MARCH 2012
Khaas Baat : A Publication for Indian Americans in Florida



By Kamlesh H. Patel, CPA

Though they could not agree on how to pay for it, Congress did agree on passing an extension of the 2 percent cut in payroll taxes for some 160 million Americans. The tax cut had been extended for just two months, through Feb. 29, 2012, in a law passed in December 2011. Now workers and self-employed individuals will pay Social Security tax at a 4.2 percent rate, rather than 6.2 percent, through Dec. 31, 2012. The tax cut does not apply to employers’ share of Social Security taxes; their rate on employee wages remains at 6.2 percent for all of 2012.

Because Republicans and Democrats were unable to agree on how to pay for the extended tax cut, the law included no spending cuts to offset the estimated $93 billion cost of this provision.

The law, the “Middle Class Tax Relief and Job Creation Act of 2012,” also included a provision setting long-term federal unemployment benefits at a maximum of 73 weeks in states with the worst unemployment and 63 weeks for other states.

Another provision in the law will prevent a scheduled 27 percent reduction in Medicare payments to doctors.

The unemployment benefits and doctor payments will be paid for by government sales of broadband spectrum, requiring federal workers hired after this year to contribute more to their pensions, and cuts in certain health programs.

The new law also repeals certain shifts in the timing of corporate estimated tax payments that had been included in prior-year tax legislation.


The folks at the IRS and the Treasury Department are getting interested in U.S. citizens who maintain foreign bank, savings and investment accounts. There are now new reporting requirements that you should be aware of.

You may already be familiar with the “Report of Foreign Bank and Financial Accounts” filing requirements, since they have been around for a number of years. Essentially, you are required to file “Treasury Department Form 90-22.1” if you have a financial interest in or signature authority over a foreign financial account. These accounts include bank accounts, brokerage accounts, mutual funds, or other types of foreign financial accounts. This is not a form that you file with your tax return. Rather it is a separate form due June 30 each year that is filed with the Treasury Department in Detroit. Generally, this report is required to be filed if you do have an interest in such accounts, and the aggregate value of those accounts exceeds $10,000 at any time during the calendar year.

However, new for tax year 2011 is the “IRS Form 8938, Statement of Specified Foreign Financial Assets.” This form is an IRS form that must be filed with your income tax return if required. Form 8938 is required when the total value of specified foreign assets exceeds certain thresholds. For unmarried taxpayers, Form 8938 is required if the value of the foreign financial assets is more than $50,000 on the last day of the tax year, or more than $75,000 at any time during the year. For married filers, the threshold is $100,000 on the last day of the year, or $150,000 at any time during the year.

If you do have assets in foreign banks or brokerages, be sure of your filing requirements. They can get complicated, and the penalties for non-filing are severe.

Last-minute tips for trimming your 2011 taxes
Time is short, but it may not be too late to trim your 2011 tax bill. Here are some last-minute moves and deductions you shouldn’t overlook.
Maximize your 2011 IRA contribution. You have until April 17 to make deductible 2011 contributions. The maximum contribution is $5,000 for 2011 ($6,000 if you were 50 or older last year).

If you changed jobs in 2011, make sure you didn’t have excess Social Security taxes withheld. Claim credit for the excess on your Form 1040 if you paid over $4,486.

Look into itemizing deductions if you usually take the standard deduction. Search for allowable deductions that you might have overlooked, such as the reinstated deduction for state and local sales taxes in lieu of deducting state and local income taxes.
Medical deductions are allowable to the extent they exceed 7.5 percent of adjusted gross income (AGI). Don’t forget items such as eyeglasses and hearing aids. You can deduct mileage for medical appointments, plus parking and tolls.

Don’t overlook tax preparation fees, safe deposit costs, and certain investment advice. They all qualify as miscellaneous deductions, subject to a 2 percent of AGI limit.

Up to $2,500 of student loan interest is deductible whether you itemize or not.

The deduction of up to $4,000 for qualified tuition and school expenses is available for 2011. Qualifying amounts for you, your spouse, and dependents may be deductible. Income limits apply.

If you’re a teacher or teacher’s aide, you can deduct up to $250 for classroom supplies that you purchased with your own money.
The tax law is full of deduction restrictions and income limits. If that left you unable to take full advantage of certain losses, deductions, and credits in a prior year, check to see if you have some usable “carryforwards.” The unused portion of prior-year items can often be carried forward to your current year to reduce your tax liability.


Some people delay filing their income tax return because they don’t have the money to pay the balance due. That is a big mistake. You should either file your return by the due date or file for an extension by that date. April 17 is the filing deadline for 2011 tax returns. Filing an extension gives you until Oct.15, 2012, to file your 2011 return.

Failure to file a return on time can result in a “failure to file” penalty. The penalty for filing your return late is 5 percent of the amount of your unpaid tax, per month, up to a maximum of 25 percent. After 60 days, a minimum penalty of $135 or 100 percent of the tax due applies.
In addition, a late payment penalty of ½ of 1 percent of the tax due may apply for each month or part of a month that you fail to pay the tax due. The two penalties interact and can be combined.

You'll also have to pay interest on the tax due. During 2011, the interest rate on underpayment of tax has been in the 3-4 percent range. The interest is compounded daily and can be charged on penalties.

Since the penalty and interest are based on unpaid tax, neither applies when your return shows a zero balance. Filing a return is still a good idea, however. Why? The general rule limiting the IRS to a three-year period for assessing tax begins when you file. No return means no statute of limitations.

Keep in mind that an extension of the filing date is not an extension of the time to pay. It is in your best interest to pay as much of your balance due as you can on April 17 to reduce penalty and interest charges. This is necessary even if you get an extension of the filing date.

Kamlesh H. Patel, CPA, can be reached at (813) 949-8889 or e-mail or

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