Kopsa Otte Business Blog

MY DAD WAS WRONG

2012-02-11T07:07:00.000-08:00

Iremember when I was a high school student my dad told me that I had a choice asI selected a career. I could work forthe private sector or I could work for the government. He said that the government workers werepretty much guaranteed that they would not lose their job and they had a reallygood pension plan but that was offset by the fact that they were not paid aswell.

Littledid he know how things would change. Nowthey have job security, a good pension and are paid better.

TheHill.comreports that "the Congressional Budget Office found Monday that federalworkers are compensated 16% more than comparable private-sector workers onaverage. ... For those with only a high-school degree, workers earned 21% moreand were given benefits worth 72% more than in the private sector." For federal workers with a college degree, "wages were about the same butbenefits were 46% better in the government." According to the story,"President Obama's 2013 budget request, due to be sent to Congress on Feb.13, will ask for a 0.5% cost-of-living raise for workers."

To read more of this article: READ MORE

STATUTORY EMPLOYEE

2012-02-09T07:14:00.000-08:00

Q: Hello, I am a sales consultant and I am on the road calling on customers. The company I worked for the last few years was bought out by a larger company. Prior to being bought out I was always treated as a statutory employee. When receiving our w2’s just a few days ago, we are not statutory employees. Does this mean we will owe a lot more in taxes? I really appreciate some information. Thank you.

A: This certainly is an issue for you. To give you the simple answer to your question: if you have a considerable amount of unreimbursed employee business expenses you are most likely going to pay significantly more in taxes. Having said that, all situations are different so to give you an accurate answer I would have to see your numbers.

Here is the deal. If you are a “statutory employee” your business deductions are deducted in determining your Adjusted Gross Income (bottom of page one of the 1040). You have been most likely filing a Schedule C to report those deductions. As an regular employee (non statutory) your employee business expenses are considered itemized deductions reported on schedule A.

What’s the difference you might ask? Well there are two differences. First employee business expenses are considered miscellaneous itemized deductions and therefore are only the amount greater than 2% of Adjusted Gross Income is deductible for regular tax calculations. Secondly, and the big thing, is that Miscellaneous Itemized Deductions are not deducted for Alternative Minimum Tax purposes. In other words, most people in that situation get no tax advantage from their employee business expenses.

I hope that this was helpful.

With normal disclaimers because I do not know your particular situation. Contact your tax advisor in order to determine how this impacts you personally

I WON A $55,000 FORD MUSTANG

2012-02-08T07:15:00.000-08:00

Recently I was talking to an acquaintance of mine who’s tax work I am not involved with. I congratulated him on the hole in one that he had and the $55,000 Ford Mustang that went along with the ace. He said he talked to his tax guy and he realizes this will be taxable to him.

He said, “Because I won this car, I’m looking for all the deductions I can possibly get.”

I thought about his comment for a second and then I asked him, “Shouldn’t you always be looking for all the deductions you can get?”

He looked at me and said, “You know you’re right.”

The lesson here is the fair market value of the car that he won is going to be taxable to him. This will be ordinary income so if he’s in a 25% tax bracket plus a 7% state bracket, his income tax will be roughly $17,600. In addition to this, he has to buy license plates, pay property tax on the vehicle, plus the insurance. It’s still a good deal but at the same time there are some taxes involved.

But the real lesson to be learned is even if you don’t hit a hole in one and win a vehicle, you still should try to take all the deductions that are allowable.

S CORPORATION REASONABLE COMPENSATION

2012-02-07T07:16:00.000-08:00

It seems that lately the IRS has been challenging owners of S corporations stating that their compensation is too low and reclassifying distributions (which are not subject to Social Security and Medicare tax) to wages. At a 15.3% rate this can get expensive. The key is to show that your wage is reasonable.

Here are the 5 factors that the courts look at:

1. The employee's role in the company
2. External comparison with other companies
3. Character and condition of the company
4. Potential conflicts of interest (The hypothetical independent investor)

5. Consistency in the compensation

DEADLINE COMING UP FOR FLEX PLANS

2012-02-03T11:15:00.000-08:00

Adeadline for many flex plan participants is coming up. The 2011set-asides must be used by March 15 if the plan uses IRS’ 2½-month graceperiod. Any funds left over are forfeited. The deadline for other FSAswas Dec. 31, 2011.

Rememberthat after this year, the ceiling on FSA set-asides will drop to $2,500.

THE IRS WARNS OF REFUND DELAYS

2012-02-02T11:49:00.000-08:00

Lastweek the Internal Revenue Service warned that tax refunds could be delayed aweek this tax season because of new anti-fraud safeguards.

“TheIRS has opened its filing season successfully this month, and refunds have startedgoing out to many taxpayers,” the agency said in an email to tax professionals.“As with the start of any tax season, there are system validations that occurrequiring some fine-tuning of our systems. As part of this, some taxpayers willreceive refunds approximately one week later than initial projections they mayhave received, but these are still in line with historical refund deliverytimes.”

TheIRS noted that the one-week delay is related to the fine-tuning of IRS systemsto adjust for new safeguards that were put in place this tax season to providefor stronger protection against tax refund fraud. The agency has come underheavy criticism for the increasing number of identity theft cases related totax refunds, and it recently added more stringent measures.

TheIRS said it is providing additional screening for fraud this year beforeissuing refunds, but the vast majority of taxpayers can still continue toexpect to receive their refunds in a timely fashion.

TheIRS also noted that the refund time frames provided by the “Where’s My Refund” tool on its Web siteare projected time frames and are subject to revision. “Many different factorscan affect the timing of the refund after the IRS receives the return forprocessing,” said the agency. “The IRS apologizes for any inconvenience causedby the revised refund dates.”

TheIRS promised that the delay only affects some early filers, and taxpayers whosereturns were accepted by the IRS on or after January 26 would not experiencethe delay.

I CAN’T GET A W-2, NOW WHAT DO I DO?

2012-02-01T11:48:00.000-08:00

Q. A company that I worked for is now defunct and I don’t expect to get aW-2. What do I do?

A. The short answer is file your return with a Form 4852, Substitute for FormW-2, Wage and Tax Statement.

Here is what is on the IRS web site dealing with your problem.

If you haven’t received your W-2,the IRS recommends that you follow these four steps:

1. Contact your employer If you have notreceived your W-2, contact your employer to inquire if and when the W-2 wasmailed. If it was mailed, it may have been returned to the employerbecause of an incorrect or incomplete address. After contacting theemployer, allow a reasonable amount of time for them to resend or issue theW-2.

2. Contact the IRS If you do not receiveyour W-2 by Feb. 14, contact the IRS for assistance at 800-829-1040. When youcall, you must provide your name, address, Social Security number, phone numberand have the following information:

• Employer’s name, address and phone number

• Dates of employment

• An estimate of the wages you earned, the federal income taxwithheld, and when you worked for that employer during 2011. The estimateshould be based on year-to-date information from your final pay stub orleave-and-earnings statement, if possible.

3. File your return You still mustfile your tax return or request an extension to file by April 17, 2012, even ifyou do not receive your Form W-2. If you have not received your Form W-2 intime to file your return by the due date, and have completed steps 1 and 2, youmay use Form 4852, Substitute for Form W-2, Wage and Tax Statement.Attach Form 4852 to the return, estimating income and withholding taxes asaccurately as possible. There may be a delay in any refund due while theinformation is verified.

4. File a Form 1040X On occasion, you mayreceive your missing W-2 after you file your return using Form 4852, and theinformation may be different from what you reported on your return. If thishappens, you must amend your return by filing a Form 1040X, Amended U.S.Individual Income Tax Return.

Form 4852, Form 1040X and instructions are available on this website orby calling 800-TAX-FORM (800-829-3676).

TIPS FOR RECENTLY MARRIED OR DIVORCED TAXPAYERS WITH A NAME CHANGE

2012-01-30T11:16:00.000-08:00

The IRS just issued a reminder to people with name changes. Processing of your return will be slowed downif you do not properly follow their steps.

FiveTips for Recently Married or Divorced Taxpayers with a Name Change

If you changed your name after a recent marriage or divorce, the IRS remindsyou to take the necessary steps to ensure the name on your tax return matchesthe name registered with the Social Security Administration. A mismatch betweenthe name shown on your tax return and the SSA records can cause problems in theprocessing of your return and may even delay your refund.

Here are five tips from the IRS for recently married or divorced taxpayerswho have a name change.

1. f you took your spouse’s last name -- or if you hyphenated your lastnames, you may run into complications if you don’t notify the SSA. Whennewlyweds file a tax return using their new last names, IRS computers can’tmatch the new name with their Social Security number.

2. If you recently divorced and changed back to your previous last name,you’ll also need to notify the SSA of this name change.

3. Informing the SSA of a name change is easy. Simply file a Form SS-5,Application for a Social Security Card, at your local SSA office or by mail andprovide a recently issued document as proof of your legal name change.

4. Form SS-5 is available on SSA’s website at http://www.socialsecurity.gov/,by calling 800-772-1213 or at local offices. Your new card will have the samenumber as your previous card, but will show your new name.

5. If you adopted your spouse’s children after getting married and theirnames changed, you'll need to update their names with SSA too. For adoptedchildren without SSNs, the parents can apply for an Adoption TaxpayerIdentification Number – or ATIN – by filing Form W-7A, Application for TaxpayerIdentification Number for Pending U.S. Adoptions with the IRS. The ATIN is atemporary number used in place of an SSN on the tax return. Form W-7A isavailable on the IRS.gov website or by calling 800-TAX-FORM (800-829-3676).

DOES THE IRS OWE YOU MONEY

2012-01-26T12:43:00.000-08:00

The IRS has announced that it has $153.3 million in undelivered tax refund checks because of mailing address errors. There are 99,123 taxpayers who are due refund checks, making the average check a whopping $1,547.

If you think you might be owed some cash, you can check with the IRS by using the online “Where’s My Refund?” tool. You’ll need to provide your Social Security number, filing status as reported on your last return and the amount of your refund. If you don’t have access to the internet (which is curious since you’re reading this), you can also call 1-800-829-1954.Tax forms and other correspondences from the IRS are mailed to the last address clearly and concisely provided by the taxpayer, so be sure to update your address on your tax return. You can also update your address at any time using federal form 8822.

HERE’S SOME GOOD NEWS

2012-01-26T06:58:00.000-08:00

Law School Applications Fall 15%

The total number of applications and applicants for the Class of 2015 at ABA-approved law schools as of January 13, 2012 were:

· Applicants: 31,815, down 16.7% from last year
· Applications: 233,361, down 15.3% from last year

QUESTION FROM A MISCLASSIFIED WORKER

2012-01-25T08:26:00.000-08:00

Q. I am definitely an employee at my job but, my employer did not withhold anything and instead of giving me a W-2 like he should have he gave me a 1099. Last year he gave me a W-2. Now not only do I owe a bunch of tax I also have to pay both halves of the Social Security and Medicare tax. This is not fair. Is there anything I can do?

A. Yes there is something you can do to cut your Social Security and Medicare in half. Since 2007, you are allowed to file a Form 8919M Uncollected Social Security and Medicare Tax on wages instead of filing Schedule SE. The form SE charges you tax at 15.3% versus the 7.65%.

There are some codes on the form that you will need to review and if you meet one of the criteria, walla you qualify.

By the way, this IRS may be visiting your employer. He will at least be getting a bill from the IRS for his 1/2.

CONGRESS AGAIN PLAYS POLITICS

2012-01-24T08:17:00.000-08:00

MAJOR FLAW IN THE VOW TO HIRE VETERANS ACT LOST IN POLITICAL POPLARITY

The VOW to Hire Heroes Act includes tax incentives intended to lower the unemployment rate of this country's veterans which, according to the Bureau of Labor Statistics, stands at 7.7 percent (860,000 workers). Not surprisingly, the House Committee on Veterans' Affairs is already singing the act's praises (see Comprehensive Legislation to End Veteran Unemployment.

