The IRS has released the annual inflation adjustments for 2021 for the income tax rate tables, and for over 50 other tax provisions. The IRS makes these cost-of-living adjustments (COLAs) each year to reflect inflation.

The IRS has released the annual inflation adjustments for 2021 for the income tax rate tables, and for over 50 other tax provisions. The IRS makes these cost-of-living adjustments (COLAs) each year to reflect inflation.

2021 Income Tax Brackets
For 2021, the highest income tax bracket of 37 percent applies when taxable income hits:

• $628,300 for married individuals filing jointly and surviving spouses,
• $523,600 for single individuals and heads of households,
• $314,150 for married individuals filing separately, and
• $13,050 for estates and trusts.

2021 Standard Deduction
The standard deduction for 2021 is:

• $25,100 for married individuals filing jointly and surviving spouses,
• $18,800 for heads of households, and
• $12,550 for single individuals and married individuals filing separately.

The standard deduction for a dependent is limited to the greater of:

• $1,100 or
• the sum of $350 plus the dependent’s earned income.

Individuals who are blind or at least 65 years old get an additional standard deduction of:

• $1,350 for married taxpayers and surviving spouses, or
• $1,700 for other taxpayers.

AMT Exemption for 2021
The alternative minimum tax (AMT) exemption for 2021 is:

• $114,600 for married individuals filing jointly and surviving spouses,
• $73,600 for single individuals and heads of households,
• $57,300 for married individuals filing separately, and
• $25,700 for estates and trusts.

The exemption amounts begin to phase out when alternative minimum taxable income (AMTI) exceeds:

• $1,047,200 for married individuals filing jointly and surviving spouses,
• $523,600 for single individuals, heads of households, and married individuals filing separately, and
• $85,650 for estates and trusts.

Expensing Section 179 Property in 2021
For tax years beginning in 2021, taxpayers can expense up to $1,050,000 in Code Sec. 179 property. However, this dollar limit is reduced when the Section 179 property placed in service during the year exceeds $2,620,000.

Estate and Gift Tax Adjustments for 2021
The following inflation adjustments apply to federal estate and gift taxes in 2021:

• the gift tax exclusion is $15,000 per donee, or $159,000 for gifts to spouses who are not U.S. citizens;
• the federal estate tax exclusion is $11,700,000; and
• the maximum reduction for real property under the special valuation method is $1,190,000.

2021 Inflation Adjustments for Other Tax Items

The maximum foreign earned income exclusion amount in 2021 is $108,700.

The IRS also provided inflation-adjusted amounts for the:

• adoption credit,
• lifetime learning credit,
• earned income credit,
• excludable interest on U.S. savings bonds used for education,
• various penalties, and
• many other provisions.

Effective Date
These inflation adjustments generally apply to tax years beginning in 2021, so they affect most returns that will be filed in 2022. However, some specified figures apply to transactions or events in calendar year 2021.

The IRS has released the 2021 cost-of-living adjustments (COLAs) for pension plan dollar limitations and other retirement-related provisions.

The IRS has released the 2021 cost-of-living adjustments (COLAs) for pension plan dollar limitations and other retirement-related provisions.

Key Unchanged Amounts
The 2021 contribution limit remains unchanged at $19,500 for employees who take part in:

• 401(k) plans,
• 403(b) plans,
• most 457 plans, and
• the federal government’s Thrift Savings Plan

The catch-up contribution limit for employees aged 50 and over who participate in these plans also remains unchanged at $6,500.

The limitation for SIMPLE retirement accounts is unchanged at $13,500.

For individual retirement arrangements (IRAs), the limit on annual contributions to an IRA remains unchanged at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment, and so remains $1,000.

IRAs and Roth IRAs
The income ranges for determining eligibility to make deductible contributions to traditional IRAs and to contribute to Roth IRAs have increased for 2021.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. The deduction phases out if the taxpayer or his or her spouse takes part in a retirement plan at work. The deduction phase out depends on the taxpayer's filing status and income.

