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05/22/17 - June Newsletter


Monthly Newsletter


JUNE 2017

Tax deadlines for June

June 15

• Second quarterly installment 2017 individual estimated tax due

• Second quarterly installment 2017 estimated tax for calendar-year corporations due

• Individual tax filing deadline for U.S. citizens living or serving in the military overseas


Keep your audit fears in check

Getting audited by the IRS is no fun. However, your chances of being audited are probably lower than you think. A look at the latest IRS statistics for 2016 reveals some interesting and reassuring facts about the risk of an IRS audit.

Audits are becoming less common. The number of individual tax returns the IRS audited fell to a 12-year low last year, to just above 1 million. Audits have been steeply declining over the last five years, which the IRS commissioner said was due in part to declining budgets and a smaller workforce.

Audits target the rich. It's a fact: IRS audits target the super-rich. The statistical chance of being audited increases dramatically for people of higher income levels.

Missing data can get you audited. High income isn't the only thing that gets you audited. Any missing data on your return can also trigger an audit.

Standing out gets you audited. The IRS takes a close look at business expenses, charitable donations, and high-value itemized deductions. They have statistical data on what amounts are typical for various professions and income levels. If your return stands out from what is "normal," it may be flagged for review by the agency's computer system.

More audits are done by mail. If you face an audit, most likely it will be done by mail. Only about one in four IRS audits are field audits conducted in person by an IRS agent. The most common issues, such as math errors or missing data, are done through mail correspondence.

If your issues are more complicated, you may face a field audit – and you may owe more to the IRS. The average field audit recommended the individual pay an additional tax of nearly $19,000, while the average correspondence audit recommended a payment of less than $7,000.

Most audits end up costing you. You can fight the tax law, but the tax law usually wins. Most people audited by the IRS end up owing additional tax. Only 11 percent of correspondence audits and 8 percent of field audits concluded with a "no change" finding in favor of the taxpayer.


4 tips to landing your dream home in a seller's market

Here are some suggestions to landing your dream home in our current real estate market.

1. Be nimble, be flexible. Try to investigate new listings quickly – within hours of their first posting, if possible. If you're interested in a house but an inspection finds a few flaws, you may have to be flexible about accepting a house with a few quirks or in need of some repairs.

2. Make a strong offer. A seller's market isn't a time to lowball your first offer on a house you want. If you've prepared and set your expectations below your minimum price range, you should be able to make a strong offer to ensure you are among the most attractive bidders. You shouldn't wildly overpay, but making a strategic offer above the listing price may sweeten the deal enough to close quickly.

3. Earnest money. You may consider offering a meaningful earnest money component to your offer to show you are serious. Just understand that this money is put at risk if you later change your mind.

4. Few strings. Try to make your offer as simple as possible. The more contingencies, the more room for someone else to sneak in and snap up your target home. Flexible move-in dates may help the seller navigate their purchase. Having to sell your home before buying theirs may create a snag versus another offer.


Reasons to incorporate your business

Here are some reasons you may want to consider incorporating your growing business.

Protect your personal assets from creditors. When you operate your business within a corporation, creditors are often limited to corporate assets to satisfy a debt. Your home, savings, and retirement accounts are no longer fair game.

Provide a personal liability firewall. The corporate form can help protect you against claims made by others for injuries or losses arising from actions of your business.

Issue shares of stock. You can help build your business by issuing shares to new investors, or by offering stock options to key employees as a form of compensation.

Gain tax flexibility. A corporation can provide you with more tax flexibility. Deliberate planning can help optimize the taxable division between corporate income, dividends, and your personal wages.

Enhance your business presence. Being incorporated sends a signal that your business is a serious enterprise and it could open doors to opportunities not offered to sole proprietors. Consumers, vendors, and other businesses often prefer to do business with incorporated companies.

If you are still going over the pros and cons of incorporating your business, pick up the phone. Together, we can complete a thorough tax review that will help shed light on the impact such a move will have on your business situation.


This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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04/24/17 - May Newsletter


Monthly Newsletter

MAY 2017

Tax deadlines for May

May 15 – Deadline for calendar-year exempt organizations to file 2016 information returns

• May 31 – Deadline for IRA, SEP, SIMPLE, Roth IRA, MSA, and education savings account trustees to file annual statements (Form 5498) with the IRS, with copies to participants


Schedule your midyear tax planning session

Most people don't include tax planning on their summertime agenda, but maybe they should. The problem with waiting until the end of the year is that you reduce the time for planning strategies to take effect. If you take the time now to schedule a midyear tax planning review, you'll still have eight months for your actions to make a difference on your 2017 tax return. In addition, proposed tax reform could be cause for additional changes to your tax plan. Planning now for 2017 taxes not only helps reduce your tax burden, but it can help you gain control of your entire financial situation. Give us a call to set up an appointment today.


IRS is now using collection agencies

The IRS is now using outside collection agencies to collect unpaid tax obligations. This new program will start slowly with only a few hundred taxpayers receiving mailings. The number will grow into the thousands later in the spring and into summer. Taxpayers who are contacted will first receive several collection notices from the IRS before their accounts are turned over to the private collection agencies. The agency will then send its own letter to the taxpayer informing them that the IRS has transferred the account to the agency. These agencies are required to identify themselves as working with the IRS in all communications.

Unfortunately, a change like this can often lead to confusion among taxpayers, which gives scammers a new opportunity to steal taxpayer dollars. The IRS is aware of the potential fraud problems and plans to continue to help taxpayers avoid confusion. The IRS reminds taxpayers that private collection companies, like the IRS, will never approach taxpayers in a threatening way; pressure taxpayers for immediate payment; request credit card information; or request payments in gift cards, prepaid debit cards, or a wire transfer. A legitimate letter from a collection agency associated with the IRS will instruct taxpayers to write a check directly to the IRS.


What to do if you are selected for a correspondence audit

The IRS is now handling many routine audit reviews through form letters called correspondence audits. These letters come from the IRS and ask for clarification and justification of specific deductions on your tax return. Common issues that trigger a correspondence audit are large charitable deductions, withdrawals from retirement accounts and education savings plans, excess miscellaneous deductions, and small business expenses.

Don't panic if you get one of these audit form letters. The IRS often uses computer programs to compare individual return deductions with the averages for a person's income level or profession. If you've received a letter, you may have simply fallen outside the averages. As long as you respond promptly, thoroughly, and with good documentation, it won't necessarily become a contentious issue. The key is to keep proper, well-organized documentation under the assumption you may need it to support your deductions. If you do this right, the correspondence audit will end with a “no change” letter from the IRS, acknowledging you've addressed their concerns. Give us a call if you receive one of these letters from the IRS. We're here to help.


Everyone knows someone who missed the boat

This year's April 18 tax deadline has come and gone, but not everyone has filed a 2016 tax return. While many have filed an extension and intend on getting their return in order, too many taxpayers who should file, simply do not. Common culprits are older, retired parents and young adults who are new to tax filing requirements.

Here are some of the reasons why it will help them to file a tax return.

Get withholdings. People who work but earn less than the required filing threshold should file a tax return so they can get back any withholdings their employer may have taken out of their paycheck.

This happens because many taxpayers focus on the income threshold required to file a tax return and forget to look at their W-2 to see if money was taken out of their paycheck. The single individual filing threshold for 2016 is $10,350 and the married filing jointly threshold is $20,700.

Get refundable credits. There are a number of refundable or partially refundable tax credits, such as the earned income tax credit and the additional child tax credit, that are only available if you file a tax return. Refundable credits are special because they come off the top of your tax bill and can even reduce it below zero. In that case you'd get the amount of the credit back in a refund check from the IRS.

Help apply for loans or financial aid. Many banks or colleges will ask to see your tax return information to help you qualify for loans or financial aid. Filing a tax return, even if you're not required to, will help support your application.

Protect yourself. There's a disturbing trend of identity thieves filing false returns to try to collect illicit refunds from the IRS. They often target people who may not usually file a return. By filing even a simple return, you can shut down this attempt at fraud by identity thieves.

You may know someone who hasn't filed and who needs help doing so. If so, feel free to pass on this article and suggest they get in touch for a consultation.


This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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03/29/17 - April Newsletter


Monthly Newsletter

APRIL 2017

What's due on April 18?

Tuesday, April 18, is a major tax deadline. Here are some of the tax filing and related deadlines:

• 2016 individual income tax returns

• Calendar-year 2016 C corporation income tax returns

• 2016 annual gift tax returns

• 2016 IRA contributions

• 2017 individual estimated tax first quarter installment

• 2013 individual tax return amendments unless the 2013 return had a filing extension


Apply for an extension if you can't file by April 18

Tax time can be stressful, but don't panic if you can't file your tax return on time. There's still time to get an automatic six-month deadline extension.

There are four ways to obtain an extension:

1. File a paper copy of Form 4868 with the IRS and enclose your payment of estimated tax due.

2. File for an extension electronically using the IRS e-file system on your computer.

3. Using Direct Pay, the Electronic Federal Tax Payment System, pay all or part of your estimated income tax due and indicate that the payment is for an extension.

4. Have your tax preparer e-file for an extension on your behalf.

Remember that even if you file for an extension, you are still required to pay any taxes you owe by the April 18 filing deadline. An extension gives you more time to file your tax return, but not more time to pay the taxes you owe. You will be charged interest on any taxes you owe and do not pay by the filing deadline. If you are unable to pay on time, contact the IRS to set up a payment agreement.

Special extension rules apply to members of the military serving in combat zones and to certain others who live outside the U.S. Give us a call so we can discuss whether or not an extension is right for your situation.


IRS interest rates remain the same for second quarter 2017

Interest rates charged by the IRS on underpaid taxes and applied by the IRS on tax overpayments will remain the same for the second quarter of 2017 (April 1 through June 30). Therefore, the rates will be as follows for individuals and corporations:

For individuals:

• 4% charged on underpayments; 4% paid on overpayments.

For corporations:

• 4% charged on underpayments; 3% paid on overpayments.

• 6% charged on large corporate underpayments.

• 1.5% paid on the portion of a corporate overpayment exceeding $10,000.


Springtime remodeling – know the tax impacts

Spring fever often influences homeowners to update and remodel. Maybe you're considering a new project, too. You may need to replace your deck or remodel your kitchen. If you have a remodeling project coming up, you should understand the tax consequences.

If your project qualifies as an improvement to your home, you'll enjoy some tax benefits. But if the project is a repair, there's generally no tax benefit. Unfortunately, it's not always easy to tell the difference.

An improvement is defined by the IRS as something that adds value to your home or extends its life. Putting in a new kitchen, building an extension or adding a new deck are considered improvements because they add value. Replacing the roof is an improvement because it extends the life of your home.

On the other hand, a repair merely keeps the home in good working order. Examples of repairs include painting the interior or exterior or replacing a few missing shingles.

You can get tax benefits by adding the cost of your home improvements to your original cost basis. That's the amount you first paid for the home. When you sell, a higher cost basis means a smaller capital gain. And generally you'll only pay tax on a capital gain greater than $500,000 ($250,000 for singles). So, the smaller your capital gain, the less likely you are to owe tax when you sell.

That's why it's important to save bills and receipts for any projects that may qualify as improvements. Include notes that describe the related home improvement. You may need to keep these receipts for years until you sell your home. But when you do, these updates could be the key to reducing a possible tax bill.

If you want to know whether your project is a repair or an improvement, please call our office.


2013 unclaimed tax refunds

The IRS announced that an estimated one million taxpayers who did not file an income tax return in 2013 could claim their share of $1 billion in unclaimed refunds for the 2013 tax year. The law gives most taxpayers a three-year time period to claim a tax refund. After that time, the money belongs to the U.S. Treasury. So if you did not file in 2013, to be safe, send your 2013 tax return via certified mail to arrive at the IRS by April 18.

 

This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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02/24/17 - March Newsletter


Monthly Newsletter

MARCH 2017

Major tax deadlines for March

March 2

• Large employers and others must furnish Form 1095-B or Form 1095-C to employees.

March 15

• 2016 calendar-year S corporation Form 1120S income tax returns are due.

• 2016 calendar-year partnerships Form 1065 income tax returns are due.

March 31

• Forms 1095-B and 1095-C due to the IRS, if filing electronically. Employers who have 250 or more employees are required to file electronically.

Reminder: Partnership tax returns due one month earlier 

Remember, partnership tax returns are now due on March 15. This is a month earlier than last year. The change is important to note, as filing the tax return late could result in unexpected penalties. The new due date now aligns filing Form 1065 with other flow-through entities like S corporation Form 1120S. If you get caught by surprise with this earlier filing date, contact us immediately.

2016 proof of health insurance: the Form 1095 wrinkle

Under the current Affordable Care Act (ACA), all Americans must have health insurance. If you receive your health insurance through the ACA marketplace or from your employer, you will receive a Form 1095. This form is used as documentation that you have adequate insurance and is used for other ACA reporting and potential tax benefits.

What's happening now

Prior to filing your tax return you should receive your Form 1095 and review it for accuracy. If you receive your health insurance through a state or federal marketplace you will receive Form 1095-A. Otherwise your version of the form will be either Form 1095-B or Form 1095-C. Unfortunately, some providers of the "B and C" versions of Form 1095 are still having trouble issuing the forms on time. Because of this, the IRS has issued a notice backing off on this "receive the form before you file" requirement. While you will still need to prove you have adaquate health insurance, the suppliers of the Form 1095-B and Form 1095-C were given until as late as March 2 to get the form out to you.

What to do

• If you have health insurance through a state or federal marketplace, you will receive a Form 1095-A. You should have already received this form, and you must have it prior to filing your tax return.

• If you receive health insurance through your employer, or another program that generates Form 1095-B or 1095-C, for 2016 only, you can still file a tax return without receiving the form. Just make sure you can prove health insurance coverage for you, your spouse, and your dependents for the year.

• Place Form 1095 in your tax files. Even though some Forms 1095-B and Forms 1095-C will be received later, you must still retain the form in your files.

• If you file your tax return and then discover an error in your reporting based on a Form 1095-B or Form 1095-C received after February 1, there is penalty relief from the IRS if you need to amend your tax return.

Remember, this applies to the 2016 tax year only. For the 2017 tax year, unless changed, you will be required to use a Form 1095 as proof of health insurance prior to filing your tax return.

Current tax law requires health insurance

During his first week in office, President Trump signed an executive order asking federal agencies to reduce the economic burden the Patient Protection and Affordable Care Act (ACA) puts on American citizens.

Unfortunately, this executive order is causing confusion. Many people are left wondering if fines will no longer be imposed or rules no longer need to be followed. Until the agencies impacted by this executive order publish their intent, act as though current laws are still in play. This includes:

• The requirement to have health insurance

• The requirement to pay a shared responsibility tax if you do not have continuous health insurance coverage

• The ability to receive a health insurance premium credit if you qualify

• Possible health insurance credits for qualifying small businesses

It's important to realize that unless tax laws actually change, you are expected to follow the laws as they are currently written.

More credits require questions

Common errors have helped to make the Earned Income Tax Credit (EIC) a major source of what the IRS calls "improper payments." The agency estimates that of the $66 billion in EIC funds paid in 2015, nearly a quarter were collected by filers who didn't qualify to receive them. To help combat this problem, the IRS now requires additional confirmation of information regarding the EIC and three new credits beginning in 2016.

Now if you claim the EIC, the Child Tax Credit (CTC), the Additional Child Tax Credit (ACTC), or the American Opportunity Tax Credit (AOTC), additional information may be requested of you.

For the CTC and ACTC, you may be asked how long your children lived with you over the past year, or whether they lived with an ex-spouse, relatives, or other guardian.

If you are eligible for the AOTC, which is a credit to defray as much as $2,500 in higher education costs for you or your children, you will need to provide Form 1098-T from the college or university. You will also need receipts for related expenses.

You may also be asked to double-check your social security numbers and dates of birth for the dependents on your return, as these are two common sources of error.

If you get more questions than usual or are asked for additional documents, be aware that it's just a new reporting requirement required by the IRS.

This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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01/26/17 -


Monthly Newsletter
 
FEBRUARY 2017

February 28

• Payers must file information returns (except certain Forms 1099-MISC with non-employee compensation payments in box 7, which are due before January 31) with the IRS. (Except for certain Forms 1099-MISC outlined earlier, the deadline is March 31 if filing electronically.)

• Forms 1095-B and 1095-C due to the IRS, if filing on paper.

March 1

• Farmers and fishermen who did not make 2016 estimated tax payments must file 2016 tax returns and pay taxes in full.

March 2

• Large employers must furnish Form 1095-B and Form 1095-C to employees.

March 15


• 2016 calendar-year S corporation Form 1120S income tax returns are due.

• 2016 calendar-year partnerships Form 1065 income tax returns are due.


March 31

• Forms 1095-B and 1095-C due to the IRS, if filing electronically. (Employers who have 250 or more employees are required to file electronically.)


Time to plan for inflation-adjusted 2017 tax numbers

Each year, certain tax figures are adjusted for inflation. While most figures are unchanged versus 2016, there is more than a 7% increase to the maximum earnings subject to social security tax. Take note of these numbers to use in your 2017 planning.

• The maximum earnings subject to social security tax in 2017 is $127,200. The earnings limit for those under full retirement age increases to $16,920 for 2017.

• The "nanny tax" threshold remains $2,000 in 2017. If you pay household employees $2,000 or more during the year, you're generally responsible for payroll taxes.

• The "kiddie tax" threshold remains $2,100 for 2017. If you have a child under the age of 19 (under age 24 for full-time students) who has more than $2,100 of unearned income, such as dividends and interest income, the excess could be taxed at your highest rate in 2017.

• The maximum individual retirement account (IRA) contribution you can make in 2017 remains unchanged at $5,500 if you are under age 50 and $6,500 if you are 50 or older.

• The maximum amount of wages employees can contribute to a 401(k) plan remains at $18,000, with an additional $6,000 if you are 50 or older. The 2017 maximum contribution for SIMPLE plans is $12,500 and and an additional $3,000 if you are 50 or older.

• The maximum you can contribute to a health savings account remains unchanged in 2017 at $3,400 for individuals and $6,750 for families. The catch-up contributaion if you're age 55 or older is $1,000.


Making the most of your tax refund

If you are expecting a tax refund, you might consider investing your refund or using it to increase your financial security. While everyone's needs are different, here are some optional uses of your refund that may work for you.

• Contribute your refund to your employer's 401(k) plan. If your employer offers a matching contribution, that's an immediate return on your money in addition to deferring taxes on your contribution. And, funds in the plan grow free of tax until withdrawal.

• Use your refund to pay down credit card balances – you'll earn a guaranteed double-digit return.

• Consider investing your refund in your child's education. Both Section 529 college savings plans and education savings accounts offer tax-advantaged ways to save for college costs.

• Take full advantage of your IRA options for retirement savings. Both Traditional and Roth IRAs are great ways to save for retirement.

• If you've maximized your retirement and education savings, and your credit cards are under control, put your refund in diversified investments that make sense for your age and financial situation.

• Ask yourself if getting a big refund every year is a smart idea. Would you rather invest your money during the year instead of making an interest-free loan to the government? If so, consider filing an updated Form W-4 with your employer.

Contact our office if you have questions about getting more out of your tax refund.


Can bartering be an effective business strategy?

Have you ever thought about bartering as a way to get the goods and services you need for your business? A growing number of businesses are finding ways to use the bartering system as a means to avoid using up their company's cash.

A simple bartering arrangement involves two parties trading items of similar value. For example, let's say your business owns a building located next to a telephone company. An internet service provider might be interested in storing its services in an unused portion of your basement. Instead of paying rent, they offer to provide you with a high-speed internet connection and website.

Complicated bartering may now take place through bartering clubs that give members credits for items or services they contribute. Members can then use the credits to pay for goods or services offered by other club members. This service offers a convenience to businesses, as it can be difficult to find the businesses that offer what you are looking for when searching on your own.

It's important to note that there are income tax consequences to bartering. To be safe, view your trades as if cash changed hands, since the goods and services are valued for tax purposes at their fair market values and taxed accordingly. Also, a bartering arrangement does not always result in a deduction immediately equal to the income you recognized. You might provide a service and recognize income immediately in exchange for some equipment you will end up depreciating over several years.

Please call us if you need more information about implementing bartering as a strategy to help your business.

This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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01/10/17 - January newsletter


Monthly Newsletter

JANUARY 2017

Mark your calendar: First quarter 2017 tax deadlines

Tax return filing season has arrived, which means it's time to mark your calendar for these 2017 tax deadlines.

* January 17 – Due date for the fourth and final installment of 2016 estimated tax for individuals (unless you file your 2016 return and pay any balance due by January 31).

* January 31 – Employers must furnish 2016 W-2 statements to employees, and send copies to the Social Security Administration (both paper and electronic).

* January 31 – Payers must file all copies of 2016 Forms 1099-MISC with non-employee compensation in Box 7. For these forms, the January 31 due date applies to both paper and electronic filing.

* January 31 – Employers must generally file 2016 federal unemployment tax returns and pay any tax due.

* February 28 – Payers must file information returns (except certain Forms 1099-MISC) with the IRS. (Except for certain Forms 1099-MISC, March 31 is the deadline if filing electronically.)

* March 1 – Farmers and fishermen who did not make 2016 estimated tax payments must file 2016 tax returns and pay taxes in full.

* March 2 – Large employers must furnish Form 1095-B and Form 1095-C to employees.


Note the new due dates for Forms W-2 and 1099

Did you spot the new due dates on the tax calendar? As you begin your January payroll preparation, take into account earlier due dates for two common information reporting forms.

Forms W-2 for 2016 are due January 31 for all copies. In the past, you had to provide Forms W-2 to your employees by January 31. Now the January 31 deadline also applies to copies submitted to the Social Security Administration.

The due date for filing all copies of 2016 Forms 1099-MISC with non-employee compensation in Box 7 is January 31, 2017. For these forms, the January 31 due date also applies to both paper and electronic filing.


IRS extended the due date for Forms 1095

When you're an applicable large employer (generally, when you employ 50 or more full-time workers and equivalents), you're required to provide information about health coverage to the IRS and to your employees. The IRS extended the date on which two of these forms are due to your employees. Instead of being due January 31, Form 1095-B, Health Coverage, and Form 1095-C, Employer Provided Health Insurance Offer and Coverage,  are now due March 2, 2017. There is no change to the February 28, 2017, due date for filing paper forms with the IRS, nor the March 31, 2017, due date for filing electronically.


2017 financial shape up: Small steps toward big goals

Shaping up your finances in 2017 may seem like a big goal, perhaps even too daunting. But if you take one small step at a time, these small steps will add up. Here are suggestions.

* Shift out of automatic. Have you established automatic bill pay at your bank or service provider, or automatic charges to your credit card?

Small step: Look for payments for goods or services you no longer use, such as recurring monthly subscriptions, and cancel them.

Big goal: Reduce total expenses and increase savings.

* Take the urgency out of emergency. Sure, you know that having an account with enough funds specifically earmarked for emergencies is a good idea. But the amount you need to save seems overwhelming. The good news is you don’t have to immediately fund six months of living expenses.

Small step: Set up a separate account with automatic deposits of $5 or $10 per paycheck, perhaps with funds you’ve redirected from those unused recurring monthly subscriptions.

Big goal: An emergency fund with enough cash to cover six months of expenses.

* Give yourself credit. Maybe you intend to pay off your credit card debt. But do you have a plan? Knowing where you stand is the first step in getting to where you want to be.

Small step: Make a list of your cards, the balances, the minimum payments, and the interest rates.

Big goal: Eliminate finance charges by being able to pay off your balance each month.

* Retire your excuses. Does your employer offer a retirement plan? If so, you may be leaving money on the table.

Small step: Find out what amount is on offer as "matching" funds. That’s money your employer will add to your account when you make contributions.

Big goal: Maximize your retirement contributions.

Small steps can lead to big improvements in your financial well-being. Contact us for more tips.


Standard mileage rates go down for 2017

Have you noticed the price of gas? So has the IRS – and the reimbursement rate for business mileage has gone down as a result. The new rate for 2017 is 53.5¢ per mile, down from the 2016 rate of 54¢ per mile.

The rate for medical and moving mileage also decreased. Effective January 1, the standard rate is 17¢ per mile, down from last year’s 19¢. The charitable mileage rate remains 14¢.


Some federal income tax refunds may be temporarily delayed

In general, you can expect your federal refund to be issued approximately 21 days after your electronically filed tax return has been accepted. However, identity theft is still a major problem, and the IRS continues to implement new strategies to protect taxpayer data. For example, if you claim the Earned Income Tax Credit or Additional Child Tax Credit on your 2016 individual federal income tax return, your refund will be held until February 15.


This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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12/06/16 - December Newsletter


MONTHLY NEWSLETTER

DECEMBER 2016

1099 Reporting Deadline is Now January 31st for the filing with Social Security

For all of our clients- Be Notified that 1099 Reporting has now changed and the deadline is January 31st! Previously , everyone still had to send the 1099 to the recipient, but you had until Feb 28th to mail in the offical copyand until March 31st to e-file it.
Now the deadline is January 31st for both the recipient portion and the filing to the Social Security Administration.


Labor Law Changes on Hold

A federal judge on Tuesday blocked an rule to extend mandatory overtime from taking effect. The rule, issued by the Labor Department , was to take effect Dec 1 and would have doubled to $47,500 the maximum salary a worker can earn and still be eligible for mandatory overtime pay. The new threshold would have been the first significant change in four decades. This could still be overruled and put into effect in the future, so watch out for additional developments.

 

Tax reminders

* December 15 – Due date for calendar-year corporations to pay the last installment of 2016 estimated income tax.

* December 31 – Deadline to complete 2016 tax-free gifts of up to $14,000 per recipient.

* December 31 – Deadline for paying expenses you want to be able to deduct on your 2016 income tax return.

Be prepared for a higher social security wage base in 2017

For 2017, the wage base for withholding social security tax from wages has increased to $127,200, up from $118,500 in 2016. The “wage base” is the amount of wages on which employers and employees must pay the 6.2% social security tax. The increased wage base means an additional $8,700 of your income is taxed.

The wage base does not affect the 1.45% Medicare payroll tax. Medicare tax is assessed on all wages and net income from self-employment, including amounts above the base. The 0.9% Additional Medicare Tax is not affected either. That tax applies to your compensation in excess of $250,000 when you’re married filing jointly ($200,000 when you’re single).

The federal payroll tax rate for employers and employees remains 7.65%, with social security tax withheld and paid at 6.2%, and Medicare tax withheld and paid at 1.45%.

Please contact us for more information.


Check your basis in your S corporation before the end of the year

Losses can be hard to take – so if you think your S corporation will show a loss for 2016, now’s the time to plan to make sure you’ll get the full tax benefit.

The problem. The amount of the business loss you can deduct on your individual income tax return is limited to your basis in your S corporation stock and certain corporate debt. This is true even if the loss reported to you on Schedule K-1 is greater than your basis.

Here’s how basis works. Typically, stock basis in an S corporation begins with the capital contribution you make to get the company started. Note that when you receive stock as a gift, an inheritance, or in place of compensation, your initial basis is calculated differently.

At the end of each taxable year, your stock basis is adjusted to reflect your business’s operating results. Taxable income increases your basis, while losses reduce it. Basis is also increased by capital you put into your company and reduced by amounts you withdraw, such as distributions.

After your stock basis reaches zero, you may be able to deduct additional losses, up to the extent of your debt basis. That’s the basis you have in loans you make to your company. However, once your stock and debt basis are both reduced to zero, losses incurred are suspended, which means you get no current tax benefit. You can generally take suspended losses in future years, when you again have basis.

The solution. You can increase your basis – and your ability to take losses – by adding capital or making loans to your business.

Please call to discuss how basis affects your individual income tax return. We can guide you through the rules.


No change to nanny tax threshold

The social security coverage threshold for domestic employees, including nannies, will remain at $2,000 for 2017, the same as the 2016 threshold. If your household workers earn less than $2,000, you do not have to pay social security or Medicare taxes on wages paid to those employees. When you pay your household employees more than the threshold, you’re required to pay social security tax of 6.2% and Medicare tax of 1.45%. The $2,000 threshold applies separately to each employee.

Are you up-to-date on the tax rules affecting your 2016 return?

Here’s a quick review of some of the rules you can expect to encounter when you get ready to prepare your 2016 federal income tax return.

Income tax rates. For 2016, ordinary federal income tax rates range from 10% to 35% unless your taxable income exceeds $415,050 when you’re single or $466,950 if you’re married filing jointly. The rate on income above those amounts is 39.6%.

Tax breaks that are now permanent. Three tax breaks you’ll be able to take on your 2016 return, and on future returns: 1) The optional deduction for state and local sales tax in lieu of state and local income tax; 2) the $250 deduction for classroom supplies if you’re an educator; and 3) IRA-to-charity transfers of up to $100,000 when you’re 70½ or older.

Itemized deductions and personal exemption phase-outs. For 2016, itemized deductions and personal exemptions are limited when you file as single and your adjusted gross income (AGI) is above $259,400. The limitation begins with AGI above $311,300 for married couples filing jointly.

Alternative minimum tax. The exemption amount for 2016 is $53,900 for singles and $83,800 for married filing jointly.

Capital gains and dividends. Long-term gains are generally taxed at 15%. The rate is zero percent if you’re in the 10% and 15% ordinary income brackets, and 20% when you’re in the 39.6% ordinary income bracket.

