Janell A. Israel & Associates

1585 Kapiolani Blvd., Suite 1604, Honolulu, Hawaii 96814 Phone: 808-942-8817

November 2011 Tax Newsletter

Major Tax Deadlines

For November 2011

During November: It's wise to estimate your 2011 income tax liability and review your options for minimizing your 2011 taxes. Call us if you would like to schedule a tax-planning session.

What's New in Taxes:

IRS expands innocent spouse relief

If you file a joint income tax return with your spouse, you are considered "jointly and severally" liable for the payment of all taxes owed. The IRS can come after either you or your spouse for the entire amount of tax due, plus any penalties and interest due.

The law has "innocent spouse" rules that may limit an individual's responsibility for unpaid taxes resulting from filing a joint return. If the "innocent spouse" can establish that he or she did not know, or have reason to know that there was an understatement of tax when signing the joint return, relief can be requested. This relief had to be requested within two years after collection proceedings were initiated by the IRS.

In a new 2011 ruling, the IRS has decided to eliminate the two-year time limit for requesting innocent spouse status under the "equitable relief" provision in the law.

What you should know about the sales tax deduction

The sales tax deduction is available for 2011 tax returns. Here are answers to your questions regarding this deduction.

Q. Can I deduct my sales taxes?

A. You're allowed to deduct either your sales taxes or your state income taxes. If you live in a state that imposes no personal income tax, you would choose to deduct sales taxes, but you must itemize your deductions to benefit.

Q. If I live in a state with income taxes, should I just ignore the sales tax deduction?

A. Absolutely not. While those living in no-tax states (i.e., Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming) will receive the greatest benefit, many taxpayers residing in low- to middle-tax states will also benefit. And if your income (and state tax) is modest, it's quite possible that the sales tax deduction will be greater.

Q. How is the sales tax deduction computed?

A. The IRS has issued tables that provide for the amount of anticipated sales taxes paid, given your income level. Of course, if you are inclined to keep your records, you can deduct the actual sales tax that you pay rather than using the IRS tables.

Q. How about "big ticket" items?

A. The IRS allows you to supplement the deduction allowed by the table with actual sales taxes paid on larger purchases. This includes vehicles (either purchased or leased), motor homes, recreational vehicles, trucks, vans, aircraft, boats, and homes. Mobile homes, prefabricated homes, and home-building materials also qualify.

Q. Would I consider claiming the sales tax deduction rather than my state tax deduction if they are virtually the same?

A. You might. Because of the tax benefit rule, state tax refunds that you receive are generally taxable to you on your federal return the following year. But that isn't the case for the sales tax deduction.

Q. Can I also claim city or local sales taxes?

A. Yes, you can. The IRS provides a formula which will allow you to compute your city and/or local sales taxes and add them to your state tax table amount, thereby increasing your sales tax deduction by those amounts.

There is more to the sales tax deduction than meets the eye. Claiming it or not isn't necessarily a "slam dunk" proposition. If you have questions about this deduction in your specific tax situation, give us a call.

What's New in Finance:

Debt and needy children cloud financial picture for retirees

Recent research reveals that Americans are finding it hard to retire in financial comfort, thanks to too much debt and adult children needing financial assistance.

The biggest debt issue for people in the 60 to 64 age group, according to a survey reported in the "Wall Street Journal," is home mortgages. In 2010, 39% of couples in this age group had primary mortgages; 20% had secondary mortgages. That's an increase from 22% and 12%, respectively, reported in 1994.

Another part of the problem for retirement-aged Americans is the expectation that their adult children will need financial assistance from them. According to one study, 70% of older Americans think they will have to help adult children financially. In fact, a poll by a nonprofit organization revealed that 59% of working parents are already providing financial support to adult children in the 18 to 39 age group. In order to help children, 7% of older Americans say they have delayed retirement and 26% have taken on new debt.

Choosing your executor: A critical estate planning decision

An executor is the person or legal entity that you appoint in your will to settle your estate after your death. It is common practice to name your spouse or one of your children (often the first born) to be the executor of your estate. Such a choice may be entirely appropriate. However, there are circumstances where you should consider other possibilities.

Your executor will be required to gather your assets and pay debts, taxes, and expenses. The executor may be called upon to liquidate assets and will need to distribute money and assets under the direction of your will, with the appropriate legal and tax considerations.

If you do not appoint your spouse or some other family member to be your executor, what other choices have you? You could use a corporate executor, such as a trust company, or you may want to choose an accountant, attorney, investment advisor, or a business associate.

Do not pass up a nonfamily executor simply because there is a fee involved. Often the conflict of interest or the contests that result by naming a family member can be far more costly to the estate than the fees charged by an outsider.

Selecting an executor for your estate is as important a decision as naming your heirs. Give some thought to the complexity of your estate and select an executor accordingly.

Take a Break

Tax the rich? Who's rich?

Warren Buffett has been the poster boy for the current "tax the rich" movement. Just how rich is Mr. Buffett? Well, to begin with, he's #2 on the Forbes' list of richest Americans, right behind #1 Bill Gates. Buffett's net worth is $39 billion; Gates's net worth is $59 billion.

Buffett says he earned close to $63 million last year and paid only $7 million in federal income tax.

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All information is believed to be from reliable sources, however we make no representation as to its completeness or accuracy. The information contained in this newsletter is provided by Mostad & Christensen, Inc. The information is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. For more information on anything in this newsletter, or for assistance with any of your tax, business, or financial strategy concerns, contact our office.

Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, a Registered Investment Adviser. Mosted & Christensen, Janell Israel & Associates and NPC are separate and unrelated companies.

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Rep is not an attorney. Rep can help review the documents and recommend a local attorney that specializes in Estate Planning. Estate planning can involve a complex web of tax rules and regulations. You should consider the counsel of an experienced estate planning professional before implementing any strategy.