• For single taxpayers covered by a workplace retirement plan, the 2021 phase-out range is $66,000 to $76,000, up from $65,000 to $75,000 for 2020.
• For married couples filing jointly, when the spouse making the contribution takes part in a workplace retirement plan, the 2021 phase-out range is $105,000 to $125,000, up from $104,000 to $124,000 for 2020.
• For an IRA contributor who is not covered by a workplace retirement plan but who is married to someone who is covered, the 2021 phase out range is between $198,000 and $208,000, up from $196,000 and $206,000 for 2020.
• For a married individual who is covered by a workplace plan and is filing a separate return, the phase-out range is not subject to an annual COLA and remains $0 to $10,000.

The 2021 income phase-out ranges for Roth IRA contributions are:

• $125,000 to $140,000 for singles and heads of household (up from $124,000 to $139,000 in 2020),
• $198,000 to $208,000 for married filing jointly (up from $196,000 to $206,000 in 2020), and
• $0 to $10,000 for married filing separately.

Saver’s Credit
The income limit for low- and moderate-income workers to claim the Saver's Credit under Code Sec. 25B has also increased for 2021:

• $66,000 for married couples filing jointly (up from $65,000 in 2020),
• $49,500 for heads of household (up from $48,750 in 2020), and
• $33,000 for singles and married filing separately (up from $32,500 in 2020).

The U.S. Supreme Court heard oral arguments in California v. Texas, the latest challenge to the Affordable Care Act (ACA). The ACA expanded insurance coverage, and includes popular provisions such as required coverage of preexisting medical conditions.

The U.S. Supreme Court heard oral arguments in California v. Texas, the latest challenge to the Affordable Care Act (ACA). The ACA expanded insurance coverage, and includes popular provisions such as required coverage of preexisting medical conditions.

Three major issues are at play in this case:

• Do the plaintiff challengers of ACA—two individuals, the Trump Administration, and a number of states led by Texas—have standing to bring this case?
• Did reducing the penalty amount under Code Sec. 5000A(c) to $0 render the individual mandate in the ACA unconstitutional?
• If the mandate is unconstitutional, does that mean the act itself is unconstitutional, in whole or in part?

Background
The individual mandate in the ACA requires that taxpayers either maintain minimum essential coverage, have an exemption, or pay a penalty. The Tax Cuts and Jobs Act of 2017 zeroed out the penalty. The plaintiffs in this case argue that without the penalty, the mandate is unconstitutional. They further contend that the mandate is so essential to ACA that it cannot be severed from the rest of the law, and thus the entire act should be struck down. At the very least, they would like the Court to strike down portions of the ACA.

The challenger states are: Texas, Alabama, Arkansas, Arizona, Florida, Georgia, Indiana, Kansas, Louisiana, Mississippi, Missouri, Nebraska, North Dakota, South Carolina, South Dakota, Tennessee, Utah, and West Virginia. They have added two individuals, and the U.S. Department of Justice under the Trump Administration is also a party.

Other states, the District of Columbia, and the U.S. House of Representatives have intervened to defend the ACA. The intervenor states are: California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Iowa, Kentucky, Massachusetts, Michigan, Minnesota, Nevada, North Carolina, New Jersey, New York, Oregon, Rhode Island, Virginia, Vermont, and Washington.

Oral Arguments
The Supreme Court heard oral arguments from both sides of this case on November 10. The challengers argued that Republicans used the 2017 Tax Cuts and Jobs Act to eliminate the law’s penalty for Americans who do not get health coverage. This rendered the mandate unconstitutional, and since the mandate is so essential to the rest of the act, the whole act must also fall.

The attorneys on behalf of the House, however, argued that the plaintiffs are asking the Supreme Court to take on a legislative role contrary to the Court’s precedent, and that striking down the ACA would throw millions of people off their health insurance, end pre-existing condition protections, and create "chaos in the health care sector."

The Supreme Court appeared unlikely to completely wipe out ACA, with key conservative justices Chief Justice John Roberts and Justice Brett Kavanaugh indicating that such a ruling would be too broad of a role for the courts. "I think it's hard for you to argue that Congress intended the entire act to fall if the mandate were struck down," Chief Justice Roberts said.

If the three more liberal justices agree with the two conservative justices, it would provide the minimum five votes needed for the ACA to survive its latest appearance before the Supreme Court. A decision is expected before the end of term in June.

The IRS has provided guidance to taxpayers that want to apply either Reg. §1.168(k)-2 and Reg. §1.1502-68, or want to rely on proposed regulations under NPRM REG-106808-19.