Affordable Care Act surtaxes. You’ll pay a Medicare surtax of 0.9% on wages and self-employment income exceeding $200,000 when you’re single and $250,000 when you’re married filing jointly. For unearned income, you’ll pay the 3.8% net investment income tax when you’re single and your modified AGI exceeds $200,000. If you’re married filing jointly, the net investment income tax is imposed when your modified AGI exceeds $250,000.

If you have questions about your 2016 tax return, please call.


Thank you and best wishes for a joyful, prosperous 2017

Thank you for giving us the opportunity to serve you. We appreciate the confidence you have placed in us, and we value your business and referrals.


This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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11/01/16 - November Newletter


NOVEMBER 2016

Save yourself some stress. Start your year-end tax review now

An important part of our service to you is to help identify actions you can take before year-end to minimize your personal 2016 federal income tax bill. Accelerating or delaying income and deductions, contributing to retirement plans, and taking investment losses are just a few of the strategies you might want to consider. Here's a checklist to help you get started.

* Max out your 401(k) before year-end. For 2016, you can set aside $18,000 if you're under age 50. If you're 50 or older, you can contribute $24,000.

* Get your investment planning in order. Year-end sell decisions, either to rebalance your portfolio at the lowest tax cost or to offset gains and losses, are only one aspect of investment planning. Another is keeping good records for the reinvested dividends of stocks you sell in 2016. Reinvested dividends add to your cost basis and reduce taxable gain or increase the deductible loss on the sale. Finally, consider the wash sale rule. This rule disallows a current-year loss when you purchase substantially identical securities within a 61-day period. If you plan to sell stocks to secure a loss, and intend to buy the stock back, don't wait until the last moment.

* Make gifts before year-end. The use-it-or-lose-it tax-free gifting allowance is $14,000 per donee for 2016. Remember, gifts to individuals are not tax-deductible.

* Contribute to your Health Savings Account. Within limits, contributions are tax-deductible and can be used tax-free to pay unreimbursed medical expenses.

* Keep an eye on the "kiddie tax." This tax on your dependent child's unearned income in excess of certain limits applies when your child is under age 19 (under age 24 if a full-time student).

We have more planning strategies to save you tax dollars. Contact us for a year-end review.


Insurance enrollment begins this month

Beginning this month, you can sign up for a new 2017 health insurance policy on the health insurance Marketplace. You can also change or renew the policy you purchased during the last enrollment period. Even if your current policy has an automatic renewal feature, you'll want to verify that you're getting the best deal, and that you are still eligible for the federal premium tax credit.

What if you didn't sign up last winter and didn't have health insurance coverage in 2016? You may owe a penalty on your 2016 federal income tax return. The penalty is calculated in one of two ways: as a percentage of your income, or on a per-person basis. You pay whichever is higher.

For 2016, the penalty is 2.5% of your annual household income, up to a maximum of the national average premium for a Bronze plan. The per-person penalty is $695 per adult and $347.50 per child under 18 (up to a maximum per-family penalty of $2,085).


Can your business survive these seven potential disasters?

Disasters, natural or otherwise, could ultimately lead to your company's demise. Fortunately, advance planning can keep you on track. Here are seven scenarios to be prepared for.

1. A natural disaster. To paraphrase the old saying, you can talk about the weather, but there's not much you can do about it – except have a plan in place in the event a natural disaster damages your business premises. Two tips: Maintain adequate insurance and store valuable business data at a secure off-location site.

2. A key employee quits. Cross-training can avoid business interruptions if a key employee leaves unexpectedly. You might also want to consider asking key employees to sign a reasonable non-compete agreement to protect confidential information. Typically, these agreements prohibit an employee from working for a competitor for a certain period.

3. An employee embezzles company funds. To safeguard your business assets, divide responsibilities so one person doesn't have complete control over the books. Set up a system of checks and balances.

4. Your biggest customer leaves. To keep your business from going under, update your marketing plan, stay in touch with former customers, establish an emergency budget, and diversify your revenue stream.

5. You become disabled. "Key-person" disability insurance can provide funding to keep your business afloat. The policy may also cover employees who are vital to operations.

6. Your company or partnership splits up. Draft a buy-sell agreement to ensure a smooth transition due to the sale of a business interest, including a forced sale on the death of one of your shareholders or partners. The agreement can establish the terms of a buy-out and set a value for the respective business interests.

7. Your computer system crashes. Extra hardware, such as tablets or laptops, regular off-site backups, and cloud storage for important documents can avoid a crisis when your computer fails.


Stay ahead of the deadline for 2016 required minimum distributions

If you're over 70½ and are required to take distributions from your IRA or other retirement account, remember that you must take your 2016 required minimum distribution by December 31. Due to year-end holidays and transfer time constraints, getting the process started now can avoid a last-minute rush, as well as a steep penalty of 50% of the amount not taken.

If this year’s distribution is your first, you have a one-time option of waiting until the beginning of April 2017 to start taking withdrawals. Just remember, waiting means you'll have two taxable distributions next year.

Contact us for details.


Time to renew Individual Taxpayer Identification Numbers

Individual Taxpayer Identification Numbers (ITINs) are nine-digit numbers issued by the IRS so certain taxpayers who do not have a social security number can file a tax return. According to the IRS, approximately 11 million people have received an ITIN. Now, some of these numbers may need to be renewed. ITINs that have not been used on a federal income tax return for three consecutive years will expire on December 31 of the third consecutive year. Under current rules, ITINs not used on a tax return during 2013, 2014, or 2015, will expire on December 31, 2016. In addition, ITINs issued before 2008 will expire on December 31, 2016, even if they have been used on a tax return.


This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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10/07/16 - October Newsletter


OCTOBER 2016

Tax filing reminders

* October 17 – Deadline for filing your 2015 individual tax return if you requested an automatic six-month extension of the April deadline.

* October 17 – If you converted a regular IRA to a Roth in 2015 and now want to switch back to a regular IRA, this is the deadline to do so without penalty.

* October 17 – This is the last day to fund your Keogh or SEP plans if you requested an extension of time to file your tax return.


Plan ahead for year-end business tax savings

As the end of the year approaches, turn your attention to ways you can reduce your 2016 tax liability. Here are suggestions.

1. Business equipment. Take advantage of end-of-year sales on business equipment. For 2016, a maximum Section 179 deduction of $500,000 and 50% bonus depreciation are generally available for qualified property placed in service anytime during the year. Be aware that special limits apply to vehicles.

2. Business trips. When you travel to wrap up year-end business deals, you can write off your expenses – including airfare, lodging, and 50% of the cost of meals – if the primary motive of the trip is business-related. Costs attributable to personal side trips are nondeductible. If you travel by car, deduct actual business-related auto costs or a flat rate of 54 cents per mile (plus tolls and parking fees).

3. Entertainment and meals. Generally, you can deduct 50% of the cost of entertainment and meals that precede or follow a "substantial business discussion." For example, you might treat a client to dinner and drinks after completing a contract earlier in the day. In this case, you can include 50% of the expenses for the client and yourself, as well as for spouses and significant others.

4. Company outings. Generally, deductions for business entertainment and meals are limited to 50% of the cost. However, if you throw a company-wide holiday party before year-end, you might be able to deduct 100% of the cost when you meet certain requirements, such as inviting your entire staff.

5. Hire your child. Does your teenaged child want a job to help pay for holiday gifts? If you hire your child, reasonable wages paid for actual services rendered are deductible, the same as wages of other employees. The wages will be taxable to your child at your child's tax rate, which may be lower than your rate or that of your business.

6. Job credits. When your business hires workers from certain "targeted groups," such as veterans and food stamp recipients, you may be able to claim the Work Opportunity Tax Credit. The maximum credit is generally $2,400 per qualified worker.


New procedure for 60-day rollover errors

Did you inadvertently miss the 60-day time limit for making an IRA or retirement plan rollover? You may be able to avoid taxes and possible penalties by notifying your account trustee with a "self-certification."

When you take a distribution from your IRA or qualified plan with the intention of depositing it, or "rolling it over," into another IRA or qualified plan, the 60-day rule says you're required to complete the rollover within 60 days of receiving the distribution. In the past, when you missed the deadline, you generally had to request relief from the IRS. That meant paying a fee and going through a process to obtain a written statement waiving the rule.

Now, the IRS says that in some cases you can "self-certify" by submitting a written letter to your financial institution or trustee explaining why you missed the 60-day deadline. Your error must be one of eleven allowable reasons, such as death or serious illness in your family, severe damage to your principal residence, or misplacing and never cashing the distribution check. Contact us for more information.


Tax relief for Louisiana storm victims

Victims of the August storms and floods in Louisiana have until January 17, 2017, to file individual and business federal tax returns with due dates on or after August 11, 2016. Taxpayers can also choose to claim casualty losses on current or prior-year federal income tax returns in order to obtain an earlier refund. Contact us for details.


Smart financial decisions are simple, but not easy

Seeing purchases your friends post on social media can leave you envious – and might also foster a desire to buy a similar item. That can be a problem if your goal is long-term financial freedom, because spending money on items you may not need can derail your plans. Three simple habits can help you stay on track.

1. Live below your means. Living below your means requires that you discover what those "means" are. To find out, use a budget app, an online financial site, or old-school pencil and paper to track your income and expenses over a month or more. You'll learn how much disposable income you receive and what your spending habits are, and you might be surprised at how your money habits hurt your finances. By spending less on nonessentials, you'll be able to save for the future and develop long-term wealth.

2. Save for emergencies. By setting aside money in easily accessible accounts, you avoid racking up credit card bills when unexpected expenses occur. Such expenses could include your out-of-pocket costs for trips to the emergency room, repairs to the family car, or patching a hole in the roof. A reserve fund can also help you survive periods of unemployment without incurring additional debt.

3. Use debt wisely. Necessary debt can generally be linked to appreciating assets, such as your home mortgage, or assets used to generate income, such as a basic car for getting to work or school. Unnecessary debt, on the other hand, might include routine credit card charges or installment loans for depreciable items. Ask yourself whether you can pay off new debt from next month's income.

Making smart financial decisions isn't glamorous or easy, and requires more than a little self discipline. Your reward for persevering: substantial long-term benefits. If you'd like additional suggestions for achieving financial freedom, contact our office.


Attention small business owners! 

Year-End is right around the corner and Hayes & Associates can assist you in determining if you are on track with profits and taxes.  Be proactive and call our office if any of your activity has changed or if you are unsure of your tax liability status to set an appointment.

This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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08/30/16 - September Newsletter


SEPTEMBER 2016

Tax filing reminders

* September 15 – Third quarter installment of 2016 individual estimated income tax is due.

* September 15 – Filing deadline for 2015 tax returns for calendar-year corporations that received an automatic extension of the March filing deadline.

* September 15 – Filing deadline for 2015 tax returns for partnerships that received an extension of the April filing deadline.

* October 1 – Generally, the deadline for businesses to adopt a SIMPLE retirement plan for 2016.

* October 17 – Deadline for filing 2015 individual tax returns on extension.

* October 17 – Deadline for reconverting a Roth IRA to a regular IRA.


IRS sets 2017 HSA limits

The IRS announced inflation-adjusted limits for deductible contributions to health savings accounts (HSAs) for 2017. For family coverage, the contribution limit will be $6,750, and for individual coverage, the limit will be $3,400. If you're age 55 or older, you can contribute an additional $1,000 during 2017. HSAs combine high-deductible health insurance plans with pretax contributions to a healthcare savings account. The savings account funds can be withdrawn tax-free to pay unreimbursed medical expenses.

FSA or HSA? Choosing between health accounts

Are you confused about your choices for paying medical expenses under your employer's benefit plan? Here are differences between two types of commonly offered accounts: a health savings account (HSA) and a health care flexible spending account (FSA).

Overview. An FSA is generally established under an employer's benefit plan. You can set aside a portion of your salary on a pretax basis to pay out-of-pocket medical expenses. An HSA is a combination of a high-deductible health plan and a savings account in which you save pretax dollars to pay medical expenses not covered by the insurance.

Contributions. For 2016, you can contribute up to a maximum of $2,550 to an FSA. Typically, you have to use the funds by the end of the year. Why? Unused amounts are forfeited under what's commonly called the "use it or lose it" rule. However, your employer can adopt one of two exceptions to the rule.

If you are single, the 2016 HSA contribution limit is $3,350 ($6,750 for a family). You can add a catch-up contribution of $1,000 if you are over age 55. You do not have to spend all the money you contribute to your HSA each year. You can leave the funds in the account and let the earnings grow.

Earnings. FSAs do not earn interest. Your employer holds your money until you request reimbursement for qualified expenses. HSAs are savings accounts, and the money in the account can be invested. Earnings held in the account are not included in your income.

Withdrawals. Distributions from both accounts are tax- and penalty-free as long as you use the funds for qualified medical expenses.

Portability. Normally, your FSA stays with your employer when you change jobs. Your HSA belongs to you, and you can take the account funds with you from job to job. That's true even if your employer makes contributions to your HSA for you.

Because you generally can't contribute to both accounts in the same year, understanding the differences can help you make a decision that best fits your circumstances. Contact us for help as you consider your benefit choices.

Could you qualify for a partial home-sale exclusion?

Generally, when you're single, you can exclude up to $250,000 of gain from the sale of a home ($500,000 if you're married filing jointly) when the home is used as a primary residence for two years in a five-year period that ends on the date of sale. Tax law also provides for a partial exclusion when the time and ownership requirements are not met, if the primary reason for the sale is unforeseen circumstances. "Unforeseen" means events you could not have reasonably anticipated before buying the home and moving in. How flexible is the definition? Recently, the IRS allowed a partial exclusion when a family living in a two-bedroom, two-bath condominium gave birth to another child and needed a larger residence before the two-year rule was met.


Consider these financial tips in troubling economic times

Reacting badly to bad national economic events can turn a challenging situation into a devastating one. When troubling headline news comes your way, consider these tips before making financial moves.

* Don't be an average investor. Economists have noted that even in good times average investors usually fail to benefit fully from a market upswing. The reason: not staying invested for the duration of the cycle. Average investors tend to bail out when the future looks troubling, in essence "locking in" losses. Good investing techniques can be as much about mental toughness as about financial acumen.

* Focus on costs. Periods of economic uncertainty are a good time to focus on costs, especially in a low-return environment. Make sure you're not overpaying for fund management or sales commissions. And be mindful of tax costs, which can have a negative effect on overall returns. If you decide to sell a stock in a taxable account, consider choosing one you have held for more than one year to qualify for the long-term capital gain tax rate. A market downturn might provide an opportunity to harvest capital losses to help offset previous gains.

* Revisit your tax planning. Unfavorable economic news might require a tweak to your tax planning. Lower anticipated income could justify reduced estimated tax payments or income tax withholding. If you're retired, consider deferring retirement account withdrawals or changing the type of investments you were planning to liquidate. A review of your tax situation is always a smart move.

The bottom line: Don't make a bad economic situation worse. Contact our office for help in navigating the current financial environment.

Exempt Organization’s Sale Of Items Was Unrelated Trade Or Business, IRS Concludes

A recent IRS ruling has the IRS concluding that a sale of various items was unrelated trade or business income (see below).  At Hayes & Associates, we want our nonprofit clients to be aware of cases such as this, so that you don’t find yourself in a similar situation.  Take a moment to read the article below to review your organization’s activities to consider whether they are taxable as unrelated activities that do not contribute directly to your organization’s exempt purpose.  If you would like to consult with us on any revenue streams, we would be happy to assist you.

TAM 201633032
The IRS has concluded, in a just-released and heavily-redacted technical advice memorandum (TAM), that a tax-exempt organization’s sale of unidentified items was an unrelated trade or business under Code Sec. 513. Therefore, the income from the business was taxable under Code Sec. 511 and 512 as unrelated business taxable income.

Take away. Income from an exempt organization’s regularly conducted business is taxable unless the income-producing activity is substantially related to the organization’s exempt purpose. The mere production of income to support an organization’s exempt purposes is not a related activity. The activity must contribute importantly to the organization’s achievement of its exempt purpose. To make this determination, the IRS looks at the facts and circumstances. Here, the IRS determined that the organization’s sales did not contribute importantly to its educational purpose of preserving and conserving its target items.

Background
A Code Sec. 501(c)(3) organization’s purposes included preserving a category of items so that they do not become extinct and can be used in the future. The organization researches, acquires, and disseminates information and educational materials to promote awareness of the problems of the unidentified item, and provides publications as educational tools to parties who want to conserve the unidentified items.
The organization’s bylaws state that it is conserving and promoting America’s diverse but endangered heritage of unidentified items. Its activities include collecting, preserving and storing items from donors, particularly certain families.
The organization sells items through its catalogs, both print and online, and through unrelated retail outlets. The organization’s catalogs are similar to commercial catalogs. The organization’s manager and preservation staff determine which items to offer for sale. About 20 percent of the items sold are produced by employees of the organization. The remainder are produced under contract. Items are sold in standard packages that provide one or two sentences on the items and identify the organization in small print on the back.

IRS analysis
The organization derives income from sales to the public, conducted continuously through print and online catalogs and through sales at retail outlets. The IRS noted that the sales did not lose their identity as a separate business merely because they are carried on in conjunction with the organization’s exempt activities. The organization claimed that its sales contribute importantly to its exempt purposes because they increase awareness of the organization’s educational goals. In Rev. Rul. 73-104, the IRS concluded that an art museum’s sale of greeting cards that displayed works of art stimulated public interest in art and contributed to the museum’s educational purposes.
The IRS disagreed. The organization’s sale of items does not impart any information. While the organization’s overall purposes may be charitable, the selling of large quantities of particular items does not assist the organization’s preservation goals. The IRS noted that there are already commercial companies selling the items. The organization sells items to the general public, not to people working for preservation of the items. Finally, the products sold do not result from the performance of exempt functions.

This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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08/04/16 - August Newsletter


Monthly Newsletter

AUGUST 2016

Iowa Office Relocation

We are pleased to announce the relocation of our Iowa branch office to 134 W. Broadway in the heart of downtown Council Bluffs, IA.   The new 2,184 square foot office was designed and renovated to maintain the historical features of the property while adding a taste of modern using an open-air office design for its workstations and common area.

 
“The new location in downtown Council Bluffs is conveniently positioned to better serve the needs of our growing individual and business clientele in Iowa,” said Brad Yoder, a partner with the firm.    “We are excited to offer our clients an easy to access facility with capacity that is greatly needed during tax season”, added Stacy Funk, the site Manager.    The new facility has entry access from Broadway and also provides ample parking just in the rear of the facility.  Hayes and Associates obtained its first Iowa office in 2012 as part of a business acquisition.  They have not only maintained the majority of the inherited clientele but the firm continues to grow. The organization is also actively engaged in the Iowa community with representatives involved in numerous charitable and nonprofit causes.


Ribbon cutting for the new facility was held July 27th with more than 150 guests in attendance including Mayor Matt Walsh and representatives from the Iowa Chamber of Commerce, Individual clients, Business clients and community partners from both Iowa and Nebraska.
For more information about the firm and its services, contact the office, 134 West Broadway, Council Bluffs, IA  51503, 712-322-5503 (office), 712-322-8631 (fax), or visit
www.hayes-cpa.com.

IRS grants more time to benefit from this tax credit

When you hire workers from specified groups that typically experience high unemployment, you may qualify for a tax break known as the Work Opportunity Tax Credit. You typically have 28 days after the worker’s first day to complete paperwork for this federal income tax credit. However, for certain workers hired between January 1, 2015, and August 31, 2016, the 28-day rule has been extended until September 28, 2016. The extended date gives you an opportunity to review personnel files for credit-eligible employees. Contact us to learn how the credit can help save tax dollars.


The part-year withholding method can increase your paycheck

If you’re starting your first job this fall, you probably want to avoid overpaying your federal income tax. Consider asking your employer to use a special formula known as the part-year withholding method to calculate the amount of federal income tax withheld from your wages. To be eligible, you have to use the calendar year as your tax year, and you must not expect to be employed for more than 245 days during the year.


Get organized and improve your business

The art of placing information in a logical order, more prosaically called organization, is key to the efficiency of your business, which can in turn increase productivity. Fortunately, you can master the art of organization by making habits out of simple techniques. Here are suggestions.

* Organize your tax records. Create a filing system to collect the documentation needed to take advantage of tax breaks, such as credits for hiring certain workers and accelerated depreciation methods for business assets. For example, for asset purchases, retain receipts, and make sure the details include the type of equipment, the date and amount of the purchase, the date you began using the equipment, and a schedule of additional related costs, such as set-up costs, that might be eligible for capitalizing. For ordinary deductible business expenses, such as car expenses, travel costs, professional magazines, meeting and association fees, and seminar and training expenses, establish an electronic or paper filing system to store receipts.

* Organize your electronic records. Is your email cluttered with so many messages you don’t know where to look for what you need? Aim to make your inbox hold only the current day’s emails. Delete non-critical emails. Electronically sort critical messages into folders to eliminate time-wasting searches. To reduce the daily deluge, cancel automatic messages that are no longer useful.

* Organize your paper records. Are your file cabinets – the ones that hold real paper – stuffed to overflowing? Review and shred outdated documents. If the information might be needed later, scan it into computer files. Consider using document management software. Organize your desk by shredding documents with sensitive information and scanning older papers into computer files. The most efficient method is to scan, file, and shred as soon as you are finished with a document. If you don’t have time, consider assigning document organization to specific employees and making it a task to be completed on a daily basis.

* Organize your future. Address succession planning for your critical employees well before a crisis occurs. Document daily responsibilities, skills needed to complete essential tasks, and the location of all paper and electronic files. Appoint and cross-train backup staff.

You’re already busy, and you may believe that organizing your records will take more time than you have. But think about why you feel as though your day is overloaded. Is one reason because you’re spending your efforts searching through a disorganized office? In that case, mastering the art of organization may save you not only time, but money as well. Contact us for more suggestions.


Avoid penalties by keeping accurate information return records

Did you file all required information returns for 2015 and earlier years? Information returns include Forms 1099, the forms you complete when you pay for certain business expenses such as rent or services performed by an independent contractor. August is a good time to review your filing compliance because this is the time of year the IRS typically begins sending notices for prior year information returns with missing and incorrect taxpayer identification numbers, and the penalties for errors continue to rise.

If you get a notice, you may be able to get penalties waived by proving you acted in a responsible manner before and after the error. One way to do this is to document your request for a taxpayer identification number from the vendor or other payee. You may also need to begin withholding income tax known as backup withholding from payments. Contact us for more information.


Plan for the fate of your digital assets

An important step in estate planning is creating an inventory of your assets. Your executor – the person you designate in your will to carry out your last wishes – uses the inventory to make sure all of your property passes to your heirs. That includes your digital assets. Documenting these along with more traditional effects can help ensure your final wishes are honored and your estate is administered correctly. Here’s what to keep in mind as you compile a list of your digital assets.

* Passwords. In order to review financial accounts with banks, brokerages, or other businesses, your executor will need your current password. If you protect passwords with an encrypted program, include the master access key. Most importantly, keep your list updated when you change passwords.

* Be comprehensive. Add web addresses, user names, and passwords for non-financial accounts such as your email and online storage sites to your inventory. Why? These accounts can be essential for retrieving invoices, statements, and other paperwork for which you’ve chosen electronic-only delivery.

* Remember the non-digital. The physical assets you use to access your digital data include your phone, tablet, and computer. For these assets, your executor will need passwords and file names. Also list the location and encryption information for off-site or standalone storage devices such as flash or other external drives.

Individual states are moving toward adopting laws that allow your estate representative to manage your digital assets. If your state has not yet taken steps to address the issue, you may be able to add wording to your will or have your attorney prepare an authorization for release of the information. In either case, keeping track of your online financial activity can make assembling an inventory of your digital assets a simple process. Please contact us for more information and tips.

 

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06/22/16 - July Newsletter


JULY 2016

Will you be ready for the new overtime pay rules?

In May, the Department of Labor updated the rules for paying overtime. Under the new rules, salaried employees who earn less than $913 per week ($47,476 per year) will be eligible for overtime pay. That's double the annual exempt amount of $23,660 from previous rules. In addition, the total annual pay for an exempt highly compensated employee is $134,004 (up from $100,000 previously). These amounts will be updated automatically every three years beginning in 2020.

The changes take effect December 1, 2016, which means you need to begin reviewing your payroll now, as penalties and fines can be assessed for noncompliance. One important step is to begin tracking hours for your salaried employees. You'll also want to review your payroll practices so you can determine the best options for your business as you get ready to implement the new rules.

Follow these steps to a comfortable retirement

Planning can help you achieve a comfortable retirement. Here are five suggestions to consider.

1. Start a retirement savings program as early as possible and contribute regularly. The longer and more consistently you contribute, the larger your nest egg will become, even before the compounding provided by growth and earnings. Regular, reasonable deposits wisely invested will easily outgrow sporadic and insignificant contributions.

2. Deposit your funds in tax-deferred accounts. Invest in tax-deferred accounts to the greatest extent possible. If your employer offers a tax-deferred plan, such as a 401(k), contribute as much as you can, particularly if the plan provides matching funds. Investigate individual options, such as IRAs, for additional planning opportunities. Why? One of the advantages of tax-deferred accounts is that investments that aren't reduced by taxes will grow and compound at a faster rate. Other advantages include the ability to control your withdrawal rate and the amount of any accompanying tax, and the opportunity to postpone recognition of taxable income until retirement, when you'll likely be in a lower tax bracket.

3. Establish an investment plan. As funds within your retirement accounts accumulate, you'll have to decide how to invest them. Establish an investment plan as early as possible. Then follow your plan consistently, revising only enough to keep matters on course, correct for deviations, and respond to unexpected events.

4. Track your portfolio and rebalance as needed. Maintain a balance among growth, income, and short-term investments, and adjust the ratios as you age. The standard rules of thumb: When you're under forty, consider investing more heavily in moderately aggressive growth vehicles. In your forties and fifties, you might want to become more conservative, shifting your balance toward income-generating investments such as high-dividend stocks.

5. Once you're retired, plan withdrawals so your funds will last the rest of your life. To avoid running out of funds, plan for a long retirement. Postpone withdrawals as long as possible, and pay them out carefully. Calculate a workable percentage to withdraw from your portfolio on an annual basis. Assume your funds will need to last at least thirty years. Continue to revisit your investments each year to monitor and rebalance as needed.

A successful retirement plan requires forethought, discipline, and monitoring. Wherever you are in the process, we're here to help.


Are you at risk of an audit?

According to recent statistics, budget cuts, staff attrition, and a heavy workload for IRS employees mean your chances of undergoing a tax audit are less than 1%. Does that sound like a non-event to you? Don't be lured into a false sense of security. The statistic is a blended rate covering many types of incomes and taxpayers. Here are some of the reasons returns were audited.

* No adjusted gross income (AGI). For AGI of zero, audit risk jumped to over 5%. The IRS benchmarks AGI because it is total income including losses from businesses and investments.

* Large adjusted gross income. Audit risk was nearly 2% for returns with AGI over $200,000. Audit risk climbed to 16% when AGI was $10 million or more.

* International returns. Due to a focus on offshore tax evasion, the audit rate of international returns was almost 5%.

* Estate taxes. Approximately 8.5% of estate returns were audited. Gross estates of $10 million or more were tagged with a 27% audit risk.

* Corporate returns. Small corporations experienced up to a 2% audit risk. The risk for large corporations with assets over $20 billion was 85%.

Be aware that even if you don't fit into any of these categories, your return may still be selected for audit. That's one reason it's essential to keep good records to support all deductions and credits you claim on your tax return for at least three years after filing. Examples of required recordkeeping include:

* When you deduct expenses for meals and entertainment, the written evidence must show who was in attendance and what business was discussed.

* A home office deduction must be supported by evidence showing your home office is used regularly and exclusively as the principal place of business.

* Certain non-business property that you gift, donate, or intend to distribute through your estate requires an appraisal.

Contact us for more information about tax audit issues.


Form 5500 filing reminder – and changes to note

August 1, 2016, is the deadline for filing retirement or employee benefit returns (5500 series) for plans on a calendar year. (The usual due date of July 31, 2016, is a Sunday.)

You'll also want to note two IRS updates regarding Form 5500. First, the compliance questions are optional. Form 5500 includes new compliance questions for 2015 tax years (returns with a due date of August 1, 2016, for calendar year filers). Because the questions were not approved by the Office of Management and Budget, the instructions for Form 5500 say plan sponsors should skip them when completing the form.

Also, some Form 5500-EZ filers will need to file electronically. If you're required to file at least 250 returns of any type with the IRS, including information returns (for example, Form W-2 and Form 1099), you may need to electronically file Form 5500-EZ for calendar year 2015.


This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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05/12/16 - May Newsletter


Monthly Newsletter

MAY 2016

Start your midyear planning with these tax savers

As you get ready for midyear tax planning, keep these lesser-known tax breaks in mind.

Residential energy credit. You can claim a 10% energy credit for qualified improvements (up to a lifetime maximum of $500) when you improve your home with insulation, windows, and certain types of roofing. This credit is presently set to expire after 2016.

Commercial building energy deduction. The above-the-line deduction for energy efficiency improvements to lighting, heating, cooling, ventilation, and hot water systems in your commercial building is currently available through December 31, 2016.

