Each individual tax return is different from another but some tax rules affect every taxpayer who files a federal income tax return. Dependents and exemptions are two such rules. Below are six important facts about dependents and exemptions that will help you file your 2011 tax return.

1. Exemptions reduce your taxable income:
   There are two types of exemptions, personal and dependent exemptions. For each exemption you can deduct $3,700 on your 2011 tax return.
2. Your spouse is never considered your dependent:
   On a joint return, you may claim one exemption for yourself and one for your spouse. If you’re filing a separate return, you may claim the exemption for your spouse only if they had no gross income, are not filing a joint return, and were not the dependent of another taxpayer.
3. Exemptions for dependents:
   In general can take an exemption for each of your dependents. A dependent is your qualifying child or qualifying relative. You must list the Social Security number of any dependent on your form 1040 for whom you claim an exemption.
4. If someone else claims you as a dependent, you may still be required to file your own tax return:
   Whether you must file a return depends on several factors including the amount of your unearned, earned or gross income,
   your marital status and any special taxes you owe.  Be sure to consider this for you children.
5. If you are a dependent, you may not claim an exemption:
   If someone else, such as your parent, claims you as a dependent on their tax return, you may not claim your personal exemption on your own tax return.
6. Who cannot be claimed as your dependent:
   Generally, you may not claim a married person as a dependent if they file a joint return with their spouse. Also, to claim someone as a dependent, that person must be a U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico for some part of the year. There is an exception to this rule for certain adopted children. See IRS Publication 501, Exemptions, Standard Deduction, and Filing Information for additional tests to determine who can be claimed as a dependent.

Are you in need a tax professional?  If you are in need of professional tax services feel free to contact Stephen Scott, CPA at info@scottcpa.com to setup an appointment to discuss your specific tax needs.  Scott, Scott & Co, CPA, PC is a Certified Public Accounting firm that works with middle to high income clients, small business owners, and those looking for personal service from a tax and accounting professional.

Some medical professionals such as hospitalists are considered self employed for tax purposes and receive a 1099 from the facility for whom they provide services.  For these professionals tax treatment is much different than a W-2 employee.  As with other self employed individuals it is necessary to report income and related expenses on Schedule C.

Here are some important topics to consider:
1) Be on the lookout for your 1099(s).  Your reported income for Schedule C should include all income received and should match the total of the 1099s received.  There may be timing issues so be sure to reconcile your records to report the correct amounts and prevent the possibility of receive an IRS underreporting notice.

2) SEP Plan:  If you are self employed, you should consider investigating the tax benefits of a SEP plan.  We can your review your situation, discuss tax benefits and how to implement, maximum contribution calculations, and any limitations.  It’s important to consider using these tax rules to your benefit.

3) Record Keeping:  This is an important topic.  Be sure you understand IRS record keeping requirements and how to design a good bookeeping and records system.  We can help you identify the areas of weakness to help protect yourself in case of an audit.

4) Depreciation:  If you purchase any fixed assets be sure to understand how these items should be reported and possibly depreciated.

5) Self Employment Tax:  You should understand what it is, how it’s calcuated and that it exists.  Many new Schedule C owners forget about this tax and maybe surprised by when they prepare their taxes in the spring.

6) Estimated Taxes:  As a self employed hospitalist or other medical professional you will be required to pay quarterly tax estimates.  A CPA can assist you with budgeting for the year and help you keep up with tax estimates.  The IRS and states can impose additional penalties for not paying quarterly estimated taxes throughout the tax year.

If you are a self employed hospitalist or other medical professional feel free to contact our firm to discuss your tax needs.  We can help you with your tax filings, estimated taxes, and provide peace of mind.  Contact Stephen Scott, CPA at info@scottcpa.com to schedule an appointment to discuss your tax and other financial needs.

If you make a donation to a charity this year, you may be able to take a deduction for it on your 2011 tax return. Here are some key tips every taxpayer should know before deducting charitable donations.

1. Make sure the organization qualifies:  Charitable contributions must be made to qualified organizations to be deductible. You can ask any organization whether it is a qualified organization or search IRS Publication 78 online.
2. You must itemize:  Charitable contributions are deductible only if you itemize deductions using Form 1040, Schedule A.
3. What you can deduct:  You generally can deduct your cash contributions and the fair market value of most property you donate to a qualified organization. Special rules apply to several types of donated property, including clothing or household items, cars and boats.  Ask your CPA for tax assistance if you need it.
4. When you receive something in return:  If your contribution entitles you to receive merchandise, goods, or services in return – such as admission to a charity banquet or sporting event – you can deduct only the amount that exceeds the fair market value of the benefit received.
5. Recordkeeping: Keep good records of any contribution you make, regardless of the amount. For any cash contribution, you must maintain a record of the contribution, such as a cancelled check, bank or credit card statement, payroll deduction record or a written statement from the charity containing the date and amount of the contribution and the name of the organization.
6. Pledges and payments: Only contributions actually made during the tax year are deductible. For example, if you pledged $600 in September but paid the charity only $300 by Dec. 31, you can only deduct $300.
7. Donations made near the end of the year: Include credit card charges and payments by check in the year you give them to the charity, even though you may not pay the credit card bill or have your bank account debited until the next year.
8. Large donations: For any contribution of $250 or more, you need more than a bank record. You must have a written acknowledgment from the organization. It must include the amount of cash and say whether the organization provided any goods or services in exchange for the gift. If you donated property, the acknowledgment must include a description of the items and a good faith estimate of its value. For items valued at $500 or more you must complete a Form 8283, Noncash Charitable contributions, and attach the form to your return. If you claim a deduction for a contribution of noncash property worth more than $5,000, you generally must obtain an appraisal and complete Section B of Form 8283 with your return.
9. Tax Exemption Revoked Approximately 275,000 organizations automatically lost their tax-exempt status recently because they did not file required annual reports for three consecutive years, as required by law. Donations made prior to an organization’s automatic revocation remain tax-deductible. Going forward, however, organizations that are on the auto-revocation list that do not receive reinstatement are no longer eligible to receive tax-deductible contributions.