However, the VOW to Hire Heroes Act has one major problem: The design does not prevent abuse by employers which could result in no net reduction in veteran unemployment whatsoever. As the Tax Foundation reported after the President's proposal of the American Jobs Act, tax credit programs-without proper checks put into place-given to businesses who hire unemployed workers can easily be gamed. Unfortunately, this bill includes such credits.

These incentives include:
• A tax credit of up to $5,600 for hiring veterans who have been looking for a job for more than six months
• A $2,400 credit for veterans who are unemployed for more than four weeks, but less than six months
• A tax credit of up to $9,600 for hiring veterans with service-connected disabilities who have been looking for a job for more than six months

Targeted incentives are poor policy in general, but are especially wasteful in this case. Why? Legislators failed to include a provision saying that business must increase net employment in order to receive the credit. Given the lack of such a provision, a business could hire a veteran and fire one on the same day, eventually collect a government check of up to $9,600, and not reduce veteran unemployment by a single job.

Though unemployment is high (9% nationally, 12% among young veterans), politically popular legislation which has not been properly thought through is not the answer. After serving their country, veterans should benefit from a sustainable growing economy rather than political gimmicks that will do little to serve anyone.

SPENDING

2012-01-19T12:21:00.000-08:00

Please take a moment to watch this video about spending: WATCH ME

DON’T BE SCAMMED BY CYBER CRIMINALS

2012-01-19T12:03:00.000-08:00

The Internal Revenue Service receives thousands of reports each year from taxpayers who receive suspicious emails, phone calls, faxes or notices claiming to be from the IRS. Many of these scams fraudulently use the IRS name or logo as a lure to make the communication appear more authentic and enticing. The goal of these scams – known as phishing – is to trick you into revealing your personal and financial information. The scammers can then use your information – like your Social Security number, bank account or credit card numbers – to commit identity theft or steal your money.

Here are five things the IRS wants you to know about phishing scams.
1. The IRS never asks for detailed personal and financial information like PIN numbers, passwords or similar secret access information for credit card, bank or other financial accounts.

2. The IRS does not initiate contact with taxpayers by email to request personal or financial information. If you receive an e-mail from someone claiming to be the IRS or directing you to an IRS site:
• Do not reply to the message.
• Do not open any attachments. Attachments may contain malicious code that will infect your computer.
• Do not click on any links. If you clicked on links in a suspicious e-mail or phishing website and entered confidential information, visit the IRS website and enter the search term 'identity theft' for more information and resources to help.

3. The address of the official IRS website is http://www.irs.gov/. Do not be confused or misled by sites claiming to be the IRS but ending in .com, .net, .org or other designations instead of .gov. If you discover a website that claims to be the IRS but you suspect it is bogus, do not provide any personal information on the suspicious site and report it to the IRS.

4. If you receive a phone call, fax or letter in the mail from an individual claiming to be from the IRS but you suspect they are not an IRS employee, contact the IRS at 1-800-829-1040 to determine if the IRS has a legitimate need to contact you. Report any bogus correspondence. You can forward a suspicious email to phishing@irs.gov.

5. You can help shut down these schemes and prevent others from being victimized. Details on how to report specific types of scams and what to do if you’ve been victimized are available at http://www.irs.gov/. Click on "phishing" on the home page.

DO I NEED TO FILE A TAX RETURN THIS YEAR?

2012-01-18T07:42:00.000-08:00

You are required to file a federal income tax return if your income is above a certain level, which varies depending on your filing status, age and the type of income you receive. However, the Internal Revenue Service reminds taxpayers that some people should file even if they aren't required to because they may get a refund if they had taxes withheld or they may qualify for refundable credits.

To find out if you need to file, check the Individuals section of the IRS website at www.irs.gov or consult the instructions for Form 1040, 1040A or 1040EZ for specific details that may help you determine if you need to file a tax return with the IRS this year. You can also use the Interactive Tax Assistant available on the IRS website. The ITA tool is a tax law resource that takes you through a series of questions and provides you with responses to tax law questions.

Even if you don’t have to file for 2011, here are six reasons why you may want to:

1. Federal Income Tax Withheld: You should file to get money back if your employer withheld federal income tax from your pay, you made estimated tax payments, or had a prior year overpayment applied to this year’s tax.

2. Earned Income Tax Credit: You may qualify for EITC if you worked, but did not earn a lot of money. EITC is a refundable tax credit; which means you could qualify for a tax refund. To get the credit you must file a return and claim it.

3. Additional Child Tax Credit: This refundable credit may be available if you have at least one qualifying child and you did not get the full amount of the Child Tax Credit.

4. American Opportunity Credit Students: in their first four years of postsecondary education may qualify for as much as $2,500 through this credit. Forty percent of the credit is refundable so even those who owe no tax can get up to $1,000 of the credit as cash back for each eligible student.

5. Adoption Credit: You may be able to claim a refundable tax credit for qualified expenses you paid to adopt an eligible child.

6. Health Coverage Tax Credit Certain: individuals who are receiving Trade Adjustment Assistance, Reemployment Trade Adjustment Assistance, Alternative Trade Adjustment Assistance or pension benefit payments from the Pension Benefit Guaranty Corporation, may be eligible for a 2011 Health Coverage Tax Credit.

Eligible individuals can claim a significant portion of their payments made for qualified health insurance premiums.

For more information about filing requirements and your eligibility to receive tax credits give us a call or email today.

JUST FOR FUN - MY HIGH SCOOL ENGLISH TEACHER WOULD LOVE THIS

2012-01-17T09:47:00.000-08:00

Buffalo buffalo Buffalo buffalo buffalo buffalo Buffalo buffalo

Believe it or not, this sentence is grammatically correct and has meaning: “Buffalo buffalo Buffalo buffalo buffalo buffalo Buffalo buffalo.” First devised by professor William J. Rapaport in 1972, the sentence uses various meanings and parts of speech for the term “buffalo” (and its related proper noun “Buffalo”) to make an extremely hard-to-parse sentence. Although most people know “buffalo” as both a singular and plural term for bison, and “Buffalo” as a city in New York, “buffalo” is also a verb meaning “to bully, confuse, deceive, or intimidate.”

Using these definitions, Wikipedia suggests the sentence can be read: [Those] (Buffalo buffalo) [whom] (Buffalo buffalo buffalo) buffalo (Buffalo buffalo).

Still too hard to follow for those of us who don’t know “buffalo” as a verb. Refine once more: [Those] buffalo(es) from Buffalo [that are intimidated by] buffalo(es) from Buffalo intimidate buffalo(es) from Buffalo.

And once more: Bison from Buffalo, New York who are intimidated by other bison in their community also happen to intimidate other bison in their community.

Wikipedia has further explanation, including the slightly frightening note: Buffalo is not the only word in English for which this kind of sentence can be constructed; any word which is both a plural noun and a plural form of a transitive verb will do.

Other examples include dice, fish, right and smelt.

Beware of Buffalo buffalo, buffalo, for they may buffalo you.

MARTIN LUTHER KING DAY

2012-01-16T11:34:00.000-08:00

Be inspired!

Martin Luther King - I HAVE A DREAM

CREDIT FOR HIRING MILITARY VETERANS

2012-01-13T11:59:00.000-08:00

For many years, the tax system has incented businesses to hire specific categories of disadvantaged workers, such as welfare recipients, retrained workers, and the like. In legislation enacted in late November, Congress has significantly expanded the tax credits available for hiring various categories of military veterans. These credits are generally based on 40% of the wages paid to the new worker, and require at least 120 hours of employment in the first year to gain any portion of the credit, and at least 400 hours to gain the maximum credit. There are five specific categories of veterans that qualify the employer for a tax credit, including several very broad definitions (i.e., those unemployed for as little as 4 weeks in the 12 months preceding hire, a veteran who was a member of a food stamp household, or a veteran unemployed at least 6 months in the preceding year). Each category of eligible veteran has a maximum credit amount, running from a low of $2,400 to a maximum of $9,600.

Most of these categories do not require recent military service. In other words, a Vietnam-era vet can be an eligible new hire for most categories of the credit. To determine eligibility, the employer uses IRS Form 8850, a pre-screening notice, which is sent by the employer to the state workforce agency for the verification process. This pre-screening form must be submitted within 28 days of the commencement of employment.

TAX PLANNING OPPORTUNITY - 2% PAYROLL TAX WAIVER

2012-01-12T11:59:00.002-08:00

Throughout 2011, as a method of stimulating consumer spending, Congress had reduced the employee share of the Social Security tax, as well as the self-employment tax rate, by 2%. But when it came time to extend this cut for 2012, Congress could not agree on how to pay for a full one-year extension. As a result, the 2% cut is only officially in the law at this point through February 29, 2012.

If Congress does not agree on an extension for the full year, there is a small planning point for those who are employees of their own corporation, or who issue occasional salary checks to family members for their services in the business.

In order to receive the 2% waiver, payroll must be issued in the first two months of 2012. And to maximize the savings, the worker must receive at least $18,350 of compensation in the first two months of the year ($18,350 is 1/6th of the $110,100 maximum amount subject to Social Security tax in 2012). So for those who only draw an occasional paycheck from their business, such as an S corporation or a C corporation, there is a tax savings (albeit under $400) if roughly $18,000 of that payroll is drawn within the first two months of 2012.

But note: If Congress extends the 2% cut for all of 2012, this becomes a moot point.

HOBBY FOLLOW UP

2012-01-10T13:54:00.000-08:00

Recently I posted about a golfer that had hobby winnings. I have had several people email me asking what the difference was between a hobby and a true business.

Here are the factors that the IRS and courts look at:

1. The manner in which the taxpayer carried on the activity
2. The expertise of the taxpayer or his or her advisers
3. The time and effort expended by the taxpayer in carrying on the activity
4. The expectation that the assets will appreciate in value
5. The success of the taxpayer in carrying on activities
6. The history of profits or losses
7. The amount of occasional profits
8. The financial status of the taxpayer
9. The elements of personal pleasure or recreation

No single factor controls and other factors may be considered. If you make profit in 3 of the 5 years the IRS thinks you are okay. This is 2 of 7 years for breeding, showing, training or racing horses.

Keep good records. DOCUMENTATION! DOCUMENTATION! DOCUMENTATION!

NEW HSA AMOUNTS FOR 2012

2012-01-10T11:36:00.000-08:00

Here are the new contribution limits for 2012 HSA

Contribution limit ~ Family: $6,250 Self: $3,100
Catch up if over 55 ~ Family: $1,000 Self: $1,000
Minimum deductible ~ Family: $2,400 Self: $1,200
Max out of pocket ~ Family: $12,000 Self: $6,050

The catch up contribution can only be made by individuals who are at least 55 and are not yet enrolled in Medicare.

Remember that starting in 2011 because of Obama Care over-the-counter medicines may not be reimbursed thru HSA.

IRA CONTRIBUTION AND YOUR AGE

2012-01-03T08:05:00.000-08:00

Q: For someone 60 what is the maximum IRA contribution? What about if you are 50?

A: If you are 50 years of age or older before the end of 2012, the maximum contribution that can be made to a traditional or Roth IRA is the smaller of $6,000 ($5,000 plus $1,000 catch up) or the amount of your taxable compensation. This limit can be split between a traditional and a Roth IRA but the combined limit is $6,000. The maximum contribution to a Roth IRA and the maximum deductible contribution to a traditional IRA may be reduced depending on your modified adjusted gross income. There can be further limitations for individuals who also participate in an employer provided plan.

If you are age 50 or older and have a SIMPLE IRA, the maximum contribution is different. The base amount is 100% of your compensation up to $11,500 and the catch up amount is $2,500, for a maximum contribution of $14,000. There is no phase out.