Straight-line depreciation for certain qualified assets. The 15-year straight-line depreciation deduction for qualified leasehold, restaurant, and retail improvements is now permanent.

Contact us for more suggestions for reducing your 2016 federal income tax bill.


Is your business using social media tools?

According to a recent survey by a technology company, email, websites, and social media are the top three digital marketing tools used by businesses. Lack of an online presence means your company may be missing opportunities to connect with customers. If you're neglecting your internet marketing, consider outsourcing the task to a virtual assistant, or assigning an employee to handle website maintenance and social media accounts. Still feeling overwhelmed by the idea? Remember that online marketing is a complement to traditional methods of reaching customers. Start small. Even a basic website will help you engage, network, and interact. Let us know if we can help.


Easy ways to ruin your credit score

Investor Warren Buffet once said, "It takes 20 years to build a reputation and five minutes to ruin it." The same maxim applies to good credit. Stellar credit scores don't happen overnight or by accident. Instead, you have to exercise financial discipline, sometimes for years. The reward: lenders who are willing to offer mortgages and car loans at favorable interest rates.

Unfortunately, like a good reputation, a strong credit score can easily be ruined. Here are three simple ways to devastate your credit score.

* Max out your credit cards and continually fail to make required payments. Your credit score is a number, generally between 300 and 850 (worst to best), that lenders use when deciding whether to extend credit. About 35% of your credit score is based on your payment history. Paying late or paying less than required minimums can wreak havoc on your score and may signal to lenders that you're overextended.

* Cosign a loan for an irresponsible friend. There's a reason your pal needs a cosigner – and it isn't due to being a good credit risk. When you cosign for a loan, the status of the loan will appear on your credit report. Adding insult to injury, if your friend defaults, you're responsible for the unpaid balance.

* Close or open credit card accounts in quick succession. Either move can adversely affect the ratio of how much you owe in relation to your credit limits. As this ratio climbs, your credit score will tend to sink. Say, for example, you have three credit cards and each has a $1,000 limit. You carry a balance of $500 on one of those accounts. That's a credit utilization ratio of $500 to $3,000 or about 17%. If you close one of the accounts, the ratio will jump to 25% ($500/$2,000). Though you haven't accumulated more debt, your credit score may be hurt.

Be careful with your credit. Negative events can impact your rating for a long time, making lenders reluctant to offer you money.


Keep up with section 179 depreciation changes

Did you know that a recent law made changes to the section 179 expensing election for 2016? These modifications took effect as of January 1. Here's what to consider as you make asset purchasing decisions this year.

* Change #1. Beginning in 2016, section 179 is indexed for inflation. This year, the basic section 179 expensing limit will be $500,000. That limit is reduced dollar-for-dollar once your purchases exceed $2,010,000.

* Change #2. The definition of "section 179 property" now permanently includes computer software and real property such as qualified leasehold and retail improvements and restaurant property. That means you can elect to use section 179 expensing when you purchase those assets.

* Change #3. You may be able to deduct more of qualified leasehold and retail improvements and restaurant property in 2016. Beginning this year, the law eliminated the $250,000 cap on the amount of section 179 you could claim for this property.

* Change #4. Beginning in 2016, air conditioning and heating units are eligible for section 179 expensing.

Contact us for help in maximizing the section 179 deduction for your business asset purchases.


Are bad business debts a tax deduction?

If you're in business long enough, you'll run into a customer who doesn't pay you. Despite your best efforts, you may conclude that you'll never receive the money. Do you have a tax-deductible bad debt? The answer depends in part on whether you operate your business using the cash or accrual method of accounting.

Cash. When you use the cash method, you report taxable income when you receive it and deduct expenses when they are actually paid. While this makes your bookkeeping simple, you get no direct deduction for a bad debt. Since the income was never received, it was never reported or taxed. However, you will still be able to indirectly deduct the labor, merchandise, and overhead used to provide for the goods or services that were delivered but not paid for.

Accrual. Under the accrual method, you report income when you send an invoice to the customer. Expenses are deducted when they are due, regardless of when you pay them. This method is more complicated than the cash method, since you must track accounts receivable and accounts payable. However, because you report taxable income when you bill your customers, you have a bad debt deduction that you can claim as an operating expense if your customers fail to pay.

For more information about accounting for bad debts, contact us.


This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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03/23/16 - April newsletter


APRIL 2016

April is a busy month for taxes

Is your tax return finished? If not, this year you have an extra day – or two – to file. April 18, 2016, is the due date to file your 2015 individual federal income tax return and pay any balance due. If you live in Maine or Massachusetts, you have until Tuesday, April 19, to file and pay.

Here's why. The normal due date – Friday, April 15 – is Emancipation Day. That's a holiday in the District of Columbia, so the tax filing deadline shifts to Monday, April 18. However, Monday, April 18, is also a holiday (Patriots Day) in Maine and Massachusetts. That means if you live in either of those states, your deadline moves to April 19. The extended due dates apply whether you file electronically or on paper.

Here are other major mid-April deadlines.

* The above due dates also apply to filing an automatic extension for your 2015 individual income tax return if you can't file by the deadline. You don't need to explain to the IRS why you need more time and the automatic extension gives you until October 17, 2016, to file your return. An extension does not, generally, give you more time to pay taxes you still owe. To avoid penalty and interest charges, taxes must be paid by the April deadline.

* Filing 2015 partnership returns for calendar year partnerships.

* Filing 2015 income tax returns for calendar year trusts and estates.

* Filing 2015 annual gift tax returns.

* Making 2015 IRA contributions.

* Paying the first quarterly installment of 2016 individual estimated tax.

* Amending 2012 individual tax returns (unless the 2012 return had a filing extension).

* Original filing of a 2012 individual income tax return to claim a refund of taxes. If you have tax refunds due for prior years, the refund is lost unless you file a return to claim it.

Tax-exempt organizations have an upcoming filing requirement

Tax-exempt organizations are required to file annual reports with the IRS. Those with gross receipts below $50,000 can file an e-Postcard (Form 990-N) rather than a longer version of Form 990.

The deadline for nonprofit filings is the 15th day of the fifth month after the year-end. For calendar-year organizations, the filing deadline for 2015 reports is May 16, 2016.


A tax return is required to claim an insurance premium credit

If you or a family member enrolled in a qualified health plan offered through a government insurance marketplace, such as HealthCare.gov, you may be eligible for a federal tax credit. The amount of the credit varies depending on your household income and can be claimed on your tax return. Alternatively, you have the option to receive all or part of the credit in advance in the form of payments to your insurer that reduce your health insurance premiums.

Either way, you need to file a federal income tax return. That's the case even if you're usually not required to file. In the case of advance payments, failing to file your tax return can prevent you from receiving the credit in future years.

To make sure you received the correct amount of the credit, or to claim it, attach Form 8962, Premium Tax Credit, to your return.

For questions or filing assistance, please contact our office.


Simple steps can lead to growing savings

You've probably heard the expression, "a penny saved is a penny earned." Ben Franklin's simple guidance has provided the foundation for savings plans for generations of Americans. His advice remains sound today, but economic conditions and financial demands may cause your savings to get off track.

Getting back on track – and sooner rather than later – is important. Why? You can reap benefits thanks to the effects of time. The earlier you put cash into a prudent savings plan, the more time can help increase its value. If you're having problems getting started, Ben Franklin is credited with another saying that applies: "Be honest with yourself." Have recent economic events slowed or stopped your savings efforts? Have constant changes to tax laws and the magnitude of investment choices added to your confusion? If your answer to either question is yes, it is time for both an attitude and a strategy change. Here are suggestions.

Set goals. Receipt of a sum of money – such as a tax refund – is a good time to make financial resolutions, including improving your savings self-discipline. Start by deciding how much you want to accumulate and how long you have to do it.

Save more money. Next, resolve to put money into a savings account on a regular basis. Consider automatic withdrawals from your paycheck or checking account to make this happen. You can also take advantage of tax-deferred retirement plans and employer-matched savings plans. This includes IRAs and retirement plans at work, such as SIMPLE and 401(k) plans. Using these plans to save may generate additional cash from the saver's tax credit or an employer's matching contribution.

Control spending. Finally, resolve to be more prudent with expenditures. Establishing a spending budget is a good place to start. Watching your savings grow and knowing you'll be able to pay for an important future goal is rewarding.

We can help you set financial goals and assist you in devising a savings plan to meet them. Contact us for a financial checkup.


Are you missing a refund?

Did you forget to file your 2012 federal income tax return? You're not alone. The IRS says an estimated one million taxpayers did not file a return for that year, leaving refunds totaling $950 million unclaimed. If you're one of those taxpayers, you must file a 2012 federal income tax return no later than this year's April tax deadline.

There is no penalty for failure to file if you are due a refund. Contact us for an appointment today.


This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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02/04/16 - February 2016


Note upcoming tax deadlines

* February 29 – Payers must file information returns, such as Forms 1099, with the IRS. This deadline is extended to March 31 when the forms are filed electronically.

* February 29 – Employers must send W-2 copies to the Social Security Administration. This deadline is extended to March 31 for electronic filing.

* March 1 – Farmers and fishermen who did not make 2015 estimated tax payments must file 2015 tax returns and pay taxes in full to avoid a penalty.

* March 15 – 2015 calendar-year corporation income tax returns are due.

* March 15 – Deadline for calendar-year corporations to elect S corporation status for 2016.

* March 31 – Large employers must furnish Forms 1095-C to employees.


Be aware of inflation-adjusted 2016 tax numbers

Certain tax numbers are adjusted for inflation each year. This year, many of the numbers are unchanged or change only slightly from 2015 amounts. Here are some of the tax numbers to use in your 2016 tax planning.

* The maximum earnings subject to social security tax in 2016 is $118,500, unchanged from 2015. The $15,720 earnings limit for those under full retirement age is also unchanged. If you've reached full retirement age, there is no earnings limit.

* The "nanny tax" threshold is $2,000 in 2016, up from $1,900 for 2015. If you pay household employees $2,000 or more during the year, you're generally responsible for payroll taxes.

* The "kiddie tax" threshold remains $2,100 for 2016. If your under-age 19 child (under age 24 for students) has more than $2,100 of unearned income, such as dividends and interest income, this year, the excess could be taxed at your highest rate.

* The maximum individual retirement account (IRA) contribution you can make in 2016 remains unchanged – $5,500 if you're under age 50 and $6,500 if you are 50 or older.

* The maximum amount of wages employees can put into a 401(k) plan remains at $18,000. The 2016 maximum allowed for SIMPLE plans is $12,500. If you are 50 or older, you can contribute up to $24,000 to your 401(k) and $15,500 to your SIMPLE plan.

* For 2016, the maximum amount you can contribute to a health savings account is $3,350 for individuals and $6,750 for families. The catch-up contribution when you're age 55 or older is $1,000.

Contact us for additional information about these and other inflation-adjusted tax numbers.


Make time for a conversation with your parents about finances

Discussing finances with your parents may be a talk none of you are eager to tackle. But addressing the topic can benefit your entire family by clarifying your parents' wishes and enabling you to help establish a joint plan for carrying those wishes to fruition. Here are questions that can start the dialogue.

* Legal – Do your parents have a will and an estate plan? Have they executed a trust, a durable power of attorney for finances, or an advance healthcare directive? Will they allow you to review the documents and/or speak with their attorney?

* Medical – What medical insurance policies are in place? Do your parents have long-term care insurance? Who is their personal physician and what significant medical issues exist?

* Income, expenses, and debt – What are the sources and amounts of your parents' income and expenses? To whom do your parents owe money, and how much do they owe?

* Records – Where do your parents keep tax returns, bank and brokerage statements, and similar records? Who are their tax preparers, financial advisors, and/or stockbrokers? Will your parents allow you current access to those records and advisors?

Talking about finances with your parents can be a daunting prospect. Give us a call if you'd like us to be part of the conversation. We're here to help.


Get the right paperwork to claim charitable deductions

What supporting documentation do you need to claim charitable deductions on your federal income tax return?

In general, you can support monetary contributions of any amount with a cancelled check, credit card statement, proof of payroll deduction, or a receipt from the charity. The paperwork must show the organization's name and the amount and date of your contribution.

When you contribute cash of $250 or more, get a written acknowledgement from the charity. The receipt must show the name of the charity, the date of your donation, and the amount donated, as well as a description and the estimated value of any nondeductible item (such as a book or dinner) provided to you.

For property donations, keep copies of support for the value you claimed. The allowable deduction for a property donation is generally limited to the lesser of cost (or other basis) or fair market value. That means you'll need records showing what you paid for the item, as well as support for the current value. For example, you might use ads from second-hand stores or consignment shops to determine the fair market value of donated clothing and household items.

Be aware that the higher the value of a property donation, the more support you need. When you donate an item with a value under $250, ask for a receipt from the charity showing the organization's name, the date and location of the contribution, and a description of the property. For items valued up to $500, the receipt also needs to include a statement indicating whether you were given any goods or services in exchange for your contribution. In addition, the receipt must provide a description and estimated value for those goods or services. If you donate property with a value between $500 and $5,000, your paperwork must show how and when you got the property and its cost or other basis. Items valued over $5,000 generally need a written appraisal from a qualified appraiser.

Additional requirements apply when you donate property that has appreciated in value. Call us for more information.


This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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01/21/16 - January Newsletter


 JANUARY 2016

Tax extender act renews tax breaks

In mid-December, Congress renewed a long list of tax breaks known as "extenders" that have been expiring on an annual basis. This year many of the rules are retroactive to the beginning of 2015, and you can benefit from them as you prepare your 2015 federal income tax return.

In addition, the Protecting Americans from Tax Hikes Act of 2015, which was signed into law on December 18, 2015, makes some of the rules effective through December 31, 2016. Others are effective through 2019, and some are effective permanently. Provisions in the Act also make changes to existing tax rules that were not part of the extenders. All of these changes will affect your tax planning for 2016 and future years. Here's an overview of selected provisions.

* When you're age 70½ and over, you can make a tax-free distribution of up to $100,000 from your IRA to a charity. This provision was reinstated for 2015 and is now permanent.

* The deduction for up to $250 of out-of-pocket eligible educator expenses is available for your 2015 return. It's now permanent and will be indexed for inflation beginning with 2016 tax returns.

* You can choose to claim the itemized deduction for state and local sales taxes in lieu of deducting state and local income taxes on your 2015 return. This break is now permanent.

* The tuition and fees above-the-line deduction for qualified higher education expenses is available for 2015 and 2016.

* If you're a homeowner, you can exclude mortgage debt cancellation or forgiveness of up to $2 million in 2015 and 2016. Discharges of qualified mortgage debt can also be excluded after January 1, 2017, if you have a binding written agreement in effect before that date. This tax break is only available for your principal residence.

* The maximum Section 179 deduction for qualified business property, including off-the-shelf software, is available for 2015 and is now permanently set at $500,000 (subject to a taxable income limitation). The deduction is phased out above a $2 million threshold. Both thresholds will be indexed for inflation beginning in 2016.

* The additional first-year depreciation deduction, known as "bonus depreciation," is available for 2015 when you buy qualified business property. The deduction is extended through 2019.

* You can claim the work opportunity tax credit for 2015 if you hired eligible individuals last year. This credit is extended for five years (through 2019).

Because the Act was passed so late in the year, you'll have to review your 2015 transactions to take advantage of applicable breaks and claim them on your 2015 federal income tax return. Also, with the rules now extended through 2016 (and in some cases beyond), you can begin to update your current tax plan with some measure of certainty.

Give us a call for more information and for help in determining which changes affect you.

Standard mileage rates reduced for 2016

* Business. Starting January 1, the standard mileage rate for driving a vehicle for business purposes is set at 54 cents per mile. That's down from 57.5 cents in 2015.

* Medical and moving. The rate for medical and moving mileage decreases from last year's 23 cents a mile to 19 cents a mile.

* Charity. The general rate for charitable driving remains at 14 cents a mile.

Keys to effective cash management

Add cash management to your list of business goals for 2016. Commitment to effective practices and techniques can be the key to keeping your business operating on a sound footing. Some tips:

Reduce lag time. Reducing the time between sending out invoices and receiving payment may take the form of giving incentive discounts to customers who pay early. On the expense side, aim for just-in-time inventory to reduce holding costs.

Establish a line of credit. To cover shortfalls resulting from excessive lag time, unforeseen business disruptions, or weakening in your particular market, set up a line of credit with your local financial institution. What to watch out for: The tendency to let short-term credit develop into a crutch that props up poor cash management.

Check out new customers. Assess whether new clients are likely to pay on time before extending credit. Deadbeat clients can squeeze your firm's cash flow quickly.

Grow with caution. Expanding into new markets can bring momentum and additional sources of income. But developing new product lines, expanding facilities, hiring employees, and ramping up your marketing budget all consume cash. Be sure your cash forecasts are accurate. Review and update them on a regular basis.

Be aware of these tax deadlines

A new year means tax return filing season has arrived once again. Among the tax deadlines you may be required to meet in the next few months are the following:

* January 15 – Due date for the fourth and final installment of 2015 estimated tax for individuals (unless you file your 2015 return and pay any balance due by February 1).

* February 1 – Employers must furnish 2015 W-2 statements to employees. Payers must furnish 1099 information statements to payees. (The deadline for Form 1099-B and consolidated statements is February 16.)

* February 1 – Employers must generally file 2015 federal unemployment tax returns and pay any tax due.

* February 29 – Payers must file information returns (except Forms 1095-B and 1095-C) with the IRS. (March 31 is the deadline if filing electronically.)

* February 29 – Employers must send W-2 copies to the Social Security Administration. (March 31 is the deadline if filing electronically.)

* March 31 – Large employers must furnish Form 1095-C to employees.

* May 31 – Forms 1095-B and 1095-C due to IRS. (June 30 is the deadline if filing electronically.)

This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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12/08/15 - December 2015


Monthly Newsletter

DECEMBER 2015

Make time for some last-minute tax savers

That ticking you hear is the tax clock winding down – quickly. There is only a very short time left to cut your taxes for 2015. Here are moves you can still make before year-end.

* If you believe you will owe state or local taxes, consider prepaying them before the end of the year in order to claim the deduction in 2015. (Be aware of alternative minimum tax consequences.)

* Use your credit card to purchase (and deduct) items in 2015. Using a credit card lets you take a deduction when the purchase is made, not when the card balance is paid. You can use the credit card rule for both business and personal transactions.

* If you're a business owner and need additional furniture, fixtures, equipment, and computers to operate your business, consider making the purchases before the end of the year in order to qualify for the Section 179 expensing deduction.

* Don't ignore stock losses, since they can be used to offset stock gains. If you have unrealized losses for 2015, consider selling those positions to offset any gain transactions you might have made. You can also deduct up to $3,000 in net capital losses against other income. Net losses greater than $3,000 can be carried forward and used on your 2016 tax return.

* Consider making a deductible traditional IRA contribution. If you qualify, you can contribute up to $5,500 for 2015, plus an additional $1,000 "catch up" contribution if you are age 50 or older. You have until mid-April 2016 to make your contribution and still take a deduction for 2015.

* Maximize your employer tax-deferred retirement accounts, such as 401(k), 403(b), or 457 plans.

* Donate appreciated stock or mutual funds to charity. You receive a deduction for the appreciated value, but you don't have to report or pay taxes on any of the appreciation.

Give us a call for more tax-saving tips that you can fit in before December 31.

Customer service: Do your employees walk the talk?

Good customer service leads to repeat sales and referrals, which lead to higher revenues and profits. The result is a stronger, more secure business.

Your sales staff knows this well. Their results are directly affected by customer perceptions. Other em¬ployees, such as those in support and back office functions, may not think of themselves as serving the customer. But every employee has an impact, direct or indirect, on customer experience. An incorrect shipment, a late delivery, or a mistake on an invoice, all result in poor service. Make it a goal of your business to meet, and preferably exceed, customer expectations as often as possible.

How do you teach every employee that customer service is part of the job? The answer is a combination of communication, training, and good management.

* Communicate. Make all em¬ployees aware of the importance of customer service to the business as a whole. Explain the role they play in providing good service. Consider posting measures of sales for all to see. If appropriate, develop measures of accuracy or error-free performance and track and share the results.

* Educate. Provide training to every employee with customer contact. Em¬phasize the ways cooperation and teamwork can contribute to good service. Instill a service-minded culture so customer service becomes everyone's job.

* Good management. As the owner or manager, your actions and your priorities set the tone for the company. Employees follow your lead and pay attention to what you con¬sider important. Look for ways to measure customer satisfaction and show your employees that you're moni-toring it. And remember the other way to improve customer service – minimizing the things that go wrong. Make sure you're aware of errors and complaints. Set goals for improved performance and hold people to them.

* Finally, involve your employees. Make it clear that better service is a shared goal and ask for suggestions. You might be surprised how quickly good customer service becomes more than mere talk.

Give financial gifts this holiday season

When planning gifts for children on your holiday list, you might want to think beyond the traditional retail offerings. Consider financial gifts that can bestow benefits for many years to come.

Some financial gift options you might consider:

* U.S. savings bonds. While paper bonds are a relic of the past, you can gift "electronic" bonds by purchasing them through the U.S. Department of Treasury website (www.TreasuryDirect.gov).

* IRAs (regular or Roth). For 2015, you can contribute the lower of $5,500 or the earned income of the child. An early financial start can produce amazing benefits from compounded interest accumulated over several decades.

* Stocks or mutual funds. Equities are a good way to introduce a child to the investment world. If you give appreciated securities to an adult child or grandchild, your gift could allow the child to enjoy beneficial capital gain rates when the shares are sold.

* Vintage stock certificates. Vintage framed certificates are available for many companies. A historic or collectible stock certificate can provide a colorful reminder of the importance of investing for the future.

* Collectibles. Postage stamps or coin collection kits can provide years of enjoyment and form the basis for a life-long hobby. Consider starting a child's collection with an official U.S. Mint proof coin set for the year the child was born.

Please call us if you would like to review the tax issues related to any of these financial gift options, especially if you are considering a larger amount.

Warmest wishes for a happy holiday season and a prosperous 2016

Thank you for giving us the opportunity to serve you this past year. Your trust and your business are appreciated, and your referrals are welcome. We wish you a happy, healthy, and prosperous 2016.

 

 

This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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10/28/15 - November 2015


Monthly Newsletter

NOVEMBER 2015

Insurance enrollment begins this month

Beginning this month, you can sign up for a new 2016 health insurance policy on the health insurance Marketplace. You can also change or renew the policy you purchased during the last enrollment period. Even if your current policy has an automatic renewal feature, you'll want to verify that you are still eligible for the federal premium tax credit.

What if you didn't sign up last winter and didn't have health insurance coverage in 2015? You may owe a penalty on your 2015 federal income tax return. The penalty for 2015 is the greater of $325 per adult and $162.50 per child under 18 (up to a maximum per-family penalty of $975) or 2% of your modified adjusted gross income (with a maximum of the national average premium for a Bronze plan).

Take your required 2015 distribution

If you're over 70½ and are required to take distributions from your IRA or other retirement account, remember that you must take your 2015 RMD (required minimum distribution) by December 31. Otherwise you may face a penalty of 50% of the amount not taken. If the 2015 distribution is your first RMD, you have the option of waiting until April 1, 2016, to begin withdrawals.

Charity scams: IRS issues another warning

The IRS has once again issued an alert for scams relating to fake charities. This time the fraudsters are looking to profit from the severe flooding in South Carolina that led to the declaration of a federal disaster area.

If you're planning to donate, watch for these signs that a fundraiser isn't on the up-and-up:

* The fly-by-night charity. Every legitimate charitable association started sometime, and some are still being formed. But natural disasters seem to spawn an inordinate share of bogus charities that capitalize on human suffering. Beware. Donate to charities that you trust, which means those with a proven track record. If you're unsure, check out the organization with the Better Business Bureau, Charity Navigator, Guidestar, or similar watchdog groups.

* The evasive fundraiser. A legitimate caller should be upfront about the charity, the percentage of funds allocated to administration and marketing, and what target groups will be aided by your donation. Don't be afraid to ask direct questions and expect direct answers. If the fundraiser hedges responses or knows little about the supposed cause to which you're contributing, consider sending your dollars elsewhere. Beware of vague claims like "educating the public" or "promoting awareness."

* The urgent on-line request. Widespread use of social media has provided fraudsters a golden opportunity to take the money and run. Websites made to mimic legitimate charities have conned many otherwise prudent contributors. Emails brimming with desperate pleas for money may originate from the backroom computer of some scam artist. Never divulge your financial information via email and don't assume that social media messages about a particular charity are legitimate. Call the charity directly and find out if it's registered in your state (if required). Ask for written information. When in doubt, check it out.

Many charitable organizations are seeking your aid to address genuine hardships. Avoid the schemes of unethical hucksters and your donations will provide help where it's needed most.

Consider the value of time in business decisions

The "time value of money" is a critical concept in handling personal finances. The same basic premise can be applied in making decisions for your business.

Here's how it works: Typically, the money you currently have in your hands is worth more than it would be years from now. That's because you're able to spend or invest the funds now instead of waiting to receive them. In other words, there's an "opportunity cost" attached to any delay.

For example, let's say you're entitled to a $100 payment. If you receive the $100 now and you're able to invest it at a 5% annual interest rate, you'll have $105 after one year. Assuming you don't need the money for expenses, it will be worth $110.25 after two years, and so on. This amount is known as the "future value" of the money.

Similarly, you can compute the "present value" of money. Suppose you won't receive the $100 payment until one year from now. The value of the money must be discounted due to the opportunity cost. Using the same 5% interest rate, the present value of the $100 you'll receive a year from now is $95.24 ($100 value divided by 1.05).

It's easy to see how this concept can affect your business. Accelerating payments from customers will enable you to better meet your current obligations and provide reserves for investment. On the other hand, delays hamper cash flow and reduce the opportunity for investment. Computing the time value of money may also encourage you to lease, rather than buy, assets.

The time value of money is an important factor in business decisions. For help running the numbers and analyzing the results, give us a call.

Update your beneficiary designations

Are your beneficiary designations up to date? Do you know which accounts have beneficiaries, and whom you've designated? It's easy to lose track. But it's important to keep them current. Here's why.

When you designate a beneficiary for an account, that person inherits the assets in the account, regardless of what your will says. That's why updating your will periodically might not be enough. Typically, you'll have beneficiaries for each of your IRAs, your 401(k) or other retirement plans, annuities, and insurance policies.

Your designations could be out of date because of life changes. For example, since you made your initial choices, you might have married, had children, or divorced. Some of the beneficiaries you chose could have died, divorced, or married.

Changing tax laws also affect beneficiary designations. Choosing the wrong beneficiary, or failing to name a contingent beneficiary, can affect the long-term value of your IRA assets after you die.

Make reviewing and updating beneficiary designations part of your year-end financial review. Give us a call if you need help.

 

This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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10/05/15 - October 2015


OCTOBER 2015

Tax filing reminders

* October 1 – Generally the deadline for businesses to adopt a SIMPLE retirement plan for 2015.

* October 15 – Filing deadline for 2014 individual tax returns on automatic six-month extension of the April 15 deadline.

* October 15 – If you converted a regular IRA to a Roth in 2014 and now want to switch back to a regular IRA, you have until October 15, 2015, to do so without penalty.

Check your 2015 tax payments

Don't let penalties for underpaid taxes increase your tax bill next April. Check the total you've paid in for 2015 through withholding and/or estimated taxes. If you've underpaid, consider adjusting your withholding for the final months of the year or increasing your remaining quarterly estimate. If you employ household workers, be sure your calculations include the payroll taxes you'll owe for them. Remember to include the 3.8% tax on net investment income in your planning too.

Give your kids the power of a Roth IRA

Would you like to give your child a head start on smart money habits? Here's a suggestion: Have the child invest in a Roth IRA. Why? The tax-free compounding of contributions and investment returns over your child's lifetime is a great wealth-builder. Here's what you need to know.

* There is no minimum age to open a Roth IRA account. All your child needs is earned income, either from a summer job or from self-employment.

* The maximum contribution to a Roth IRA for 2015 is $5,500. Your child can contribute less and you can provide some or all of the cash, up to the amount of your child's earned income.

* Your child won't receive a federal tax deduction for a Roth IRA contribution – and will pay no federal income tax on qualified distributions taken after age 59½.

* You can continue to claim your child on your tax return as a dependent. Your child is also allowed a federal standard deduction of $6,300 for 2015, which means the first $6,300 of earned income is income-tax free.

* If you own a business and can employ your child, you can benefit from additional tax savings, including a payroll deduction for your business. In addition, depending on how your business is organized, you may not have to pay federal payroll taxes such as FICA, Medicare and unemployment. Remember, your child must perform real services and the wages can't be excessive.

* An early Roth IRA withdrawal could affect your child's college financial aid. Your child can take withdrawals from a Roth penalty-free to pay for college costs. But those withdrawals generally count as income when applying for financial aid.

Are you interested in learning more? Give us a call. We'll help you get started on saving for your child's future.

How to keep your customers satisfied

In some industries, service has become a quaint memory. Customers are often reduced to selecting the provider that costs or annoys them the least. But the golden rule has not been repealed. Pleasing your customers can create a powerful competitive advantage – and a few simple changes may increase your bottom line.