IRS Resources:
1) Publication 78 – Online Search for Charities
2) Publication 561 –  Determining the Value of Donated Property

If you need assitance with your 1040 Individual tax return or your small business tax return (1120, 1120-2, 1065) contact Stephen Scott, CPA at info@scottcpa.com.  I would be happy to meet with you to discuss your immediate and long term tax needs.  Our firm, Scott, Scott & Co, CPA, PC is located in Kirkwood, Missouri. 

What is Phishing?
Phishing is a scam typically carried out by unsolicited e-mail and/or websites that pose as legitimate sites and lure unsuspecting victims to provide personal and financial information.  Occasionally you may receive an email from someone claiming to be with the IRS.  Don’t be fooled.  The IRS does NOT initiate taxpayer communications through email.  They send paper notices in the mail.

All unsolicited e-mail claiming to be from either the IRS or any other IRS-related components such as EFTPS, should be reported to phishing@irs.gov.

What to do if you receive a suspicious IRS-related communication:

If you receive an email claiming to be from the IRS that contains a request for personal information:
1) Do not reply.
2) Do not open any attachments.  They may contain malicious code that could infect your computer.
3) Do not click on any links.
4) Forward the email “as is” to the IRS at phishing@irs.gov
5) After you forward the email and/or header information to the IRS delete the original email message you received.

If you need representation dealing with IRS notices please contact your CPA.  If you need help contact Stephen Scott at 314-984-9829, or email info@scottcpa.com.

Whether you’re a recent graduate going to college for the first time or a returning student, it will soon be time to get to campus – and payment deadlines for tuition and other fees are not far behind.  Students or parents paying such expenses should keep receipts and be aware of some tax benefits that can help offset college costs.

Typically, these benefits apply to you, your spouse or a dependent for whom you claim an exemption on your tax return.

1. American Opportunity Credit: This credit, originally created under the American Recovery and Reinvestment Act, has been extended for an additional two years – 2011 and 2012. The credit can be up to $2,500 per eligible student and is available for the first four years of post secondary education. Forty percent of this credit is refundable, which means that you may be able to receive up to $1,000, even if you owe no taxes. Qualified expenses include tuition and fees, course related books, supplies and equipment. The full credit is generally available to eligible taxpayers whose modified adjusted gross income is below $80,000 ($160,000 for married couples filing a joint return).
2. Lifetime Learning Credit  In 2011, you may be able to claim a Lifetime Learning Credit of up to $2,000 for qualified education expenses paid for a student enrolled in eligible educational institutions. There is no limit on the number of years you can claim the Lifetime Learning Credit for an eligible student, but to claim the credit, your modified adjusted gross income must be below $60,000 ($120,000 if married filing jointly).
3. Tuition and Fees Deduction: This deduction can reduce the amount of your income subject to tax by up to $4,000 for 2011 even if you do not itemize your deductions. Generally, you can claim the tuition and fees deduction for qualified higher education expenses for an eligible student if your modified adjusted gross income is below $80,000 ($160,000 if married filing jointly).
4. Student loan interest deduction: Generally, personal interest you pay, other than certain mortgage interest, is not deductible. However, if your modified adjusted gross income is less than $75,000 ($150,000 if filing a joint return), you may be able to deduct interest paid on a student loan used for higher education during the year. It can reduce the amount of your income subject to tax by up to $2,500, even if you don’t itemize deductions.

For each student, you can choose to claim only one of the credits in a single tax year. However, if you pay college expenses for two or more students in the same year, you can choose to take credits on a per-student, per-year basis. You can claim the American Opportunity Credit for your sophomore daughter and the Lifetime Learning Credit for your senior son.

You cannot claim the tuition and fees deduction for the same student in the same year that you claim the American Opportunity Credit or the Lifetime Learning Credit. You must choose to either take the credit or the deduction and should consider which is more beneficial for you.

Self Help:
For more information, visit the Tax Benefits for Education Information Center at www.irs.gov or check out Publication
970, Tax Benefits for Education, which can be downloaded at www.irs.gov or ordered by calling 800-TAX-FORM (800-829-3676).