The IRS has provided guidance to taxpayers that want to apply either Reg. §1.168(k)-2 and Reg. §1.1502-68, or want to rely on proposed regulations under NPRM REG-106808-19, for:

• certain depreciable property acquired and placed in service after September 27, 2017, by the taxpayer during its tax years ending on or after September 28, 2017, and before the taxpayer's first tax year that begins on or after January 1, 2021;
• certain plants planted or grafted after September 27, 2017, by the taxpayer during its tax years ending on or after September 28, 2017, and before the taxpayer's first tax year that begins on or after January 1, 2021; and
• components acquired or self-constructed after September 27, 2017, of certain larger self-constructed property and placed in service by the taxpayer during its tax years ending on or after September 28, 2017, and before the taxpayer's first tax year that begins on or after January 1, 2021.

Rev. Proc. 2020-25, 2020-19 I.R.B. 785, and Rev. Proc. 2019-43, 2019-48 I.R.B. 1107, are modified.

Change in Accounting Method
The guidance applies to taxpayers who are changing their method of accounting for depreciable property that includes:

• components described in Reg. §1.168(k)-2(c) or NPRM REG-106808-19 where the component election has already been made; and
• specified plants for which the Code Sec. 168(k)(5) election has been made and that are planted, or grafted to a plant that was previously planted, after September 27, 2017, during the taxpayer’s 2017, 2018, 2019, or 2020 tax year.

This guidance does not apply to property or a plant:

• that is impacted by a late election, or withdrawn election under Code Sec. 163(j)(7) after November 16, 2020, pursuant to Rev. Proc. 2020-22;
• for which the taxpayer is changing from deducting the cost or other basis of such property as an expense to capitalizing and depreciating the cost or other basis, or vice versa; or
• that the taxpayer does not own at the beginning of the year of change, with some exceptions.

In addition, this guidance cannot be used to make a late election, or revoke an election, under Code Sec. 168, Code Sec. 179, or Reg. §1.1502-68.

Taxpayers have a choice of applying the 2020 final regulations under T.D. 9916, the previous final regulations under T.D. 9874, or both the final regulations under NPRM REG-106808-19. However, once a taxpayer applies Reg. §1.168(k)-2 and Reg. §1.1502-68, the taxpayer must apply Reg. §1.168(k)-2 and Reg. §1.1502-68 to all subsequent tax years.

Automatic Extensions of Time
Applicable taxpayers may make a late Code Sec. 168(k)(5) election, a late Code Sec. 168(k)(7) election, a late Code Sec. 168(k)(10) election, a late component election, a late designated transaction election, or a late proposed component election, by filing either:

• an amended Form 1065 for the placed-in-service year of the property, or for the planting year of the specified plant, as applicable, on or before December 31, 2021; or
• a Form 3115 with the taxpayer’s timely filed original Federal income tax return or Form 1065 for the taxpayer’s first or second tax year succeeding the tax year in which the taxpayer placed in service the property or the planting year of the specified plant, or, if later, the taxpayer’s timely filed original Federal income tax return or Form 1065 that is filed on or after November 6, 2020, and on or before December 31, 2021.

Effective Date
This guidance is effective on November 6, 2020.

The IRS has issued final regulations to update the life expectancy and distribution period tables under the required minimum distribution (RMD) rules. The tables reflect the general increase in life expectancy. The tables would apply for distribution calendar years beginning on or after January 1, 2022, with transition relief.

The IRS has issued final regulations to update the life expectancy and distribution period tables under the required minimum distribution (RMD) rules. The tables reflect the general increase in life expectancy. The tables would apply for distribution calendar years beginning on or after January 1, 2022, with transition relief.

RMDs apply to qualified plans, including 401(k) plans and profit sharing plans. They also apply to IRAs (including SEP and SIMPLE IRAs), inherited Roth IRAs, Tax Sheltered Annuity plans, and eligible deferred compensation plans. In general, RMDs must begin for the year the individual reaches age 72. An RMD for a calendar year is determined by dividing the participant’s account balance by the applicable distribution period.

