TAX TIPS FOR JOB SEEKERS

With unemployment so high right now, many people are looking for jobs.There may be some tax advantages by deducting costs related to job search. The amount is limited because you can only claim job search expenses as an itemized deduction (long form) and only the amount that is more than 2 percent of your adjusted gross income.You figure your deduction on Schedule A.

1. To qualify for a deduction, the expenses must be spent on a job search in your current occupation. You may not deduct expenses you incur while looking for a job in a new occupation.
2. You can deduct employment and outplacement agency fees you pay while looking for a job in your present occupation. If your employer pays you back in a later year for employment agency fees, you must include the amount you receive in your gross income, up to the amount of your tax benefit in the earlier year.
3. You can deduct amounts you spend for preparing and mailing copies of your resume to prospective employers as long as you are looking for a new job in your present occupation.
4. If you travel to an area to look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. You can only deduct the travel expenses if the trip is primarily to look for a new job. The amount of time you spend on personal activity compared to the amount of time you spend looking for work is important in determining whether the trip is primarily personal or is primarily to look for a new job.
5. You cannot deduct job search expenses if there was a substantial break between the end of your last job and the time you begin looking for a new one.
6. You cannot deduct job search expenses if you are looking for a job for the first time.

OBAMACARE - WHAT DOES IT MEAN TO YOU

Unless you live in a cave, by now you've heard that the U.S. Supreme Court has upheld the key provisions of the Affordable Care Act, or "Obamacare." In an unexpected twist, the Court ruled that the controversial individual mandate is constitutional, but under the government's power to tax, rather than to regulate commerce.

We don't need to go into the details of the ruling itself -- just turn on your television, and somewhere, somebody is opining on it right now! But we do want to remind you the Court's decision means several new taxes will go into effect as scheduled:

·         On January 1, 2013, the Medicare Tax will go up by 0.9% for individuals earning over $200,000 ($250,000 for joint filers, $125,000 for married individuals filing separately). 

·         Also on January 1, there will be a new "Unearned Income Medicare Contribution" of 3.8% on investment income, for those earning more than $200,000 ($250,000 for joint filers).

·         Beginning on January 1, 2014, there will be a new $2,500 limit on tax-free contributions to flexible spending account. 

·         Also beginning January 1, 2014 employers with more than 50 employees will face a penalty of $2,000 per employee for not offering health insurance to full-time employees.  

·         Finally, the threshold for deducting medical and dental expenses rises from 7.5% of adjusted gross income to 10%. This will make these expenses even harder to deduct without help from advanced strategies like Health Savings Accounts or Medical Expense Reimbursement Plans.

That’s not all.  On January 1, 2013 the so called “Bush Rates” are repealed and we go back to the “Clinton Tax Rates.”  This change impacts every taxpayer.  So, while the constitutional issues of Obamacare may be settled, several planning challenges certainly remain. We'll be following developments carefully in order to help you navigate these new challenges. If you have any questions, don't hesitate to call us at 402.362.6636.  In addition, now that the Supreme Court has ruled we will be planning a local seminar and/or webinar to keep you informed.

FAMILY MEDICAL LEAVE ACT (FMLA)

Q: I have 10 employees.Some are part time.I have two of my employees pregnant. I can't afford to give them a lot of time off. What do I have to do?

A: First, hopefully I read you wrong.You say that "I have two of my employees pregnant." I hope that doesn't mean that you are the responsible one.If so, you may have more problems than time off.

Anyway, this is a complicated subject so when in doubt check with an attorney that practices in the HR area.Here are the basics.

The federal law does not apply to businesses with fewer than 50 employees. However, many states have additional laws with different rights that apply to employers with fewer employees. And many states also grant employees leave for reasons and periods beyond those granted under the FMLA.

If you are subject, covered employers must grant an eligible employee up to a total of 12 work weeks of unpaid leave during a 12-month period for one or more of the following reasons:

• For the birth and care of the newborn child of the employee.
• For placement with the employee of a son or daughter for adoption or foster care.
• To care for an immediate family member (spouse, child, or parent) with a serious health condition.
• To take medical leave when the employee is unable to work because of a serious health condition.

That's the basics but each situation and state is different.

HOW LONG SHOULD I KEEP PAYROLL RECORDS

Q:  How long should my business keep payroll tax records?

A:  Per the IRS, at least four years after the due date for employees to file their income tax returns for the particular year. Records to be retained include wages and payment dates and employee data such as names, Social Security numbers and addresses. Also copies of W-4 forms, payroll tax returns and valuation records for fringe benefits provided to employees.