Of course to complicate matters there are some exceptions. If you are covered by a retirement plan at work here are the phase outs. CLICK HERE

If your spouse is covered by a pension plan then there are some different phase outs. CLICK HERE

COMPARING THE PRESIDENTIAL CANDIDATES' TAX PLANS

2012-01-02T07:35:00.000-08:00

How does Mitt Romney compare to Ron Paul on taxes? Does Newt Gingrich have a savvier plan than Michele Bachmann?

The Tax Foundation just published a comparison of the presidential candidates tax plans. I always find candidates talk about taxes interesting. They proclaim that once they get into office they can flip a switch from the White House and policy will change. In actuality tax law changes start in the Ways and Means Committee of the House of Representatives. Looking at the last two major changes in the tax laws, history tells us that it takes 2 to 3 years to accomplish change. Check out their campaign promises.

With the upcoming 2012 presidential election, tax policy is on voters’ minds more than ever. Taxes are one of the central issues in any national election, and it is important for the public to understand candidates’ general views toward tax policy as well as their positions on specific issues. The online Presidential Candidate Tax Plan Comparison outlines the candidates’ positions on the most important tax questions of this election. Ten presidential candidates were evaluated on six different parameters of tax policy: individual income tax rates, the corporate income tax, the estate tax, payroll taxes, the alternative minimum tax, and taxes on capital gains and dividends.
CLICK HERE

HAPPY NEW YEAR

2012-01-01T08:30:00.000-08:00

We wish all of our readers a very happy New Year. We started this blog over two years ago and every month without fail we have ever increasing readership. From just having a couple of comments and questions per month to probably having at least 5 a week, we have enjoyed every day of interacting with the readers. We hope the information has been useful and look forward to providing even more in 2012.

We wish everyone a prosperous New Year and we shall see what surprises 2012 bring.

WHAT'S YOUR BUSINESS NEW YEAR'S RESOLUTION?

2012-01-01T07:36:00.000-08:00

Here are a few helpful end of year steps to help get your 2012 year off to a good start.

1. Examine your Financials - The first step is you must get your financials in order. In order to set new financial goal you must have real life numbers from 2011. Without these it will be impossible to set 2012 bench marks. By analyzing your Profit & Loss Statement you can review your total net sales (revenues), cost of sales, gross profit, profit margin, controllable expenses, as well as fixed expenses. Understand what your numbers are telling you.

2. Review last year's Goals - Don't just jump and begin creating your 2012 goals. Begin this process by reviewing your 2011 goals and compare your financial successes. A key question to ask yourself is "Did your business accomplish what you set out to do?" "Did it meet your 2011 finical goals?" Even though these questions can be painful, these important questions will assist you in creating a new action plan for 2012. Goal’s are a great ‘road map’ to reflect where you’re planning to go, however, if you throw the map in the glove box & drive by the seat of your pants you may or may not end up at the anticipated destination.

3. Planning for the coming year - Now that you have a clear picture of your successes and perhaps areas of opportunities, you can begin to do some business planning for the New Year. Set clearly defined 2012 year's goals. Implement an action plan for each goal and create deadlines for each action step.

With a little planning and organization, your Business New Year's Resolutions for 2012 will be a huge success.

Do you need help on how to make 2012 goals for your business? Isn't this what you want from your Trusted Business Advisor? Email us today and start your year off on the right foot!

WHAT A MESS – PAYROLL TAX DEBATE

2011-12-23T14:33:00.000-08:00

The debate of the month is the extension of the 3% payroll tax extension. Let’s see how that will impact a taxpayer. If you were to make $40,000 per year this means about $46 per paycheck. Supposedly that will help stimulate the economy and create jobs, but don’t forget the money comes out of the Social Security Trust Fund.

But here is the problem. In just a few days you we will writing the first 2012 paychecks and we don’t know how much we are going to withhold. The IRS publications are out without the cut and I am sure that the computer programmers are going to be burning the midnight oil once Congress and the President act. There is also a chance that the extension of the law may occur early in 2012 and be retroactive to January 1, 2012. We hope that this does not happen, but recent history shows there is a good chance of it occurring.

The primary issue for our employers is whether the payroll tax software that they use is timely updated for these changes. If a new law is passed either at the end of the this month or early next month, the software may not get updated for your first payroll. This may cause it to be wrong and changes will need to be performed to get the right amount of pay to your employees and report the right taxes on your form 943 at year-end or form 941 for the first quarter.

We will keep you posted.

CLAIM IT WHILE YOU CAN

2011-12-23T12:44:00.000-08:00

Year-end tax planning: claim the non-business energy property credit while you can....

Of the many energy-saving provisions in the Code, few are more accessible to ordinary taxpayers than the $500 credit for non-business energy property. The credit can apply to relatively inexpensive, easy-to-do (perhaps even do-it-yourself) items—the installation of insulation (e.g., exterior caulking and weather-stripping), doors, and windows—as well as slightly more expensive but standard items such as central air conditioning and heat pumps. However, currently this credit only applies through 2011, and the prospects for an extension are uncertain. As a result, homeowners should consider accelerating energy-saving home improvements into this year if doing so will generate a credit.

Summary of the credit. The non-business energy property credit, as most recently extended, applies only through Dec. 31, 2011. A taxpayer can claim a credit on Form 5695 equal to 10% of the cost of: (1) qualified energy efficiency improvements, and (2) residential energy property expenditures. There is a lifetime credit limit of $500 (with no more than $200 due to windows and skylights) over the total credits allowed to the taxpayer for all earlier tax years ending after 2005. (The expenses must be for property originally placed in service by the taxpayer and made on or in connection with a dwelling unit located in the U.S., and owned and used by taxpayer as his principal residence at the time of installation.

Qualified energy efficiency improvements are energy efficient building envelope components, such as (a) insulation materials or systems specifically and primarily designed to reduce heat loss/gain that meet criteria set by the International Energy Conservation Code (IECC); or (b) exterior windows, skylights or doors, or any metal roof with pigmented coating or asphalt roof with cooling granules specifically designed to reduce heat gain, installed on a dwelling unit that meet Energy Star program requirements. The component must be expected to last for at least five years This requirement is met if the manufacturer offers a two-year warranty to repair or replace at no extra charge.

Residential energy property expenses are expenses for qualified energy property (including labor costs for onsite preparation, assembly, or original installation) that meets specific standards. The credit allowed for energy property expenditures can't exceed:
... $300 for any energy-efficient building property (electric heat pump water heater, electric heat pump; central air conditioner; natural gas, propane or oil water heater; or a stove burning biomass fuel to heat or provide hot water to a taxpayer's residence in the U.S.) that meets specific energy efficiency standards;
... $150 for a qualified natural gas, propane, or oil furnace; or qualified natural gas, propane, or oil hot water boiler; or
... $50 for an advanced main air circulating fan.

DON’T FORGET YOUR FLEXIBLE SPENDING MONEY

2011-12-21T13:46:00.000-08:00

Check your flexible spending account balance. You must clean it out by Dec. 31 if your employer still has not adopted the 2½-month grace period that IRS now permits. Otherwise, any money remaining in your account is forfeited. When you are deciding how much you should put into your flex plan for 2012, remember that a $2,500 annual cap on FSA payins is set to go into effect in 2013.

SIX YEAR-END TIPS TO REDUCE 2011 TAXES

2011-12-21T09:18:00.000-08:00

The IRS wants to remind all taxpayers that with the New Year fast approaching, there is still time for you to take steps that can lower your 2011 taxes. However, you usually need to take action no later than Dec. 31 in order to claim certain tax benefits.

CLICK HERE to read the 6 tips!

YEAR-END TAX PLANNING MEMO

2011-12-20T07:27:00.000-08:00

Year-end tax planning is especially challenging this year because of uncertainty over whether Congress will enact sweeping tax reform that could have a major impact in 2012 and beyond. And even if there's no major tax legislation in the immediate future, Congress next year still will have to grapple with a host of thorny issues, such as whether to once again “patch” the alternative minimum tax (e.g., to avoid a drastic drop in post-2011 exemption amounts), and what to do about the post-2012 expiration of the Bush-era income tax cuts (including the current rate schedules, and low tax rates for long-term capital gains and qualified dividends), and the expiration of favorable estate and gift rules for estates of decedents dying, gifts made, or generation-skipping transfers made after Dec. 31, 2012.

Regardless of what Congress does late this year or early the next, there are solid tax savings to be realized by taking advantage of tax breaks that are on the books for 2011 but may be gone next year unless they are extended by Congress. These include, for individuals: the option to deduct state and local sales and use taxes instead of state and local income taxes; the above-the-line deduction for qualified higher education expenses; and tax-free distributions by those age 70- 1/2 or older from IRAs for charitable purposes. For businesses, tax breaks that are available through the end of this year but won't be around next year unless Congress acts include: 100% bonus first-year depreciation for most new machinery, equipment and software; an extraordinarily high $500,000 expensing limitation (and within that dollar limit, $250,000 of expensing for qualified real property); and the research tax credit.

1099 FORM LETTER TO YOUR VENDORS

2011-12-16T07:58:00.000-08:00

We thought it might be helpful if you had a ‘form’ letter in which you could send to your vendors. Please feel free to copy and paste this into a word doc and send it out. Click on the link below the letter to obtain the W-9.

Dear Vendor,

IRS regulation requires that we issue 1099 forms to certain companies and individuals. In order to accurately prepare these forms, IRS requires that we obtain and maintain form W-9 for all of our vendors.

Therefore, in order to ensure our reporting accuracy, please complete the enclosed form W-9 and return to us by mail or fax.

Thank you for your immediate attention to this matter.

Sincerely,

W-9 LINK

W-9 WHAT ABOUT SENDING TO….

2011-12-15T08:22:00.000-08:00

Q. I read your business blog and saw the topic on 'Issuing 1099-MISC's: I own an Electrical company and wondered if I need to send a w-9 to our vendors for the Electrical Co. & the Construction Co.? And then send 1099’s to them if required. ~ Thanks for your help.

A. I would advise getting W-9’s from them. This will assure that you were not required to do backup withholding. The IRS has not been penalizing companies that do not have W-9’s but it technically is required. My guess is that someday this will be an issue. You just as well get ahead of the curve.

If they are not a corporation and they are providing services then a 1099 is in order. If they are just your supplier and you buy inventory, hard goods etc. then you do not need to do a 1099. Some taxpayers are unsure of the form of business of the companies that they are dealing with. The W-9 will solve that problem. At the same time if you are not sure there form of business it is okay to send a 1099. There is no penalty for sending to a corp.

IRS OFFERS TIPS FOR YEAR-END GIVING

2011-12-14T07:43:00.000-08:00

If you itemize your deductions (long form), you can deduct charitable contributions. The IRS just published Tips for Year-End Giving that you might want to review.

CLICK HERE

1099K - PAYPAL AND AMAZON

2011-12-12T12:36:00.000-08:00

Q. Hello. I just had a couple of quick questions about the new 1099k form. I read your blog post "1099K NO WORRIES THIS YEAR". Does this mean card companies are not reporting any sales amounts to the IRS this year until they get it figured out? Does this apply to companies such as Paypal and Amazon as well? I haven't seen this news anywhere else and that's what prompted me to email you. Is there a link to read where it says this? The whole process is so confusing. Thank you very much for your time.

A. The best I can tell is that the credit card and debit card companies, including PayPal, will be sending out 1099K's with copies going to the IRS. Apparently the IRS will not be able to match so they are saying put 0 in the box.

As far as a link, I will look but I actually heard this at the Washington Tax Conference.

