income is more than $950. If total W-2/interest/dividend income is more than $5800, a return must also be filed.

Do not pay a balance due notice from IRS or cash a refund check from IRS if you don’t understand the reason it was sent. Call McDonnell Accounting.

Keep tax returns forever; keep supporting documents 7 years.

Always strive to make your voluntary pretax contributions to your pension plan at work, at least to the point to which your employer matches your contribution. On the other hand, if you leave your job and must take out your pension funds, roll it into an IRA within 60 days to avoid 10% penalty and being taxed in your highest bracket (see first page). Avoid income tax withholding on the rollover by having a trustee to trustee transfer. Do not handle the money yourself.

If you deduct vehicle expenses for your business or as an employee, keep receipts verifying these expenses and keep a log of each local and out-of-town business trip (mileage, dates, destinations, business purpose). Many of our clients have very large deductions in this category, and they’re taking a big risk in not keeping track of their mileage (in the event of an IRS audit).

If you have lost receipts for deductions or credits, carefully reconstruct figures and other details from memory and write them down.

The above lists of deductions and credits are not all-inclusive. Do not hesitate to call us about any other expenses that you think may be deductible. This newsletter is also available online at www.randymcdonnell.com.

THE FOLLOWING IS NOT RELEVANT TO THE MCDONNELL ACCOUNTING NEWSLETTER.

SUN HERALD LETTERS TO THE EDITOR

MY VERSION

THE LATEST SCANDAL INVOLVING THE PRESENT OCCUPANT OF THE WHITE HOUSE IS THE HALF-BILLION TAXPAYER DOLLAR NO-BID AND OVERPRICED CONTRACT AWARDED TO OBAMA CRONY RONALD PERELMAN FOR THE MANUFACTURE OF A SMALLPOX VACCINE

WHEN A HUGE SUPPLY ALREADY EXISTS AND THE DISEASE HAS BEEN ERADICATED FROM THE FACE OF THE EARTH FOR A COUPLE OF DECADES. LENDING CREDIBILITY TO THIS STORY IS THAT IT WAS FIRST REPORTED BY THE DEMOCRATIC MOUTHPIECE THE LOS

ANGELES TIMES, AND THAT THE DEMOCRATIC U S SENATOR FROM MISSOURI (FACING A TOUGH REELECTION RACE NEXT YEAR) IS CALLING FOR AN INVESTIGATION INTO THIS OUTRAGE, ALTHOUGH WE CANNOT EXPECT NBC AND THE OTHER MASS MEDIA LAPDOGS

FOR THE DEMOCRATS TO EVER MENTION THIS STORY.

THE PRESENT OCCUPANT OF THE WHITE HOUSE HAS A BILLION DOLLARS OF DONATIONS AVAILABLE TO PURCHASE MUD FOR HIS REELECTION CAMPAIGN. FOR MY PART, I FAVOR A KNOWN SINNER WHO POSSESSES THE ADVANCED SKILLS NEEDED TO PULL THE USA

OUT OF THE EXTREME DANGER WE FACE UNTIL JANUARY 20, 2013, WHEN MR GINGRICH WILL REPLACE THE NATION DESTROYER IN THE WHITE HOUSE.

SUN-HERALD VERSION

THE LATEST SCANDAL INVOLVING THE PRESENT OCCUPANT OF THE WHITE HOUSE IS THE HALF-BILLION TAXPAYER DOLLAR, NO-BID AND OVERPRICED CONTRACT AWARDED TO OBAMA CRONY RONALD PERELMAN FOR THE MANUFACTURE OF A SMALL POX VACCINE

WHEN A HUGE SUPPLY ALREADY EXISTS AND THE DISEASE HAS BEEN ERADICATED FOR DECADES. THE DEMOCRATIC U S SENATOR FROM MISSOURI IS CALLING FOR AN INVESTIGATION INTO THIS OUTRAGE.

FOR MY PART, I FAVOR A KNOWN SINNER WHO POSSESSES THE ADVANCED SKILLS NEEDED TO PULL THE USA OUT OF THE EXTREME DANGER WE FACE. SO ON JAN 20, 2013, I HOPE MR GINGRICH WILL REPLACE THE NATION DESTROYER NOW IN THE WHITE HOUSE.