WAR ON EMPLOYERS? CRACK DOWN ON BIAS AGAINST HIRING THOSE WITH CRIMINAL RECORDS

(The New York Times) -- NYTimes.com reports, "In April, the Equal Employment Opportunity Commission signaled that it would begin to crack down on employers who use the criminal histories of job applicants to discriminate against them illegally." But the story notes that many "many small businesses had no idea there was anything wrong with practices like a blanket ban on hiring anybody with a criminal record." The E.E.O.C. "warns employers not to use arrest records at all in hiring decisions. Because 'arrests are not proof of criminal conduct' ... basing a hiring decision on an arrest record is presumptively discriminatory." The story notes, however, that an employer can investigate the conduct that led to an arrest and "make an employment decision based on the conduct underlying the arrest if the conduct makes the individual unfit for the position in question." A Chicago labor law expert "warned that the E.E.O.C. seemed to be preparing for battle on this issue" and the commission is "already investigating hundreds of charges related to the use of criminal history in employment."


To read more of this article: CLICK HERE

I WON A CAR, HOW DOES THAT IMPACT MY TAXES?

Q:  I recently won a car. How does this impact my taxes?

A:  Congratulations on the win of the car. The fair market value of the vehicle will be ordinary income to you. There really isn’t too much you can do to reduce the tax consequences.

The following are some of the items involved:

• You will want to watch the fair market value of the vehicle that is reported on the 1099. Sometimes the value reported on the 1099 is considerably higher than the actual fair market value. This is especially true in the case of a vehicle where the sticker price is considerably higher than the real value. I would consider comparing the 1099 value to the Bluebook value. If there is a big difference, we might want to re-discuss this.
• You do not need to worry about any penalty for underpayment of estimates as long as the amount that you have withheld from your paychecks is greater than last year’s tax liability. If this is the case, you should not have to worry about underpayment penalties.
• If you are not in alternative minimum tax (AMT) and itemize deductions, you might want to consider paying your state income tax prior to the end of the year. This will allow you to have that itemized deduction in the 2012 year as opposed to 2013. In addition to this, there is some discussion of changing the tax code and eliminating the state income tax deduction. If this should happen, it would be best if you could pay that this year. It’s hard for me to give advice without seeing your actual tax situation regarding the AMT.
• This is considered gambling winnings so, therefore; should you have any gambling losses you should keep track, in that, they would be deductible. Keep documentation of your losses. There is a court case where tickets were disallowed because there were foot prints on the tickets. You will need to show that you actually had cash withdrawals to support the deduction.

Again, congratulations! Drive the new car proudly.

STUDENTS AND SUMMER JOBS

School’s out and many students will be starting summer jobs. I want to remind you that employers may be withholding taxes, so you may not get all of the money that you earn and if you don't take action you may have to file a tax return to get your refund.

Here is a tip that might help:

When you first start a new job, you must fill out a Form W-4, Employee’s Withholding Allowance Certificate. This form is used by employers to determine the amount of tax that will be withheld from your paycheck.

If you have multiple summer jobs, make sure all your employers are withholding an adequate amount of taxes to cover your total income tax liability. To make sure your withholding is correct, use the Withholding Calculator on www.irs.gov.

If you do not anticipate owing any tax and did not owe tax last year, you can simply indicate on your W-4 and your employer should not withhold.

PREPARE YOUR BUSINESS FOR DISASTER

The Small Business Administration advises business owners to assemble an emergency kit that includes:

• Insurance policies
• A list of fixed assets
• Contracts
• Contact information for:
• Employees
• Vendors
• Customer
• Emergency services
• Computer passwords
• Office supplies
• Letterhead
• First aid supplies
• Cash (ATM's might not be functioning and vendor may not be able to accept other forms of payment)

HOW DOES A UNMARRIED COUPLE HANDLE A JOINT ACCOUNT FOR TAX PURP0SES

Q. I want to open a joint savings account with another person.How do we do this and what is the potential issue with splitting the interest for income tax purposes?

A. Well, no problem opening the account.The issue is that the bank will want a W-9 which has one of your Social Security numbers.That is the person that will get the 1099 showing the full amount of the interest.If the income is material and you want to split it on the two tax returns, we can do what is called a "Nominee 1099."With this whoever gets the original 1099 reports all the income and then we subtract half of the income and include that half on the other persons return.The nominee 1099 is then filed with both returns and with the IRS.

THE COST OF A BAD HIRE

If you have employees I am sure that you have at least once made a bad hire.I know that it has happened to me.The key is to make sure that you have systems in place and that you do background checks.I even know of situations (this is plural) where employers have hired employees that have been fired because they were dishonest.