WHO MUST ISSUE 1099-MISCs

2011-12-09T13:38:00.000-08:00

Here is some basic information about 1099-MISC:

First of all you just need to do a 1099 for certain business expenses.
o For example, someone paints your personal residence and charges you $1,100 you do not have to give that person a 1099. On the other hand if that person should paint your business property and charged you $1,100 you would give that person a 1099 for $1,100

You just have to issue a 1099 for services, not for tangible business purchases
o If the painter gives you a bill for painting and the bill includes labor and the cost of paint you would still give the painter a 1099 for the whole purchase

You do not need to give a 1099 to a corporation
o Both C corporation and S corporations qualify
o You must give a 1099 to LLC’s and partnerships

You just need to give a 1099 if you pay over $600 during the year
o For example the painter paints your business in January and charges you $400 then later in the year you bring them back and he does another $500 of painting. The total is over $600 so you must give the person a 1099

There is no penalty for sending a 1099 to a corporation so if in doubt play it safe and send. Of course there are more rules but these are the basics ones.

ONLY IN AMERICA

2011-12-08T09:16:00.000-08:00

A fugitive who took a Kansas couple hostage in their home is suing them for $235,000. Accused murderer Jesse Dimmick claims Jared and Lindsay Rowley accepted his knifepoint offer of money to hide in their house. But the Rowleys later breached their "oral contract" by escaping as he slept, Dimmick says, "resulting in my being shot in the back by authorities."

Wow only in America!

HIP TO BE SQUARE

2011-12-07T08:42:00.000-08:00

Have you seen the new Square credit card app? We use it when we are on the road to ring up credit card sales. It is really handy.

Developed by Twitter founder Jack Dorsey, this app allows merchants to accept credit cards via a small, square swiping device that plugs right into an iPhone or Android device. The only charge is a 2.75% transaction fee on every purchase.

In May they launched a new program called Square Register, a free iPad app that acts as a complete point of sale system for businesses It manages inventory and runs sales analytics. I have not used this software.

Here is how the software works. The customer swipes their cards on the Square card-reading device and sign their name directly on the screen of the iPad. They receive an email or text message receipt.

Customers with smart phones can download an app called Square Card Case, which allows them to set up and keep a tab with the merchant. When a customer activates the app and makes a purchase, his or her name appears on the merchant's iPad, and the merchant charges the account. The transaction is done completely over the iPad and the phone.

How long before a young person asks you "what was that stuff called cash that you used to use?"

2012 STANDARD MILEAGE RATES

2011-12-05T13:45:00.000-08:00

The Internal Revenue Service today issued the 2012 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2012, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
• 55.5 cents per mile for business miles driven
• 23 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

The rate for business miles driven is unchanged from the mid-year adjustment that became effective on July 1, 2011. The medical and moving rate has been reduced by 0.5 cents per mile.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study.

You do have the option of calculating the actual costs of using your vehicle rather than using the standard mileage rates.

HARSH 1099 PENALTIES

2011-12-03T13:51:00.000-08:00

The IRS wants everyone to issue 1099's so that they can spot unreported income. This year the penalty for failure to file a 1099 is $250 per form with an addition $250 per form if you did not act in good faith.

I can guarantee you that one of the first things that the IRS looks at during the audit is 1099's. It is easy money for them if you did not file.

Think about it. If you missed 10 forms for three years the penalty would be $7,500 minimum with it possibly going to $15,000. That is on just 10 missed forms. Do the math. Make sure you issue 1099's.

WHO CAN CLAIM THE CHILD AS A DEPENDENT

2011-12-02T12:22:00.000-08:00

Q. My ex husband claimed our two children as dependents on his return. The kids live with me and I claimed them. Now the IRS sent me a notice. Who gets to claim the kids.

A. I run into this question all the time. Here is the law.

In most cases the child of the custodial parent gets the exemption. This is determined by the "time test." A qualifying child must have the same principal place of abode as the taxpayer for more than one-half of the year. Prior to 1994 the exemption was determined by the divorce decree.

There is a Form 8332 Release of Claim to Exemption for Child of Divorced or Separated Parents. This form is signed by the custodial parent and gives the non custodial parent the right to claim the child. This form needs to be attached every year to the non custodial parents tax return.

OTHER TIMES THE ECONOMY CRASHED

2011-11-30T13:37:00.000-08:00

It seems that everybody is talking about the economy. When we think of economic crises in America, two periods come to mind—the Great Depression and whatever it is we’re in the middle of right now. But the U.S. stock market has crashed more times than we’d like to admit. Historically, our economy has been brought to its knees by everything from greedy bankers to horse illnesses. So let’s take a deep breath and remember that ‘panics’ are just part of the American way of life.

1. The Panic of 1873: America Stops Horsing Around

During the late 19th century, the American economy relied on horses the way it depends on gas today. Horse’s unloaded cargo from ports, transported goods from city to city, worked the farms, supported the army, and served as the emergency vehicles of choice. Without them, the American workforce would have ground to a halt.

And that’s exactly what happened in 1872, when an estimated 99% of all horses in America contracted equine influenza. The highly contagious strain started in Canada and spread through New England to the South in a matter of months, leaving horses across the country too weak to stand and coughing uncontrollably. Street buggies stopped running, paralyzing commerce in the cities. Railroads were stymied because trains run on coal —coal that was hauled out of mines by horses. And as the horse flu spread, U.S. military troops had to go into battle on foot (they were fighting Apache Indians at the time). More tragically, a fire in Boston raged for three days because there were no horses to carry water. The flames destroyed more than 700 buildings, causing an estimated $73.5 million in damages and killing at least 20 people.

The “Great Epizootic,” as it was called, spiraled out of control in less than a year. At the height of the panic, as many as 20,000 businesses failed, a third of all railroads went bankrupt, and unemployment spiked to almost 15 percent. The economy took nearly a decade to recover. Ironically, nearly all of the horses recuperated by the following spring.

2. The Winter of 1886: When the Cows Don’t Come Home

During the second half of the 19th century, cattle ranches in the American West were thriving. From the Montana grasslands to the Texas prairie, ranches were attracting investors back East and across the pond in Europe. But by 1886, things were getting dicey. Overgrazing, coupled with a hot and dry summer had left the plains almost bare.

Then came the snow. Known as the “Winter of Death”, the following season saw one of the worst cold spells in recorded history. More than half the cattle in the West froze to death, unable to move in the thick snow. Ghoulish firsthand accounts describe the bodies of dead cows stretching for miles across the horizon. When the spring thaw and floods came, thousands of bloated corpses floated into the streams and rivers. Some ranchers quit the business entirely and didn’t even bother to round up their surviving cattle.

By the end of 1887, the disaster had wiped out more than half of the United States’ western cattle and debilitated the national economy. Most cattle investors went bankrupt, and thousands of cowboys were left unemployed. But more than anything, the winter of 1886 put an end to all those turn-of-the-century idyllic fantasies of open-range ranching in the Wild West.

3. The Panic of 1907: Captains of Industry to the Rescue!

The Panic of 1907 started the way many panics do, with a greedy capitalist. Multimillionaire Augustus Heinze, who had made his fortune mining in Montana, believed he had enough control over the copper industry to corner the market. With the help of several major banks, he concocted a scheme to buy up all the shares of United Copper. But Heinze had overestimated his prowess, and the scheme failed, bringing down Heinze, United Copper, the banks, and many, many stockholders. The debacle sent ripples of anxiety throughout the market, and investors started pulling their money out of banks altogether. After one of New York City’s biggest trusts went under, panic ensued, and the stock market collapsed.

At the time, there were no central banks in place, so the federal government had no means of bailing out businesses or injecting cash into the economy. It just stood by, idly waiting for a hero to save the day. Amazingly, one did.

James Pierpont Morgan, banker extraordinaire, rescued the American economy. He propped up many of the failing banks in New York by twisting the arms of other financiers, and he assuaged investors’ fears by backing up the market with his own vast cash reserves. Before long, Wall Street was on the mend.

The government also learned its lesson. With the panic resolved, it created the Federal Reserve, ensuring that it could buttress the economy during hard times. Since then, the government has taken a more active role in financial matters and relied less on the kindness of robber barons.

4. Whale of a Crisis: The Collapse of America’s First Oil Industry

During the early 19th century, America was one of the top oil-producing countries in the world. But it wasn’t petroleum the nation was exporting; it was whale oil. By the mid-1800s, the high-risk, high-profit business was the fifth-largest industry in the United States. At its height, the American whaling industry produced more than 10 million gallons of oil a year and sold it for $1.77 a gallon (about $35 per gallon today). Better still; an American fleet of 1,000 ships had exclusive access to the North Atlantic territories, which ensured profits.

What could have stopped such a juggernaut of an industry? For one thing, other sources of oil. In 1846, Canadian geologist Abraham Gesner developed a technique for distilling kerosene from petroleum, and within a few decades, kerosene had replaced whale oil as the most popular fuel for lamps. Another reason for the decline was that the whales were dying off. The enthusiastic slaughter throughout the 1800s drove some whale species to extinction and put others on the brink. With so few left to hunt, the cost of whaling became prohibitively expensive. The final blow to whalers came during the harsh winter of 1871, when the North Atlantic ice trapped and crushed the bulk of the American fleet.

Although American consumers didn’t suffer as the country switched from whale oil to petroleum, coastal towns in New England and the Mid-Atlantic languished, and shipbuilders and fishermen found themselves out of work. By the time of the Civil War, whaling ships had become so worthless that Union soldiers loaded a fleet of them with stones and sank them into Charleston harbor. The hope was to blockade the South from the port, but when the plan didn’t work, the ships were no great loss. America’s first oil industry had been tapped out.

So just hang on. We have been here before and I imagine that we will see problems again.

HOBBY WINNINGS

2011-11-29T10:42:00.000-08:00

Q. Last year I was pretty lucky at golf. I actually won $2,800 in cash and about $4,000 in clubs, shoes, and golf clothes. Someone told me that this was taxable. Tell me it is not so.

A. Sorry, bad news. You must report your winnings on your income tax return.

Since this is most likely considered a hobby rather than a business, you would report winnings as “other income” on line 21 on your federal form 1040. If that’s the case, you can claim deductions – like entry fees, equipment, lessons, and other related expenses against your winnings but only if you itemize. This would be under the classification of “miscellaneous itemized deductions” on your Schedule A. Those miscellaneous itemized deductions are limited to those in excess of 2% of your AGI (adjusted gross income).

Additionally, if you treat golf as a hobby, your deductions are limited to the amount of your winnings. You also can’t carry excess deductions forwards or backwards.

In summary, the income is taxable and any deductions you have are only good if you itemize and if your miscellaneous deductions are greater than 2% of your adjusted gross income (found on the bottom of page one of your 1040).

ACCOUNTANTS IN THE MOVIES

2011-11-29T07:59:00.000-08:00

In Hollywood, accounting can seem like a pretty glamorous profession, or not.

Ben Kingsley played compassionate accountant Itzhak Stern in the Oscar-winning 1993 Steven Spielberg movie, "Schindler's List." Stern was a real-life accountant who worked for German industrialist Oskar Schindler, played by Liam Neeson. The accountant typed and maintained the list of names of his fellow Jews who were hired to work in Schindler's factories, preventing them from being sent to the Nazi death camps. The real Itzhak Stern appeared in the movie, along with the surviving people on Oskar Schindler's real-life list.

HAPPY THANKSGIVING

2011-11-24T11:37:00.000-08:00

Most of All

Thanksgiving Day brings to mind
the blessings in our lives
that usually go unnoticed:
a home that surrounds us
with comfort and protection;
delicious food, for pleasure
in both eating and sharing;
clothes to snuggle up in,
books and good entertainment
to expand our minds;
and freedom to worship our God.
Most of all we are thankful
for our family and friends,
those treasured people
who make our lives extra special.
You are part of that cherished group.
On Thanksgiving, (and every day)
we appreciate you.

Happy Thanksgiving
From Kopsa Otte

NEW ADDITION

2011-11-23T07:37:00.000-08:00

We are excited to announce that
Megan had a beautiful little girl yesterday.