For example, businesses are among the worst offenders of time-wasting annoyances such as long waits on hold. To distinguish your firm from the rest, establish the following customer service policies and procedures.

* Communicate with your customers. Return calls, emails, and social media contacts promptly, send updates about matters in progress, and explain delays as soon as you can.

* Make life easy. Offer discounts at the point of sale rather than giving out coupons or making buyers apply for mail-in rebates. If you use an automated phone system, provide a simple method for reaching a live person.

* Apologize early and whenever necessary. If you're even partly wrong, apologize and proceed to a resolution. Train your employees to do the same and reward them for positive outcomes.

* Put customers first. Let your customers know you're there for them and that you regard them as more than “cash cows.” Listen to concerns and address them promptly. If a customer is unhappy with a purchase (whether product or service), fix it, replace it, or refund the payment in full. At worst, the loss won't be compounded by damage to your reputation. At best, the money will come back multiplied by repeat business and referrals.

Quality service is a powerful marketing tool that's surprisingly easy to implement. Simply imagine how you would want to be treated and provide that treatment to your customers. As customer satisfaction increases, your profits will follow.

2016 filing deadline extended

Next year, you'll get a few extra days to file your 2015 income tax return. The District of Columbia will be observing Emancipation Day on Friday, April 15, 2016, the usual filing deadline. That moves the filing deadline for 2015 federal income tax returns to Monday, April 18. Residents of Massachusetts and Maine get one more day to file – to Tuesday, April 19 – due to Patriots' Day.


This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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08/27/15 - September 2015


SEPTEMBER 2015

 

Social Security Maximization

Deciding when to start taking Social Security is a challenging decision.  Get the answers here on strategies to take to make sure you receive the benefits you deserve.  Please join us to hear expert advisors to answer this very important question.

 Make your reservation today!

 Please RSVP to Jackie Williams at 402-390-2480 or jwilliams@hayes-cpa.com

 Date:   September 17th 4:00 to 6:00

Location:  Marriott Hotel 10220 Regency Cir, Omaha

Hors d’oeuvres and beverages will be provided

 

Tax due dates

* September 15 – Third quarter installment of 2015 individual estimated income tax is due.

* September 15 – Filing deadline for 2014 tax returns for calendar-year corporations that received an automatic extension of the March 16 filing deadline.

* September 15 – Filing deadline for 2014 partnership tax returns that received an extension of the April 15 filing deadline.

* October 1 – Generally, the deadline for businesses to adopt a SIMPLE retirement plan for 2015.

* October 15 – Deadline for filing 2014 individual tax returns on extension.

Roth re-do deadline approaching

It turns out you can go back after all – at least when it comes to last year's decision to convert your traditional IRA to a Roth. The question is, do you want to?

You might, if your circumstances have changed. For example, say the value of the assets in your new Roth account is currently less than when you made the conversion. Changing your mind could save tax dollars.

Recharacterizing your Roth conversion lets you go back in time as if the conversion never happened. You'll have to act soon, though, because the window for undoing a 2014 Roth conversion closes October 15, 2015. Before that date, you have the opportunity to undo all or part of last year's conversion.

After October 15, you can change your mind once more and put the money back in a Roth. That might be a good choice when you're recharacterizing because of a reduction in the value of the account. Just remember you'll have to wait at least 30 days to convert again.

Give us a call for information on Roth recharacterization rules. We'll help you figure out if going back is a good idea.

Finish the year with effective tax planning

The fourth quarter is often make-or-break time in sports. Likewise, tax-cutting steps you take in the last three months of the year can transform a financial plan into a bona fide winner.

Late-year tax planning is often a matter of reviewing your inflows and outflows. For instance, income from capital gains can be subject to both capital gains tax and the 3.8% Medicare surtax. To offset capital gains, you might sell investments that have lost value since you purchased them. Net capital losses can be used to reduce ordinary income by up to $3,000. A tax-saving examination of your portfolio is also a good time to rebalance your holdings between asset classes.

Interest and dividend income can be subject to the 3.8% Medicare surtax too. Plan for this by considering investments in municipal bonds that pay tax-free interest. If you are contemplating a mutual fund investment between now and the end of the year, check the fund's expected dividend date. Purchasing a mutual fund now could bring an unwanted taxable dividend before December 31.

On the outflow side, look for opportunities to maximize deductions. Accelerate your charitable donations and consider donating appreciated securities you have owned for more than one year. This strategy can offer double value – you get the benefit of a deduction and you don't have to pay tax on the gain.

Take advantage of increased retirement plan contribution limits for 2015. This year you can contribute as much as $5,500 to a Roth or traditional IRA ($6,500 if you're age 50 or over). The limit for 401(k) plans is $18,000, plus an additional $6,000 if you're 50 or older. While checking on the status of your retirement plan contributions, review your list of beneficiaries too.

Another important fourth quarter exercise is an analysis of your income tax withholdings and estimated payments. These can be affected by personal events such as a change in marital status, the sale of property, or a new job.

Effective tax planning is a matter of finishing well. Contact our office to discuss steps you can take to make the fourth quarter a strong one for you.

Understand mutual fund expenses

Are you familiar with the charges imposed by the mutual funds you own? Since fund expenses affect your investment return, understanding the costs is an important step in making sound investment decisions. Here are some common charges you'll want to know about before you invest.

* Load. A load is a sales charge imposed by the fund. You might think of it as similar to the fee you pay a broker to purchase a stock. Mutual funds fit in two broad categories: load and no-load.

Load funds include front-end, back-end, and level-load. A front-end load, as the name implies, is charged when you make your initial investment. A back-end load is charged when you sell your investment before a specified period of time has passed. A level-load charges you an ongoing fee (for instance, 1% per year) as long as you own the shares. A no-load fund has no sales charge. Keep in mind that no-load is not the same as no-fee. No-load funds can still charge purchase fees, redemption fees, exchange fees, and account fees. Look for information on fees and charges in a fee table located near the front of a fund's prospectus under the heading "Shareholder Fees."

* Expense ratio. The expense ratio tells you the cost of operating and managing the fund. These costs include marketing fees (sometimes called 12b-1 fees), management fees, administrative fees, operating costs, and other asset-based costs incurred by the mutual fund. A high expense ratio can hurt your overall return.

* Turnover and taxes. A fund's turnover ratio indicates how often the fund buys and sells stocks. A high turnover ratio reflects active trading. Because funds pass capital gains through to shareholders, active trading could result in taxable income for you. A low turnover ratio indicates a "buy and hold" strategy that can postpone the tax bite.

If you have questions about mutual fund terminology, give us a call.

 

 

This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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07/28/15 - August 2015


AUGUST 2015

 

Social Security Maximization

Deciding when to start taking Social Security is a challenging decision.  Get the answers here on strategies to take to make sure you receive the benefits you deserve.  Please join us to hear expert advisors to answer this very important question.

 Make your reservation today!

 Please RSVP to Jackie Williams at 402-390-2480 or jwilliams@hayes-cpa.com

 Date:   September 17th 4:00 to 6:00

Location:  Marriott Hotel 10220 Regency Cir, Omaha

Hors d’oeuvres and beverages will be provided

 

Do your homework on back-to-school tax breaks

Education tax planning can optimize the available breaks for saving and paying for school expenses. Here are some tips.

Saving for education

* Section 529 plans include prepaid tuition programs and college savings accounts. Prepaid tuition programs let you buy future tuition credits at today's rates, while college savings accounts let you set aside funds in an investment account. You get no tax deduction, but you can use the money tax-free for qualified college expenses.

* Coverdell education savings accounts have some characteristics of Section 529 plans – and a few important differences. Nondeductible annual contributions of $2,000 can be made not only for qualified college costs, but also for many K-12 expenses. Unlike 529 plans, phase-out rules prevent contributions when your income exceeds certain levels.

Paying for education

* If you're currently paying college expenses, your tax planning should take the various available deductions and credits into account. These include the American opportunity credit, the lifetime learning credit, and the student loan interest deduction.

If you have education expenses to pay now or in the future, planning will help you take advantage of the tax breaks. Contact us for details and assistance.

Health care law survives Supreme Court challenge

On June 25, the U.S. Supreme Court issued its ruling on the controversial King v. Burwell case.

The main issue in the case was whether federal subsidies could be offered to people who purchased health insurance through the federal health insurance marketplace rather than through a state-run exchange. Under a literal reading of the law, subsidies are allowed through exchanges "established by the state." It was argued that the wording of the Affordable Care Act (ACA) prohibits subsidies from being granted in states that did not set up their own insurance exchange, but instead defaulted to the federal health insurance marketplace. More than half of the states use the federal exchange.

Had the Court's decision gone the other way, an estimated six million people would have lost the subsidies that help them pay for their health insurance. However, the Supreme Court decided by a 6-3 margin that this distinction between state and federal exchanges was not the intent of Congress and ruled to preserve the right for subsidies to be offered in all states. The majority opinion was written by Chief Justice Roberts.

Scammers want to take your vacation

Buyer beware! Both the Better Business Bureau and the Federal Trade Commission have issued warnings about vacation fraud. By some estimates, this type of scam costs travelers over $10 billion each year. How do you know whether you're dealing with a legitimate travel agent or a huckster? Here are pointers.

* Do your research. Get contact information for hotels, rental car companies, and airlines; then confirm reservations and prices directly. Research properties on the Internet before you travel. (Is that "five star hotel" really near the beach?) Check out the Better Business Bureau. Although bad companies may not always appear on BBB radar, a history of complaints is a tip-off that you're dealing with a less-than-reputable firm.

* Get it in writing. Obtain a copy of the firm's cancellation and refund policies. Get written confirmation of your travel arrangements. Read the fine print, especially verbiage about availability of travel dates and additional charges.

* Beware the bait and switch. You don't want to learn the hard way that "luxury" has an unexpected definition. In one scam, a "luxury" Caribbean cruise booked for dollars a day was actually a six-hour ferry ride. In another, a "luxury" hotel was located next to the city dump. Of course, the travel company will be glad to move you to better accommodations – for a hefty fee.

* Say "no" to high-pressure sales tactics. If the salesperson says you're missing the deal of a lifetime and you're a fool to pass it up, walk away. Reputable firms want your business and will be happy to let you think over an offer.

* Pay with a credit card. If a company asks for an overnight payment or cash in advance, go elsewhere. Legitimate companies will bill your credit card in the normal course of business. In addition, your card offers travel protection such as accident insurance.

The idea of saving money can be alluring. But remember that "too good to be true" is a cliché for a reason. Don't let fraudsters take your dream vacation.

IRS publishes 2016 HSA contribution limits

The IRS recently announced inflation-adjusted contribution limits for health savings accounts (HSAs) for 2016. HSAs are a combination of a high-deductible health insurance plan and a savings account in which you set aside pretax dollars that can be withdrawn tax-free to pay unreimbursed medical expenses. The 2016 HSA contribution limit for individuals is $3,350; the limit for family coverage is $6,750. You can make a catch-up contribution of an additional $1,000 when you're 55 or older.

Businesses say taxes are a hassle

In a survey of small businesses conducted by the National Small Business Association, 59% of respondents said taxes were more of an administrative burden than a financial one. Most businesses put payroll taxes at the top of the list of taxes with the greatest administrative burden. Payroll taxes also outranked other taxes, such as income, property, and sales taxes, as the top financial burden to businesses.

 

 

This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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07/08/15 - July 2015


JULY 2015

Tax planning is essential for second marriages

Wedding bells bring rejoicing - and financial changes. If you're marrying for the second time, the changes might seem overwhelming. On the surface, tax and financial planning for a second marriage is similar to that of a first marriage.

For example, no matter what month you hold the ceremony, the IRS will consider you married for the full year. That means employer-provided fringe benefits and taxes withheld from your paychecks could require adjustment. Depending on how much each of you earns and your past financial history, you'll have to decide what filing status will be most beneficial, and how best to take advantage of tax breaks that may become available.

With a second marriage, you have even more decisions to make, including how you'll merge your assets. Will you purchase a new home? If both of you already own separate homes, you may each qualify for a $250,000 federal income tax exclusion on the profit from the sale, as long as you have lived in the home for at least two of the last five years. If only one of you meets the requirements for the exclusion, consider selling the qualifying home and living in the other for a while.

You or your spouse might also have substantial debt or financial obligations. Discuss your financial histories, including alimony or child support still owed and past bankruptcies. Decide who will provide for the college expenses of the children in your now-combined household. Depending on your age, you may want to investigate the effect of the marriage on your social security benefits.

A second wedding is a joyful event for you, your new spouse, and your extended families. To give your marriage an added advantage, call us before you say, "I do." We'll offer our congratulations - followed by useful financial and tax planning advice.

Maximize tax benefits of carryforwards and carrybacks

Although the tax code contains some exceptions, income is generally taxable in the tax year received and expenses are claimed as deductions in the year paid. But "carryforwards" and "carrybacks" have special rules. In this case, certain losses and deductions can be carried forward to offset income in future years or carried back to offset income in prior years, providing tax benefits.

* Capital losses. After you net annual capital gains and capital losses, you can use any excess loss to offset up to $3,000 of ordinary income. Remaining losses can be carried over to offset gains in future years. The carryforward continues until the excess loss is exhausted.

* Charitable deductions. Your annual charitable deductions are limited by a "ceiling" or maximum amount, as measured by a percentage. For example, the general rule is that your itemized deduction for most charitable donations for a year can't exceed 50% of your adjusted gross income (AGI). Gifts of appreciated property are limited to 30% of your AGI (20% in some cases) in the tax year in which the donations are made. When you contribute more than these limits in a year, you can deduct the excess on future tax returns. The carryover period for charitable deductions is five years.

* Home office deduction. If you qualify for a home office deduction and you calculate your deduction using the regular method, your benefit for the current year can't exceed the gross income from your business minus business expenses (other than home office expenses). Any excess is carried forward to the next year. Caution: No carryforward is available when you choose the "simplified" method to compute your home office deduction.

* Net operating losses (NOLs). Business NOLs can be carried back two years and forward 20 years. Tip: As an alternative, you may opt to forego the carryback and instead carry the entire NOL forward.

Give us a call for help in maximizing the tax benefits of carryforwards or carrybacks.

Refocus your business

Are problems beginning to surface in your business? Have profits been dwindling? Are customers complaining with greater frequency? Are competitors encroaching on your market share? These are warning signs that you're headed in the wrong direction - and you don't want to ignore them until it's too late. Here are suggestions for turning things around.

* Focus on the money-makers. Perhaps your business has developed products your customers aren't willing to buy. If so, it may make sense to redirect your company's available resources. Does that mean you should never create new product lines or expand into new markets? No. But new products must eventually improve the bottom line. If they don't make money within a reasonable time, refocus.

* Establish (or reestablish) your brand. Identify what you do best; then tell everyone. Your goal is to educate customers, vendors, and employees on the reasons why your product or service is better than the competition. Be specific. Of course, to remain credible you must back up your claims, so be realistic as well. Win trust by following through.

* Track results. Once you're refocused on the money-making segments of your business, keep a close eye on the numbers. Know whether customer complaints are down, cash flow is improving, back orders are declining, and market share is holding steady or increasing. If profits aren't showing an upward trend, take another look - then adjust and remeasure.

For help getting your business back on track, give us a call.

Tax filing reminder

July 31 is the deadline for filing 2015 retirement or employee benefit returns (5500 series) for plans on a calendar year.

 

This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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06/02/15 - June 2015


Monthly Newsletter

JUNE 2015

Reminder: Second estimated tax payment due June 15

June 15, 2015, is the due date for making your second installment of 2015 individual estimated tax. Your check to the United States Treasury should be accompanied by Form 1040-ES. June 15 is also the due date for calendar-year corporations to make their second quarter 2015 estimated tax payment.

Don't overlook FBAR filing requirement

If you hold foreign bank or financial accounts and the total value of your account exceeds $10,000 at any time during the calendar year, you may be required to file a Treasury Department report known as the FBAR. It's easy to overlook this requirement because it's separate from your federal income tax filing, with a different deadline and strict rules.

FBAR refers to "Form 114, Report of Foreign Bank and Financial Accounts." Your 2014 Form 114 must be filed electronically with the Treasury Department no later than June 30, 2015. No filing extension is available. Contact us if you need details or filing assistance.

Preserve tax breaks with MAGI management

How close to the edge are you when it comes to tax phase-outs? As you begin your midyear tax planning, consider the effects of these benefit-limiting provisions. Knowing how close you are to the "edge" can help preserve tax breaks for 2015.

Many phase-outs are based on modified adjusted gross income, or MAGI. MAGI is the adjusted gross income shown on your tax return as "modified" by adding back certain deductions. The "add-backs" vary with specific phase-outs. That means you might have to choose between conflicting opportunities. For instance, if you have a child in college this semester, the American Opportunity Credit and the Lifetime Learning Credit may be on your mind. Both benefits are education-related, yet the qualifying rules differ - including the MAGI threshold.

Here are some common federal tax benefits with MAGI phase-outs.

* Education credits

The American Opportunity Credit is a partially refundable, dollar-for-dollar reduction of your tax bill, with a maximum of $2,500 per student. This year the credit starts to shrink when your MAGI reaches $160,000 and you're married filing jointly ($80,000 when you're single). The credit disappears completely when your MAGI is greater than $180,000 for joint returns ($90,000 if your filing status is single).

For 2015, the Lifetime Learning Credit begins to phase out at $110,000 when you're married filing a joint return and $55,000 when you're single. Once your MAGI reaches $130,000 (married) or $65,000 (single), the credit is no longer available.

* Retirement plans

Phase-outs affect retirement planning too. The deduction for contributions to your traditional IRA is limited when you are eligible to participate in your employer's plan and your MAGI exceeds $98,000 ($61,000 when you're single).

While Roth IRA contributions are not tax-deductible, the amount you can contribute for 2015 begins to phase out when your MAGI reaches $183,000 and you're married filing jointly ($116,000 if you're single).

In addition, the federal "saver's" credit for contributing to retirement plans phases out when your 2015 MAGI is more than $61,000 and your filing status is married filing jointly ($30,500 for singles).

* Social Security

The phase-out for the exclusion of social security benefits from taxable income is calculated on the amount of your "combined income" (one half of social security benefits plus other income) over the base amount of $32,000 when you're married filing jointly. The base amount is $25,000 when you're single.

Phase-outs also reduce personal exemptions, itemized deductions, and the alternative minimum tax exclusion. Contact our office for guidance in managing your income for maximum tax breaks.

myRA program now available

A new simplified Roth IRA is the latest retirement plan. The account is called a myRA (short for "my retirement account"). It's funded by having your employer make direct paycheck deposits to your retirement account. The contributions to your myRA are invested in government-guaranteed Treasury securities. A myRA isn't connected to your employer; it belongs entirely to you and can be moved to any new employer that offers direct deposit capability. The annual contribution limits that apply to regular Roth IRAs apply to myRAs. To find out more about myRAs, contact our office.

Tax audits cut by budget issues

The IRS reports that its enforcement budget has been cut by $254 million, a 5% reduction from the previous year. As a result, the Agency expects to cut the number of individual and business audits it conducts. In 2014 the IRS audited 0.86% of individual taxpayers and 26% of large corporations. Though audit statistics show a decline in examinations, the IRS contacts many more taxpayers with questions about their returns. Once statistics include these taxpayer contacts, the 2014 return examination rate is closer to 4% or one in every 25 returns filed.

Millions qualify for exemption

According to the Brookings Institution, an estimated 20 million taxpayers will qualify for an exemption from the Affordable Care Act's penalty for failing to have insurance. It's not known how many of those who qualify for the exemption will actually claim it. To check the available penalty exemptions, visit the IRS website at www.irs.gov.

 

This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

 

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05/04/15 - May Newsletter


Monthly Newsletter

MAY 2015

Certain disabled get a new tax break

The "tax extenders" legislation that became law in December 2014 included the "Achieving a Better Life Experience Act" (also called the ABLE Act). This law provides for tax-exempt accounts that can help you or a family member with disabilities pay for qualified expenses related to the disability. These "ABLE accounts" are exempt from income tax although contributions to an account are not deductible on your federal income tax return. ABLE accounts are generally not means tested and some can provide limited bankruptcy protection.

You or a family member are eligible to open an ABLE account if:

1. You're entitled to social security disability benefits due to blindness or other disability, and that blindness or disability occurred before age 26; or

2. You file a disability certification with the IRS for the tax year.

Annual contributions to an ABLE account are limited to the amount of the annual gift tax exclusion ($14,000 for 2015). Distributions are tax-free as long as they are less than your qualified disability expenses for the year. The list of qualified disability expenses includes housing, education, employment training/support, health prevention/wellness services, financial management, legal fees, and funeral expenses. Other expenses are also approved under the regulations.

Distributions exceeding qualified disability expenses are included in taxable income and are generally subject to a 10% penalty tax. Distributions can be rolled over to another ABLE account for another qualified beneficiary and beneficiaries can be changed between family members. Funds in the account can earn interest or dividends and are not subject to federal income tax as long as distributions are used for qualified disability expenses. ABLE accounts do not have a "use it or lose it" feature and funds can carry over to future years.

The balance remaining in the account after the beneficiary passes away can be used to reimburse state Medicaid payments made on behalf of the beneficiary after the account was established. The remainder goes to the deceased's estate or to another qualified designated beneficiary. After-death distributions that are not used for qualified disability purposes are subject to income taxes, but not the 10% penalty.

If you are thinking many of these rules sound familiar, you're correct. ABLE accounts are modeled on 529 college savings accounts. Give us a call so we can help you make the most of this new opportunity.

IRS releases 2015 business vehicle deduction limits

The IRS has published depreciation limits for business vehicles first placed in service this year. The limits for passenger autos remain the same as the 2014 limits, but the second year limit for light trucks and vans is $100 higher.

50% bonus depreciation is no longer allowed for most business equipment purchases, including vehicles. 

Here's a quick review of the limits for 2015. For business cars first placed in service this year, the first-year depreciation limit is $3,160. After year one, the limits are $5,100 in year two, $3,050 in year three, and $1,875 in all following years.

The 2015 first-year depreciation limit for light trucks and vans is $3,460. Limits for year two are $5,600, in year three $3,350, and in each succeeding year $1,975.

For details relating to your 2015 business vehicle purchases, contact our office.

Now is the time to check your 2015 tax payments

If you got a big tax refund or owed the IRS a lot of money when you filed your 2014 tax return, it may be time to adjust your income tax withholding.

Many people like to receive a refund from the IRS, thinking of it as a form of forced saving. If you're of this opinion, that's fine. But too big a refund means you're wasting your money, giving an interest-free loan to the government. 

On the other side, if you underpay your taxes by more than $1,000 and don't meet certain exceptions, you could be hit with a penalty. 

Adjusting your withholding is as simple as filing a new Form W-4 with your employer. The form comes with a worksheet to figure out how many allowances you should claim. Or you can increase withholding by specifying an extra dollar amount to be withheld from every paycheck.

When reviewing your 2015 tax payments, keep a couple of general rules in mind. Generally, you must pay (through withholding or quarterly estimated payments) at least 100% of last year's tax liability (110% if your prior year's adjusted gross income is over $150,000), or at least 90% of what you'll owe for this year.

However you do it, you should adjust your withholding to match the taxes you expect to owe. If you need assistance figuring out your 2015 tax payments, give us a call.

Reminder: Tax-exempts have filing requirement coming soon

Tax-exempt organizations are required to file annual reports with the IRS. Those with gross receipts of $50,000 or less can file an E-postcard rather than a longer version of Form 990.

The deadline for nonprofit filings is the 15th day of the fifth month after their year-end. For calendar-year organizations, the filing deadline for 2014 reports is May 15, 2015. Contact us if you need details or filing assistance.

Schedule a midyear tax review soon

As summertime approaches, tax planning is probably the last thing on your mind. The problem is that if you wait until December, there's little time for changes to take effect. But if you take the time to plan now, you still have seven months for your actions to make a difference on your 2015 tax return.

Making time for 2015 tax planning now not only helps reduce your taxes, but also helps to put you in control of your entire financial situation. Tax planning should be a year-round process, but it's especially effective at midyear. Give us a call for guidance in implementing the best moves for your particular situation.

 

This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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04/04/15 - April Newsletter


APRIL 2015

April is tax filing time

Wednesday, April 15, is the deadline for filing certain returns and taking certain tax-related actions. Here are the major deadlines.

* Filing 2014 income tax returns for individuals. If you cannot file your return by this deadline, be sure to file an extension request by April 15. The automatic extension (you don't need to explain to the IRS why you need more time) gives you until October 15, 2015, to file your return. An extension does not, generally, give you more time to pay taxes you still owe. To avoid penalty and interest charges, taxes must be paid by April 15.

* Filing 2014 partnership returns for calendar-year partnerships.

* Filing 2014 income tax returns for calendar-year trusts and estates.

* Filing 2014 annual gift tax returns.

* Making 2014 IRA contributions.

* Paying the first quarterly installment of 2015 individual estimated tax.

* Amending 2011 individual tax returns (unless the 2011 return had a filing extension).

* Original filing of 2011 individual income tax return to claim a refund of taxes. Some taxpayers have tax refunds due them for prior years, and unless a return is filed to claim the refund by the three-year statute of limitations, the refund is lost forever.

Check the tax issues in family loans

Lending to family members probably dates back to the invention of money. The IRS entered the mix a great deal later, but it now looms large in the equation. Tax problems can arise when you first lend money, as you're being repaid, or if you're not repaid. The issues usually involve imputed income, gift tax, or bad debts.

* Imputed income. Imputed income is revenue presumed earned but neither recognized nor received by the alleged recipient. The IRS may impute interest on a loan at the "applicable federal rate" (AFR) when a lower rate (or no interest) is charged. The agency then assesses tax on the excess of the imputed interest over the amount required by the terms of the loan.

* Gift tax issue. When the IRS imputes phantom interest, it also creates phantom taxable gifts. The imputed interest is treated as though the borrower actually paid it to the lender, whereupon the lender returned it to the borrower as a gift. Since the lender "constructively received" the additional interest, he or she owes income tax on it. Since the lender then presumably gave the interest back to the borrower, he or she also owes gift tax on it, unless an exclusion or credit applies.

* Bad debt deduction. Normally, a loan that goes bad is deductible, either against ordinary income (if made for a business purpose) or as a short-term capital loss. However, when the defaulting party is related, the IRS may demand clear and convincing evidence that the original loan was not actually a gift. Once a loan is recharacterized as a gift, no bad debt deduction will be allowed if the loan isn't repaid, and the lender also may owe gift tax on the principal unless an exclusion or credit applies.

Interest need not be charged and will not be imputed on a family loan of $10,000 or less unless the loan directly relates to purchasing or carrying income-producing assets. Without a written document imposing interest at the applicable federal rate (AFR) or higher, the loan probably will be considered a gift and thus will not be deductible if not repaid.

Interest will be imputed on a family loan over $10,000 if the stated rate is below the AFR. However, unless the principal exceeds $100,000, imputed interest will be limited to the borrower's annual net investment income, and no interest will be imputed if that income is $1,000 or less.

Obviously, lending to relatives can create unintended tax consequences. You should always have a written loan agreement on family loans to document the transaction for the IRS. Please contact us for guidance before you make any family loans.

To grow or not to grow? That's a business question

To grow or not to grow is a decision most successful small businesses face at some point. There can be opportunity and profit in growth, but there can be perils and risks as well. What should you as a business owner consider when you are faced with this important decision?

BENEFITS. First, analyze the potential benefits of expanding your business.

* The business can often achieve attractive economies of scale from increased buying power and operational efficiency. This can often reduce your cost structure and improve your margins. Growing your margins at a faster rate than your sales growth can achieve remarkable financial results.

* Growing organizations can often attract more skilled employees who prefer larger organizations with more opportunities for promotion and development.

* Growing organizations generally have a greater opportunity to go public.

RISKS. Next, take a look at the risks your business faces if you expand operations.

* Larger organizations typically require more elaborate systems and tend to be less personal than smaller companies. As it grows, the business will probably have a more rigid management structure.

* Increased complexity can result as operational issues tend to expand faster than anticipated. Operating remote locations can be very challenging.

* Loss of control may be a consequence of expanded operations. Growing companies face significant integration changes, and developing capable managers can be difficult.

For help in analyzing your company's situation, please talk to us. We can help you weigh the benefits and risks of expanding your business.

 

This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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02/26/15 -


Monthly Newsletter

MARCH 2015

 Major tax deadlines for March 

* March 2 - Payers must file 2014 information returns (such as 1099s) with the IRS. (Electronic filers have until March 31 to file.)

* March 2 - Employers must send 2014 W-2 copies to the Social Security Administration. (Electronic filers have until March 31 to file.)

* March 2 - Farmers and fishermen who did not make 2014 estimated tax payments are required to file 2014 tax returns and pay taxes in full.

* March 16 - 2014 calendar-year corporation income tax returns are due.

* March 16 - Deadline for calendar-year corporations to elect S corporation status for 2015.

 Make time for your annual business checkup

You get an annual checkup from your physician to monitor and manage your personal health. Shouldn't you do the same for your business? To keep your operation in top shape, consider an annual business review. The benefits of such a review are evaluating current performance and better planning of future operations. 

Some things you should evaluate in an annual business review include the following:

* Revisit your business strengths, weaknesses, and opportunities. Is your competitive position improving, or are you losing ground?