Distribution periods are based on life expectancies and are found in one of three tables, depending on the circumstances:

• During the employee’s lifetime (including year of death), the applicable distribution period is determined by the Uniform Lifetime Table. The figures in that table are the joint and last survivor life expectancy for the employee and a hypothetical beneficiary 10 years younger.
• If an employee's sole beneficiary is the employee's surviving spouse and the spouse is more than 10 years younger than the employee, then the applicable distribution period is the joint and last survivor life expectancy of the employee and spouse under the Joint and Last Survivor Table.
• After the employee’s death, the distribution period is generally based on the designated beneficiary’s age using the Single Life Expectancy Table.

Updated Tables
Distribution periods under the new rules would generally increase between one and two years. For example, a 72-year-old IRA owner who applied the prior Uniform Lifetime Table to calculate RMDs used a life expectancy of 25.6 years. Applying the new Uniform Lifetime Table, a 72-year-old IRA owner will use a life expectancy of 27.4 years to calculate RMDs. As another example, a 75-year-old surviving spouse who is the employee’s sole beneficiary and applied the prior Single Life Table to compute RMDs used a life expectancy of 13.4 years. Under these regulations, a 75-year-old surviving spouse will use a life expectancy of 14.8 years.

Retirees and beneficiaries would be able to withdraw slightly smaller amounts from their plans each year. They could leave amounts in tax-favored retirement accounts for a slightly longer period of time, to account for the possibility that they may live longer.

Applicability Date
The life expectancy tables and Uniform Lifetime Table under these regulations apply for distribution calendar years beginning on or after January 1, 2022. Thus, for an IRA owner who attained age 70.5 in February of 2020 (so that the individual attains age 72 in August of 2021 and the individual’s required beginning date is April 1, 2022), these regulations do not apply to the RMD for the individual’s 2021 distribution calendar year (which is due April 1, 2022) but will apply to the RMD for the individual’s 2022 distribution calendar year (which is due December 31, 2022).

These regulations include a transition rule that applies if an employee died before January 1, 2022, and, under the rules of Reg. §1.401(a)(9)-5, the distribution period that applies for calendar years following the calendar year of the employee’s death is equal to a single life expectancy calculated as of the calendar year of the employee’s death (or if applicable, the year after the employee’s death), reduced by one for each subsequent year.

The IRS has released guidance on its website for employers and employees regarding deferral of employee Social Security tax under Notice 2020-65, I.R.B. 2020-38, 567.

The IRS has released guidance on its website for employers and employees regarding deferral of employee Social Security tax under Notice 2020-65, I.R.B. 2020-38, 567.

In August, the IRS issued Notice 2020-65 in response to a Presidential Memorandum that allowed deferral of the withholding, deposit, and payment of certain employee payroll tax obligations. The Notice allows employers the option to defer the employee portion of Social Security tax from September 1, 2020, through December 31, 2020, for eligible employees who earn less than $4,000 per bi-weekly pay period (or the equivalent threshold amount with respect to other pay periods) on a pay period-by-pay period basis.

To pay the deferred amount, an employer that chooses deferral will ratably withhold the amount of deferred tax from the employees' paychecks from January 1, 2021, through April 30, 2021.

Employers
The guidance provides the following instructions to employers that deferred the employee portion of Social Security tax under Notice 2020-65:

When reporting total Social Security wages paid to an employee on Form W-2, Wage and Tax Statement, the employer should include any wages for which it deferred withholding and payment of employee Social Security tax in box 3 (Social security wages) and/or box 7 (Social security tips). The employer should not include in Box 4 (Social security tax withheld) any amount of deferred tax that has not been withheld.

Employee Social Security tax deferred in 2020 that is withheld in 2021 and not reported on the 2020 Form W-2 should be reported in box 4 (Social security tax withheld) on Form W-2c, Corrected Wage and Tax Statement. On Form W-2c, the employer should enter tax year 2020 in box c and adjust the amount previously reported in box 4 (Social security tax withheld) of the Form W-2 to include the deferred amounts that were withheld in 2021. The employer should file all Forms W-2c with the Social Security Administration (along with Form W-3c, Transmittal of Corrected Wage and Tax Statements) as soon as possible after the employer has finished withholding the deferred amounts. The employer should also furnish Forms W-2c to employees. (More information on completing and filing Forms W-2c and W-3c will be published in the 2021 General Instructions for Forms W-2 and W-3, in January 2021.)

