Storm-Larsen & Company, Inc.

Annual Tax Newsletter

Dear Client,

As we begin 2012, we at Storm-Larsen & Company, Inc. want to take this chance to wish you and your family a wonderful New Year. As always, our staff is ready to assist you in gathering your documents and organizing your information for the upcoming tax season. We look forward to working with you again in the New Year and we wish you all the best.

Individual income tax provisions that were extended through 2012 by the Tax Relief Act of 2010 include, reduced marginal and capital gains tax rates, relief of the marriage penalty for joint returns, the repeal of exemption and itemized deduction phaseouts, various education-related incentives, child tax credit increase, and child and dependent care credit enhancements. Below are some of the highlights of the tax law changes that will affect the filing of your 2011 tax return.

Tax Rates. For 2011, the marginal federal income tax rate brackets of 2010 were extended. The rates remain at 10, 15, 25, 28, 33, and 35 percent.

For 2011, long-term capital gain is taxed at a maximum rate of 15 percent (for assets held longer than one year). If youíre in the 10 or 15 percent marginal income tax brackets in 2011, a zero percent rate applies.

Homeownership. The credit for certain energy-efficient home improvements has been extended through December 31, 2011. The credit is a maximum of $500 for qualifying improvements that include adding insulation, energy-efficient exterior windows, and energy efficient heating and air conditioning systems.

Retirement Plan Contributions. Individuals can contribute up to $5,000 to an individual retirement account (IRA), and can contribute an additional $1,000 if over the age of 50. The maximum annual contribution to a 401(k) plan in 2011 is $16,500 with an additional contribution of $5,500 if over 50. Take full advantage of your employee retirement plan, at least to the point of any employer match. The amount that you contribute is excluded from your taxable income.

Roth IRA Conversions. For 2011, you can still convert your traditional IRA to a Roth account, but you will pay federal income tax on the conversion when you file your tax return. If you converted your traditional IRA to a Roth account in 2010, you must report half of the total amount and pay the tax on your 2011 tax return.

Extended Tax Incentives. The following tax incentives were extended for 2011, but expire at the end of this year. They include the above-the-line deduction for higher education tuition costs, above-the-line deduction for certain out-of-pocket classroom expenses, deduction for state and local general sales tax in lieu of state and local income taxes, mortgage premium insurance deduction, tax-free IRA distributions to charity, and the nonrefundable tax credit offset of your entire regular and AMT tax liability.

New Security Reporting. As you may know, securities brokers are now subject to new regulations governing basis and sales reporting. Check your year-end statements and 1099-B forms from your brokers for any errors as you receive them.

Reminders. If you have made any gold sales during 2011, these may be subject to tax. Please bring information that you have including date of sale, sale amount, purchase date and purchase cost. As gold sales become more popular, the IRS is taking a closer look at those who are not reporting proceeds from these activities.

The Franchise Tax Board is continuing their efforts to collect sales tax on Internet purchases when vendors are not charging sales tax. This means that you must report any Internet purchases for which you did not pay sales tax and pay that tax on your California tax return.

Following the Internet lines, IRS and FTB are both interested in sales that you may be making on eBay. These sales are reportable income and your information may be furnished to IRS by eBay. Lastly, we ask every year, but here is another reminder. If you have Foreign Accounts or Trusts, you must report them on your return and if they are over $10,000, an FBAR form must also be filed. The penalties are high for not reporting, so make sure that every account is accounted for.

Businesses

The Tax Relief Act of 2010 temporarily extends all the Bush tax cuts for two years, reinstates the estate and gift tax, and extends many other expired tax benefits including business incentives and energy-related tax provisions.

Depreciation. The Code Sec. 179 deduction is limited to the taxable income of the taxpayer, whereas regular MACRS deductions are not. Foregoing the Code Sec. 179 deduction in 2011 may create a net operating loss for carryback. However, Code Sec. 179 expense deduction in excess of current year income can be carried over to future years and effectively increase the deduction in years when the limitation is expected to decrease. Unless Congress changes the provisions, the expense limitation reverts to $25,000 in 2013. In addition to the Code Sec. 179 deduction, the bonus depreciation deduction is extended to property placed in service before January 1, 2013. The 15-year recovery period for qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property applies to property placed in service before January 1, 2012.

Other Provisions and Incentives. Provisions still available for 2011 include the deduction for certain energy-efficient commercial building property, enhanced deduction for the donation of food, books and computers, the Work Opportunity Tax Credit, and the credit for employer provided childcare just to name a few. Some tax incentives have already expired. For example, the deduction provided by the 2010 Jobs Act for a self-employed individualís health insurance costs in computing self-employment tax and the self-employment tax deduction was only available for the 2010 tax year.

Now is an ideal time to review your tax situation. We can assist you in ensuring that you take advantage of all of the credits and deductions that you qualify for to maximize your tax savings. Please use the following page to help you get organized and call our office if you should have any questions and to schedule your appointment. We look forward to hearing from you.

Best Wishes for the New Year,

Storm-Larsen & COmpany, Inc.