* How did you perform relative to your business plan? Did you meet or exceed your objectives? Are sales, profit margins, and cash flow improving?

* Get a pulse on your customers. An annual customer satisfaction survey is a great way to assess performance, obtain insight on potential new products or services, and to let your customers know how much you value their business.

* Evaluate your team. Are you developing a superior team, employing their unique talents, and training them to improve performance? Do you reward on merit or simply on seniority?

* How effective is your marketing? Are your current methods and channels working well, or are you simply doing what you've always done?

* Meet with your insurance agent. Is your coverage adequate and appropriate for changes in your business activities and acquisitions?

* Review your business tax strategy. Identify opportunities for tax savings. Are you using the right form of business entity? Are you aware of recent changes in the tax code that might benefit your business?

* How is your scorekeeping? Do your measurements track your progress or do they measure things that don't matter? What are the key performance measures that drive your business?

If you are serious about improving your business, consider a yearly assessment of your operation. For any assistance you need, give us a call.

 Set your tax and financial course for 2015

Were you less than satisfied with your financial situation at the end of 2014? If so, making tax-smart decisions in 2015 could provide a helpful course correction. Here are some suggestions to get you started on the right path.

* Get structured. That out-of-control feeling from last year might be due to a lack of organization. Set up a simple filing system to arrange your tax papers and records. Once you're organized, review your monthly expenses and establish a budget you can live with. Online tools can help make that job much easier, or you can give us a call. We'll be happy to help.

Next, take your planning a step further and create an emergency fund. Consider setting aside six months of living expenses in an account you can tap easily.

* Be strategic. Examine your investment portfolio for potential tax savings, such as selling stocks that are worth less than you paid to offset your capital gains. You might also donate appreciated stock that you have held for more than one year to charity and avoid capital gains altogether. With the new tax on unearned income to watch out for, consider buying investments that pay tax-free income, such as municipal bonds.

* Look again. Some everyday tax moves deserve a second look. Review your employer's list of benefits to make sure you are making the most of them, including the lesser-known perks, if available, such as flexible spending accounts, commuting reimbursements, and employer-paid college expenses. If you have a qualified high-deductible health insurance plan, consider the benefits of a health savings account.

This is also a good time to analyze your tax withholdings and estimates for 2015. Changes to your job, marital status or dependents, a new home, or a serious health issue - all of these life events can affect your tax situation. Adjustments now can put extra money in your pocket when you need it most.

* Go long. In addition to strategies that yield immediate benefits, think about your long-term finances. Take full advantage of your employer's retirement matching program. Consider contributing the maximum allowed by law, especially if you are nearing retirement age. In 2015, you can contribute up to $18,000 to your 401(k) plan, plus a $6,000 catch-up contribution if you're age 50 or over.

Are you ready to think really long term? Review your will and estate plan. Even though the current high-dollar exclusions may shield you from the estate tax, there are still good reasons for you to have a solid plan in place.

If looking back at 2014 leaves you thinking you should have managed things better, take steps now to get your tax and financial plan back on track.

 

This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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02/13/15 -


FEBRUARY 2015


Note these upcoming tax deadlines

* February 2 - Employers must furnish 2014 W-2 statements to employees. Payers must furnish payees with Form 1099s for various payments made. (The deadline for providing Form 1099-B and consolidated statements is February 17.)

* February 2 - Employers must generally file annual federal unemployment tax returns.

* March 2 - Payers must file information returns, such as Form 1099s, with the IRS. This deadline is extended to March 31 for electronic filing.

* March 2 - Employers must send Form W-2 copies to the Social Security Administration. This deadline is extended to March 31 for electronic filing.

* March 2 - Farmers and fishermen who did not make 2014 estimated tax payments must file 2014 tax returns and pay taxes in full.

 

IRS adjusts 2015 tax numbers

The tax law requires that certain tax numbers be adjusted for inflation each year. Because inflation was minimal in 2014, most of these numbers are unchanged or change only slightly for 2015. Here are some of the 2015 tax numbers you'll need to use in this year's tax planning.

* The standard mileage rate for business driving increases from 56¢ per mile to 57.5¢ per mile, effective January 1, 2015. The rate for medical and moving mileage decreases from 23.5¢ per mile to 23¢ per mile. The general rate for charitable driving remains at 14¢ per mile.

* The maximum earnings subject to social security tax in 2015 is $118,500. The earnings limit for those under full retirement age is $15,720. For those at full retirement age, there is no earnings limit.

* The "nanny tax" threshold remains at $1,900 for 2015. If you pay household employees $1,900 or more during the year, you're responsible for payroll taxes.

* The "kiddie tax" threshold increases from $2,000 to $2,100 for 2015. If your child under age 19 (under age 24 for students) has more than $2,100 of unearned income this year (e.g., dividends and interest income), the excess could be taxed at your highest rate.

* The maximum individual retirement account (IRA) contribution you can make in 2015 remains unchanged at $5,500 if you're under age 50 and at $6,500 if you are 50 or older.

* The maximum amount of wages employees can put into a 401(k) plan increases from $17,500 to $18,000. The 2015 maximum allowed for SIMPLE plans is $12,500. If you are 50 or older, you can contribute up to $24,000 to a 401(k) and $15,500 to a SIMPLE plan.

* For 2015, the maximum amount that can be contributed to a health savings account (HSA) increases to $3,350 for individuals and $6,650 for families.

Tax legislation could change these and other important tax numbers at any time. Before making important business and personal financial decisions this year, contact us for the latest rules.

 

Analyze your breakeven point to make better business choices

Breakeven analysis is an important and useful tool in business. Whether starting a new business, expanding current operations, contemplating an acquisition, downsizing, or approaching banks and other potential lenders, one should know what the breakeven is.

Breakeven is simply the point at which costs equal income - no profit, no loss. It's an excellent starting point for finding out where the business is and where it can go. It's the first step in planning future growth. It shows how much sales volume is needed to cover fixed and variable expenses. Once a company has reached breakeven, all gross profit beyond that point goes directly to improving the bottom line.

There are certain limitations for the use of breakeven analysis. It ignores the importance of cash flow and makes the assumption that fixed and variable expenses will stay within the parameters used to calculate the breakeven. Sound business assessment will overcome these shortcomings.

* Calculating breakeven

Breakeven is relatively easy to understand and use. First, review the annual financial statement in order to figure out fixed and variable expenses. Fixed expenses are those that don't generally vary in relation to sales volume. Rent, for example, usually stays constant, whether sales are $400,000 or $500,000. The same is generally true for depreciation, utilities, insurance, and so on.

Variable expenses are the cost of goods sold and other costs of sales, such as direct labor and sales commissions.

There are, of course, some costs that are, or seem to be, part fixed and part variable. One must use good business judgment to split these items into reasonable proportions.

Knowing selling price and variable costs allows you to compute gross profit percentage. The rest is pure arithmetic. Divide your fixed costs by your gross profit percentage to arrive at breakeven. For example, if you have fixed costs of $10,000 and your gross profit percentage is 25%, your breakeven point is sales of $40,000 ($10,000 ÷ 25% = $40,000).

Call us; we would be happy to assist you with calculating your business's breakeven point and evaluating your profit structure.

 

Budget cuts to impact IRS service levels

The IRS has revealed that its level of service to U.S. taxpayers is expected to decline due to a combination of factors - increased workloads and cuts to the agency's 2015 budget.

The increased workloads are partly associated with new tax issues related to the Affordable Care Act. The budget cuts will impact how the IRS is able to respond to customer service telephone and written inquiries. Also notable: the budget cuts could result in taxpayers experiencing delays in receiving their refunds.

On top of all this is the expectation that the IRS will have fewer resources to conduct audits, thus resulting in less revenue collection. IRS Commissioner John Koskinen says the decreased service levels are "unacceptable" and looks forward to finding a resolution.

 

This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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12/31/14 - January Newsletter


JANUARY 2015

1099 Reporting Requirements for All Business Owners

Filing Deadline January 31st!!

If you own a business or regularly file your business return late – please read this – Over the last few years, the IRS has changed its questions regarding 1099 reporting and it’s follow up during audits of business and individual returns.  As of 2011, all business tax returns (and Schedule C on the individual form) include a question about whether you have any 1099 reportable payments and if you have indeed filed these 1099 forms.  They are also including this as part of any business audit, checking to see if you filed your 1099’s.  Not filing them could have consequences including penalties or potential outright denial of a deduction.  Reporting business expenses for professional fees or contract labor is an easy flag for the IRS to compare to your 1099 filing history as well.

Filing 1099 forms is time consuming and requires some diligence on your part.  That’s also where Hayes & Associates can help you.  If you have payments to contractors that exceed more than $600 in total for the year, we can help by filing the 1099 forms for you.  These filings are supposed to be done by January 31st and involve having a W-9 on file for any contractor or professional you pay.  In addition to the $600 threshold, there are other considerations, for example:  payments for legal or medical services are required to be reported, even if it is paid to a corporation.

In a nutshell, see Hayes & Associates for assistance and we will ensure your compliance for the 1099 filing season!

Congress approves tax extenders through 2014

In its final session of the year, Congress extended a long list of tax breaks that had expired, retroactive to the beginning of 2014. But the reprieve is only temporary. The extensions granted in the Tax Increase Prevention Act of 2014 remain in effect through December 31, 2014. For these tax breaks to survive beyond that point, they must be renewed by Congress in 2015, setting up another lengthy debate.

Although certain extended tax breaks are industry-specific, others will appeal to a wide cross-section of individuals and businesses. Here are some of the most popular items.

* The new law retains an optional deduction for state sales taxes in lieu of deducting state and local income taxes. This is especially beneficial for residents of states with no income tax.

* The maximum $500,000 Section 179 deduction for qualified business property, which was scheduled to drop to $25,000, is preserved. The deduction is phased out above a $2 million threshold, up from $200,000.

* A 50% bonus depreciation for qualified business property is revived. The deduction may be claimed in conjunction with Section 179.

* Parents may be able to claim a tuition-and-fees deduction for qualified expenses. The amount of the deduction is linked to adjusted gross income.

* An individual age 70½ and over could transfer up to $100,000 tax-free from an IRA to a charity. The transfer counts as a required minimum distribution (RMD).

* Homeowners can exclude tax on mortgage debt cancellation or forgiveness of up to $2 million. This tax break is only available for a principal residence.

* The new law preserves bigger tax benefits for mass transit passes. Employees may receive up to $250 per month tax-free as opposed to only $130 per month.

* A taxpayer is generally entitled to credit of 10% of the cost of energy-saving improvements installed in the home. Other special limits may apply.

* Educators can deduct up to $250 out of their out-of-pocket expenses. This deduction is claimed "above the line" so it is available to non-itemizers.

The remaining extenders range from enhanced deductions for donating land for conservation purposes to tax credits for research expenses and hiring veterans. 

Finally, the new law authorizes tax-free accounts for disabled individuals who use the money for qualified expenses like housing and transportation, as well as providing greater investment flexibility for Section 529 accounts used to pay for college.

IRS announces 2015 mileage rates

The IRS has announced the mileage rates that are to be used for business, medical, moving, and charitable driving in 2015.  The rate for business driving increases from last year's 56 cents a mile to 57.5 cents a mile.  The rate for medical and moving mileage decreases from the prior year's 23.5 cents a mile to 23 cents a mile.  The general rate for charitable driving remains at 14 cents a mile.

Do you owe the "nanny tax"?

A good domestic worker can help take care of your children, assist an elderly parent, or keep your household running smoothly. Unfortunately, domestic workers can also make your tax situation more complicated.

Domestic workers of all types generally fall under the "nanny tax" rules. First, you must determine whether your household helper is an "employee" or an "independent contractor." If you provide the place and tools for work and you also control how the work is done, your helper is probably an employee. For example, at one end of the spectrum, a live-in housekeeper is probably an employee. At the other end of the spectrum, a once-a-month gardening service may qualify as an independent contractor.

If your household worker is an employee, then you, as the employer, may be required to comply with various payroll tax requirements. For the years 2014 and 2015, the important threshold amount is $1,900. If you pay your employee $1,900 or more during either year, you are generally responsible for paying social security and Medicare taxes on your worker's wages. In addition to social security taxes, you may be required to pay federal and state unemployment taxes as well as other state taxes. With these taxes go various deposit and filing requirements, including the requirement that you provide your employee with an annual W-2 form that shows total wages and withholding. February 2, 2015, is the deadline for providing W-2 forms to workers to whom the nanny tax applies for 2014.

As you might expect, most people need assistance complying with the nanny tax rules. If you need details about the rules or help in dealing with them, contact our office.

Circle these tax dates on your 2015 calendar

It's tax return filing season once again. Among the tax deadlines you may be required to meet in the next few months are the following:

* January 15 - Due date for the fourth quarterly installment of 2014 estimated taxes for individuals, unless you file your tax return and pay any taxes due by February 2.

* February 2 - Employers must furnish 2014 W-2 statements to employees. Payers must furnish payees with Form 1099s for various payments made. (The deadline for providing Form 1099-B and consolidated statements is February 17.)

* February 2 - Employers must generally file annual federal unemployment tax returns.

* March 2 - Payers must file information returns, such as Form 1099s, with the IRS. This deadline is extended to March 31 for electronic filing.

* March 2 - Employers must send Form W-2 copies to the Social Security Administration. This deadline is extended to March 31 for electronic filing.

* March 2 - Farmers and fishermen who did not make 2014 estimated tax payments must file 2014 tax returns and pay taxes in full.

 

This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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11/21/14 - December Newsletter


Monthly Newsletter

DECEMBER 2014

No bankruptcy protection for inherited IRAs

Your retirement funds are protected from creditors even if you file for bankruptcy, with only a few limitations. This protection extends to funds in all government-qualified pension plans, including IRAs (traditional and Roth), 401(k)s, 403(b)s, Keoghs, profit sharing, money purchase, and defined benefit plans. A recent U.S. Supreme Court decision has held, however, that an inherited IRA is not a "retirement fund" and therefore doesn't qualify for bankruptcy protection.

An inherited IRA is a traditional or Roth IRA that a deceased owner has bequeathed to a beneficiary. It differs from a "true" retirement account in three ways:

1. The beneficiary is not allowed to contribute additional retirement funds to the inherited IRA.

2. The beneficiary, regardless of age, may withdraw funds from an inherited IRA in any amount and at any time without penalty.

3. The beneficiary, regardless of age, is required to take annual minimum distributions from any inherited IRA.

Based on the above characteristics, the Court unanimously concluded that with respect to beneficiaries, inherited IRAs are "not funds objectively set aside for one's retirement" and instead constitute a "pot of money that can be used freely for current consumption."

Although the Court didn't specifically address it, there is a possible option available if (and only if) the beneficiary is the spouse of the decedent. Spouses are permitted to roll over funds from inherited IRAs into their own IRAs, which would presumably bring those funds back under bankruptcy protection. The funds would, however, become subject to the rules that apply to non-inherited IRAs, such as penalties for withdrawals before age 59½.

Certain other strategies may be available if you have inherited or are likely to inherit an IRA and you are interested in possible bankruptcy protection. Call us for an appointment to discuss your options.

Some very last-minute tax moves to consider

There's not much time left to make tax-saving moves for 2014. Some ideas to consider:

* Make your January mortgage payment before December 31 to squeeze an extra interest deduction into 2014.

* Make tax-free gifts to use your annual gift tax exclusion for 2014. This year you can give up to $14,000 to as many individuals as you like without tax consequences. These gifts to individuals are not deductible by you; nor are they taxable to the recipients.

* Sell appreciated stock to offset capital losses taken earlier in the year and vice versa. Any excess loss can offset up to $3,000 of ordinary income in 2014, and losses greater than that can be carried to future years.

* Use your credit card to pay tax-deductible expenses by December 31 if you're short of cash. You can deduct the expenses on your 2014 return even though you pay your credit card bill in 2015.

* If you're required to take a minimum distribution from your retirement plan, do so by December 31 or you face a 50% penalty. If you just turned 70½ this year, you could wait until April 1, 2015, to take a first distribution.

* If a wedding or divorce is in your year-end plans, be aware that your marital status as of December 31 determines your tax status for the whole year. Changing the dates of a year-end event may save taxes. 

To discuss these or other tax-cutting moves you might want to consider, give us a call now before it's too late to act.

Setting your salary: What's the right amount for a small business owner?

One of the greatest perks of owning a small business is flexibility. You can set your own hours and salary. You can plot the firm's trajectory without consulting your boss, upper management, or even corporate policy. But that same flexibility may become a curse if handled unwisely. A small business owner without discipline and a well-thought-out strategy may fall into serious financial trouble. Employees in larger firms often rely on the human resources department to establish pay scales, retirement plans, and health insurance policies. In a small company, all those choices - and many more - fall to the owner, including decisions about personal compensation.

While there's not a one-size-fits-all formula for determining how much to pay yourself as a business owner, here are three factors to consider:

* Personal expenses. Determine how much you're willing to draw from personal savings to keep your household afloat as the company grows. For a start-up company, owner compensation may be minimal. Beware, however, of going too long without paying yourself a reasonable salary. Be sure to document that you're in business to make a profit; otherwise the IRS may view your perpetually unprofitable business as a hobby aimed at avoiding taxes.

* The market. If you were working for someone else, what would they pay for your skills and knowledge? Start by answering that question; then discuss salary levels with small business groups and colleagues in your geographic area and industry. Check out the Department of Labor and Small Business Administration websites. In the early stages of your business, you probably won't draw a salary that's commensurate with the higher range of salaries, but at least you'll learn what's reasonable.

* Affordability. Review and continually update your firm's cash flow projections to determine the salary level you can reasonably sustain while keeping the business profitable. As the company grows, that level can be adjusted upward.

For assistance with this issue or other business concerns, contact our office.

 

Warmest wishes for a happy holiday season and a prosperous 2015!


Thank you for the opportunity to serve you this past year. Your business is appreciated, and your referrals are welcome. Please mention our name to friends and business associates who may need our services.

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10/24/14 - NOVEMBER 2014


Monthly Newsletter

NOVEMBER 2014

 

IRS repeats warnings about identity theft

The IRS is again warning taxpayers to be on the alert for tax scams. According to IRS Commissioner John Kaskinen, millions of taxpayers have already been taken in by scammers impersonating IRS agents.

Whether initiated by sophisticated overseas operators or homegrown con artists, all bogus IRS schemes have a similar objective in mind: to steal your identity and gain access to your accounts. Phony IRS agents often use common American names and fake badge numbers. To enhance legitimacy, they may provide limited personal information about you, such as the last four digits of your social security number or birth date. Others may manipulate caller ID to show that the call originated from Washington, DC. If you reply to a call-back number, an answering machine may announce that you've reached the criminal investigation division of the IRS. A fraudster may even become aggressive and threaten jail time if you don't comply with his demands, then hang up and direct a co-conspirator to call back in the guise of a local policeman.

Some employ a different tactic, offering a carrot instead of a stick. You may be told that the IRS owes you some money. But to get your proffered refund you'll need to disclose bank account numbers and other personal information.

Crooks have used e-mail and other forms of electronic communication as well to perpetrate the scam. The text may include links to sham websites designed to mimic official sites, encouraging you to fill in forms with confidential data such as bank account numbers and passwords. E-mail attachments may contain malicious code designed to infect your computer or allow unauthorized access to your financial information.

How can you tell whether the IRS is really contacting you? The agency's official website (www.irs.gov) makes it quite clear: The IRS "does not initiate contact with taxpayers by e-mail to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels." The IRS website further states that the agency "will always send taxpayers a written notification of any tax due via the U.S. mail." IRS agents will never ask for credit card, debit card, or prepaid card information over the telephone. Nor will they ask for PINs, passwords, or other confidential access information.

If you think you might actually owe taxes, call the IRS directly. If you receive a call that appears bogus, ask for a call back number and employee badge number. Then report the details to the Treasury Inspector General for Tax Administration and the Federal Trade Commission (FTC) using their "FTC Complaint Assistant" at FTC.gov.

 

Self-employment gives you some tax breaks

When it comes to taxes, being self-employed has some advantages. Whether you work for yourself on a full-time basis or just do a little moonlighting on the side, the government has provided you with a variety of attractive tax breaks.

  • Save for retirement. When you're self-employed, you're allowed to set up a retirement plan for your business. Remember, contributing to a retirement plan is one of the best tax shelters available to you during your working years. Take a look at the SIMPLE IRA, SEP IRA, or Solo 401(k), and determine which plan works best for you.
  • Hire your kids. If your business is unincorporated, employing your child under the age of 18 might make sense. That's because your child's earnings are exempt from social security, Medicare, and federal unemployment taxes. This year, your son or daughter can earn as much as $6,200 and owe no income taxes. You get to deduct the wages paid as a business expense.
  • Deduct health insurance. Are you paying your own medical or dental insurance? How about long-term care insurance? As a self-employed individual, you may be able to deduct 100% of the cost of these premiums as an "above the line" deduction, subject to certain restrictions.
  • Take business-use deductions. Self-employed individuals can also deduct "mixed-use" items directly against their business income. Use your car for business and you can deduct 56¢ per business mile driven. The business-use portion of your computer purchases, Internet access, and wireless phone bills is also allowable. And if you meet the strict requirements, claiming the home office deduction makes a portion of your home expenses tax-deductible.

Please give us a call to find out more about the tax breaks available to self-employed individuals.

 

More businesses are using part-time workers

Recent job statistics indicate that more employers are using part-timers to deal with variations in workload and for short-term projects. Here are a few tips your business will find useful if you hire part-time workers.

  • Communicate clearly with the part-timer. Explain the person's duties, the hours and benefits, and the individual to whom the part-timer will report.
  • Tell your full-time staff why you're hiring the part-timer. Make it clear what that person will and won't be expected to do.
  • Provide introductory training for the part-time worker. Assign someone the new person can turn to with everyday questions.
  • Monitor the part-timer's progress. Provide feedback on performance and recognition for doing a good job.

Pay attention to these points if you want hiring part-time workers to be a good choice for your company.

 

Contact us soon for a year-end tax review

An important part of our service to you is to help identify actions you can take before year-end to minimize your 2014 income tax bill. Accelerating or delaying income and deductions, contributing to retirement plans, and taking investment losses are just a few of the strategies you might want to consider. There are also tax credits that require careful planning or they may be lost. If you'd like to discuss tax-cutting options that fit your particular situation, please contact us soon for a year-end planning review.  You may contact us at our Omaha, NE office at 402-390-2480 or our Council Bluffs, IA office at 712-322-5503.


This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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09/23/14 - OCTOBER 2014


Monthly Newsletter

OCTOBER 2014

YEAR END REVIEW

As the calendar year draws closer to tax preparation time, now is a great time to start thinking and preparing for your tax planning needs.  Call us today to begin preparing for this year’s tax preparation.  Over the course of this year a number of things might have changed personally and professionally, for example:

Did you start a new business?

Have you been forced to start or increase a Required Minimum Distribution from a retirement plan?

Did you sell real estate, a farm or business?

With kids growing up, did you lose any dependents leaving the household?

Tragically, was there a death to a spouse or loved one?

Did you lose a job?

A number of events can change of the year, don’t delay and get caught off guard with your tax planning.  Call us today in Omaha at (402) 390-2480 or Council Bluffs at (712) 322-5503 to schedule your “year in review” tax meeting.

Tax filing reminders Investing in mutual funds? Watch for year-end tax issues 

* October 1 - Generally, the deadline for businesses to adopt a SIMPLE retirement plan for 2014.

* October 15 - Filing deadline for 2013 individual tax returns on automatic six-month extension of the April 15 deadline.

* October 15 - If you converted a regular IRA to a Roth in 2013 and now want to switch back to a regular IRA, you have until October 15, 2014, to do so without penalty.

Mutual funds offer an efficient means of combining investment diversification with professional management. Their income tax effects can be complex, however, and poorly timed purchases or sales can create unpleasant year-end surprises.

Mutual fund investors (excluding qualifying retirement plans) are taxed based on activities within each fund. If a fund investment generates taxable income or the fund sells one of its investments, the income or gain must be passed through to the shareholders. The taxable event occurs on the date the proceeds are distributed to the shareholders, who then owe tax on their individual allocations.

If you buy mutual fund shares toward the end of the year, your cost may include the value of undistributed earnings that have previously accrued within the fund. If the fund then distributes those earnings at year-end, you'll pay tax on your share even though you paid for the built-up earnings when you bought the shares and thus realized no profit. Additionally, if the fund sold investments during the year at a profit, you'll be taxed on your share of its year-end distribution of the gain, even if you didn't own the fund at the time the investments were sold.

Therefore, if you're considering buying a mutual fund late in the year, ask if it's going to make a large year-end distribution, and if so, buy after the distribution is completed. Conversely, if you're selling appreciated shares that you've held for over a year, do so before a scheduled distribution, to ensure that your entire profit will be treated as long-term capital gain.

Most mutual fund earnings are taxable (unless earned within a retirement account) even if you automatically reinvest them. Funds must report their annual distributions on Forms 1099, which also indicate the nature of the distributions (interest, capital gains, etc.) so you can determine the proper tax treatment.

Outside the funds, shareholders generate capital gains or losses whenever they sell their shares. The gains or losses are computed by subtracting selling expenses and the "basis" of the shares (generally purchase costs) from the selling price. Determining the basis requires keeping records of each purchase of fund shares, including purchases made by reinvestments of fund earnings. Although mutual funds are now required to track and report shareholders' cost basis, that requirement only applies to funds acquired after 2011.

When mutual funds are held within IRAs, 401(k) plans, and other qualified retirement plans, their earnings are tax-deferred. However, distributions from such plans are taxed as ordinary income, regardless of how the original earnings would have been taxed if the mutual funds had been held outside the plan. (Roth IRAs are an exception to this treatment.)

If you're considering buying or selling mutual funds and would like to learn more about them, give us a call.

Accurate inventory numbers are important

For many companies, inventory is a significant dollar amount on the company's financial statements. So it's crucial that recorded inventory balances reflect actual values. When such accounts aren't properly stated, the cost of goods sold and current ratios - numbers that often matter to decision makers - may be skewed. If banks discover that your company's inventory accounts are overstated, they may not extend credit. If, when necessary, inventories aren't "written down" (their values lowered in the accounting records), fraud may go undetected or the company's net profits may appear unrealistically rosy.

Inventories decline in value for a variety of reasons. You might be in the business of selling electronic equipment to retail customers. Over time, yesterday's "latest and greatest" gadgets become today's ho-hum commodities. Such goods still have value, but they can't be sold at last year's prices. Your inventory is experiencing "obsolescence."

Inventory "shrinkage" is another term that's often used to describe declining inventory values. Let's say you run a construction materials company. Unbeknownst to you, a dishonest supervisor is skimming goods from your shelves. A periodic inventory count that's compared to your company's general ledger might show that inventory is declining faster than it's being sold. As a result, you may decide to investigate and to reduce inventory values in your accounting records.

Other examples of shrinkage might include a retail store that loses inventory due to shoplifting or a warehouse facility that's hit by a storm. In both cases, inventories may need to be written down in the company books to more accurately reflect actual values. Under another scenario, a shady supplier might bill your company for goods that aren't actually shipped or received. Your inventory may end up being overstated.

For some companies, several sources feed into inventory values. A manufacturing concern, for example, might add all the expenses needed to prepare goods for sale - including factory overhead, shipping fees, and raw material costs - into inventory accounts. When those supporting costs fluctuate, inventory accounts are often affected.

To ensure that your inventory numbers remain accurate, it's a good idea to conduct regular physical counts and routinely analyze the accounts for shrinkage, obsolescence, and other evidence of diminishing value.

Check your 2014 tax payments

Don't let penalties for underpaid taxes increase your tax bill next April. Check the total you've paid in for 2014 through withholding and/or estimated taxes. If you've underpaid, consider adjusting your withholding for the final months of 2014 or increasing your remaining quarterly estimate. If you employ household workers, be sure your calculations include the payroll taxes you'll owe for them.

This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us. 

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08/25/14 - September 2014


Monthly Newsletter

SEPTEMBER 2014


Tax filing reminders

* September 15 - Third quarter installment of 2014 individual estimated income tax is due.

* September 15 - Filing deadline for 2013 tax returns for calendar-year corporations that received an automatic extension of the March 17 filing deadline.

* September 15 - Filing deadline for 2013 partnership tax returns that received an extension of the April 15 filing deadline.

* October 1 - Generally, the deadline for businesses to adopt a SIMPLE retirement plan for 2014.

* October 15 - Deadline for filing 2013 individual tax returns on extension.


IRS publishes 2015 HSA contribution limits

The IRS has announced the inflation-adjusted contribution limits for health savings accounts (HSAs) for 2015. HSAs allow taxpayers with high-deductible health insurance plans to set aside pretax dollars that can be withdrawn tax-free to pay unreimbursed medical expenses. The 2015 contribution limit for individuals is $3,350; the limit for family coverage is $6,650. A catch-up contribution of an additional $1,000 is permitted for individuals who are 55 or older.


C or S Corporation: Consider tax changes in reviewing your options

Changes to the federal income tax code can prompt you to review the legal structure of your business. Last year's increase in the top tax rate for individuals is one such change, since corporate rates remain the same. At the most basic level, businesses are taxed as either stand-alone or pass-through entities, and a significant difference between corporate and individual tax rates is reason for a new assessment.

If you're debating between operating as a C corporation or an S corporation, here are three tax aspects to consider.