The costs of a bad hire are staggering. A recent survey by Career Builder reports more than two-thirds of employers were affected by a bad hire last year, according to AOL Jobs. Of nearly 2,700 employers surveyed, 41% estimate a single bad hire cost $25,000; a quarter estimate a bad choice cost $50,000 or more — not to mention the demoralizing effect of the issue on other employees and on the new hire. Losing a job is one of the most stressful events a human can experience.

Remember to do your homework.

HIRE YOUR KIDS – FOLLOW UP

A week ago I blogged the tax advantages to hiring your kids.  Here are a few follow-up suggestions:

The IRS tends to view employment arrangements between parents and children with a touch of skepticism. So be careful to observe the strict letter of the law when you hire your child for the summer.

• Treat your child like any other employee. Make sure the child completes a W-4, fills out time sheets when appropriate and follows other company procedures. Don't give your child special leeway to run personal errands while he or she is on the clock.
• Pay your child the going rate for the job. Providing an exorbitant salary for an entry-level position or setting a flat rate at the beginning of the summer is likely to draw the ire of the IRS. Establish an hourly rate that is reasonable for the work performed.
• Follow the payroll tax rules. Impose the usual withholding amounts to your child's wages unless he or she qualifies for exemptions. Issue an annual Form W-2. Don't make any exceptions for your child.

Of course, taxes will be withheld from your child's wages, even if he or she won't have any income tax liability for 2012. But in this case, you can have your child avoid income tax withholding by entering the word "EXEMPT" on Line 7 of Form W-4.

This is only available to a child claimed as your dependent if he or she had no tax liability for 2011 and won't earn more than $5,950 in 2012. If your child exceeds the limit, a new W-4 should be filed.

RETREAT FOLLOW-UP QUESTION

Q: Recently you mentioned a business retreat.  I understand the steps.  Do you have any suggestions on how we get the retreat started?

A:  Make sure that you have an agenda.  Items on the agenda include financial; staffing; budget; goals etc.  Those things are basically reports but are necessary.  I think the thing that really gets the conversation and planning process going is DOS.  This stands for “dangers” “opportunities” and “strengths.”  Start out by identifying and discussing these three phases of your business. 

Another suggestion, use these three questions and points in meeting with your staff.  You might be surprised at their response.

BUSINESS LESSONS FROM THE TITANIC

A month or so ago the blockbuster movie Titanic was re-released in 3D. With special glasses, audience-goers are now able to see the ship crash into the iceberg even more vividly than before. In true Hollywood style, the film depicts a massive iceberg looming over the "unsinkable" ship with the crew scrambling to avoid a head-on collision.

We usually think of threats in this way: something big and dangerous that can sneak up and overwhelm us when we aren't looking. But the real story of the Titanic paints a different picture. It is a story that, while less dramatic, offers relevant lessons for leaders navigating their organizations through icy waters.

This is from a posting on the Harvard Business Review by Mark Bonchek:

You've Been Warned
The Titanic received six warnings of ice on the day of the collision. They were all ignored by the wireless operator, who was preoccupied with transmitting passenger messages and by the crew, who were focused on breaking the speed record. So pay attention. The signs are already there if you listen. Some companies, like Borders, Kodak and Polaroid, ignore the signs. Others, like Domino's Pizza, catch themselves before it is too late.

Size Doesn't Matter
The iceberg that the Titanic struck was not very big. It didn't even come up as high as the bridge of the ship. And the hole in the boat was actually quite small — six cuts measuring a little over three square feet.

Our brains are wired to think of threats as coming from something bigger, but it's often the little things that become our downfall. Clay Christensen's work on disruptive innovation shows the power of David against Goliath, the mammal over the dinosaur, the startup over the incumbent.

It's What You Can't See
The iceberg that struck the Titanic was almost invisible. Continuous melting had given it a clear, mirror-like surface which reflected the water and dark night sky, like black ice on a wintry road. This type of iceberg is called a "blackberg." It is possible that the crew could have been looking right at the iceberg from a distance and not seen anything unusual.

Look Below the Surface
Only about ten percent of an iceberg's mass is above water, with the other ninety percent below (hence the phrase "tip of the iceberg.") With so much mass below the surface, it's almost impossible to push an iceberg out of the way. Even a ship the size of the Titanic couldn't push what looked like a small iceberg out of the way.