Adelynn Lauren
7lbs 8oz. and 20 inches long

ACCOUNTANTS IN THE MOVIES

2011-11-22T08:52:00.000-08:00

In Hollywood, accounting can seem like a pretty glamorous profession, or not.

Jack Lemmon plays an accountant in the 1954 comedy "Phffft!" who decides to split with wife Judy Holliday after eight years of marriage. He met her while doing her taxes, and even after they break up and start seeing other partners, he continues to keep her as a client. The unusual title is supposed to be the sound of a marriage losing steam. Lemmon also played an accountant in Billy Wilder's 1960 comedy, "The Apartment," in which he lends his apartment to boss Fred MacMurray for assignations with girlfriend Shirley Maclaine. The movie was later the basis of the musical "Promises, Promises."

THREE TIPS IF YOU ARE OUTSOURCING PAYROLL

2011-11-21T10:43:00.000-08:00

Outsourcing payroll duties to third-party service providers can streamline business operations, but the IRS reminds employers that they are ultimately responsible for paying federal tax liabilities.

Recent prosecutions of individuals and companies who - acting under the guise of a payroll service provider - have stolen funds intended for payment of employment taxes makes it important that employers, who outsource payroll, are aware of the following three tips from the IRS:

1. Employer Responsibility: The employer is ultimately responsible for the deposit and payment of federal tax liabilities. Even though you forward the tax payments to the third party to make the tax deposits, you - the employer - are the responsible party.

If the third party fails to make the federal tax payments, the IRS may assess penalties and interest. The employer is liable for all taxes, penalties and interest due. The IRS can also hold you personally liable for certain unpaid federal taxes.

2. Correspondence: If there are any issues with an account, the IRS will send correspondence to the address of record. The IRS strongly suggests you do not change the address of record to that of the payroll service provider. That could limit your ability to stay informed of tax matters involving your business.

3. EFTPS: Choose a payroll service provider that uses the Electronic Federal Tax Payment System. You can register on the EFTPS system to get your own PIN to verify the payments.

The IRS web site – www.irs.gov has more information on the responsibilities of employers outsourcing payroll, payroll service providers and EFTPS.

1099K NO WORRIES THIS YEAR

2011-11-19T13:44:00.000-08:00

If you have been following my blog, you know that I have been concerned about the new 1099K compliance form that credit card and debit card companies are required to send out to show the amount of your credit and debit card sales.

This is new for 2011 and there are several issues that I have been concerned with. Items such as cash back, tips, refunds, sales tax etc.

Now we have seen the 2011 forms and there is good news. There is a line on the income form that says "amounts reported on 1099k" but then it goes on to say "for 2011 enter 0." In other word the IRS has not worked out the kinks in the reporting so this is not going to be an issue for the 2011 returns

WHEW!

I FORGOT TO FILE MY 2010 RETURN. WHAT DO I DO?

2011-11-19T11:35:00.000-08:00

Q. I’m an independent contractor using 1099s. I have one w-2 for a small amount from 2010. I missed the tax deadline and did not file an extension. What kind of advice can you give me? I live in CA but need some general direction.

A. File. That’s my advice in a nutshell.

One of the biggest mistakes that I see in my practice is giving up early. After a mistake or a missed deadline, many taxpayers get a bit overwhelmed and put their head in the sand – or they figure that since they’ve already messed up, they’ll wait and fix it later. Don’t fall into that trap.

Keep in mind that penalties are based on the passage of time. If you fail to file on time, you can be subject to a penalty of 5% of the amount of unpaid taxes for each month (or part of a month) that your tax return is late, not to exceed 25% of your unpaid taxes. If you also fail to pay, you can be subject to a penalty of ½ of 1% (or .005%) of the amount of your taxes due for each month or part of a month after April 15 that the taxes are not paid, also not to exceed 25% of your taxes. So the longer you wait to fix the problem, the more that it’s going to cost you. And don’t forget about interest, which will be charged on top of penalties.

Also keep in mind that the IRS is much happier when you come to them, as opposed to the IRS coming to you. If forms 1099 (or other forms) have been filed on your behalf by the issuer, the IRS knows that you exist. They’re going to be waiting to hear from you.

Filing your taxes late isn’t the end of the world. It’s fixable. But the faster you fix it, the better.

WASHINGTON D.C. UPDATE PART #4

2011-11-15T13:08:00.000-08:00

Here are some Social Security facts that you might be interested in:

- If you are under 55 and they made no changes to the law so you can expect to receive 77% of the benefits that you normally would be eligible for; if you are over 55 you should receive 100% of the benefits.

- To fix the program Congress needs to do one of two things, or some combination: Increase income from payroll taxes by 17% AND Reduce current benefits by 14%

- Social Security was never meant to provide 100% of the living expenses for retired individuals.

- 80 million baby boomers will be eligible for Social Security in the next 10 years.

- As a cost cutting measure, the Social Security Administration has quit sending out the annual Social Security Statements that you normally received around you birthday. They are going to be providing the information on line, but they can't figure out how they are going to do that. Make sure you keep your last statement.

- Right now if you retire at age 62 versus age 65 you will get 75% of full benefits. The decision depends on your individual circumstances.

- The Social Security system is not a "the more you pay in the more you get." The lower 30% get much more than they pay in and more than the higher 70%.

WASHINGTON D.C. UPDATE PART #3

2011-11-15T11:00:00.000-08:00

The Commissioner of the Small Business and Self Employed division spoke on initiatives that the IRS is taking especially the new requirement to turn over your software files if you are audited.

The IRS now can request backup copies of your software.

This is going to give them access to entries not only to your books but also it will allow the auditor to look at adjustments and changes that were made to your books by looking at the audit trail.

This is concerning. Think about yearend adjustments that are made when cleaning up the books and then when doing tax planning. The auditor is going to see those changes and will be asking questions.

Here is an example: Assume the owner of the business takes money from the business during the year. The bookkeeper classifies this as a loan. After the yearend we are looking at the transactions and determine that this actually should have been a dividend. On March 1st of the subsequent year we either make an entry or reclassify the check. The auditor is going to know about the entry through the audit function and think that we are doing some "hankie pankie" post yearend planning.

Here are some of the questions and answers addressed by the panel from the IRS:

Q. Is this legal?
A. Yes. We have been to court several times and in all cases the judge has ruled that we should have access to the electronic books because they are the books of original entry.

Q. Could we turn off the audit function?
A. Yes but that would make us suspicious and would probably extend the audit. What are you trying to hide?

Q. What if the client uses QuickBooks as a checkbook and then the accountant takes the QuickBooks and makes entries. Can they still request?
A. Yes

Q. If the auditor has the books can he look at prior years? If he is looking at prior years he is supposed to open an audit for those years. Will they be looking at those years?
A. We have told the auditors during training not to look at prior years.

Q. HERE WAS MY QUESTION. Many clients have point of sale software that keeps track of transactions and inventory along with accounts receivable but is not downloaded into the general ledger. Is this type of software subject to review?
A. Yes. This is considered part of the books of original entry and is subject to request.

Q. What if the electronic books are kept by the accountant. Can they still be requested or subpoenaed?
A. Yes.

Because of this new initiative by the IRS, we are going to have to be more diligent in our recording into QuickBooks and other electronic software and be prepared to answer questions of why entries were made to change or to make journal entries after the end of the business year.

WASHINGTON D.C. UPDATE PART #2

2011-11-15T10:00:00.000-08:00

Independent contractors are on the radar.

- There is a new initiative to have owners that are improperly treating workers to come forward and admit their mistake. The cost would be penalty of 10% of the payroll tax due for the prior 12 months. This is an effort by the IRS to allow businesses to get it right before they start a hard clamp down on worker classification.

- The IRS is now doing an extensive study sampling worker classification

- Estimates are that $64 billion is being lost in payroll taxes by misclassification.

- Hard lobbying in Washington to eliminate the Section 530 Relief.

- Efforts by the IRS to find employers that are improperly classifying workers:
~Independent research study on the issue
~New IRS specialist to help field auditors with the issue
~More exams
~1099/W-2 comparisons within individual industries
~Working with the states on classification. States are getting much more active.
~Flagging businesses with more than 5 1099's showing more than $20,000; thus indicating the use of independent contractors and workers.

WASHINGTON D.C. UPDATE PART #1

2011-11-15T09:00:00.000-08:00

I am writing this from the National Tax Conference in Washington DC. This is a great conference because we hear from the "insiders" on what is happening, or not happening, with our tax policy. The Commissioner of the IRS even made a presentation. You may have seen his talk live on CSPAN, but come to think of it I would imagine not too many people would find his talk interesting so the ratings from CSPAN probably were not up there with Dancing With the Stars.

I wanted to share with you some highlights. This is really important because future tax policy is going to hit us right in our bank account. With taxes scheduled to increase substantially and with the economy waning the more we know the better we can plan.

Here is Part #1 of this 2 1/2 day conference:

+ Nobody can outguess what Congress is going to do. Even the “insiders” are concerned about the lack of direction.

+ We are fairly safe in planning for 2012. It is an election year so we won't see a lot of major changes. But in 2013 the Bush/Obama laws will be phased out and it is going to be a battle. If the past is any indication we may not know what the 2013 laws will be until late in the year. This is going to make planning in 2012 very important.

+ In 2011, we can take 100% write-off on certain leasehold improvements. This is scheduled to reduce to 50% in 2012 and then disappear in 2013. With the economy as it is we may see the ability to take 100% continue thru 2012- there is a chance but don't count on it. We are watching this for you.

+ The same is true with the write off of equipment. It reduces from $500,000 this year to $139,000 in 2012. This may also be extended. We are watching for you.

+ Many business owners are planning/hoping that Obama Care will be repealed. One of the Congressmen that spoke said that in his opinion it will not be repealed no matter who wins the White House. The Congressmen’s thinking is that it would take 60 Senators to overturn the bill and that will not happen.

+ The extremely high tax rates for people making over $200,000 are getting closer. With the exit of the Bush/Obama cuts; the Obama proposal to raise taxes on those wealthy people making over $250,000; and Obama Care laws tax increases for Medicare coming in 2014 rates could go as high as 43.4%. Plus we still have Social Security and State taxes ~ Ouch.

+ Everything is now political. It used to be a few years back that the leaders from the two parties would get together to work out solutions to problems. This does not happen anymore.

+ Estate planning is a mess. In 2011 and 2012 you can have an estate of $5 million and no estate tax. Any of the $5 million that you do not use you can pass to your spouse. In addition you can give $5 million. But in 2013 the estate drops to $1 million. Who knows how to plan? It may be time to consider gifting. We are watching for you. If you have an old will you should consider reviewing. It most likely is outdated.

+ We even had a session on the power of Social Media. If you are not using any type of Social Media, you better catch up with the times. People trust testimonials 90% but advertising 14%. Social media creates a testimonial "feeling."

+ Health Savings Accounts are a great way to reduce healthcare costs.

ACCOUNTANTS IN THE MOVIES

2011-11-14T08:28:00.000-08:00

In Hollywood, accounting can seem like a pretty glamorous profession, or not.

Danny Glover played bow-tied accountant Henry Sherman in Wes Anderson's 2001 comedy, “The Royal Tenenbaums” about an eccentric family of upper-class misfits. Besides doing the accounting, Henry also romances the matriarch of the family, Etheline Tenenbaum, played by Anjelica Huston. Other members of the all-star cast included Gene Hackman, Ben Stiller, Gwyneth Paltrow, Bill Murray, Luke Wilson and Owen Wilson, along with the voice of narrator Alec Baldwin.