* Income taxes. A difference you're probably aware of between the two types of corporations is the way earnings are taxed. C corporations are stand-alone entities and pay federal income tax at the corporate level, based on business earnings. If the corporation has a loss, the loss offsets business income in past or future years. S corporation earnings and losses are passed through to you, as a shareholder. Earnings are taxed on your individual income tax return at your personal tax rate. This is true even if you receive no cash from the business. Losses can offset other income, assuming you participate in corporate business on a regular and substantial basis.

* Ownership. Tax rules limit the number and type of shareholders who can own an interest in your S corporation. For example, an S corporation can have no more than 100 shareholders, and they must all be U.S. citizens or residents. In addition, your S corporation can issue only one class of stock, meaning all shareholders have the same liquidation and distribution rights. When you form a C corporation, foreign owners can hold stock in your business. You can also issue stock with different ownership privileges, such as preferred stock, which grants priority in receiving corporate dividends.

* Dividends and distributions. In general, when corporate income is distributed to you as a shareholder, the distribution is a dividend. Whether your corporation is taxed as a C corporation or an S corporation, the business gets no deduction.

However, as a C corporation shareholder, you're required to include income distributions on your personal tax return. In effect, distributions are taxed twice, once on the corporate return and once on your return.

When you own stock in an S corporation, distributions can be considered a return of the money you invested in the business. The distinction means you may not owe income tax, assuming you have basis in the corporation.

Many tax and nontax reasons will affect your choice of the best type of structure for your business. Please call our office for a complete evaluation.


Deadline for Roth change coming up

It turns out you can go back after all - at least when it comes to last year's decision to convert your traditional IRA to a Roth. The question is, do you want to?

You might, if your circumstances have changed. For example, say the value of the assets in your new Roth account is currently less than when you made the conversion. Changing your mind could save tax dollars.

Recharacterizing your Roth conversion lets you go back in time, as if the conversion never happened. You'll have to act soon, though, because the window for undoing a 2013 Roth conversion closes October 15, 2014.

Before that date, you have the opportunity to undo all or part of last year's conversion. After October 15, you can change your mind once more and put the money back in a Roth. That might be a good choice when you're recharacterizing because of a reduction in the value of the account. Just remember you'll have to wait at least 30 days to convert again.

Give us a call for information on Roth recharacterization rules. We'll help you figure out if going back is a good idea.


This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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07/28/14 - August 2014


AUGUST 2014

Taxes and disability issues: An overview

Do you live with a disability, or care for someone who does? If so, you may have disability-specific tax questions about income, deductions, and credits.

Here's an overview.

* Income. In general, all income is taxable on your federal tax return, unless specifically excluded. For instance, income you earn for services is typically taxable, even if you are disabled. Part of your social security disability benefits may also be taxable, depending on your total income (including tax-exempt interest). However, supplemental security income is not taxable.

Other nontaxable disability payments include VA benefits, workers' compensation when work-related and received under a workers' compensation act, and wage-loss benefits from no-fault car insurance policies.

* Deductions and credits. You already know you can deduct medical expenses related to your disability, subject to the 10%-of-adjusted-gross-income limitation (7.5% for those 65 or older).

But what about impairment-related work expenses? These are out-of-pocket costs you incur so you can work, such as attendant care, and you claim them as an employee business deduction. This is an itemized deduction, not subject to the 2% of adjusted gross income limit. When you're self-employed, impairment-related work expenses are deductible on your Schedule C, "Profit or Loss From Business."

If you work and must pay for disabled spouse or dependent care, you may qualify for a federal income tax credit of up to 35% of your expenses.

Depending on your disability and income, other exclusions and tax benefits may be available. Call if you would like more information.


Ask the right questions before you start a business

There are several questions you must answer before you even consider starting a new business. Unfortunately, some would-be-entrepreneurs spend more time planning their summer vacation than they do the start of a new business. Most of these businesses will fall into the three out of five start-ups that fail in the first five years. The statistics vary from industry to industry, but about 30% of new business start-ups close down in the first year of operation. Another 30% will fail in the four years that follow.

How can you increase the chances of a business's survival? Here are a series of questions you should answer before launching a new business. Nothing can guarantee a new business will be a success, but being well armed with the right information can certainly help.

* The first question to be answered in your written business plan is what products and/or services you intend to provide. Are these products currently being offered in your local market? What is the price being charged for competing products? How do you propose to capture enough of the local market to make a profit?

* Who is your ideal customer, and what media will you use to promote your product or service? Do you have an adequate population of potential customers to provide the sales you need to make a profit?

* What will make your business stand out? What is unique about your product or service? Will you compete on price, location, product variety, or customer service?

* What size building do you need, and how many employees will it take to serve customers properly?

* How much money will it take to open the doors, and how much is needed for operating capital until you turn a profit? Is it likely that you will make a profit in the first year or two? Be sure to prepare conservative cash flow projections for the first five years showing your best estimates of sales and projected expenses.

* What is the source of funds from day one until you turn a profit? How much will you invest and how much is needed from outside sources such as banks or private investors?

* What legal entity will you use: a corporation, sole proprietorship, LLC, etc.? What government forms and licenses need to be filed? Do you have adequate insurance of the right type?

Every business person can benefit from the services of at least four other business advisors. You should engage the services of an accountant, an attorney, a banker, and an insurance agent before you launch the business. These advisors work with a variety of businesses and business solutions every day and can help improve your chances of succeeding in your new venture. It is imperative that you involve them early in the planning process.


Scams target seniors

Seniors are a favorite target of scam artists. According to one survey, seniors over the age of 60 have lost nearly $3 billion a year to financial fraud. Here are a few of the tactics used to bilk seniors of their money.

* Advanced fee to claim winnings. The target victim is told he's won something and just needs to send money to cover fees, insurance, or whatever to claim the prize.

* Computer virus scam. The caller tells the senior that a virus has been detected on his/her computer. The victim is told to log into a website that lets the crook control the computer so the virus can be eliminated. But what happens is that the person's personal information is stolen.

* Grandparent scam. The caller claims to be a grandchild in a crisis situation. The imposter grandchild asks for money to be wired, pleading not to involve the parents.

* Medical scam. The caller claims to be running a special on some medical equipment and needs a deposit and your Medicare/Medicaid information to let you take advantage of the sale.

As people become familiar with each new scam, the con artists find yet another way to cheat people. The FBI gives this advice to avoid becoming a victim of a fraud: Be skeptical of offers that sound good but probably aren't, don't respond to e-mails from people or companies you don't know, and never, never give out any personal numbers or other information.


This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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06/30/14 - July Newsletter


JULY 2014


Wedding plans should include some tax planning

Ask the typical summer bride and groom what's included in the wedding plans, and they probably won't mention a thorough tax review. Yet, the tax and financial aspects of getting married are not to be taken lightly. Consider the following issues:

* Tax penalties. Marriage causes many tax regulations to take effect retroactively; that is, if you are married as of December 31, some rules apply as if you were married for the entire year. For instance, the total annual wages of both spouses are combined on a joint return regardless of when the wedding took place. Because two wage-earners filing jointly will often pay more tax than if they filed as singles, this can cause a tax problem that needs to be addressed. You may need to increase your withholding or estimated tax payments, or you could face penalty and interest charges on underpaid taxes.

Marriage can affect deductions too. Combined incomes can reduce itemized deductions, such as medical expenses and casualty losses, by raising adjusted gross income (AGI). So, if one spouse has significant medical expenses, filing jointly might reduce their tax deduction. Overall itemized deductions are further reduced when AGI for 2014 exceeds $305,050. If your combined incomes exceed this amount, you might see a noticeable decline in your allowable deductions.

* Tax benefits. But marriage also has its tax advantages. A wage-earning spouse can make an additional $5,500 IRA contribution for an unemployed spouse.

Married homeowners also get double the gain exclusion, from $250,000 to $500,000, when selling their home. The only catch is that both spouses must have lived in the home for two years, and neither spouse can have used the exclusion in the previous two years. Clearly, couples that own a home should carefully plan future sales to take advantage of this tax break.

Estate taxes can be lightened by marriage, with a doubling of the exemption amount. Also, married taxpayers can jointly make tax-free gifts of up to $28,000 per year, double the amount a single taxpayer can make.

Wedding bells may be ringing soon, but before you walk down the aisle, consider an analysis of the tax and financial issues in marriage. It may just be the most important item in your wedding plans.


Trademark, Patent, or Copyright? What is the difference?

Why should your small business care about getting protection for your intellectual property? Many very successful medium to large businesses started out small. Their patents, trademarks, and copyrights are keeping others from infringing on their markets. The search and registration for these legal protections might also let you know whether or not you are infringing on others' rights before you invest time and money in a name, product, or process.

* Patent. A patent for your invention is issued by the U.S. Patent and Trademark Office. A patent gives you the right to exclude others from making, using, selling, or importing your invention for a period of twenty years. If you are looking to obtain a patent, you are well advised to engage the services of an attorney.

* Copyright. A copyright is protection for literary, dramatic, artistic, musical, and other published or unpublished intellectual works. The current copyright law in the United States, generally gives the owner of a copyright the exclusive right to the use of the copyrighted work for his life plus seventy years.

* Trademark. A trademark (TM) is also known as a servicemark (SM) when it refers to a service instead of a product. A "mark" can be a word, phrase, or symbol that is used to distinguish the source of your goods or services from that of others.

Obtaining a patent, copyright, or trademark does not grant you the use of an Internet URL. You would be wise to secure your URL early on in the planning process.

You may save yourself time and money by engaging expert legal assistance to protect your intellectual property rights.


Review your business credit policies

There are many ways to make your business more profitable, and sound credit policies are high on the list. Keep the following items in mind as you review your company's policies.

* Don't be so eager to sign on new customers that you neglect to check out their credit history. Take the time to check references, and obtain a credit report to see how they've handled other financial transactions.

* Establish collection policies and follow up promptly on delinquent accounts. The more overdue accounts become, the more likely they are to become uncollectable. That cuts into your profits.

* Calculate what it costs to carry credit for your customers. For example, if your business generates $1,000 per day in credit sales, and it takes you an average of 60 days to collect, your cost of providing credit to your customers is $6,000 per year. This example assumes you can borrow money at 10% interest. By speeding up the average collection to 30 days, you cut your carrying costs by half.

* To speed collections, invoice customers when you ship the goods; don't wait until the end of the month. Make sure your invoice clearly shows your payment terms, including penalties for late payment and the discount, if any, for prompt payment.

Sound credit policies and adhering to those policies enhance your chances for business survival, especially when the economy slows down. Call us to review your policies or to set policies in place to help make your business more profitable.


Tax filing reminder

July 31 is the deadline for filing 2013 retirement or employee benefit returns (5500 series) for plans on a calendar year


This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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05/27/14 - JUNE


Monthly Newsletter

JUNE 2014


Reminder: Second estimated tax payment due June 16

June 16, 2014, is the due date for making your second installment of 2014 individual estimated tax. Your check to the United States Treasury should be accompanied by Form 1040-ES. June 16 is also the due date for calendar-year corporations to make their second quarter 2014 estimated tax payment.


Don't overlook FBAR filing requirement

If you hold foreign bank or financial accounts and the total value of your account exceeds $10,000 at any time during the calendar year, you may be required to file a Treasury Department report known as the FBAR. It's easy to overlook this requirement because it's separate from your federal income tax filing, with a different deadline and strict rules.

FBAR refers to "Form 114, Report of Foreign Bank and Financial Accounts." That form is new this year, replacing the prior Form 90-22.1.

Your 2013 Form 114 must be filed electronically with the Treasury Department no later than June 30, 2014. No filing extension is available. Contact us if you need details or filing assistance.


Prepare for the Medicare surtax in your 2014 planning

The new 3.8% Medicare surtax on net investment income (NII) appears to be here to stay. If this tax caught you by surprise when you filed your 2013 tax return, you should be better prepared this year.

* Here's how the tax works.

If your investment income exceeds certain thresholds, you may owe a 3.8% Medicare tax on the excess. The taxable amount would be the lesser of (a) your net investment income (NII), or (b) the excess of your "modified adjusted gross income" (MAGI) above $200,000 for singles, $250,000 for spouses filing jointly, or $125,000 for spouses filing separately. MAGI is adjusted gross income increased by certain deductions and exclusions.

Net investment income includes items from most taxable income sources, such as interest, dividends, capital gains, passive activity income, and the like. However, certain other items - including income from an active trade or business, tax-exempt interest and distributions from qualified plans and IRAs - are specifically exempt.

Note that items exempted from the definition of NII could still cause problems because of the way the surtax is calculated. For instance, if you're over age 70½ and you take a required minimum distribution (RMD) from your IRA, the payout increases your MAGI. This could push you over the threshold for the 3.8% surtax or add to the amount you already owe.

* What can you do now to reduce your exposure to the surtax? Consider these five potential strategies.

1. Time income to stay below the threshold. For example, you might delay the sale of securities until next year or sell real estate property on the installment sale basis to reduce current capital gains.

2. Include municipal bonds ("munis") in your investment portfolio. Income from munis doesn't count as NII or increase your MAGI for this purpose.

3. Avoid the passive activity rules. By meeting the tax law test for "material participation," you might be able to turn a passive activity into a regular business activity. But be aware that special rules affect rental real estate activities.

4. Convert traditional IRA funds into a Roth. Because qualified Roth distributions are generally tax-free, this may avoid future problems. Calculate the optimal amount to convert for your personal situation.

5. Maximize deductible contributions to traditional IRAs, 401(k) plans, or similar sheltered investments. Earnings in these accounts are not included in NII, and the contributions will reduce your MAGI.

At the very least, you can't simply ignore the surtax and hope it will go away. Develop a tax plan for 2014 that takes the relevant factors into account.


Court case changes rules on IRA rollovers

A recent Tax Court decision will change the way the IRS applies the law on IRA rollovers.

For years, the IRS has interpreted the IRA rollover rules to mean that a taxpayer could do one rollover per year for each IRA he or she owned. In doing a rollover, the taxpayer is not taxed on the funds taken from the IRA so long as the funds are redeposited into an IRA within 60 days of the withdrawal.

The recent court decision changed the way the tax rule is applied, ruling that the limit on rollovers should be applied on an aggregate basis - that is, only one rollover per year is allowed for all the IRAs a taxpayer owns. If a taxpayer takes funds from one IRA and rolls the money back into an IRA within 60 days, he or she can't do any other tax-free rollovers within the following 365 days.

This change goes into effect January 1, 2015; therefore, the aggregate rule won't apply for rollovers done during the remainder of 2014. Note, also, that trustee-to-trustee transfers can still be done as often as the taxpayer likes; the limit doesn't apply to these transfers because the taxpayer never has possession of any of the IRA funds.


Schedule a midyear tax review soon

As summertime approaches, tax planning is probably the last thing on your mind. The problem is that if you wait until December, there's little time for changes to take effect. But if you take the time to plan now, you still have six months for your actions to make a difference on your 2014 tax return.

Making time for 2014 tax planning now not only helps reduce your taxes, but also helps to put you in control of your entire financial situation. Tax planning should be a year-round process, but it's especially effective at midyear. Give us a call for guidance in implementing the best moves for your particular situation.


This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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04/29/14 - May Newsletter


Monthly Newsletter

MAY 2014

Do you need to make estimated tax payments?

Many taxpayers have income on which there is no withholding, such as interest, dividends, rental or royalty income, or business income. If this is your situation, you'll want to see if you're required to make estimated tax payments in 2014 in order to avoid the penalty for underpayment of your taxes.

The tax system is "pay as you go" by law. If you have income on which no taxes are withheld, it is up to you to prepay the proper amount of taxes. Generally, if you expect to owe at least $1,000 in federal taxes and your withholding and tax credits are less than 90% of your 2014 tax liability (or less than 100% of your 2013 tax liability), estimated tax payments are required. You are essentially required to "estimate" your income and taxes, and make the appropriate payments. Additionally, your estimated tax payments must be computed to also pay for any self-employment (i.e. FICA) taxes on your net business and/or partnership income that you might also owe.

Recent tax changes affect withholding requirements

New rules, including higher tax rates, limits on itemized deductions, and two Medicare surtaxes, may also affect estimated tax calculations.

For example, say you and your spouse will be subject to the additional 0.9% Medicare surtax because your combined wages exceed the $250,000 threshold. The two of you might be expecting your employers to withhold the additional amount.

However, employers are only required to withhold when your compensation exceeds $200,000 - without taking into consideration how much your spouse makes or any income you may earn from another job.

That could mean you'll owe tax - and perhaps a penalty for underpaying the tax - on your 2014 return. Estimated payments can help cover the shortfall.

The 3.8% surtax on net investment income affects estimated payments too. Are you receiving income from capital gains, interest, or dividends? It's a good idea to estimate your income to determine if you're over the $250,000 income threshold ($200,000 when you're single).

Basic rules have not changed

The basic estimated tax rules have not changed. Generally, you can avoid penalties by paying in the same amount of tax for 2014 that you owed on your 2013 return, or 90% of this year's tax, whichever is less. If your 2013 income is over $150,000, you'll have to pay 110% of last year's tax or 90% of this year's.

Once you compute your estimated income and taxes, you pay them in four installments with due dates of April 15, June 15, September 15, and January 15 of the following year.

Think you may need to make or adjust your 2014 estimates? Give us a call. We're here to help.

 
How to ease financial stress after a spouse's death

The death of a spouse can be a devastating experience, both emotionally and financially. As the survivor, you'll have to make important decisions while you're in what could be the most vulnerable and distracted stage of your life. The suggestions that follow might at least help ease your financial stress.

Don't make major decisions right away. Put off selling your house, moving in with your grown children, giving everything away, liquidating your investments, or buying new financial products.

Get professional help. You'll need an attorney to help interpret and explain the will and/or applicable law and implement the estate settlement; your accountant to provide financial advice and prepare the necessary tax documents; one or more insurance brokers to help with filing and collecting death benefits; and a funeral director, who in addition to the obvious services, can obtain needed copies of the death certificate.

Gather and review any applicable documents, such as the decedent's social security card and statements, insurance policies, loan and lease agreements, your spouse's birth certificate, the death certificate, investment paperwork, mortgage statements and agreements, deeds, retirement plans and related statements, credit cards and credit card statements, employment and/or partnership agreements, divorce agreements, funeral directives and/or contracts, safe deposit box information, and tax returns. (You'll need a dozen or more copies of the death certificate to provide to insurance companies, government agencies, creditors, credit card agencies, banks, and a host of others.)

Determine who must be paid, and when. You'll need to notify your spouse's creditors (including joint creditors) and continue paying for mortgages, car loans, credit cards, utilities, and insurance premiums not specific to your spouse. Notify health insurance companies (including Medicare) that you'll no longer be paying your spouse's premiums, and cancel your spouse's memberships and subscriptions.

Alert the credit card agencies (Experian, Equifax, and TransUnion). Request addition of a "deceased notice" and a "do not issue credit" statement to the decedent's file. Order credit reports, which will provide a complete record of your spouse's open credit cards.

Determine what payments are due to you, such as insurance proceeds, social security or veteran's benefits, and pension payouts. File claims where needed.

Maintain your bank accounts to facilitate paying your share of joint expenses.

Finally, call us and your attorney as soon as you can. We're always ready to advise and assist you, before or after life's tragic events.


Reminder: Tax-exempts have filing requirement coming soon

Tax-exempt organizations are required to file annual reports with the IRS. Those with gross receipts below $50,000 can file an E-postcard rather than a longer version of Form 990.

The deadline for nonprofit filings is the 15th day of the fifth month after their year-end. For calendar-year organizations, the filing deadline for 2013 reports is May 15, 2014. Contact us if you need details or filing assistance.


This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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03/21/14 - April Newsletter


Monthly Newsletter

APRIL 2014

April is tax filing time

Tuesday, April 15, is the deadline for filing certain returns and taking certain tax-related actions. Here are the major deadlines.

Filing 2013 income tax returns for individuals. If you cannot file your return by this deadline, be sure to file an extension request by April 15. The automatic extension (you don't need to explain to the IRS why you need more time) gives you until October 15, 2014, to file your return. An extension does not, generally, give you more time to pay taxes you still owe. To avoid penalty and interest charges, taxes must be paid by April 15.

Filing 2013 partnership returns for calendar-year partnerships.

Filing 2013 income tax returns for calendar-year trusts and estates.

Filing 2013 annual gift tax returns.

Making 2013 IRA contributions.

Paying the first quarterly installment of 2014 individual estimated tax.

Amending 2010 individual tax returns (unless the 2010 return had a filing extension).

Original filing of 2010 individual income tax return to claim a refund of taxes. Some taxpayers have tax refunds due them for prior years, and unless a return is filed to claim the refund by the three-year statute of limitations, the refund is lost forever.


Pay attention to your MAGI to qualify for tax breaks

Take a look at your 2013 tax return after it's prepared. How close to the edge did you come to losing tax benefits due to tax phase-outs? As you begin your 2014 tax planning, consider the effects of these benefit-limiting provisions, many of which are based on modified adjusted gross income, or MAGI. Knowing how close you are to the "edge" can help you preserve tax breaks for 2014.

A caution: Since the definition of MAGI as applicable to individual phase-outs varies, you might have to choose between conflicting opportunities. For instance, if you have a child in college this semester, the American Opportunity Credit and the Lifetime Learning Credit may be on your mind. Both benefits are education-related, yet the qualifying requirements differ - including the MAGI threshold.

Education benefits

The American Opportunity Credit is a partially refundable, dollar-for-dollar reduction of your tax bill, with a maximum of $2,500 per student. This year the credit starts to shrink when your MAGI reaches $160,000 and you're married filing jointly ($80,000 when you're single). It disappears completely when your MAGI is greater than $180,000 for joint returns, and $90,000 when your filing status is single.

For 2014, the Lifetime Learning Credit begins to phase out at $108,000 when you're married filing a joint return and $54,000 when you're single. Once your MAGI reaches $128,000 (married) or $64,000 (single), the credit is no longer available.

Other education benefits, such as the above-the-line tuition and fees deduction, also have MAGI limitations. If you qualify, you can claim the maximum annual limit of $4,000 when you're married filing jointly and your MAGI does not exceed $130,000 ($65,000 if you're single). The deduction phases out completely when your income reaches $160,000 ($80,000 for singles).

Retirement plans

Phase-outs affect retirement planning too. The deduction for contributions to your traditional IRA is limited when you are eligible to participate in your employer's plan and your MAGI exceeds $96,000 ($60,000 when you're single).

And while Roth IRA contributions are not tax-deductible, the amount you can contribute for 2014 begins to phase out when your MAGI reaches $181,000 ($114,000 if you file single).

In addition, the federal "saver's" credit for making contributions to retirement plans phases out when your 2014 modified adjusted gross income is more than $60,000 and your filing status is married filing jointly ($30,000 for singles).

Other phase-outs

Finally, the exclusion of social security benefits from taxable income also has a phase-out calculated on the amount of your MAGI over the base amount of $32,000 when you're married and $25,000 when you're single.

Other phase-outs affecting your 2014 federal tax return reduce personal exemptions, itemized deductions, and the alternative minimum tax exclusion.

Contact our office for guidance in managing income for maximum tax breaks.


Financial tips for the 20-something generation

The earlier you start, the easier it will be to get ahead financially. Here are some recommendations for those in their early twenties.

Pay yourself first. Every time you get paid, put something aside in a savings or investment account. As a general rule, save 10% of your income. Even smaller amounts add up over time.

Watch your plastic. Credit cards are an expensive form of debt, and it's easy to lose control of them. Try to pay your entire credit balance every month, even if it's a stretch. If you've been carrying a balance, buy nothing more on credit until the balance is zero.

Keep a clean credit record. If you plan to own a home, buy a car, or start a business, you're going to need squeaky-clean credit. Keep all of your financial obligations current, and never make a financial commitment that you can't keep. If you fall behind on any obligation, talk to the creditor immediately to make alternative arrangements.

Make sure you have adequate medical coverage. You may not see a doctor even once this year. But if you do need medical care, it could be for something serious and expensive. Anything less than a good major medical policy could ruin you financially.

Watch your expenses. At this point in your career, you may not receive large or frequent pay raises, but you can achieve the same effect by cutting expenses. Shop before you buy. Very similar - and sometimes identical products - are sold at widely varying prices. Wise shopping can be the equivalent of having a good-paying second job.

For assistance with financial strategies suitable for your particular age and situation, give us a call.

This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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02/21/14 - March Newsletter


MARCH 2014

Major tax deadlines for March

March 3 – Farmers and fishermen who did not make 2013 estimated tax payments are required to file 2013 tax returns and pay taxes in full.

March 17 – 2013 calendar-year corporation income tax returns are due.

March 17 – Deadline for calendar-year corporations to elect S corporation status for 2014.

March 31 – Deadline for payors who file electronically to file 2013 information returns (such as 1099s) with the IRS.

March 31 – Deadline for employers who file electronically to send copies of 2013 W-2s to the Social Security Administration.


When are you required to file a gift tax return?

Are you planning to give sizeable gifts to family members? Due to generous provisions in the tax code, you may not owe any federal gift tax, but you still might be required to a file a gift tax return.

Here's a quick review of the basic rules. Despite a common misconception, gift tax is paid by the gift giver, or "donor," not the recipient, or "donee." This applies to gifts of cash, property, and other interests. For 2013 and thereafter, the top gift tax rate is permanently set at 40%, a slight increase from 35% in 2012. However, you may be able to avoid gift tax liability due to two key tax breaks.

* Annual gift tax exclusion. Under the exclusion, annual gifts to a donee valued up to $14,000 in 2014 (the same as in 2013) are completely exempt from gift tax. Note that the exclusion is available for gifts to as many recipients as you choose.

* Lifetime gift tax exclusion. In addition to any amount covered by the annual gift tax exclusion, you can benefit from a lifetime gift tax exemption of $5 million, inflation-indexed to $5.34 million in 2014. However, this exemption is unified with the federal estate tax exemption, so amounts used for gifts will erode the tax shelter available for bequests from your estate.

Generally, you don't have to file a gift tax return, Form 709, for gifts covered by the annual exclusion, but you must file this form if you tap into the lifetime exemption amount. Also, when you make a "split gift" with your spouse, the annual exclusion amount is doubled to $28,000 per donee, but a gift tax return is required even if you don't owe any tax. Furthermore, if you give a gift of a "future interest," such as a transfer of assets to a trust, a gift tax return must be filed in any event.

In some cases, you might file a gift tax return when you're not legally required to. This starts the statute of limitations running on the time the IRS will have to challenge the valuation of the gift. It also discloses the gift for other purposes.

The deadline for filing federal gift tax returns is the same as the one for income tax returns. Thus, if you gave more than $14,000 to a donee in 2013, you have until April 15, 2014, to file the return, but you can apply for an automatic six-month filing extension. Caution: This extension is for filing only and not payment of any gift tax that is owed.


Health care reform deadline extended again

On February 10, 2014, the Treasury Department issued rules that will allow certain businesses to delay for one more year the requirement to provide minimum, affordable health insurance to their workers. Businesses with 50 to 99 employees now have until January 1, 2016, to provide health insurance for employees or face penalties. In order to qualify for this extension, employers must certify that they have not laid off employees in order to come under the 100 employee threshold. Large employers – those with 100 or more employees – must still comply with the health insurance mandate by January 1, 2015.


Taxes and retirement accounts

Retirement accounts grow tax-deferred until you need the funds. However, in most cases your money cannot remain in these accounts forever. The IRS has rules that dictate when and how much you must withdraw from your retirement accounts.

* Required withdrawals. The amount you must withdraw each year is called your required minimum distribution (RMD). You can withdraw more than the required minimum distribution from your retirement accounts, but if you fail to take at least the required minimum on time, you face a severe 50% penalty. These rules apply to traditional IRAs and qualified retirement plans, but they do not apply to Roth IRAs during the owner's lifetime.

In most cases, you must begin withdrawing money from your retirement accounts as follows:

* Your first withdrawal can either be taken in the year you turn age 70½, or it can be postponed until April 1 of the following year.

* Your second withdrawal must be taken by December 31 of the year after you turn 70½.

* In each subsequent year, you must withdraw at least the required minimum amount by December 31.

If you're still working at age 70½ and you own less than 5% of the company you work for, you can wait until you retire to begin taking distributions from qualified plans, such as 401(k)s. This exception does not apply to traditional IRAs.

* Income tax planning. Your retirement fund trustee must tell the IRS whether you are required to take a minimum distribution. Because all or part of your distribution may be taxable income, it is important to include RMDs in your tax planning.

*Estate planning. Retirement accounts are subject to estate tax as well as income tax. If you die owning an IRA or 401(k), your plan will be considered an asset in your estate and, like every other asset, it could be subject to estate tax. And since most retirement plans contain untaxed income, your plan could also be hit with income tax when it is distributed to your heirs. Unless you want the tax man to end up with a large chunk of any retirement funds left in your estate, planning is essential.


This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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01/27/14 - FEBRUARY Newsletter


FEBRUARY 2014

Note these upcoming tax deadlines

February 18 - Deadline for providing 2013 Forms 1099-B and 1099-S to recipients.

February 28 - Payers must file 2013 information returns (such as 1099s) with the IRS. (Electronic filers have until March 31 to file.)