Keep Moving
When First Officer Murdoch saw the iceberg, he put the engines in reverse and started turning away from the iceberg. It's a natural reaction to hit the brakes when you see a threat. But this action may have sealed the Titanic's fate. Ships turn more quickly when they have forward motion. If the captain had maintained the ship's speed or even accelerated, he might have avoided hitting the iceberg altogether.

So as you think about your business, think what warning signs you might have overlooked. Consider where the icebergs might be that you can't see, or where the threats might look deceptively small on the surface. And when you do see a threat, beware of hitting the brakes; the best reaction might be to step on the gas.

PAYING FRINGE BENEFITS

Q: When do I have to pay fringe benefits?

A: Fringe benefits such as vacation pay, sick pay, paid holidays and pay raises are not required by law. Such benefits are provided solely at the discretion of the employer. Payment of such benefits is due when previously agreed to and the employee has met all requirements for earning the benefit. Upon termination of employment all earned vacation benefits are payable as wages with an employee’s final paycheck. Unless previously agreed to, no other fringe benefits are payable upon termination.

Note, this is Nebraska law. Other state laws may vary.

RETREATS: A POWERFUL BUSINESS TOOL

Two weeks ago my partners Candy Otte, Stacey Stark and I scheduled ourselves for our annual partner retreat.  According to the dictionary, a retreat is a place of privacy or safety. When you think of the work “retreat” you think of falling back but a retreat is a powerful way to move forward.

Retreats can be very helping to advance your business. They are an important part of bringing together key people in your company, at a well-planned destination, so that you can build camaraderie, enhance leadership, and give your team the extra push that they may be need.  After our partner retreat we then conduct a full staff retreat.  Sure this takes time and is expensive it is well worth it.  It is amazing how it can clarify your business goals, put everyone on the same page and help to refocus on working “on your business not just in your business.”  Every year, I come back with fresh perspectives and new insights, totally reinvigorated. An annual business retreat works great for me, and it might for you, as well.

Here are some tips on how to pull off the ideal business retreat:

·         Hold your business retreat at least one hour away from the office. The last thing you want is it to be interrupted with calls and clients that “just need second.”  If you are not there then you can stay focused. The idea of a retreat is to leave the office behind.

·         By being away from the office and staying overnight you won’t lose the focus by going home to hear the problem of the day form the spouse of kids. To get the most bang for your buck on a business retreat, you really need to make it an overnight event. This helps keep everyone from staring at their watch all day, assuming that when 5 p.m. hits, they get to jet. Overnight retreats let people relax and not rush the experience.

·         Aim to have all your meals together as a group. This will be a great time for bonding and personal insights to occur. And when people feel more connected and more trusting of each other, they will work together way better.

If you have never taken time to walk away and work on planning your business consider giving it a try.

WANT A TAX BREAK – HIRE YOU KIDS

By hiring the child to work for the business, it can be a win-win for the family.

Here are the potential perks.

·         Income tax savings. Say that you reduce your compensation by the amount of salary you pay your child. Instead of being taxed to you at rates reaching up to 45 percent this year, the income is taxable to your child. For 2012, your child can earn up to the standard deduction amount of $5,950 without paying any federal income tax. Any excess is taxed at a low 10 percent rate.

o   Example:

§  You pay your child $5,000 to work during the summer before she heads off to college. The entire $5,000 in wages is covered by the standard deduction. In contrast, if you are in a 33 percent bracket, $5,000 in wages would save you $1,650 in tax. In addition, your adjusted gross income (AGI) is also lowered, which means there is less chance that you'll be subject to unfavorable AGI-based phase-out rules.

·         Kiddie tax avoidance. Generally, the unearned income of a child under age 19, or a full-time student under age 24, is taxed at the parents' tax rate to the extent it exceeds an annual threshold ($1,900 in 2012). But this rule doesn't apply to "earned income" that your child is paid in wages.

·         Business tax deduction. You get a business deduction for money that, as a parent, you might have given your child anyway.  The wages you pay the child are deductible by the business just like the wages paid to any other employee of the company. However, when a family member is employed, you must take care to ensure that the wages are reasonable in amount for the services actually provided (see right-hand box).

·         Payroll tax savings. If a child under age 18 is employed by his or her parent in an unincorporated business, the earnings are exempt from FICA tax. This exemption also applies to FUTA tax up until the age of 21. These payroll tax breaks can provide significant tax savings for a parent who is self-employed or a partner in a partnership.

o   An unincorporated business includes a sole proprietorship; husband-and-wife partnership (owned only by you and your spouse); a husband-and-wife limited liability company (LLC); or a single-member LLC, which is treated as a sole proprietorship for federal tax purposes.

o   What if your business operates as another type of entity, such as a C or S corporation? Your child's wages are subject to Social Security, Medicare, and FUTA taxes, regardless of age. That's the bad news.