11.11.11

2011-11-11T08:52:00.000-08:00

FLAT TAX QUESTION

2011-11-11T07:13:00.000-08:00

Q. Hello Larry,
Not sure if you remember me, but I attended York College and had a few of your classes in '03-'05. With all of this "flat tax" talk by Presidential candidates right now, all I could think about was my classes where you would talk about that proposed flat tax that you said if it ever became law, instead of putting you out of business you'd have more business than before because it was so complex. Anyways, I was just curious what you thought about the current suggestions (Cain's 9-9-9 and Perry recent proposal-20% or normal, etc.). Thanks for listening! ~ Samuel

A. Sam, sure I remember you. I hope all is going well. Looks like a nice accounting firm that you are with.

Regarding the 9-9-9 and Perry’s 20% Alternative I don’t see any way that those plans are anything other than campaign rhetoric. To start with, tax laws must originate in the House Ways and Means Committee not with the President. And even with that, as people start studying the plans they realize that there is not enough money in the plan to make it work.

Oh yea… I forgot … “you can take away all the deductions but don’t take away my ________________ (fill in the blank -depreciation/charitable/tax exempt interest/child tax credit/medical expense etc.)

And don’t forget what I said in class, “people want fair and simple, but in reality that does not exist. Something can be simple but usually it is not fair so to make it fair we have to make it more complex.” Law of the universe.

Keep in touch.

A NEW CHRISTMAS TRADITION

2011-11-10T11:17:00.000-08:00

I received this from someone and thought maybe you might be interested.

Christmas 2011 -- Birth of a New Tradition

As the holidays approach, the giant Asian factories are kicking into high gear to provide Americans with monstrous piles of cheaply produced goods -- merchandise that has been produced at the expense of American labor.

This year will be different. This year Americans will give the gift of genuine concern for other Americans. There is no longer an excuse that, at gift giving time, nothing can be found that is produced by American hands. Oh.... Yes there is! It is time to think outside the box, people. Who says a gift needs to fit in a shirt box, wrapped in Chinese produced wrapping paper?

Everyone -- yes EVERYONE gets their hair cut. How about gift certificates from your local American hair salon or barber?

Gym membership? It's appropriate for all ages who are thinking about some health improvement.

Who wouldn't appreciate getting their car detailed? Small, American owned detail shops and car washes would love to sell you a gift certificate or a book of gift certificates.

Are you one of those extravagant givers who think nothing of plunking down the Benjamins on a Chinese-made flat-screen TV? Perhaps that grateful gift receiver would like his driveway sealed, or lawn mowed for the summer, or driveway plowed all winter, or games at the local golf course.

There are a gazillion owner-run restaurants—all offering gift certificates. And, if your intended isn't the fancy eatery sort, what about a half dozen breakfasts at the local breakfast joint.

Remember, folks this isn't about big National chains—this is about supporting your home town Americans with their financial lives on the line to keep their doors open.

How many people couldn't use an oil change for their car, truck or motorcycle, done at a shop run by the American working guy?

Thinking about a heartfelt gift for mom? Mom would LOVE the services of a local cleaning lady for a day.

My computer could use a tune-up, and I KNOW I can find some young guy who is struggling to get his repair business up and running.

OK, you were looking for something more personal. Local crafts people spin their own wool and knit them into scarves. They make jewelry, and pottery and beautiful wooden boxes.

Plan your holiday outings at local, owner operated restaurants and leave your server a nice tip.

And, how about going out to see a play or ballet at your hometown theatre. Musicians need love too, so find a venue showcasing local bands.
Honestly, do you REALLY need to buy another ten thousand Chinese lights for the house? When you buy a five dollar string of lights, about fifty cents stays in the community.

If you have those kinds of bucks to burn, leave the mailman, trash guy or babysitter a nice BIG tip.

You see, Christmas is no longer about draining American pockets so that China can build another glittering city. Christmas is now about caring about US (We the People), encouraging American small businesses to keep plugging away to follow their dreams. And, when we care about other Americans, we care about our communities, and the benefits come back to us in ways we could not imagine.

THIS could become the new American Christmas tradition!!

TAXING YOUR AIRLINE TICKET

2011-11-09T12:35:00.000-08:00

You may soon be paying more in taxes than the cost of the airline ticket -

The Obama administration wants to add a giant tax to your next airline ticket. The government is proposing a $100-per-takeoff tax for passenger and cargo flights to reduce the federal budget deficit. And Congress is considering increasing the $2.50 per passenger security tax to $5 and then raising it again to $7.50 by 2017. The airlines currently pay up to 17 different taxes to government entities (actually you pay in the form of higher ticket prices). This one might be killing the goose that lays the golden egg. Can you imagine buying a ticket from Omaha to Chicago for $79 and then paying taxes of $200 on top of that. The government taxes airlines more than they tax sin (alcohol and tobacco). Let's hope that this tax proposal dies a fast death in congress.

ACCOUNTANTS IN THE MOVIES

2011-11-09T08:58:00.000-08:00

In Hollywood, accounting can seem like a pretty glamorous profession, or not.

Joe Pesci plays accountant Leo Getz, who is protected by cops Danny Glover and Mel Gibson after he become a witness against his money-laundering clients in three of the four "Lethal Weapon" action-comedy movies. Leo continually gets his bodyguards in trouble, but he seems to be having a lot more fun than doing the books. By the final movie, he went through a career change and became a private detective.

SOCIAL SECURITY DISASTER

2011-11-08T11:18:00.000-08:00

Twenty one years ago, I did a tax seminar and my main theme was not income tax savings but rather Social Security savings. I was concerned way back then about the financial feasibility of the program. The point is that the Social Security problem is not something that is new. We knew way back then it was projected that by 2025, there would be two workers for every worker on Social Security.

We started doing everything we could to avoid paying in because the system is not set up so that the more you pay in the more you get out.

Unfortunately, I was correct way back then. It was political suicide to change the system so the politicians just kicked the can to the next guy/girl in office.

The following article is a really good summary:
Politicians who are principled enough to point out the fraud of Social Security, referring to it as a lie and Ponzi scheme, are under siege. Acknowledgment of Social Security's problems is not the same as calling for the abandonment of its recipients. Instead, it's a call to take actions now, while there's time to avert a disaster. Let's look at it.

The term “Ponzi” was derived from the scheme created during the 1920s by Charles Ponzi, a poor but enterprising Italian immigrant. Here's how it works. You persuade some people to give you their money to invest. After a while, you pay them a nice return, but the return doesn't come from investments. What you pay them with comes from the money of other people whom you've persuaded to "invest" in your scheme. The scheme works so long as you can persuade greater and greater numbers of people to "invest" so that you can pay off earlier "investors." After a while, Ponzi couldn't find enough new investors, and his scheme collapsed. He was convicted of fraud and sent to prison.

The very first Social Security check went to Ida May Fuller in 1940. She paid just $24.75 in Social Security taxes but collected a total of $22,888.92 in benefits, getting back all she put into Social Security in a month. According to a Congressional Research Service report titled "Social Security Reform" (October 2002), by Geoffrey Kollmann and Dawn Nuschler, workers who retired in 1980 at age 65 got back all they put into Social Security, plus interest, in 2.8 years. Workers who retired at age 65 in 2002 will have to wait a total of 16.9 years to break even. For those retiring in 2020, it will take 20.9 years. Workers entering the labor force today won't live long enough to get back even half of what they will put into Social Security. Social Security faces Ponzi's problem, not enough new "investors." In 1940, there were 160 workers paying into Social Security per retiree; today there are only 2.9 and falling.

Some politicians claim that Social Security has a huge trust fund and is in good health. An uniformed public and a derelict news media don't challenge that lie. Back in August, politicians were in a tizzy over raising the federal debt limit. In an effort to frighten seniors, President Barack Obama said in a CBS interview, "I cannot guarantee that those checks go out on Aug. 3 if we haven't resolved this issue, because there may simply not be the money in the coffers to do it." Here's how we reveal the trust fund lie: According to the Social Security Administration, it has a trust fund with $2.6 trillion in it. If those were real assets, then the Social Security Administration could have mailed checks out regardless of what Congress did about the debt limit. The reality is that the Social Security trust fund consists of government IOUs that have no real value at all and probably are not even worth the paper upon which they are printed.

I believe that a person who is 65 years old and has been forced into Social Security is owed something. But the question is- Who owes it to him? Congress has spent every penny of his Social Security "contribution." Young workers have no obligation to be fleeced in order to make up for the dishonesty and dereliction of Congress. The tragedy is that most seniors just want their money and couldn't care less about whom Congress takes it from.

U.S. SOCIAL SECURITY GOES "CASH NEGATIVE"

2011-11-04T13:32:00.000-07:00

Social Security will add $46 billion to the U.S. budget problem this year, a figure that would increase to $267 billion if Congress adopts President Barack Obama's proposal to expand this year's tax break into 2012, according to the system's trustees. Congressional leaders of both parties are avoiding the issue, fearful of angering senior citizens and their advocates.

SOCIAL SECURITY BENEFIT INCREASE FOR 2012

2011-11-02T13:22:00.000-07:00

Social Security benefits will go up 3.6% in 2012...the first hike in two years. The earnings limits will be heading up, too. Individuals who turn 66 in 2012 will not lose any benefits if they earn $38,880 or less before they reach that age. Individuals between ages 62 and 66 by the end of 2012 can make up to $14,640 before they lose any benefits. There is no earnings cap once a beneficiary turns 66.

For more informaiton on Social Security: Click Here

ACCOUNTANTS IN THE MOVIES

2011-11-02T09:15:00.000-07:00

In Hollywood, accounting can seem like a pretty glamorous profession, or not.

The opening sequence in the 1983 comedy, "Monty Python's The Meaning of Life," is a short movie called "The Crimson Permanent Assurance," in which a group of beleaguered British chartered accountants decides to fight their corporate overlords by turning into pirates and sailing off on the high seas of accountancy. "It's fun to charter an accountant and sail the wide accountant-sea," the pirates sing.

CHARITABLE CONTRIBUTIONS FROM IRAS

2011-11-01T14:32:00.000-07:00

Year-end planning Tip: Individuals age 70 1/2 or older should consider making charitable contributions from IRAs

This year may well be the last chance for taxpayers age 70 1/2 or older to take advantage of an up-to-$100,000 annual exclusion from gross income for otherwise taxable individual retirement account (IRA) distributions that are qualified charitable distributions. Such distributions aren't subject to the charitable contribution percentage limits and aren't includible in gross income. This tax advantage will not be available for distributions made in tax years beginning after Dec. 31, 2011.

This is a great opportunity for taxpayers that do not have enough itemized deductions to file the “long form.” For married couples over age 65 the standard deduction is $13,900 and for singles it is $7,250.

Where this becomes a great planning tool is when the taxpayer is in the zone where they are paying tax of Social Security Benefits and making charitable contributions that they effectively can’t deduct because they are taking the standard deduction.

For example:
Bonnie and Clyde are both over age 70 ½. They have interest and other income of $20,000 and are taking $10,000 per year from their IRA. In addition they have Social Security benefits of $20,000. Bonnie and Clyde got religion after they retired from the banking business and annually make charitable contributions of $7,500.

If they draw money from their IRA and put it in their checking account and then make a charitable contribution their total federal and state tax is $1,703.

On the other hand if they direct their IRA administrator to take the IRA money of $7,500 and give it to their charity their tax drops to $176.

There is a saving so $1,527. Pretty cool… easier than robbing a bank.

If you need any more information on this let me know. Remember, unless Congress renews this tax strategy 2011 is your last chance. You might want to think about doing your 2012 contribution in 2011 to beat the expiration deadline.

RAFFLE WINNER

2011-10-31T14:20:00.000-07:00

Q. We were at a local fundraising event and won a raffle. The prize was a trip to Vale, CO. including airfare and lodging for seven nights. The value is estimated at $12,000 to $18,000. Is the prize taxable?

A. You win... and of course the IRS wins. This is taxable and you most likely be receiving a 1099 for this. If the trip is valued at $12,000 at a 40% tax rate, you will be paying about $4,800 in income taxes on your 2011 tax return for this.

Enjoy the trip.