February 28 - Employers must send 2013 W-2 copies to the Social Security Administration. (Electronic filers have until March 31 to file.)

March 3 - Farmers and fishermen who did not make 2013 estimated tax payments must file 2013 tax returns and pay taxes in full.

March 17 - 2013 calendar-year corporation income tax returns are due.


IRS adjusts tax numbers for 2014

Each year the IRS adjusts certain tax numbers for inflation and tax law changes. Here are some of the adjusted numbers you'll need for your 2014 tax planning.

Standard mileage rate for business driving decreases to 56¢ a mile. Rate for medical and moving mileage decreases to 23.5¢ a mile. Rate for charitable driving remains at 14¢ a mile.

Section 179 maximum first-year expensing deduction decreases to $25,000, with a phase-out threshold of $200,000.

Social security taxable wage limit increases to $117,000. Retirees under full retirement age can earn up to $15,480 without losing benefits.

Kiddie tax threshold remains at $2,000 and applies up to age 19 (up to age 24 for full-time students).

Nanny tax threshold increases to $1,900.

Health savings account (HSA) contribution limit increases to $3,300 for individuals and to $6,550 for families. An additional $1,000 may be contributed by those 55 or older.

401(k) maximum salary deferral remains at $17,500 ($23,000 for 50 and older).

SIMPLE maximum salary deferral remains at $12,000 ($14,500 for 50 and older).

IRA contribution limit remains at $5,500 ($6,500 for 50 and older).

Estate tax top rate remains at 40%, and the exemption amount increases to $5,340,000.

The annual gift tax exclusion remains at $14,000.

Tax credit for adopting a child is $13,190 for 2014.

Alternative minimum tax exemption amounts increase to $52,800 for single taxpayers and $82,100 for married couples filing a joint return.

Limit on transportation fringe benefit is $130 for vehicle/transit passes and $250 for qualified parking.


Check your eligibility for this business credit

The health insurance premium credit for small businesses has been available since 2010. According to a recent report, many businesses that qualify for this credit have failed to take it.

Even if your business hasn't taken this credit in the past, you may want to look into it this year. For 2014, the credit increases from 35% to 50%. When you qualify, you can use the credit to offset your federal income tax liability by up to 50% of the cost of health insurance premiums you pay for employees.

Three general tests for eligibility are:

Employing fewer than 25 "full-time equivalent" employees.

Paying average annual wages of less than $50,000.

Paying at least 50% of health insurance premiums for those employees.

Each test has specific requirements. For example, you may qualify for the credit, in full or in part, when you have more than 25 employees. That's because "full-time equivalent" is based on hours your employees worked during the year.

In addition, some employees aren't counted for purposes of the credit, such as seasonal staff who were on the payroll for less than 120 days. Other excluded workers are sole proprietors, owner/employees, and shareholders who own more than 2% of the stock of an S corporation.

For assistance in reviewing your eligibility for the credit, contact our office.


Don't forget Form 8938 if you have foreign investments

If you own foreign investments, you may have an additional federal tax form to file this year.

Form 8938, "Statement of Specified Foreign Financial Assets," is due April 15, 2014, and is filed as part of your individual tax return. You'll use Form 8938 to disclose interests in certain foreign financial accounts when your ownership exceeds the reporting requirements.

What are the reporting requirements? They vary depending on where you live and your filing status. For example, say you're married and live in the United States, and you'll file a joint tax return for 2013. You'll include Form 8938 with your tax return when the total value of your reportable assets on the last day of 2013 was more than $100,000, or if the value exceeded $150,000 at any time during the year.

Reportable assets include investment accounts you own that are held in foreign financial institutions, interests in foreign entities, and stocks or securities issued by foreign individuals or companies.

You've probably noticed the reporting requirements are similar to the "Report of Foreign Bank and Financial Accounts" (FBAR), a separate return you may already be filing. Be aware the new Form 8938 does not replace the FBAR, which you'll still need to complete by June 30, 2014.

Penalties for failure to file Form 8938 start at $10,000. We urge you to contact us so we can help you evaluate your filing requirements for foreign investments.


This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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12/27/13 - January


JANUARY 2014


Note these tax dates on your 2014 calendar

It's tax return filing season once again. Among the tax deadlines you may be required to meet in the next few months are the following:

January 15 - Due date for the fourth quarterly installment of 2013 estimated taxes for individuals, unless you file your tax return and pay any taxes due by January 31.

January 31 - Employers must furnish 2013 W-2 statements to employees. Payers must furnish payees with Form 1099s for various payments made. (The deadline for providing Form 1099-B and consolidated statements to customers is February 18.)

January 31 - Employers must generally file annual federal unemployment tax returns.

February 28 - Payers must file information returns, such as Form 1099s, with the IRS. This deadline is extended to March 31 for electronic filing.

February 28 - Employers must send Form W-2 copies to the Social Security Administration. This deadline is extended to March 31 for electronic filing.

March 3 - Farmers and fishermen who did not make 2013 estimated tax payments must file 2013 tax returns and pay taxes in full.

March 17 - 2013 calendar-year corporation income tax returns are due.

April 15 - 2013 partnership returns are due.

April 15 - Individual income tax returns for 2013 are due.


IRS sends notices about "possible income underreporting"

Form 1099-K is a new information return sent to businesses by "payment settlement entities" reporting the amount of credit card and other electronic receipts that were processed for the business.

The IRS also receives a copy of Form 1099-K and cross checks the reported amounts with the business's total income reported on its tax return. Where the numbers don't seem to make sense, the IRS sends notices to businesses telling them they "may have underreported gross receipts." Notices go on to say "This is based on your tax return and Form(s) 1099-K, Payment/Merchant Cards and Third Party Network Transactions that show an unusually high portion of receipts from card payments."

The IRS has sent thousands of letters labeled "Notification of Possible Income Underreporting" to small business owners. The notification project is ongoing as part of the IRS's campaign to deal with the "tax gap," the difference between taxes owed and taxes actually collected.

If you receive a notice, contact us immediately so that we can determine what response is required.


FSA rule is modified again

Flexible spending accounts (FSAs) allow taxpayers to set aside pre-tax dollars to pay for out-of-pocket medical expenses.

The drawback has been the fact that unused amounts each year are forfeited. Plans could provide a 2½ month grace period to use up unspent set-asides.

Now a change announced by the IRS adds more flexibility to these accounts. Plans can be modified by employers to allow up to $500 of unused amounts to be carried over into the following year. Health FSAs cannot have both the old 2½ month grace period and the $500 carryover; they can have one or the other (or neither).


Two financing options for your business: equity and debt

Start-up businesses and long-established firms share common ground in at least one respect: the need for financing. Managers of fledgling companies often debate the best way to obtain funds for buying inventory, heavy equipment, and buildings for making widgets. In the break rooms and suites of Fortune 500 firms, executives also discuss the best ways to cover cash shortfalls and meet capital needs.

Business financing generally comes in two flavors: equity and debt. For small businesses, equity financing often takes the form of contributions by family members, friends, business associates, and investors. For business owners, the biggest drawback to equity financing is loss of control. If Uncle John pumps his savings into your newly formed company, he may want a substantial voice in its day-to-day operations, whether or not he understands your industry or business model. On the plus side, equity contributions may be easier to procure than bank loans or other forms of financing.

Without an established track record, businesses may struggle to obtain debt financing. To extend a loan, a lender must be willing to risk the institution's funds on your business. Loan terms generally compensate for this risk by stipulating an interest rate that reflects the lender's estimate of your credit worthiness. If the lender thinks your firm may struggle making the loan payments, expect a higher rate.

From a business owner's perspective, the signing of loan agreements also carries risk. That's why it's wise to proceed slowly. Take time to develop a formal business plan, cash flow projections, and a realistic picture of the firm's needs. Determine whether alternate forms of financing may be available. Remember that failure to make timely loan payments may adversely affect your company's ability to obtain future financing.

In general, a company should use debt financing for capital items such as plant and equipment, computers, and fixtures that will be used for several years. By incurring debt for such items, especially when interest rates are low, a firm can release operating cash flows for day-to-day operations or new opportunities. For short-term needs, consider establishing a line of credit.

Regardless of the form of financing chosen, all businesses must produce a product or service that others want to buy. Debt should be viewed as a tool - one of many - to help your company thrive.

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11/22/13 - December 2013


DECEMBER 2013


Note these December tax deadlines

December 16 - Due date for calendar-year corporations to pay the last installment of 2013 estimated income tax.

December 31 - Deadline to complete 2013 tax-free gifts of up to $14,000 per recipient.

December 31 - Deadline for paying expenses you want to be able to deduct on your 2013 income tax return.

December 31 - Deadline for taking 2013 required minimum distributions (RMDs).


Time is running out for making tax-smart gifts and donations in 2013

You've worked hard to accumulate and protect your wealth this year. Now might be the time to consider tax-savvy ways to give some of it away.

To begin with, you might consider using the annual gift tax exclusion to give money to your family and friends in a tax-favored manner. Up to $14,000 can be given to any number of individuals per year without tapping into your lifetime federal estate tax exemption. The current lifetime exemption is a lofty $5,250,000, but making $14,000 gifts each year could help lower your taxes if your estate is eventually valued above the exemption amount.

Another way to provide for your family is investing in a student's 529 college savings plan. Such contributions can provide for tax-free appreciation and withdrawals when used for qualified college expenses.

If it's a federal income tax deduction you're after, however, your gifts will need to go to a qualified charity instead. Consider donating appreciated stocks or mutual fund shares owned for more than a year instead of donating cash. You will save on capital gains tax (which will be higher for many taxpayers in 2013) and receive a deduction equal to the market value of the security on the date of transfer.

Gifts of other types of assets, such as real estate, jewelry, and artwork, can also score a deduction this year. Be aware that if the gift is valued over $5,000, a qualified appraisal will be required. And no matter the type of gift, if its value is $250 or more, a tax receipt from the charity is required before you can write it off.

Giving away your resources in a thoughtful and tax-smart way can be as difficult as accumulating them in the first place. For help in making these important and sensitive decisions, contact our office.


Business or hobby? Nine factors help the IRS decide

The dividing line between a business and a hobby may be thin, but it can look like a canyon when you are on one side and your tax deductions are on the other. The gap is a function of differing treatment of expenses. For example, when you incur ordinary and necessary expenses in the operation of your business, those costs reduce the taxable income of the business. In addition, business losses can generally be used to offset income from other sources, such as wages.

When your activity is considered a hobby, expenses can only be claimed to the extent of income from the activity, and are generally deductible as a miscellaneous itemized deduction on your personal return.

Here are nine ways to help convince the IRS that you have a business rather than a hobby.

1. Act like a business. Keep accurate books, adopt new techniques, and adjust your operating methods to improve profitability. Other good moves: advertising, purchasing insurance, and maintaining a bank account used only for the activity.

2. Expand your expertise. The key here is to increase your knowledge of the economic aspects of your business. Seek relevant advice from experts on an ongoing basis.

3. Expend time and effort. Focus your energy on the business to show profit intention. Hiring competent managers also indicates your intention to operate as a business.

4. Invest in appreciating assets. A reasonable expectation that property you purchase will increase in value and help create an overall gain can show profit motive.

5. Create a record of success. Have you run other businesses successfully, whether or not related to the present activity?

6. Establish a history of income. No need to be nervous if your startup loses money the first year or two, or if losses in later years are the result of events that are out of your control, such as natural disasters. The general rule for proving your intention to operate a business is to make a profit in three of the last five years.

7. Show a profit. No set amount of profit establishes business intent. Instead, compare the profit you have the opportunity to earn to the losses you may incur and the amount of your investment.

8. Check financing. How are you financing the business? Do you have substantial income from other sources? Does the activity generate losses that provide tax benefits you might not otherwise enjoy?

9. Limit the fun factor. Liking what you do does not necessarily turn a business into a hobby. However, substantial "recreational" aspects can lend weight to classification of your activity as a hobby.

Remember, no one factor is controlling. Instead, you need a pattern that establishes your intention to make a profit.


Happy Holidays

Thank you for the opportunity to serve you this past year. Your business is appreciated, and your referrals are welcome. Please mention our name to friends and business associates who may need our services.

Warmest wishes for a happy holiday season and a prosperous 2014.

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10/28/13 - November Newsletter


1099s: A little form with a painful bite

When Congress tried unsuccessfully to expand the Form 1099 filing requirements a couple of years ago, at least one thing was accomplished. It raised awareness of an important IRS business reporting rule. And at $100 per infraction, the penalty for ignoring this regulation can be painful.

That's right; the IRS can fine you $100 for each 1099 form that you fail to file, up to a maximum penalty of $1.5 million. The most common Form 1099 is the 1099-MISC, which is used to report payments of $600 or more to vendors who provide services to your business. Examples include payment for repairs, accounting services, consulting fees, and legal advice. Normally if the vendor is incorporated you do not need to send them a 1099-MISC, but there is one important exception. All payments to attorneys must be reported, whether they are incorporated or not.

Timely filing of the Form 1099-MISC is also critical. The form must be filed with the IRS by February 28 (unless you file electronically). But you must provide the vendor a copy of the form by January 31. Electronic filing is optional if you file fewer than 250 forms. If you have 250 or more forms to file, you are required to file electronically. The deadline for electronic filing is March 31.

There are a few more twists. If you pay a vendor for parts and services, you must include the total of both of these on your form as long as the parts or materials were incidental. If materials were the predominate nature of the payment, they are left out. Reporting is also required if you provide non-employees taxable fringe benefits or pay fees to your board of directors.

Looking for an easy solution to these requirements? Pay all your vendors by credit card. You do not have to report payments made by credit or debit card, or by services like PayPal. The bank or third-party payment provider is required to report those transactions.

There are other types of Form 1099s to watch for. A Form 1099-INT is used to report interest payments of $10 or more to an individual in the course of a trade or business. Form 1099-R is used by investment companies to report distributions from retirement accounts and annuities. And businesses that make loans are required to disclose canceled debt on Form 1099-C if the amount is $600 or more.

If these reporting rules leave you uncertain of your responsibilities, give our office a call. A little attention paid now might help prevent a painful penalty later.


Kickoff of health care law for individuals

Although the employer mandate for providing health insurance coverage to workers under the Affordable Care Act (ACA) was postponed for one year – until January 1, 2015 – the rules for individuals remain in place, at least for the foreseeable future. What are your main rights and responsibilities under the ACA? Here's a brief summary.

Essentially, unless you are already covered by an employer's plan, Medicare, or Medicaid, you're required to obtain coverage on your own or pay a penalty. The plan is to have affordable options available through state-operated exchanges. Some low-to-moderate income families may be eligible for various subsidies.

* Insurance exchanges. The health care exchanges in 14 states, as well as the federal government's default exchange, opened for business on October 1, 2013. Coverage will be available as of January 1, 2014, for an open enrollment period ending on March 31, 2014.

The plans offered under the health care law are divided into four categories with metallic names: platinum, gold, silver, and bronze. Premiums range from the highest for a platinum plan to the lowest for bronze. With a platinum plan, out-of-pocket costs such as co-payments are lower, while these costs are higher for bronze plans.

* Tax credits. Individuals can apply for subsidies in the form of tax credits and other reductions to offset the cost of insurance purchased on an exchange. (The tax credits are sent to the insurance companies so individuals don't have to pay up-front.) Credits are available to individuals and families with income between 100% and 400% of the federal poverty level. Therefore, the upper threshold in 2013 is $45,960 for an individual and $94,200 for a family of four. However, even if your income falls below the threshold, you're not eligible for subsidies if your employer's plan meets the coverage standards.

* Penalties. Beginning in 2014, failure to obtain coverage results in a penalty equal to the higher of 1% of your annual income or a flat fee of $95 per person. The fee for uninsured children is $47.50 per child, up to a maximum of $285 per family. The IRS has been given the responsibility of enforcing the penalties.

Do you need more information? Visit the one-stop site for applications at healthcare.gov or call 800-318-2596.


Don't get tripped up by a wash sale

Are you eyeing your portfolio with year-end investment loss harvesting in mind? Before you place those sell orders, take a moment to review the "wash sale" rules.

A wash sale occurs when you sell a stock, bond, or mutual fund and buy the same or a substantially identical security within 30 days before or after the sale. When this happens, you're barred from deducting a tax loss on the sale. Instead, your cost basis of the new security is increased by the loss.

Example. Say you sell 100 shares of XYZ mutual fund at a loss of $3 per share. A week later, you regret your decision and buy another 100 shares of XYZ fund. Your original loss of $300 will be disallowed, and you'll add the $300 to your cost basis in the new shares.

Be aware of a possible trap if you use an automatic purchase plan or dividend reinvestment plan. If these plans cause you to acquire more shares of a stock or fund within 30 days of a sale, the wash sale rules will apply to your sale.

How can you avoid a wash sale? You can avoid a wash sale if you make your purchase more than 30 days before or after the sale date. Also, you can buy shares in a different but similar stock or mutual fund without triggering a wash sale.

If you have questions about the wash sale rules, please call us.


This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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09/26/13 - October Newsletter


Tax filing reminders

* October 1 – Generally, the deadline for businesses to adopt a SIMPLE retirement plan for 2013.

* October 15 – Filing deadline for 2012 individual tax returns on automatic six-month extension of the April 15 deadline.

* October 15 – If you converted a regular IRA to a Roth in 2012 and now want to switch back to a regular IRA, you have until October 15, 2013, to do so without penalty.


Manage your business with a few key numbers

Regardless of the type of business you're running – whether it's selling electronics, making furniture, or servicing automobiles – monitoring a few key financial indicators is often all that's needed to keep your company growing and prosperous. On the other hand, neglecting a firm's vital signs can lead to management by crisis and corrective action that's too little, too late.

A prudent business owner won't wait until the end of the year (or even the end of the quarter) to learn that revenues are declining, inventories are shrinking, or payroll expenses are spiraling out of control. Although annual financial statements provide historical perspective and a wealth of data for long-term planning, correcting current problems is a matter of timely insight and informed analysis. You want to know whether your business is losing money or growing – now, not later.

A company's key financial indicators often fall into one or more of the following categories:

* Orders and returns. Are you selling more units over time? To find out, look at your sales figures by units. Tracking revenues alone may present a false picture. After all, revenues may be growing because prices have increased. If unit sales are declining, you might be losing market share. Are customers returning more and more of your products? Are complaints increasing? If so, it may be time to examine your quality control process or return policy.

* Breakeven point. If you need more cash this month to cover fixed and variable costs, are you generating enough revenue to break even? If you're dipping into reserves to cover revenue shortfalls, adjustments may be required. Expenses may need to be slashed, a new advertising campaign launched, or a new and cheaper supplier procured.

* Liquidity. Knowing the availability of cash is vital to every business. That's why reconciling the firm's bank statements shouldn't be an afterthought. Every month your accountant or bookkeeper should ensure that your general ledger agrees with the bank's records of deposits and withdrawals. If a company is "bleeding cash," the bank statements should tell the story.

* Inventory. Controlling the stuff that's weighing down your retail shelves or accumulating in your warehouse is often a key to profitability. Buying too many items may lead to excessive storage costs; buying too little may lead to burgeoning backorders and lost sales.

* Payroll. Staff size should be commensurate with revenues. Medium-sized firms, especially, may find that labor expenses grow too rapidly. A decline in orders may signal a need to reduce payroll costs.

By carefully analyzing your firm's operations, you'll be able to identify the indicators that provide the clearest view of your company's ongoing profitability.

Over time your business's key numbers may change. The secret is to know your company, identify changing conditions, and adapt. A brief but timely report that presents the numbers that really matter will help to keep your firm on the right track.


What you need to know about estate and gift taxes

Income tax, payroll tax, capital gains tax – the fiscal-cliff law passed in January changed many areas of the Internal Revenue Code, including one you might not have focused on lately: estate and gift taxes. Here's what you need to know.

What's the current estate and gift tax exclusion? The exclusion is the amount you can transfer during your lifetime and via your will before estate or gift tax is due. It consists of two items. The basic exclusion is $5 million, and is adjusted for inflation annually. For 2013, the basic exclusion after inflation adjustments is $5,250,000.

The second part of the applicable exclusion benefits married couples. When you're married, your total exclusion can also include the unused portion of your deceased spouse's basic exclusion. Executors make this "portability" election by filing an estate tax return, even if an estate is not taxable and might not otherwise need to file.

Your personal basic exclusion plus the power to take advantage of portability means you and your spouse can transfer up to $10.5 million to your heirs, free of estate and gift tax.

Can you still make tax-free annual gifts? Yes. During 2013, you can give to as many people as you choose up to $14,000, gift-tax free. If you're married, you and your spouse can combine your individual $14,000 annual exclusions and give up to $28,000 gift-tax free this year. As long as your gifts remain under the annual exclusion amount, they have no impact on your $5.25 million exclusion.

You can also make unlimited payments for unreimbursed medical expenses and tuition, gift-tax-free, when you pay the fees directly to the medical care provider or qualified school. These payments are not considered gifts and do not reduce your applicable exclusion, even if the people who benefit are unrelated to you.

Gifts between spouses are also excluded from gift tax, though an annual limit applies when your spouse is not a U.S. citizen.

If your total assets are less than $5.25 million, do you still need an estate plan? Yes, and here's why: Your estate plan encompasses your will, beneficiary designations, asset titling, trusts, life insurance, powers of attorney, guardianship issues, and end-of-life health care directives. These documents and decisions affect the settlement of your estate as well as the financial interests of your heirs and should be reviewed with your attorney and accountant.

In addition, state tax law can vary from federal rules. An estate plan helps ensure that your family receives the maximum benefit from available credits, deductions, exemptions, and exclusions. Take time to review your plan under the current rules.

Five Things to know about the Affordable Care Act (ACA)

If you are like many other individuals and small business owners you probably have many unanswered questions about the provisions of the Affordable Care Act. Hayes & Associates is dedicated to help you navigate the murky waters of the various provisions of the ACA. If you have more questions than answers please call us to help you understand the implications the ACA may have on you as a business owner or individual.

Here are 5 things as a business owner you need to know about The Affordable Care Act (ACA):

 1) The Affordable Care Act creates health insurance exchanges to assist you in the purchase of health insurance coverage either as an individual or small business.
 
 2) If you have fewer than 50 full time equivalent employees, the provisions of the ACA impacts on your business are different than larger businesses.
 
 3) The ACA provides a tax credit to small businesses with no more than 25 full time equivalent employees that offers health insurance to their employees.
 
 4) All health plans in the exchanges are required to provide a minimum set of benefits which are termed Essential Benefits.
 
 5) Contact Hayes & Associates if you have any questions.

 


This newsletter provides business, financial, and tax information to clients and friends of our firm. This general

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08/30/13 - September Newsletter


Tax filing reminders

* September 16 – Third quarter installment of 2013 individual estimated income tax is due.

* September 16 – Filing deadline for 2012 tax returns for calendar-year corporations that received an automatic extension of the March 15 filing deadline.

* September 16 – Filing deadline for 2012 partnership tax returns that received an extension of the April 15 filing deadline.

* October 1 – Generally, the deadline for businesses to adopt a SIMPLE retirement plan for 2013.

* October 15 – Deadline for filing 2012 individual tax returns on extension.


Make your plan accountable for best tax treatment

Are you looking for a way to give your employees a tax-free benefit that is also tax-deductible for your business? Why not consider an accountable plan?

An accountable plan is an arrangement that lets you reimburse your employees for expenses incurred on behalf of your company, such as driving to the post office or supply store. With a properly administered plan, you can deduct the reimbursements on your business tax return; yet the payments are not considered income to your employees.

How can you make sure your plan qualifies?

* First, the reimbursements must be for allowable business expenses. For instance, you can repay employees for hotel and other travel expenses when traveling to a trade convention.

* Second, your employees need to keep records of the expenses and provide those records to you.

* Third, if you pay or advance your employees more than the amounts spent on business items, the extra must be returned, generally within 120 days. Amounts not returned to you are income to your employee, and are subject to payroll taxes.

The requirements are applied to each employee, and you can have more than one plan.

Contact us to discuss your policies for repaying employees' business expenses. We'll help you make your plan accountable.

 
Avoid six common mistakes in selling a business

Most entrepreneurs eventually think about selling their businesses, whether as a prelude to retirement or to pursue other activities. In doing so, they often underestimate the effort required for a satisfactory outcome and overestimate the value and salability of their enterprises. If you're contemplating selling, here are some common mistakes to avoid.

1. Overestimating the value of your business.

Your price should be based on the fair market value of the business in its current form. Buyers won't care about the work you've put into building your business or your unique vision for its future.

2. Failing to account for the nature and make-up of your business.

The values of most businesses proceed from a mixture of variables. If your business includes significant equipment, real estate, intellectual property, or other such assets, their values should be separately established before being factored into the overall price. If you're selling a service or professional firm, much of its value may depend on the experience and skills of your managers and employees. In such a case, the price may vary according to the expected retention of key individuals.

3. Failing to base your sale price upon independent appraisals.

Even if you think you know the value of your business, you should obtain two or more outside appraisals from professionals familiar with your industry. If the appraisals conflict with your opinion, they'll provide a much-needed reality check. If they confirm your opinion, they'll become a useful sales tool.

4. Not hiring a professional business broker to handle the sale.

Owners are often too personally invested (and/or eager to sell) to effectively negotiate sales of their businesses. A broker familiar with your type of business will know what issues are important to buyers and what characteristics to emphasize or de-emphasize, without becoming emotionally involved.

5. Neglecting to work with the buyer to ensure a smooth transition.

Nobody likes being thrust into unfamiliar circumstances without preparation. Notifying your managers, employees, and customers in advance and doing all you can to allay their concerns will serve your own best interests, as well as being the honorable thing to do. Discontent on the part of any of the affected parties could result in conflicts, reduced revenue for the buyer, withheld sale payments, and litigation.

6. Being unwilling to help finance the sale.

If you're unwilling to take back a note, your sale price is limited to the buyer's cash and ability to obtain outside financing. At best this could limit the number of potential buyers, and at worst it could limit your sale proceeds. (Conversely, if you finance too much of the sale price, you'll increase the risk of default.)

Selling your business is too important to attempt without professional help. If you're considering selling, call us for an appointment to help formulate your plan.


This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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08/05/13 - August Newsletter


CELEBRATING OUR 3OTH!

We are celebrating our 30th year of service to the Omaha and Council Bluffs metropolitan area. We opened our doors in 1983 as a one man shop and have since grown to two locations with 21 employees.

Our goal has always been to provide reliable, expert accounting, auditing and tax preparation services and to build strong professional relationships with our clients.  Thanks to your overwhelming response to our dedicated service, our goal of being your trusted advisor has been realized.

Thank you, we appreciate each of you and your continued support!

 

IRS publishes 2014 HSA contribution limits

The IRS recently announced the inflation-adjusted contribution limits for health savings accounts (HSAs) for 2014. HSAs allow taxpayers with high-deductible health insurance plans to set aside pretax dollars that can be withdrawn tax-free to pay unreimbursed medical expenses. The 2014 contribution limit for individuals is $3,300; the limit for family coverage is $6,550. A catch-up contribution of an additional $1,000 is permitted for individuals who are 55 or older.


Medicare taxes can be harmful to your financial health

Two new Medicare taxes will inflict pain on the wallets of many higher-earning taxpayers, especially those with significant investment income. Knowing how these taxes are calculated might be your best remedy.

Single wage earners will have to pay an additional 0.9% Medicare tax on any pay exceeding $200,000. This is on top of the 1.45% tax already owed under the previous rules. Joint filers will pay the extra 0.9% on combined wages exceeding $250,000.

Your employer is responsible for withholding the extra tax, but they probably won't know how much your spouse earns. So if the salaries of you and your spouse individually are under $200,000 but combined are over $250,000, you will owe the tax when you file your return. This means quarterly estimated tax payments may be required.

The second new Medicare tax affects your investment income. You could pay an extra 3.8% tax on your interest, dividends, rental income, and capital gains. This is in addition to any capital gains or dividend income tax you might already owe.

Here is how it works. You first calculate your Modified Adjusted Gross Income (MAGI). The amount of MAGI that exceeds $250,000 for a joint filer ($200,000 for singles) is compared to just your net investment income. Whichever figure is smaller is multiplied by 3.8% to arrive at your tax. So it's possible that all of your investment income will be subject to the tax.

Now that you know how the new taxes work, here is how you can help avoid their impact. Before accepting any discretionary wages, watch the thresholds to see if you might owe the 0.9% tax. Minimize the 3.8% investment income tax by having as much of your portfolio in a tax-free retirement plan as possible. And keep your withdrawals from a regular 401(k) or IRA at a minimum to lower your MAGI.

This might also be the time for a Roth 401(k) or Roth IRA. Withdrawals from these are never included in MAGI.

In a taxable account, consider investing in municipal bonds which pay interest exempt from the 3.8% tax. Try to unload stocks that have lost value whenever you sell appreciated securities to help offset net capital gains with losses. Having growth stocks that pay very little in dividends might also make sense.

In the past, paying Medicare taxes was simple. Now these too require a little planning. Call our office for help in mitigating the painful effects of the new Medicare taxes.


Can happy employees equal healthy profits?

It is said that living by the Golden Rule – treating others as you would like to be treated – pays dividends. Can this be true in a small business work environment too? Business owners are increasingly finding that treating employees well can boost profits.