There is similar guidance for employers that deferred withholding and payment of the employee Social Security tax equivalent of Tier 1 Railroad Retirement Tax Act (RRTA) tax.

Employees
There is also guidance for employees whose employers deferred the employee portion of Social Security tax (or the RRTA equivalent tax) under Notice 2020-65:

If an employee had only one employer during 2020 and his or her Form W-2c for 2020 only shows a correction to box 4 (or to box 14 for employees who pay RRTA tax) to account for the tax that was deferred in 2020 and withheld in 2021, no further steps are required.

If an employee had two or more employers in 2020 and the Form W-2c for 2020 shows a correction to box 4 (or to box 14 for employees who pay RRTA tax) to account for the tax that was deferred in 2020 and withheld in 2021, the employee should use the amount of Social Security (or Tier 1 RRTA) tax withheld reported on the Form W-2c to determine whether he or she had excess Social Security tax (or Tier 1 RRTA tax) on wages (or compensation) paid in 2020.

If the corrected amount in box 4 of the Form W-2c for 2020 causes the total amount of employee Social Security tax (or equivalent portion of the Tier 1 RRTA tax) withheld by all of the employee’s employers to exceed the maximum amount of tax owed ($8,537.40 for 2020), or increases an already existing excess amount of employee Social Security tax (or Tier 1 RRTA tax) withheld, the employee should file Form 1040-X, Amended U.S. Individual Income Tax Return, to claim a credit for the excess tax withheld.

Additional Information
Additional information can be found here.

The IRS intends to issue proposed regulations to clarify that state and local income taxes imposed on and paid by a partnership or an S corporation are deductible by the partnership or S corporation in computing non-separately stated taxable income for the year of the payment. The proposed regulations are intended to provide certainty to individual partners and S corporation shareholders in calculating their state and local tax (SALT) deduction limitations.

The IRS intends to issue proposed regulations to clarify that state and local income taxes imposed on and paid by a partnership or an S corporation are deductible by the partnership or S corporation in computing non-separately stated taxable income for the year of the payment. The proposed regulations are intended to provide certainty to individual partners and S corporation shareholders in calculating their state and local tax (SALT) deduction limitations.

The proposed regs described in the notice apply to specified income tax payments made on or after November 9, 2020. Taxpayers can also apply these rules to specified income tax payments made in tax years ending after December 31, 2017, and before the proposed regulations are published in the Federal Register.

SALT Deduction
For tax years beginning after 2017 and before 2026, an individual’s federal SALT deduction is generally limited to $10,000 ($5,000 for married individuals who file separate returns). The SALT deduction includes real property taxes, personal property taxes, income, war profits, and excess profits taxes, and general sales taxes.

However, legislative history indicates that this limit should not apply to taxes imposed at the entity level, such as a business tax imposed on pass-through entities, that are reflected in a partner’s or S corporation shareholder’s distributive or pro-rata share of income or loss on a Schedule K-1 or similar form. Instead, these taxes should continue to reduce the partner’s or shareholder’s distributive or pro-rata share of income.

New Entity-Level Taxes
Some state and local jurisdictions have enacted or are considering entity-level income tax on partnerships and S corporations, sometimes with a corresponding credit, deduction or exclusion for the owners. There is uncertainty as to whether the entity’s payment of such taxes must be taken into account in applying an owner’s SALT deduction limit.

The proposed regs will clarify that specified income tax payments are deductible by partnerships and S corporations in computing their non-separately stated income or loss.

Specified Income Tax Payments
A "specified income tax payment" is any amount paid by a partnership or an S corporation to satisfy the entity’s liability for income taxes imposed by and paid to a state, a state’s political subdivision, or the District of Columbia. This definition applies regardless of whether the tax results from an election by the entity, or whether an owner receives any deduction, exclusion or credit for the payment. Specified income tax payments do not include income taxes imposed by U.S. territories or their political subdivisions.

The partnership or S corporation can deduct specified income tax payments in computing taxable income for the year the payment is made. The specified income tax payments will be reflected in a partner’s or a shareholder’s distributive or pro-rata share of non-separately stated income or loss. Thus:

• a specified income tax payment is not an item of deduction that a partner or shareholder takes into account separately in determining its own federal income tax liability; and
• a specified income tax payment is not taken into account in applying the SALT deduction limitation to any individual partner or shareholder.