THE IOWA PUMPKIN TAX REPEALED

2011-10-31T07:59:00.000-07:00

Here is how stupid taxes can be. It is estimated that more 750 million pumpkins are carved into jack o' lanterns each October. While the practice brings joy to many, it created heartburn for Iowa tax officials four years ago, who were dismayed that so many people were decorating their pumpkins.

You see, Iowa (like most states) taxes retail sales but exempts groceries. Pumpkins used for decoration should have been taxed but were slipping by because they were also food. So they spent taxpayer’s money sending out a bulletin to retailers reminding them to quiz customers on whether they were buying the pumpkin to eat (not taxable) or decorate (taxable):

Pumpkins: Pies and jack-o'-lanterns
The Department recently refined its position on whether pumpkins are subject to Iowa sales tax to more closely match what we believe to be their predominant use.

In the past, pumpkins were exempt from sales tax as a food (edible squash), even if they were to be later made into jack-o'-lanterns or used as decorations.

Our position now is that pumpkins are taxable if:
1. They are advertised to be used as jack-o'-lanterns/decorations, or
2. It is understood that they will be used as jack-o'-lanterns/decorations

Pumpkins are exempt in the following circumstances:
* The buyer completes a sales tax exemption certificate stating they will be used as food, or
* The pumpkins are a specific variety used to make pumpkin pies and are advertised in that way, or
* They are purchased with Food Stamps.

Retailers who sell pumpkins should keep these guidelines in mind and make any necessary changes to their tax treatment of pumpkin sales.

Fortunately this got picked up by the media and then the blogosphere,, which led to local news coverage, and finally Iowa officials rescinded the pumpkin tax a few days later. One less silly tax.

ACCOUNTANTS IN THE MOVIES

2011-10-28T07:35:00.000-07:00

In Hollywood, accounting can seem like a pretty glamorous profession, or not.

Edmund O'Brien plays accountant Frank Bigelow in the fast-paced 1950 film noir crime drama "D.O.A." The movie opens with Bigelow entering a police station to report his own homicide and then in flashback traces how he came to learn that he had been poisoned by a former client who needed him to notarize an incriminating document. The movie was later remade in 1988 with Dennis Quaid playing O'Brien's role, but in the remake Quaid is a college professor. O'Brien is shown here with Laurette Luez, who plays his client's mistress Marla Rakubian.

SCHOOL UNIFORMS

2011-10-27T09:08:00.000-07:00

Q. As a mom, I love school uniforms. They’re easy and predictable. What they aren’t is cheap. They’re also not in great demand for wear outside of school which means that they serve one purpose only. So that feels like an expense that should be deductible, right?

A. Sorry, nondeductible. The IRS does not allow deductions for school uniforms, even if required, for public, parochial or private schools.

The rules are a bit different at military school. If you are a student at an armed forces academy, you cannot deduct the cost of your uniforms – that’s consistent with the rules for public, parochial and private schools. However, you do get something of a break at military school in that you can deduct the cost of insignia, shoulder boards, and related items.

SOCIAL SECURITY WAGE BASE INCREASES

2011-10-26T06:44:00.000-07:00

Social Security wage base increases to $110,100 for 2012

For those of you that are budgeting, the IRS has released the new base for Social Security tax. If you are at max this will mean an additional $205 tax ($3,300 x .062). For self employed double that.

The Social Security Administration has announced that the wage base for computing the Social Security tax (OASDI) in 2012 increases to $110,100 from $106,800, which was the wage base for 2009 through 2011. The $3,300 increase, which is about 3%, is due to an increase in average total wages.

PRISONERS MILK TAXPAYERS OUT OF MILLIONS

2011-10-25T09:48:00.001-07:00

Don't ask me why but I like to study philosophy. Recently I was reading the debate about the purpose of jail. There are a bunch of different philosophies about why jailing a person is supposed to be a good idea though admittedly no consensus. Is it punishment for wrongs? A mechanism to isolate “bad” people? A way to get those who did something wrong to think about what they have done? Some combination of the above?

I’m not sure what I think the real purpose of jail is but I’m pretty sure it’s not supposed to be a forum for committing more crimes. And yet, that’s what’s allegedly happening in jails across the country.

CNN recently reported that an investigation into a scheme into a Key West, Florida has found attempts to cheat the government out of more than $1 million – on your dime. Investigators believe that inmates have been filing false tax forms using bogus Social Security numbers and made up businesses in order to collect refund checks. Instructions explaining how to fill out the forms together with cheat sheets – as well as how to keep refund request relatively low (under $5,000) – were circulated among the prisoners in a far-reaching scheme.

Most commonly, prisoners would fill out a form 4852, a form that you use to report wages when your form W-2 is missing. When the forms, along with tax returns were processed, the prisoners received bogus refunds. The refunds were mailed to family members and sometimes, even directly to the prison. At the prison, the refunds were divided among ringleaders (who kept a portion for themselves) and participants in the scheme. Genius, right?

It may not be as genius as it sounds. The scheme is actually nothing new: it’s been happening for years. The IRS has been notified and across the country, charges have been filed and ringleaders prosecuted. However, officials familiar with these cases say that the fraud is ongoing. At Key West, for example, the prison has been intercepting bogus checks still being issued by the IRS for at least one prisoner.

The IRS, for its part, says that it is aware of what’s happening. They note that it is difficult to attack the problem since being in prison doesn’t bar taxpayers from receiving a genuine refund. Even more challenging? The population of prisons is constantly changing which means that patterns may be difficult to spot.

The issue has been on the radar for years. Five years ago, the IRS flagged false refunds from prisoners as a top concern noting that of 118,000 fraudulent tax returns filed, 18,000 were filed by prisoners – that’s a whopping 15%. Prisoners received more than $14 million in bogus claims, though the IRS points out that they successfully blocked an additional $53 million.

The IRS won’t say what steps they are taking to control the number of bogus claims filed by prisoners but they do know who is to blame: you. Reportedly IRS’ position is to issue refunds and then audit later in response to a bigger problem: taxpayers want their refunds quickly. Increased scrutiny of returns at the processing level (while clearly more efficient) would slow down the refund process. And that wouldn’t be popular for taxpayers who want to see refunds.

HMMMM

2011-10-22T08:51:00.000-07:00

“Warren Buffett’s company reportedly owes the IRS a billion dollars in back taxes. When he said he wasn't paying enough taxes, he wasn't kidding.” Jay Leno

NO WONDER WE HAVE A DEFICIT

2011-10-21T09:30:00.000-07:00

In 1969 20% of US Taxpayers Paid Zero or Negative Tax

In 2009 42%

Now 51%

(Tax Foundation) -- The Tax Foundation's Tax Policy Blog reports that from 1969 to 2009, U.S. taxpayers who have a zero or negative tax liability grew from less than 20% of all filers to 42%, according to the IRS. Congress' Joint Committee on Taxation has "found that 51% of American households paid no income taxes." For millions of these non-payers, "the refundable credits more than exceed their payroll tax contributions." The blog also notes that since 2003, the top 1% of taxpayers' share of the tax burden "has well exceeded that of the bottom 90%, even during the recent recession."

MAN AGAINST MACHINES

2011-10-19T09:40:00.000-07:00

It’s technologies fault that we have so much unemployment

A couple of years ago, I was making a presentation to a group of about 250 CPA’s, Certified Public Accountants. Before the talk I was back stage with one of the other presenters. This guy was from one of the big CPA firms and had just returned from working in Europe for one of his tax clients.

During my conversation I asked him about technology in Europe. In his words, “Europe has not embraced technology because it doesn’t do them any good.” It seems that In Europe you can’t lay anybody off so there is no incentive to use computers when they still need to have the people there. I was thinking about that conversation recently as I watched six or seven workers outside my office window tearing up a street and laying new cement. There weren’t many workers walking around with shovels, they were utilizing big machines and technology to build the new road. Anything that needed to be moved was done with a backhoe or a frontend loader. I don’t think I ever saw over ten workers and that was when they were pouring cement. So even “shovel ready” jobs are not going to create a lot of jobs unless they mandate that everything be done by hand.

Actually President Obama was right when he said that ATM’s were part of the employment problem. You don’t need tellers if people are using ATM’s.

Recently I read in Reuters that since 1999 business investment in equipment and software has surged 33% while the total number of people employed by private firms (not the government) has changed very little. The gap between man and machine widened even further in 2008 and 2009 during the recession. You can see why the United States is struggling to bring down employment which is stuck at 9%. I know my clients that went through the 2008 and 2009 recession have not significantly increased their number of employees because they are able to get by with the people they have.

Here is a personal example: I know that in our small accounting office we have 20 to 25 people employed depending on the time of year. I estimate that if we did not have computers and software and two or three monitors on everybody’s desk and internet access, etc. we would need fifty to seventy-five people to do the same amount of work we are doing right now. We used to have one person who worked part-time, just updating our paper tax library. Right now our tax library is out on the cloud and we don’t need that person working part-time. The same is true with our mail room and our filing. Everything is electronically filed.

I guess this is progress and we have to wait for the workforce to get caught up to the progress. I think we can see that it’s more than just the economy that is causing the problem with unemployment.

ACCOUNTANTS IN THE MOVIES

2011-10-19T07:43:00.000-07:00

In Hollywood, accounting can seem like a pretty glamorous profession, or not.

Charles Martin Smith (far right) played accountant Oscar Wallace in the 1987 movie version of "The Untouchables," a popular TV series that ran from 1959-1963. Wallace joins a team organized by Treasury agent Elliot Ness, played by Kevin Costner, to break up Al Capone's mob in Prohibition-era Chicago. They finally put Capone behind bars for tax evasion. Capone was played by Robert De Niro. Other members of Ness's Untouchables included Sean Connery and Andy Garcia. Wallace was based on a real-life accountant named Frank J. Wilson who joined the Treasury Department's Intelligence Unit in 1920 and later helped nab Lindbergh baby kidnapper Bruno Hauptmann by insisting that the serial numbers on the ransom money be properly recorded. Wilson later became chief of the Secret Service.

NOTIFY THE IRS IF YOU MOVE

2011-10-18T09:14:00.000-07:00

The IRS has explained how taxpayers must inform, the IRS of a change of address, effective immediately. The IRS uses a taxpayer's address of record for the various notices or documents that are required to be sent to a taxpayer's “last known address.”

The key point is that a notice or document sent to a taxpayer's “last known address” is legally effective even if the taxpayer never receives it.

PROTESTS ON WALL STREET

2011-10-14T09:33:00.000-07:00

Maybe this is too political but.... this past summer I read Atlas Shrugged by Ayn Rand. The book explores a dystopian US where leading innovators refuse to to be exploited by society. The protagonist sees society collapse around her as the government asserts control over all industry while the most productive citizens progressively disappear.

As I watch the protests on Wall Street and the ones spreading across the country, I thought of this book and the following statements. If anybody that reads this understands what the protesters are trying to get across would you please email me so that maybe I can understand.

Here are the concepts that I pulled out of my quotes bag.

1. You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity.

2. What one person receives without working for, another person must work for without receiving.

3. The government cannot give to anybody anything that the government does not first take from somebody else.

4. You cannot multiply wealth by dividing it.

5. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that is the beginning of the end of any nation.

TEN TAX TIPS FOR INDIVIDUALS SELLING THEIR HOME

2011-10-13T08:13:00.000-07:00

The Internal Revenue Service has some important information to share with individuals who have sold or are about to sell their home. If you have a gain from the sale of your main home, you may qualify to exclude all or part of that gain from your income. Here are ten tips from the IRS to keep in mind when selling your home.

