December 27, 2011

To the Clients and friends of Drotar Financial Consultants

We trust everyone had a great holiday season and that we are all looking forward to a healthy and prosperous New Year.  Matthieu is now a junior at the University of Maryland and doing well in his writing career.  Kimberly is now a Sophomore at Plymouth Whitemarsh High School and is deep in determining what she wants to do with her life.  Adam continues to promote his music and graphic design careers and Blase is studying hard to get through school and assist in running our operation here.

I must apologize for the tardiness of this letter.  I have sat down to write it many times but Congress kept stalling on the payroll tax bill and I really wanted to discuss it in this forum.

First, some housecleaning..We are changing our email addresses beginning January 1, 2012.  Blase will be blasedrotar@gmail.com and Lisa will be lisadrotar@gmail.com.  Please take note of these changes and update your records accordingly.

  Also, as a reminder, please remember to bring or send in last year’s disk with your 2010 information.  We need it in order to enter 2011 information to it.  There will be a $ 15.00 replacement fee if we need to issue a new one.

After much deliberation, we have decided to raise our fees but not until July 1, 2012.  Business costs have jumped and we need to keep pace.  The increase will be approximately 10% across the board.

Second on the agenda is an update on the Forensic accounting aspect of our business.  This year we assisted in three cases involving theft and have come to a final conclusion of two of them.  As you all are aware, these difficult economic times tends to bring out either the best or the worse in people, especially employees.  We like to think that we are on the edge of this problem and continue to impress upon you, the business owner, to review and strengthen your internal controls.

Let’s look at changes.  As you may remember, most of the changes put into effect for the 2010 tax year were two year changes.  Therefore, 2011 taxes will not be too much difference from last year.  However, many of these two year changes are scheduled to be terminated for 2012, including, but not limited to, the Alternative Minimum Tax (AMT) exemption amount, the $ 250 teacher deduction, sales tax in lieu of state income tax deduction, 100% first year depreciation and tuition deductions.  Those due to terminate for 2013 are the 50% additional first year depreciation and the $ 5 million dollar estate tax exemption.  All of these will expire without Congressional extensions and we believe that they will be extended due to the upcoming elections.

2011 did have some new provisions, including the $ 1,000 employee retention credit form the HIRE Act, 1099 enhanced reporting requirements and the 2% reduction in FICA taxes.

Let’s take some time to discuss the enhanced 1099 filing requirements.  Okay, Congress, with the strong urging of the AICPA among others, woke up and repealed the expanded 1099 reporting piece of the law.  This means that landlords do not have to issue 1099 for service providers and that all other businesses do not have to issue 1099s to corporate entities. On a better note, starting in 2011, brokers are required to supply cost basis information with the 1099B.  This means that any subjectivity about the gains/losses of a security when sold should be put to bed. 

On a much larger note, the IRS is requiring a new form 1099-K to be given to anyone accepting credit card sales (including Paypal).  The reporting companies must now issue 1099-K which will reflect all credit card sales and we must report these sales on a separate line item on your income tax return.  This is done for one purpose only:  to isolate on the tax returns your cash sales as a percentage of the total sales.  The IRS will then compare these sales to their national database to determine if you fall within the acceptable ranges for cash sales in your business classification.  BIG BROTHER IS ALWAYS WATCHING…

Everyone has felt the benefit of the 2% reduction in the FICA taxes taken from your pay or due on your business profits.  This was a temporary reduction due to expire at December 31, 2011.  As I am sure you are aware, President Obama has been pushing for it to be enacted for another year but Congress has been fighting him.  In a bold move (?), Congress has agreed to an extension of the cut for two months.  This will cause an administrative nightmare for quarterly filers but don’t be dismayed.  With 2012 elections on the horizon, neither side wants to be responsible for lowering workers’ take-home pay so I believe this will get extended for the entire year.

On a local note, please be aware of ACT 32 and its implications.  ACT 32 was passed in Pennsylvania with an attempt to reduce and concentrate the local taxes.  Basically, it makes all employers and employees accountable to report where they live and work on the Residency Certification Form.  Local taxes will then be taken from your pay depending on where you work or live, depending on which one is higher (Philadelphia is exempt).  All reporting, collecting and submitting requirements now fall to the employers with large penalties for those not in compliance.  It takes effect on January 1, 2012.

We look forward to seeing everyone this year.  As always, if you have any questions or concerns that specifically affect you and wish to discuss them, please give us a call at anytime.

Blase and Lisa Drotar
Drotar Financial Consultants

For a printable PDF version of this letter, click here.