The responsibility for remitting federal tax payments to the IRS in a timely manner can be overwhelming for the small business owner -- the deadlines seem never ending and the penalties for late payments can be stiff. However, many small business owners may find that participating in the IRS's EFTPS program is a convenient, timesaving way to pay their federal taxes.

The responsibility for remitting federal tax payments to the IRS in a timely manner can be overwhelming for the small business owner -- the deadlines seem never ending and the penalties for late payments can be stiff. However, many small business owners may find that participating in the IRS's EFTPS program is a convenient, timesaving way to pay their federal taxes.

The Electronic Federal Tax Payment System (EFTPS) is a simple way for businesses to make their federal tax payments. It is easy to use, fast, convenient, secure and accurate. It also saves business owners time and money in making federal tax payments because there are no last minute trips to the bank, no waiting lines, no envelopes, stamps, couriers, etc. And best of all, tax payments are initiated right from your office!

What is the EFTPS?

EFTPS is an electronic tax payment system through which businesses can make all of their federal tax deposits or payments. The system is available 24 hours a day, seven days a week for businesses to make their tax payments either through the use of their own PC, by telephone, or through a program offered by a financial institution.

What federal tax payments are covered by EFTPS?

Some taxpayers mistakenly assume that EFTPS applies only to the deposit of employment taxes. EFTPS has much broader reach. It can be used to make tax payments electronically for a long list of payment obligations:

• Form 720, Quarterly Federal Excise Tax Return;
• Form 940, Employer's Annual Federal Unemployment Tax (FUTA) Return;
• Form 941, Employer's Quarterly Federal Tax Return;
• Form 943, Employer's Annual Tax Return For Agricultural Employees;
• Form 945, Annual Return of Withheld Federal Income Tax;
• Form 990-C, Farmer's Cooperative Association Income Tax Return;
• Form 990-PF, Return of Private Foundation;
• Form 990-T, Exempt Organization Business Income Tax Return Section 4947(a)(1) Charitable Trust Treated as Private Foundation;
• Form 1041, Fiduciary Income Tax Return;
• Form 1042, Annual Withholding Tax Return for U.S. Sources of Income for Foreign Persons;
• Form 1120, U.S. Corporation Income Tax Return; and
• Form CT-1, Employer's Annual Railroad Retirement Tax Return.

How can I get started using EFTPS?

To enroll in EFTPS, the taxpayer must complete IRS Form 9779, Business Enrollment Form, and mailing it to the EFTPS Enrollment Center. To obtain a copy of IRS Form 9779 a taxpayer or practitioner can call EFTPS Customer Service at 1-800-945-8400 or 1-800-555-4477. The enrollment form may also be requested from the IRS Forms Distribution Center at1-800-829-3676.

After you complete and mail the enrollment form, EFTPS processes the enrollment and sends you a Confirmation Packet, which includes a step-by-step Payment Instruction Booklet. You will also receive a PIN under separate cover. Once the Confirmation Packet and the PIN are received, you can begin to make tax payments electronically.

What flexibility is available within the EFTPS for payment options?

There are two primary ways to make payment under EFTPS - directly to EFTPS or through a financial institution. If you wish to make payments directly to EFTPS, the "ACH debit method" should be selected on the enrollment form. Deposits and payments are made using this method by instructing EFTPS to move funds from the business bank account to the Treasury's account on a date you designate. You can instruct EFTPS by either calling a toll-free number, and using the automated telephone system, or by using a PC to initiate the payment.

If you instead elect to make payments through a financial institution, the "ACH credit method" should be chosen on the enrollment form. This method works by using a payment system offered by the financial institution through which you instruct the institution to electronically move funds from your account to a Treasury account.

Although the ACH debit and the ACH credit methods are the primary payment methods for EFTPS, a taxpayer may also choose the Same Day Payment Method. You should contact your financial institution to determine if it can make a same day payment.

If I provide the IRS with access to my bank account, can it access my account for any other purposes?