Creating a contented workforce is simply a matter of maintaining your most precious business asset. This can benefit your company in three ways. First, it lowers employee turnover, which in turn lowers new-hire training expenses and flattens learning curves. Second, a well-treated employee is often a harder working employee, one who is more apt to put in the additional hours when needed. This extra effort can also help cement relationships with your customers as they discover that your employees will do whatever it takes to get the job done. And finally, gaining a reputation as a good place to work will naturally draw higher-quality job prospects.

So how can a small business with limited resources become an attractive place to work? The first step might be to just show employees you care. Offer your workers as many tax-favored benefits as is feasible. The rules keep changing, so you will need to stay current on the latest employment perks. Our office can help you with that.

Also, monitor company morale and routinely ask for employee feedback. When good ideas come from your rank and file, give them the proper credit. And as you become aware of special situations affecting the personal lives of your employees, consider helping them beyond what is required.

Another method for retaining good employees is regular investment in training. A solid core of well-trained employees not only maximizes company effectiveness and profitability, it sends an unmistakable message that your employees have a future with your company.

Fundamental to a contented workplace is a set of fair and consistent employment policies. Establish an employee handbook of rules to work by, and apply those rules to everyone in a consistent manner. Create written job descriptions and strive to communicate expectations clearly. And when your company is headed for big changes, keep everyone as informed as possible. An old business axiom, "never create more change than you can communicate" still holds true today.

Becoming a great place to work is not just the domain of Wall Street companies. Small businesses can also create favorable work environments. It just takes a little application of the Golden Rule.


Look into energy credits

The IRS reminds taxpayers that certain energy credits are still available. If you haven't already taken advantage of them, this may be the year to make energy-efficient improvements to your home. You may be entitled to a credit of 10% of the cost of certain energy-saving improvements such as insulation, windows, doors, skylights, and roofs.

The credit has a maximum lifetime limit of $500; the credit for windows is limited to $200. Not all energy improvements qualify, the IRS cautions taxpayers, so be sure you have the manufacturer's credit certification statement (usually available with the product's packaging or on the manufacturer's website).


This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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07/01/13 - July Newsletter




Give your children a good financial education

Financial illiteracy appears to be rampant in the younger generation. The same kid who is adept at using a smartphone or iPad may have trouble with basic math skills, balancing a checkbook, or managing money.

Knowing about money – how to earn it, use it, invest it, and share it – is a critical life skill. Unfortunately, such skills are often given short shrift in our education system and homes. Recent surveys have highlighted an astonishing level of ignorance in today's teenagers when questions about simple financial concepts are raised. For example, one survey found that only 26% of teens understood credit card interest, and only one in three could read a bank statement or balance a checkbook.

If you haven't already started teaching your children about money and finances, you're neglecting an important part of their education. But where do you start? Perhaps begin with the following benchmarks of financial literacy.

* Time value of money. One of the most essential of all financial concepts is the time value of money. Children should be shown the benefits of saving money, watching it grow, and patiently deferring purchases until a future time. When children grow a little older, they can learn the reverse lesson: how debt today results in accumulated interest costs down the road. To illustrate the point, show them a loan amortization schedule for a typical car or home loan. That should get their attention.

* Transactional skills. In today's cashless society, your children will someday need to know how to write a check, how to use a debit or credit card, and how to bank online. When they are ready, consider taking them to the bank, introduce them to a representative, and set up their first checking account and bank card. Children will appreciate this rite of passage to adulthood, and they will learn how to use an ATM or bank website correctly.

* Good records. You might feel a little hypocritical when pointing out your children's recordkeeping shortcomings, but they probably need your help more than you think. Knowing how to reconcile a checkbook and track where they spend their money is a valuable life skill. Developing a system for safely storing receipts, warranties, and other valuable papers is also important. When your child begins driving, point out the location and importance of the vehicle proof of insurance and registration.

* Investment concepts. Introduce your child to investment basics by having him or her acquire shares of one or more stocks or mutual funds. Your child can learn a lot by charting the investment's progress on a regular basis.

* Borrowing money. Even if you act as the lender, your child can learn valuable lessons by borrowing a small amount of money. Again, an online calculator will indicate how compounded interest piles up. Your child will likely be encouraged to avoid debt.

* Taxes. It's not what you earn, but what you keep that matters. Show how taxes can erode earnings and why they must be factored into financial decisions.

* Set a good example. The way you handle your money may be the most powerful lesson of all for your children. For your child's sake, as well as your own financial well-being, it's important to practice what you preach.


Recordkeeping: How to get all that paper under control

It's spring cleaning time, and that includes your tax paperwork. While it can get a bit confusing, there are some general guidelines that you can follow.

* Income tax returns. These should be kept indefinitely. You would be amazed how many times the IRS will "lose" a tax return, and this is your only way to prove original filing. You should also keep the various back-up documents associated with the return, such as W-2 forms, mortgage interest statements, year-end brokerage statements, interest/dividend income statements, etc. This may seem like overkill, but you never know when you might need these documents for other purposes.

* Supporting documents. These are things like cancelled checks, receipts, expense and travel diaries. With respect to retaining these items: three years minimum, five years is better, and seven years is best. How long you keep these records depends on your storage area and audit potential.

* Stock/bond/mutual fund purchase confirmations. These are documents that you need to retain during the time that you own the stock or mutual fund. They can be destroyed 3/5/7 years after the date of the sale of these assets. While many brokers are now reporting your fund purchase price, many records are still unavailable to them, so they cannot report your cost basis. It's ultimately up to you to prove your cost of these purchases.

* Real property escrow/title statements. These are the documents that you receive when you purchase property. They are provided to you at your property closing by your title agent, escrow agent, or attorney. These are also documents that you need to retain during the time that you own the property in order to prove your purchase price at the time that you sell the property. The ultimate purging of these documents also follows the 3/5/7 year provisions after the date of the sale.

And when you do finally decide to get rid of those old documents, do so carefully. Many documents will carry your social security number, bank/brokerage account number, and other bits of information that could lead to theft of your identity. So make sure that any documents that you get rid of are properly shredded or otherwise completely destroyed


Budget issues force IRS closures

The IRS will close all of its operations on June 14, July 5, July 22, and August 30, 2013. The current budget situation, including the sequester, has made these closures necessary. IRS employees will be furloughed without pay on these days. Taxpayers should continue to file returns and pay any taxes due as usual, though on these days the IRS will not answer toll-free hotlines or accept or acknowledge receipt of electronically filed returns. Electronic deposits of employment and excise taxes must be made as usual.


Tax filing reminder:

July 31 is the deadline for filing 2012 retirement or employee benefit returns (5500 series) for plans on a calendar year.


This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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06/03/13 - June Newsletter



Reminder: Second estimated tax payment due June 17

June 17, 2013, is the due date for making your second installment of 2013 individual estimated tax. Your check to the United States Treasury should be accompanied by Form 1040-ES. June 17 is also the due date for calendar-year corporations to make their second quarter 2013 estimated tax payment.


Does your 2013 withholding need adjusting?

If you have a sizable refund of your 2012 taxes, it may be time for you to check your withholding. After all, when you overpay your taxes, you're making an interest-free loan to the government.

Reducing your withholding is as simple as filing a new Form W-4 with your employer. The form comes with a worksheet to figure out how many allowances you should claim. Don't forget to allow for other taxable income besides wages, such as dividends or investment gains.

If you're concerned about underpaying taxes and exposing yourself to penalties, there are a few rules you should know. Generally, you won't face a penalty if you pay for 2013, through withholding or quarterly estimated payments, at least 100% of your 2012 taxes (110% if your adjusted gross income is over $150,000), or if you pay at least 90% of what you'll owe for 2013.


Don't fall for bogus IRS e-mails and websites

Crooks wanting to steal your identity are using bogus e-mails and websites designed to look like genuine IRS communications. You might expect the April 15 filing deadline to mark the end of these scams, but they, in fact, are expected to continue for months.

An example of these bogus e-mails: You receive a message confirming IRS receipt of your tax return, but the IRS needs more information to process your return. The e-mail looks official and completely legitimate. But it isn't. The IRS does NOT contact taxpayers asking for personal and financial information. These e-mails should be deleted immediately. Fake IRS websites are also created by scammers to lure victims into filling out forms providing information that results in identity theft.


IRS announces 2013 deduction limits for business vehicles

The IRS has published depreciation limits for business vehicles first placed in service this year. The limits for passenger autos remain the same as the 2012 limits, but limits for light trucks and vans have some changes.

Because 50% bonus depreciation is allowed only for new vehicles, the limits are different for new and used vehicles. Here's a quick review.

For new business cars first placed in service this year, the first-year depreciation limit is $11,160; for used cars, it's $3,160. After year one, the limits are the same for both new and used cars: $5,100 in year two, $3,050 in year three, and $1,875 in all following years.

The 2013 first-year depreciation limit for light trucks and vans is $11,360 for new vehicles and $3,360 for used vehicles. Limits for both new and used vehicles in year two are $5,400, in year three $3,250, and in each succeeding year $1,975.

For details relating to your 2013 business vehicle purchases, contact our office.


A bank line of credit: Should your business have one?

Just exactly what is a bank line of credit and who should be using one? A bank line of credit is not a great deal different from a credit card. You make draws against your line of credit from time to time as you need cash. You pay interest only on the amount of the loan balance outstanding. You are expected to make payments and occasionally bring your outstanding balance to zero. Let's look at an example.

Let's say that your bank has arranged for you to have a $100,000 line of credit. You are not obligated to draw any of it at any given time, and you will pay no interest until you actually make a draw (much as you do with a credit card).

Assume that you want to build up your inventory for the holiday shopping season and need $30,000 to do so. After your inventory purchase, you still have $70,000 available even if the $30,000 is still outstanding, but you are only paying interest on the $30,000. You may have several occasions during the year to borrow on your line of credit. Since your line of credit is intended for short-term cash needs, your banker expects your balance to be paid down as your cash flow improves.

Do not use a line of credit for capital purchases. If you need to expand your building or buy new equipment, arrange a term loan for that specific acquisition. You should not use a credit card for such an investment, and you should not use your line of credit for that either.

If your business has at least two years of making a profit, you may well qualify for a bank line of credit. Start by checking with your current bank. Your banker would like to keep your business, and if your financial statements support it, you will most likely be offered a loan. Lines of credit for small amounts may not require collateral. On larger loans, you may need to put up collateral, and you may need a co-signer.

A bank line of credit can make your operation more efficient. There is comfort in knowing that you have a reliable source of instant cash for your short-term needs.

Most banks are willing to make loans to businesses that have uneven income cycles. You may want to shop around for the best loan terms. Some banks may already have several customers in your industry and do not want more (perhaps a bank examiner's concern). Accordingly, their terms may be less favorable than some other bank or credit union.

Please contact us if you would like assistance in preparing a request for a bank line of credit.


Schedule midyear tax planning soon

As summertime approaches, tax planning is probably the last thing on your mind. The problem is that if you wait until December, there's little time for changes to take effect. But if you take the time to plan now, you still have six months for your actions to make a difference on your 2013 tax return.

Making time for 2013 tax planning now not only helps reduce your taxes, but also helps to put you in control of your entire financial situation. Tax planning should be a year-round process, but it's especially effective at midyear. Give us a call for guidance in implementing the best moves for your particular situation.


This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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04/30/13 - May Newsletter


MAY 2013


Foreign asset reporting: You may need to file two forms

Do you know where your money is? If some of it is offshore, you might have tax reporting responsibilities – and those responsibilities generally go further than checking the familiar box on the Schedule B you submit with your federal income tax return. Here are two.

1. FBAR. Foreign bank account reporting has been required since 1970, so you may be familiar with "Form TD F 90-22.1," commonly known as "FBAR." Unless you qualify for an exception, that's the form you fill out when you control assets in a foreign financial account and the total value of your account exceeds $10,000 at any time during the calendar year.

The FBAR is an annual information form, filed separately from your federal income tax return. You may need to file it even if you receive no taxable income from your foreign account.

The due date for the FBAR differs from Form 1040 as well. Your 2012 FBAR must be received by the Treasury Department no later than June 30, 2013. No extension is available. "Received by" means you'll need to mail the FBAR before June 30. Since that's a Sunday, your return must reach its destination by Friday, June 28.

You can also file electronically.

2. Form 8938. The requirement to file "Form 8938 – Statement of Specified Foreign Financial Assets" began in 2011. Whether you have to complete Form 8938 depends on your federal income tax filing status, and if you're living in the U.S. or abroad.

For example, say you're married filing a joint return, and live in the U.S. You may be required to file Form 8938 if the total value of your reportable foreign assets is more than $100,000 on December 31, or more than $150,000 at any time during the year.

Reportable foreign assets include accounts at foreign banks and financial institutions, as well as certain stocks, bonds, and foreign investments. When determining if you meet the threshold for filing, consider the entire value of accounts you own jointly with someone other than your spouse, as well as assets owned by your dependent children.

File Form 8938 with your federal income tax return. Depending on the amount and type of your foreign accounts and other assets, you might need to file both the FBAR and Form 8938.

Please call if you need details or assistance with your filing responsibilities and options.


Don't overlook tax planning in a divorce

Tax rules are daunting at the best of times – and they're more so at the worst of times, such as during a divorce, when you may feel too stressed to face decisions involving your taxes. Yet the choices you make will affect your future, both financially and personally. Here's where to start.

* Filing status. For tax purposes, the timing of your divorce matters. The date of your final decree determines your filing status, which in turn has an impact on what you'll owe.

Will your divorce be final by the last day of your tax year (generally December 31)? If so, you'll file your income tax return as single or head of household. You can also use one of those filing statuses if you were legally separated according to the laws of your state by the end of your tax year.

If your divorce is closed after the end of your tax year, you're considered married for that year. In that case, you'll choose between married filing jointly and married filing separately. Head of household status may be available in certain situations.

Tip: Remember to adjust the income tax withholding statements you have on file with your employer.

* Exemptions. When you prepare your federal income tax return for 2013, you can deduct $3,900 for each qualified child or relative that you claim. In addition, you get the benefit of other credits and deductions related to your dependent, such as the child tax credit.

The general rule: You're the custodial parent if you're the one your child lives with for the majority of the year. You can release your claim to the exemption by filing a form with your return. The release will also allow your former spouse to claim the child tax credit.

Tip: Consider adjusted gross income and your exposure to the alternative minimum tax when discussing who will get dependency exemptions.

* Asset transfers. In general, ex-spouses can make a tax-free transfer of assets within a year of the divorce. "Tax-free" means the initial transfer is considered a gift, so you'll want to make sure you're fully informed about the basis of assets you receive. Why? Because you get the same basis and holding period your ex-spouse had before the transfer. That will be important when you sell the assets later.

Another caveat: Some types of property, such as retirement plans, have extra rules to be aware of. For example, to remain tax-free, a transfer from your traditional IRA to your spouse must be mentioned in your divorce decree, and should take place post-divorce, via a direct transfer to the new account.

Splitting assets in your 401(k) or other qualified retirement plan requires a "qualified domestic relations order," a document you must get from the court.

These are just a few of the taxing aspects of divorce. Contact us for planning and advice specific to your situation.


May 15 deadline for nonprofit organizations

Tax-exempt organizations are required to file annual reports with the IRS by the 15th day of the fifth month after their year-end. Those with gross receipts below $50,000 can file an E-postcard rather than a longer version of Form 990. For calendar-year organizations, the filing deadline for 2012 reports is May 15, 2013.


This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation.For further details on any article, please contact us.

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04/02/13 - April Newsletter


It’s tax filing deadline time


Monday, April 15, is the deadline for filing certain returns and taking certain tax-related actions. Here are the major deadlines.

* Filing 2012 income tax returns for individuals. If you cannot file your return by this deadline, be sure to file an extension request by April 15. The automatic extension (you don’t need to explain to the IRS why you need more time) gives you until October 15, 2013, to file your return. An extension does not, generally, give you more time to pay taxes you still owe. To avoid penalty and interest charges, taxes must be paid by April 15.

* Filing 2012 partnership returns for calendar-year partnerships.

* Filing 2012 income tax returns for calendar-year trusts and estates.

* Filing 2012 annual gift tax returns.

* Making 2012 IRA contributions.

* Paying the first quarterly estimate of 2013 individual estimated tax.

* Amending 2009 individual tax returns (unless the 2009 return had a filing extension).

* Original filing of 2009 individual income tax return to claim a refund of taxes. Some taxpayers have tax refunds due them for prior years, and unless a return is filed to claim the refund by the three-year statute of limitations, the refund is lost forever.

 

You can’t change your mind after you convert


Under the new tax law, it is now easier to convert your employer-sponsored retirement plan such as a 401(k), 403(b), or 457 into a Roth IRA account. This is similar to converting your traditional IRA into a Roth IRA, but with one very significant difference.

When you convert a traditional IRA into a Roth IRA, you can change your mind and undo this conversion (also known as a recharacterization) by October 15 of the following year. This may make sense when the value of the account has dropped since you did the conversion, because you do not want to pay tax on a higher value than the account currently has.

When you convert an employer-sponsored retirement plan, you do not have the option of undoing the conversion by October 15. Once you convert your employer-sponsored retirement plan into a Roth IRA, it cannot be undone.

If you decide to convert your entire 401(k) into a Roth IRA, the entire balance will be taxable in the year of the conversion.

If you want to take advantage of this new provision, please contact our office first because there are some very important tax planning consequences to consider. If done without proper tax counsel, you may be paying more taxes than you should. In light of the new tax law, there are now more variables that need to be considered in your tax planning.

 

Watch for hazards when buying a franchise

With a franchise, you don’t have to start a company from scratch. Whether the business sells fast food, automotive services, gourmet coffee, or dry cleaning, successful franchises are usually based on a proven business idea and a recognized brand name. The best franchisors can jump start a business by providing staff training, location advice, and detailed operations manuals. And some have ongoing relationships with financial institutions, which can help when you’re searching for start-up capital.

But buying into a franchise requires careful analysis and a healthy dose of skepticism. Before taking the plunge, watch for these hazards:

* Unrealistic forecasts. Sometimes predicted revenues do not materialize. That’s because early entrants may have cornered the most profitable territories already. So be aware that rosy forecasts based on historical data do not always pan out. Get market research for the area you’ve staked out (preferably from several sources), and determine the least amount of revenue you’ll need to cover costs and remain profitable.

* Unanticipated costs. In addition to an initial outlay for franchise rights, you’ll incur numerous out-of-pocket costs. These might include advertising, inventory and supply expenses, additional fees for training staff, legal expenses, and so on. Generally, you’ll also pay a continuing royalty on sales whether or not you make a profit. Failure to factor in these additional costs can sink a business before it gets started.

* Undependable franchisors. This is one area where research is vital. Contact other franchisees and ask about their experiences with the company. Have they been satisfied with the company’s support, including training, the quality of goods delivered, and ongoing relationships? Take a hard look at the company’s key management staff. How long have they been in business? What experience and education did they bring to the company? How many of their franchises have failed and why?

* Unproven business model. If you’re considering a franchise that’s not exactly a household word, use caution. Of course, jumping in during the initial stages of a fast-growing franchise can be especially lucrative. But there’s no substitute for proven marketability. Often a great idea on paper needs to be tweaked (or overhauled) when a company enters the marketplace. Unless you can live with significant risk – including the potential loss of your investment – steer toward a franchise with a solid track record.

If franchises are on your mind, give us a call for help with your analysis.

 


Filing reminder for tax-exempts


Tax-exempt organizations are required to file annual reports with the IRS. Those with gross receipts below $50,000 can file an E-postcard rather than a longer version of Form 990.

The deadline for nonprofit filings is the 15th day of the fifth month after their year-end. For calendar-year organizations, the filing deadline for 2012 reports is May 15, 2013.

 

This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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03/01/13 - March Newsletter



March 1 filing extended for farmers and fishermen


The IRS had to delay the start of this year’s tax filing season until it completed programming changes made necessary by the late passage of the American Taxpayer Relief Act of 2012 (signed into law on January 2, 2013).

Normally, farmers and fishermen are not required to make quarterly estimated tax payments if they file their tax return and pay taxes due by March 1 of the following year. The filing delay created by the new law meant that several tax forms needed by these taxpayers would not be ready on time.

As a result, the IRS has announced an extension of the March 1 filing deadline for farmers and fishermen to April 15. The filing extension will apply to all farmers and fishermen, not just to those who use late-released IRS forms. To qualify as a farmer or fisherman for 2012, at least two-thirds of the taxpayer’s gross income for 2011 or 2012 must have come from farming or fishing.


IRS offers a simplified home-office deduction


The IRS is reducing the recordkeeping required for the home-office deduction, effective for 2013. Taxpayers who qualify may use a new optional deduction calculated at $5 a square foot for up to 300 square feet of an area in a home that is used regularly and exclusively for business. The deduction is capped at $1,500 a year.

Taxpayers opting for the simplified deduction cannot depreciate a portion of the home as they can under the other method. However, business expenses not related to the home, such as advertising, supplies, and employee wages are still fully deductible. This simplified option is available starting with the 2013 tax return which will be filed in 2014.

 


Consider a buy/sell agreement for your business


Every business should give serious consideration to how the company would deal with the death, disability, or departure of one of the owners. Like a will, a buy/sell agreement spells out how assets and other business interests will be distributed should an owner quit, become disabled, or die.

Without such an agreement, complications arising from ownership succession may capsize an otherwise thriving company. The remaining owners might be forced to share management and profits with unskilled or contentious outsiders. They may be embroiled in legal disputes over business assets and liabilities. A firm’s internal squabbles may spill over to customer service, resulting in lost sales. If the firm’s ownership seems doubtful or its future uncertain, creditors might accelerate collection efforts, bringing unwanted pressure on company resources.

The possible death of an owner isn’t the only reason to prepare a buy/sell agreement. Sometimes an owner voluntarily decides to leave a company. By providing a mechanism for assessing a firm’s value and ensuring that all parties are treated equitably, a carefully crafted buy/sell agreement will facilitate that kind of transition as well. At a minimum, a buy/sell agreement should cover the following:

* Triggering events. What happens if an owner dies, becomes disabled, or leaves the company? What happens if he or she files for divorce or is caught skimming profits? The buy/sell agreement should spell out the company’s response to such events, including how assets will be transferred, stock ownership controlled, and voting rights secured by the remaining owners.

* Valuation. The agreement should lay out how the business will be valued should a triggering event occur. For example, it might include a specific price for an owner’s interest or specify a formula for determining the company’s value. It might even name a specific firm to conduct the valuation. If the triggering event is the death of an owner, the buy/sell agreement might also guarantee a specific lump sum to be paid to the deceased owner’s estate.

* Buyout method. If one owner leaves the firm, becomes disabled, or dies, the buy/sell agreement should contain provisions specifying how remaining owners will buy out the interest of that partner. (In many cases, owners use life or disability insurance proceeds to fund a buyout.)

To ensure that the buy/sell agreement remains relevant and up to date, owners should review it periodically and revise it as needed. For assistance, contact us and your attorney.

 


Prior-year health care reform law changes 2013 tax rules


The 2010 health care reform legislation included several provisions that go into effect this year. Among them is the increase in Medicare taxes for taxpayers with incomes above certain levels. Here are some of the changes that could affect you.

* Medical expense itemized deduction. The 7.5% income threshold for deducting unreimbursed medical expenses increases to 10% for taxpayers under age 65. Those 65 and older may continue to use the 7.5% threshold through the year 2016.

* FSA contributions. The limit on contributions to health care flexible spending accounts (FSAs) is lowered to $2,500.

* Medicare tax on earned income. The payroll Medicare tax will increase from 1.45% of wages to 2.35% on amounts above $200,000 earned by individuals and above $250,000 earned by married couples filing joint returns. The tax increase will also apply to self-employment income exceeding the threshold amounts.

Employers are required to withhold the additional tax from wages exceeding $200,000, regardless of the individual’s filing status. They are not required to inform the employee when they begin the additional withholding, nor are they required to match the additional withholding.

* Medicare tax on unearned income. There is a new 3.8% Medicare tax on unearned income for single taxpayers with adjusted gross income over $200,000 and married couples with income over $250,000. The tax will apply to the lesser of (a) net investment income, or (b) the amount by which modified adjusted gross income exceeds the $200,000/$250,000 thresholds. The tax may require adjustments to the estimated taxes paid by an individual, but it does not have to be withheld from wages.

Examples of unearned income include interest, dividends, capital gains, royalties, and rental income. Social security benefits, alimony, tax-exempt interest, and distributions from most retirement plans are examples of unearned income not subject to this new tax.

 


Tax filing reminders for March


* March 15 – 2012 calendar-year corporation income tax returns are due.

* March 15 – Deadline for calendar-year corporations to elect S status for 2013.

 


This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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01/30/13 - February Newsletter


IRS plans a late start to the 1040 filing season


The delayed passage of the American Taxpayers Relief Act of 2012 has put the IRS behind schedule. Due to several provisions of the law affecting 2012 tax returns, the IRS could not open the Form 1040 filing season for the majority of taxpayers until late January.

Those taxpayers filing Form 5695 (Energy Credit), Form 4562 (Depreciation), and Form 3800 (General Business Credit) will not be able to file until late February or possibly not until March. Apparently a large percentage of taxpayers in this group typically file later in the season because they have more complex returns.

The IRS must complete the updating of forms and computer programming and testing before it is ready to accept any filings either on paper or electronically. The IRS said that taxpayers will receive refunds faster by e-filing and using direct deposit.

We are ready to assist you in preparing any of your 2012  or other tax filings. Please contact us today for an appointment 402-390-2480.

 


Straight talk on carrybacks and carryforwards


The timing of taxable income and deductions for federal income tax purposes is relatively straightforward. Generally, income is taxable in the year it is earned and received. Likewise, deductible expenses incurred and paid this year can offset taxable income on this year’s return. The Internal Revenue Code is riddled with exceptions, but these basic rules usually apply, especially for calendar-year taxpayers.

The tax law also includes several provisions commonly referred to as “carrybacks” and “carryforwards” (or “carryovers”). As their names imply, the tax item can be carried back to a prior year or carried forward to a succeeding year.

Two items that are often carried forward by individuals are capital losses and excess charitable deductions. For instance, capital losses realized in 2012 offset capital gains plus up to $3,000 of ordinary income for the year. If you have an excess capital loss of $10,000, you can carry forward $7,000 to 2013 after offsetting $3,000 of ordinary income in 2012.

Similarly, your current deduction for charitable donations may be limited by one or more percentage thresholds in the law. For example, donations of appreciated property are generally limited to 30% of your adjusted gross income (AGI). If you exceed the 30%-of-AGI limit this year, you may carry over the excess for up to five years.

Carrybacks aren’t as common, but may also be available in certain situations. Take a “net operating loss” (NOL) sustained by your small business. If you have an NOL in 2012, you can carry back the loss for two years. Thus, you’re effectively able to reduce your tax liability for one or two of the previous years for a refund of taxes already paid. Then you can carry forward any remaining NOL for up to 20 years. If it suits your purposes, you can elect to waive the NOL carryback. For more information on carrybacks and carryforwards, give us a call. We can help you make the best tax return choices for your situation.

 


Dependents can be a complicated tax issue


Most taxpayers believe that a “dependent” is a minor child that lives with them. While that is essentially correct, dependents can include children and parents, other relatives and nonrelatives, and even children who don’t live with you. There is really much more to the dependent deduction than you might at first imagine.

* Exemptions and your taxable income. For 2012, each dependent deduction is worth $3,800, reducing your taxable income by this amount. In 2013, the deduction increases to $3,900 and is phased out for high income taxpayers.

* Dependents defined. It’s impossible to present all of the rules relative to dependents here, since they are so complicated. Generally speaking, if somebody lives with you and you provide more than half of that individual’s support for the entire year, there is a good chance that person is a dependent. There are many exceptions. For example, parents don’t have to live with you if they otherwise qualify, but some other relatives do. A child of divorced parents doesn’t necessarily have to live with the noncustodial spouse for the dependent deduction to apply.

* People who can’t be claimed. Generally, you may not claim a married person as a dependent if that person files a joint return with a spouse. Also, a dependent must be a U.S. citizen, resident alien, national, or a resident of Canada or Mexico for part of the year.

* One dependent deduction per individual. If you claim yourself as your own dependent, anybody else who can truly meet the tests and claim you as a dependent will lose out. This is common for college students who file their own tax returns for their part-time jobs, while mom and dad really meet all of the qualifications to claim the dependent exemption.

While the dependent deduction might seem relatively minor, it can lead to other deductions on the tax return. In order to claim the child tax credit, the education credits, the dependent care credit, for example, you must claim the dependent deduction for the child that qualifies for the deduction or credit.

Finally dependent deductions can be negotiated, which is especially important for divorced taxpayers. In the past, the IRS would accept the language of the divorce decree to allow the noncustodial parent the dependent deduction. However, under the current rules, the IRS will no longer accept a divorce decree in lieu of IRS Form 8332 (Release of Exemption).

 


February tax filing reminders


* February 28 – Payers must file information returns, such as Form 1099s, with the IRS. This deadline is extended to April 1 for electronic filing.

* February 28 – Employers must send Form W-2 copies to the Social Security Administration. This deadline is extended to April 1 for electronic filing.

* March 1 – Farmers and fishermen who did not make 2012 estimated tax payments must file 2012 tax returns and pay taxes in full.


This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

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