The Winning Strategy Issue 2 A Newsletter from Smith & Company, CPAs Winter 2010/2011 2010 Taxes and the “Two-Minute Drill” In football they have the ―two-minute drill,‖ the steps to take in the last two minutes of the first half or at the end of the game to either protect your lead or quickly score when you are behind. "In the two-minute, it's bam, bam, bam, bam -- there's no time to think," New York Jets wide receiver Braylon Edwards recently told ESPN. "There's no time to drop back and think and assess." Last month, the two-minute drill helped Penn State coach Joe Paterno win his 400th game. The Nittany Lions were down 21-0 late Hello, in the first half when, as Penn State Live reports, backup quarterback Matt McGloin ―re-energized the team with a two-minute drill that Thank you for all the excellent feed- ended with a 7-yard touchdown catch by Brett Brackett with 3 se- back we received on our first issue. We conds left in the half.‖ That re-energized team went on to win 35-21. are glad you enjoyed it and hope this For business owners and individual taxpayers, this year has its issue is equally informative. own version of the two-minute drill. As of late November, we still End of the year tax planning is don’t know: always important, but it is even more What the income tax rates will be for next year. Will the Bush so this year. There have already been tax cuts be extended for some, all or none? significant tax law changes, with many Whether the bonus depreciation for equipment purchases will more yet to be decided on by Congress expire as scheduled at the end of the year. and the President. This means you Will the tax on capital gains rise from the current 15% (or 0% have to be ready for any contingency. for those in the 5% and 10% brackets) to 20% for all? Will the estate tax, currently at 0%, be taxed at 35%, 45%, The strategy you normally use may 50% or 55% in 2011? not apply this year. For example, given It is typical that this time of year people come into our offices the possibility of large increases in for end of the year tax planning so you can take the steps needed to income tax rates on January 1, you minimize your tax liability. This year, given all the uncertainty on may want to accelerate income and what actions Congress and the President will take, you have to be delay payments so that income is taxed prepared to change direction instantly depending on what gets at the lower 2010 rates. signed into law. Your strategy needs to be laid out in advance so you As always, it has been a pleasure to can instantly respond to whatever provide you with accounting services comes out of Washington. You this year. We hope we have helped to don’t want to wind up sounding like Baylor coach Kevin Steele did make it a prosperous one for you, and after he violated the two-minute we look forward to continuing to serve drill. In a game against UNLV, he you in 2011 decided to run up the score instead of protecting his lead. In the last 20 Dwain Smith, CPA seconds, UNLV recovered a fum- ble on the one yard line, returning Late Breaking News the ball 99 yards for the victory. "I know what the textbook A tentative agreement has been reached says," said Steele after the game. on tax rates. Contact our office to find "There's no defense for it. It was Be prepared to quickly respond out how this affects your own taxes. just stupid on my part.‖ to last minute tax changes. Meet Lisa Elsner, CPA ing and manufacturing all work to- ―As a public accountant, I dealt gether in a business, and how that with a lot of IRS notices and was affects the types of accounting sys- able to get matters favorably re- tems they need to have in place to solved for my clients,‖ she says. make accurate decisions.‖ ―Then, as a controller, I never had As she was growing up, Lisa the IRS make any adjustments to our always enjoyed working with num- returns.‖ bers. So, when she was considering After working for twenty years, what major to pursue in college, her she decided to take time off to be father suggested she look into public with her newborn son. Once he was accounting. She followed his advice, school age, she came to work for us, In 2009, we were fortunate to receiving a Bachelor of Science de- fulltime during tax season and part persuade Lisa Elsner to join our gree in business administration and time the rest of the year. firm. A Hanover native, she brings accounting, with a minor in manage- ―I have known Dwain for a very decades of experience in both public ment information systems, from In- long time and felt very comfortable and private accounting, which she diana University of Pennsylvania. with his ethics,‖ she says. ―I think he uses to help our clients with their Upon graduation, she first spent 10 is a great guy to work for.‖ business and personal finances. years performing public accounting Lisa and Bertram Elsner have ―Having managed the account- for regional accounting firms, and been married for nine years and their ing department for a company, I then followed it up with 11 years son, Benjamin, is now seven. In her have broader experience than just working as a controller. In both in- free time, she enjoys sewing and public accounting,‖ she says. ―I stances she had an outstanding rec- knitting and has a small business know first-hand how sales, engineer- ord in her dealings with the IRS. making handbags. Tax Season IRS Reporting Changes Schedule From February 1st, 2010 to April 15th, we will be open: M – Th 8:00 AM – 9:00 PM (Closed for dinner 5:00-6:00) Friday 8:00 AM - 5:00 PM Saturday 8:00 AM - 5:00 PM Prepare to switch from paper to electronic filing. Please call our office as soon as possible Effective January 1, 2011, the Also beginning on January 1st, IRS will no longer be accepting Fed- all W-2 forms will have to include to set up your tax appointment. eral Tax Deposit coupons (Form the full value of health-care benefits (717) 632-0042 8109). All firms with quarterly tax provided by the employer. liabilities greater than $2500 will As part of the health care bill, For your convenience, we now accept have to use the Electronic Federal starting in 2012, businesses must file Visa, MasterCard and Discover. Tax Payment System (EFTPS) or 1099s for all vendors where the ag- We will not guarantee timely filed tax returns another electronic payment system. gregate transactions total over $600 if appointments are not made or tax Those who do not pay electronically per year. If you spend $12 a week at information is not received in the mail by will pay a 10% penalty. There is no Office Depot, you will have to track March 31, 2011. charge for using the EFTPS. all those expenses and file a 1099. MajorThe Tax Who, Changes What, to When be AwareOf of Healthcare for 2010/2011 Reform TaxWhen Law Who What ChangedWhat Insurers/ 2010 Provide dependent coverage for adult children up to age 26 in all individual and group policies. EmployersUnless Congress acts, the tax rates return to the 2001 levels: the 10 percent bracket will be eliminated and the Personal Tax top rate goes back to 39.6%, and all brackets in between will pay a higher tax rate. You should be prepared to Must provide coverage without cost-sharing for certain preventive services including immuniza- Rates Healthget additional Plans income in hand before the end or the year, and delay expenses, in case the tax rates go up in 2011. tions, preventive care for minors and certain preventive care and screenings for women Businesses with fewer than 25 employees and with an average wage of no more than $50,000 EmployersIn 2010, taxpayers in the 10% and 15% brackets are exempt from paying capital gains taxes, while those in Capital Gains and higher tax bracketscan receive pay 15%. a tax Next credit year, of upthose to 35% in the of lowest the employer’s racket will contribution pay a 10% totax the and insurance others will premium. pay a Dividends Insurers/20% rate. DividendsElimination are taxed of lifetime as capital coverage gains inlimits. 2010 Annual (0% to15%), coverage but limitswill be only treated as approved as normal by income the Secre- next Employersyear with ratestary up ofto 39.6%Health and Human Services. This change doesn’tFederal go government into effect to until establish 2013, abut national you need high to-risk plan pool ahead to forprovide it. For coverage couples forearning individuals over Uninsured $250,000, unearnedwith pre income-existing such medical as interest, conditions dividends, who rents,could royalties,not otherwise annuities obtain and coverage. capital gains (including Medicare tax on income from selling your house) will be considered as ordinary income for purposes of calculating Medicare unearned income Employers/ National long-term care insurance program financed though payroll deductions. All working 2011 taxes. This means that, in addition to the capital gains rate rising from 15% to 20%, this income will also be Employeessubject to an additionaladults are 3.8%included tax.