It is important to note you retain total control of when a payment is made under EFTPS because you initiate the process in all instances. In addition, at no time does the government or any other party have access to your account from which the deposits are made. The only way to authorize deposits or payments from your account is through use of the PIN that is given to you upon enrollment.

Many businesses have recognized the convenience of voluntary participation in the IRS's EFTPS program. If you are interested in discussing whether your business would also benefit from this program, please contact the office for a consultation.

Imagine you had a camera that could take a snapshot of your financial transactions over the course of a year. This snapshot would give you a chance to see the results of financial decisions you made during the course of the year -- good and bad. By using your recently filed Form 1040 as a "snapshot" of your past spending and investment habits, you can use this information to make better financial decisions in the current year.

Imagine you had a camera that could take a snapshot of your financial transactions over the course of a year. This snapshot would give you a chance to see the results of financial decisions you made during the course of the year -- good and bad. By using your recently filed Form 1040 as a "snapshot" of your past spending and investment habits, you can use this information to make better financial decisions in the current year.

Evaluate your investment strategies. Reviewing Schedule D, Capital Gains and Losses, of Form 1040 for the past few years can be an eye-opener for many people. Did you hold stocks long enough to be entitled to the long-term capital gains rate? Did you try to balance short-term gains with short-term losses? Are you bouncing from one investment trend to another without a long-term investment plan that achieves long-term needs? Are your mutual funds "tax smart"? Looking at your tax return will help you decide whether the investments you now have are the right ones for you.

Become familiar with different types of banking institutions and their products. Find out about CDs, money-market funds, government securities, mutual funds, index funds, and sector funds and how they interrelate with the determination of your tax liability each year. If you are in a high tax bracket and need to diversify away from common stocks, for example, looking into tax-exempt bonds might help, especially if you have state income taxes to worry about, too. You may want to put that knowledge to work in your investment strategy.

Identify borrowing patterns. A look at the interest deductions you claimed on Schedule A, Itemized Deductions, of your Form 1040 can also pinpoint ways for you to let Uncle Sam help pay off some of your loans with tax deductions. Should you have more home-equity interest rather than credit card debt? Are you maximizing -- or overusing -- the advantages of borrowing on margin? Consumer debt is a necessary way of life these days for many taxpayers, but smart borrowing on an after-tax basis can help "tame that tiger."

Revisit medical costs. Should you be taking advantage of the medical expense deduction? Many people assume that with the 7.5 percent adjusted gross income floor on medical expenses that it doesn't pay for them to keep track of expenses to test whether they are entitled to itemize. But with the premiums for long-term care insurance now counted as a medical expense, some individuals are discovering that along with other health insurance premiums, deductibles and timing of elective treatments, the medical tax deduction is theirs for the taking.

Maximize retirement planning efforts. A look at your Form W-2 for the year, and at the retirement contribution deductions allowed in determining adjusted gross income, should tell you a lot. Are you maximizing the amount that Uncle Sam allows you to save tax-free for retirement? Should your spouse set up his or her own retirement fund, too? Are you over-invested in tax-deferred retirement plans, facing a large amount of tax each year after you retire?

Remember, too, that a defined amount of retirement income will only be available for a definite amount of time after you retire. If you are spending down your retirement savings with a five percent return at ten percent per year, those savings will be exhausted in a finite number of years. Do the analysis and try to save enough so that, between Social Security and your savings, you can keep your annual withdrawals to under five percent per year and still meet living expenses.

Extrapolate into the future. Review your Form 1040 like you would reconcile your checkbook except, instead of balancing your monthly budget in your check register, balance your annual budget in your life's registry. You may already use your checkbook to extrapolate one, three or five months into the future to ensure that your income will cover the bills. So why not use your tax return to extrapolate one, three or five years into the future to develop a plan that will cover your life?

Consider "The Big Picture". Many people ask "How long should I keep my tax returns?" It depends on how much of your own financial history you want to see documented. The tax code requires retention of tax returns for a minimum of three years but the more history you have of your financial progress - or regress - over the years, the more information you will have for your analysis for the future.

When you are reviewing your tax return and learning how you have spent your money during the last year, it may help to review some of what you've learned with the person who prepared the return. In fact, taking this step is very important to enable you to work together to better plan your financial future. Please contact the office if you need additional assistance or have any questions as you review your recently filed return.