·         Children Age 18 and Older: After your children reach age 18, the tax advantages decrease, because their wages are then subject to Social Security and Medicare taxes (however no FUTA tax is due until age 21).

o   As the employer, your business must pay its share of the Social Security and Medicare taxes. The employee's share is withheld from your child's paychecks. However, again, the child's standard deduction still shelters up to $5,950 from the federal income tax. And you still collect a nice business write-off that cuts your income tax and self-employment tax bills.

·         Tax-free fringe benefits. As an official employee, the child is in line to receive tax-free company fringe benefits. This may include health insurance coverage, group-term life insurance coverage up to $50,000 and educational assistance plans. As with wages, payments under a qualified plan are tax-deductible by the business.

·         Individual Retirement Arrangements (IRAs). If your child has earnings from a job, he or she can contribute to a traditional or Roth IRA. The maximum contribution for 2012 is $5,000. Because the child's income is low, contributions to a traditional IRA are deductible on the child's return. Contributions to a Roth IRA aren't deductible, but any withdrawals made after age 59 1/2 are tax-free, as long as the account has been open five years. Retirement will seem like a long way off to the child, but this is a good way to save for the future.

Tax-smart idea: Have your child open a Roth IRA and fund it with summertime earnings. They can use these accounts to save money for college, a first home -- and, of course, retirement. By socking away some of their earnings in a Roth IRA, your youngsters can begin a savings plan that can grow into a small fortune.

Roth IRAs allow earnings to build up tax-free. And the tax law allows money to be taken out penalty-free in special circumstances, which include paying for college and buying a first home.

There's a lot to be gained by hiring your child to work for the business, but don't ignore the human element of the arrangement. Make sure it's a good fit for everyone involved.

HUGE PENALTY IF YOU DON’T REPORT FOREIGN ACCOUNTS TO THE IRS

Many taxpayers may have investments in overseas.  If this investment is in the form of mutual funds or other passive holdings, there is usually no extra reporting to the IRS or Department of Treasury.  However you can accidently have an account that might trip you up.  For example, if you have a timeshare that you sell, even though the money normally goes right out of the account to your US account you are subject to the stringent reporting requirements.  Why?  For a brief time, maybe only one day, you have money from the sale in a foreign account.

Also, if you own a foreign bank account, securities account, etc. and the value of these accounts exceed more than $10,000, than this needs to be reported, both to the IRS and to the Department of Treasury.  The reporting to the IRS is included with your tax return and the reporting to the Department of Treasury is on a separate form that is due by June 30 of each year with no extensions and it must be received by that date, not postmarked.

If you forget to report these holdings, in many cases, the penalty for not reporting these accounts can actually exceed the value of the account, so it is extremely important to review these accounts.  The penalties are high because Congress wants to stamp down on foreign accounts so they set the penalty high.

TERMINATING EMPLOYEES

Q: What rights do I have under law to terminate employment?

A: Nebraska is an “Employment at Will” state. This means that the employer and the employee have equal rights to terminate employment at any time. Neither party is obligated to give notice or cause for termination. If it is evident that an employee was terminated because of age, race, sex, etc., the employee should contact the Nebraska Equal Opportunity Commission at (402) 471-2024 or (800) 642-6112.

Note, this is Nebraska law. Other state laws may vary.

CLEVELAND WAITRESS GETS $434,712 TAX REFUND CHECK FROM IRS

Just because you receive a check from the IRS does not mean that the money is yours. The taxpayer rightly turned back the money to the IRS. Here is the information as reported in USA Today.

USA Today, Cleveland Waitress Receives Huge IRS Refund Check by Mistake:

A longtime Cleveland waitress got the surprise of her life this week when an enormous income tax refund check arrived in the mail.When Ginny Hopkins filed her tax return, she expected a refund of $754 — money she really needs to fix her car, among other things. Instead of that check, she found a check mistakenly issued for $434,712 in her mailbox. ...

Hopkins knew that cashing the check could get her in a whole lot of trouble. "They'll put me in Alactraz, waiting on the night shift at Alcatraz," she said. "They'll reopen the place." ...

Hopkins made arrangements Wednesday to return the check to the IRS office at the federal building in downtown Cleveland. Since Hopkins needs the money right away, her friends at the restaurant and WKYC-TV in Cleveland advanced her the money. The IRS said sometimes mistakes like this happen, but it happens less often as more people file their taxes electronically. Hopkins should get her correct refund check in six weeks, the IRS said.