1. In general, you are eligible to exclude the gain from income if you have owned and used your home as your main home for two years out of the five years prior to the date of its sale.
2. If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases).
3. You are not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home.
4. If you can exclude all of the gain, you do not need to report the sale on your tax return.
5. If you have a gain that cannot be excluded, it is taxable. You must report it on Form 1040, Schedule D, Capital Gains and Losses.
6. You cannot deduct a loss from the sale of your main home.
7. Worksheets are included in Publication 523, Selling Your Home, to help you figure the adjusted basis of the home you sold, the gain (or loss) on the sale, and the gain that you can exclude.
8. If you have more than one home, you can exclude a gain only from the sale of your main home. You must pay tax on the gain from selling any other home. If you have two homes and live in both of them, your main home is ordinarily the one you live in most of the time.
9. If you received the first-time homebuyer credit and within 36 months of the date of purchase, the property is no longer used as your principal residence, you are required to repay the credit. Repayment of the full credit is due with the income tax return for the year the home ceased to be your principal residence, using Form 5405, First-Time Homebuyer Credit and Repayment of the Credit. The full amount of the credit is reflected as additional tax on that year’s tax return.
10. When you move, be sure to update your address with the IRS and the U.S. Postal Service to ensure you receive refunds or correspondence from the IRS. Use Form 8822, Change of Address, to notify the IRS of your address change.

ACCOUNTANTS IN THE MOVIES

2011-10-13T07:16:00.000-07:00

In Hollywood, accounting can seem like a pretty glamorous profession, or not.

Will Ferrell plays lonely IRS agent Harold Crick in the 2006 comedy-drama "Stranger Than Fiction." Harold has been assigned to audit Maggie Gyllenhaal, and falls in love with her. However, he keeps hearing a strange British-sounding voice in his head, and he discovers it's author Emma Thompson, whom he tracks down through her tax records. Turns out she has been writing about his life and trying to decide how he will die in her next book.

FISCAL YEAR QUESTION

2011-10-12T14:09:00.000-07:00

Q. I have a question if you can help me. I have a new LLC created on earlier this year. I applied IRS online for EIN. Calendar year is a default on this so I have to elect Fiscal year now with form 1128. My question is can I elect 6/30 year end although even though my business started in May of 2011? ~ Thanks

A. First of all, you really shouldn’t be setting up new business entities without the assistance of a qualified adviser. It is too easy to make mistakes that may be impossible to remedy.

There are a couple of rookie mistakes that an experienced tax pro would have alerted you to.

First, if you are choosing to have your LLC taxed as a C corp., you can choose the end of any month to be its fiscal year-end, regardless of when it was chartered.

For example, if you want June 30 to be the fiscal year-end, that’s your right to choose. You would need to file the initial 1120 covering all of the activity for the period from your startup in May through 6/30/11. This 1120 or an extension (Form 7004), would be have been due 9/15/11. You need to file that 1120 even if no actual activity took place or IRS will assume that you made millions of dollars.

When you have a brand new C corp., it has no set fiscal year-end, so the initial 1120 becomes the official notification to the IRS of that fact. This is even if you used December 31 on the SS-4.

Secondly, you do not need to file Form 1128 to designate the tax year for a new corp. that has not filed any 1120s.

TAX SAVINGS IN MILLIONAIRE TAX BILL

2011-10-11T08:42:00.000-07:00

The American Jobs Act introduced in the Senate last week (commonly known as the Millionaire Surtax Bill) contains some tax breaks for businesses. Since the chance of this passing is fairly slim, rather than confuse you with the details we will keep an eye on the legislation and let you know what to expect if passed. I really don’t think it would be wise to use the proposal in our yearend tax planning. However, if you would like some of the details that I think impact business let me know and I will summarize for you.

IF YOU HAVE BEEN USING INDEPENDENT CONTRACTORS TAKE NOTE

2011-10-08T09:16:00.000-07:00

IRS Announces New Voluntary Worker Classification settlement Program (VCSP)

The Internal Revenue Service announced a new program that will enable some employers to resolve worker classification issues by voluntarily reclassifying their workers. This new program will allow employers to resolve worker classification disputes by making a minimal payment covering past payroll tax obligations rather than waiting for an IRS audit. Full details, including FAQs, are available on the Employment Tax pages of IRS.gov, and in Announcement 2011-64.

Under the program, eligible employers can obtain relief from federal payroll taxes they may have owed for the past, if they prospectively treat workers as employees. The VCSP is available to businesses, tax-exempt organizations and government entities that are uncertain whether to treat their workers or a class or group of workers as employees or independent contractors, and now want to correctly treat these workers as employees.

To be eligible, an applicant must:
• Consistently have treated the workers in the past as nonemployees;
• Have filed all required Forms 1099 for the workers for the previous three years; and
• Not be under audit by the IRS, the Department of Labor or a state agency concerning the classification of these workers.

Interested employers can apply for the program by filing Form 8952, Application for Voluntary Classification Settlement Program, at least 60 days before they want to begin treating the workers as employees.

Employers accepted into the program will pay an amount effectively equaling just over 1 percent of the wages paid to the reclassified workers for the past year. No interest or penalties will be due, and the employers will not be audited on payroll taxes related to these workers for prior years. Participating employers will, for the first three years under the program, be subject to a special six-year statute of limitations, rather than the usual three years that generally applies to payroll taxes.

FACT-CHECKING WARREN BUFFETT

2011-10-07T07:54:00.000-07:00

Here is an article from the Tax Foundation. They are trying to figure where the Oracle of Omaha get’s his numbers.~ Larry

Warren Buffett's much-discussed op-ed arguing that high-income earners aren't paying enough taxes makes the following claim:

"Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent."

To me, the effective rates he claims for other workers in his office seem too high to be realistic, and I can't figure out how he calculated them, even if you include all payroll (employee and employer) taxes. Even if you assume the scenario that leads to the highest possible tax burden (single filer, no deductions), a taxpayer would have to make at least $285,388 (in 2010) before his or her effective rate reaches 33 percent. 41 percent is impossible, as far as I can tell: the limit of total taxes over total income, as income approaches infinity, is 37.358%. That's the highest possible effective rate anyone could have paid in 2010, if you include income and all payroll taxes.

To demonstrate this, I've made a little calculator which shows the maximum possible effective rate for any income amount. Try it out on the Tax Foundation website.

ACCOUNTANTS IN THE MOVIES

2011-10-06T12:36:00.000-07:00

In Hollywood, accounting can seem like a pretty glamorous profession, or not.

Kirstie Alley stars as New York accountant Mollie Jensen in the 1989 romantic comedy "Look Who's Talking." She meets cab driver John Travolta when she needs to get to the hospital in a hurry because she's about to have a baby. Travolta helps her bring up the baby, but the real father is her tax client George Segal. The baby's voice also sounds strangely like Bruce Willis. Alley reprised the part of Mollie in the 1990 sequel "Look Who's Talking Too," in which Roseanne Barr joined Willis in providing the voice of another of Mollie's kids. The 1993 threequel "Look Who's Talking Now" added the voices of Diane Keaton and Danny DeVito, but this time as Mollie's dogs.

PREVENTIVE SERVICES COVERED

2011-10-05T09:25:00.000-07:00

One of our staff was not aware that there was no copay on Preventive services, which are covered under “Obama Care”. Of course she was told it was ‘FREE’ but her premiums still went up.

If you have a new health insurance plan or insurance policy beginning on or after September 23, 2010, the following preventive services must be covered without your having to pay a copayment or co-insurance or meet your deductible. This applies only when these services are delivered by a network provider.

Covered Preventive Services for Adults
• Abdominal Aortic Aneurysm one-time screening for men of specified ages who have ever smoked
• Alcohol Misuse screening and counseling
• Aspirin use for men and women of certain ages
• Blood Pressure screening for all adults
• Cholesterol screening for adults of certain ages or at higher risk
• Colorectal Cancer screening for adults over 50
• Depression screening for adults
• Type 2 Diabetes screening for adults with high blood pressure
• Diet counseling for adults at higher risk for chronic disease
• HIV screening for all adults at higher risk
• Immunization vaccines for adults--doses, recommended ages, and recommended populations vary: Hepatitis A, Hepatitis B, Herpes Zoster, Human Papillomavirus, Influenza, Measles, Mumps, Rubella, Meningococcal, Pneumococcal, Tetanus, Diphtheria, Pertussis,Varicella
• Obesity screening and counseling for all adults
• Sexually Transmitted Infection (STI) prevention counseling for adults at higher risk
• Tobacco Use screening for all adults and cessation interventions for tobacco users
• Syphilis screening for all adults at higher risk

Covered Preventive Services for Women, Including Pregnant Women
Note: Services marked with an asterisk (*) must be covered with no cost-sharing in plan years starting on or after August 1, 2012.
• Anemia screening on a routine basis for pregnant women
• Bacteriuria urinary tract or other infection screening for pregnant women
• BRCA counseling about genetic testing for women at higher risk
• Breast Cancer Mammography screenings every 1 to 2 years for women over 40
• Breast Cancer Chemoprevention counseling for women at higher risk
• Breastfeeding comprehensive support and counseling from trained providers, as well as access to breastfeeding supplies, for pregnant and nursing women*
• Cervical Cancer screening for sexually active women
• Chlamydia Infection screening for younger women and other women at higher risk
• Contraception: Food and Drug Administration-approved contraceptive methods, sterilization procedures, and patient education and counseling, not including abortifacient drugs*
• Domestic and interpersonal violence screening and counseling for all women*
• Folic Acid supplements for women who may become pregnant
• Gestational diabetes screening for women 24 to 28 weeks pregnant and those at high risk of developing gestational diabetes*
• Gonorrhea screening for all women at higher risk
• Hepatitis B screening for pregnant women at their first prenatal visit
• Human Immunodeficiency Virus (HIV) screening and counseling for sexually active women*
• Human Papillomavirus (HPV) DNA Test: high risk HPV DNA testing every three years for women with normal cytology results who are 30 or older*
• Osteoporosis screening for women over age 60 depending on risk factors
• Rh Incompatibility screening for all pregnant women and follow-up testing for women at higher risk
• Tobacco Use screening and interventions for all women, and expanded counseling for pregnant tobacco users
• Sexually Transmitted Infections (STI) counseling for sexually active women*
• Syphilis screening for all pregnant women or other women at increased risk
• Well-woman visits to obtain recommended preventive services for women under 65*

Covered Preventive Services for Children
• Alcohol and Drug Use assessments for adolescents
• Autism screening for children at 18 and 24 months
• Behavioral assessments for children of all ages
• Blood Pressure screening for children
• Cervical Dysplasia screening for sexually active females
• Congenital Hypothyroidism screening for newborns
• Depression screening for adolescents
• Developmental screening for children under age 3, and surveillance throughout childhood
• Dyslipidemia screening for children at higher risk of lipid disorders
• Fluoride Chemoprevention supplements for children without fluoride in their water source
• Gonorrhea preventive medication for the eyes of all newborns
• Hearing screening for all newborns
• Height, Weight and Body Mass Index measurements for children
• Hematocrit or Hemoglobin screening for children
• Hemoglobinopathies or sickle cell screening for newborns
• HIV screening for adolescents at higher risk
• Immunization vaccines for children from birth to age 18 —doses, recommended ages, and recommended populations vary: Diphtheria, Tetanus, Pertussis, Haemophilus influenzae type b, Hepatitis A, Hepatitis B, Human Papillomavirus, Inactivated Poliovirus, Influenza, Measles, Mumps, Rubella, Meningococcal, Pneumococcal, Rotavirus, Varicella
• Iron supplements for children ages 6 to 12 months at risk for anemia
• Lead screening for children at risk of exposure
• Medical History for all children throughout development
• Obesity screening and counseling
• Oral Health risk assessment for young children
• Phenylketonuria (PKU) screening for this genetic disorder in newborns
• Sexually Transmitted Infection (STI) prevention counseling and screening for adolescents at higher risk
• Tuberculin testing for children at higher risk of tuberculosis
• Vision screening for all children

PROGRAM TO SNIFF OUT GIFT TAX CHEATS!

2011-10-05T06:16:00.000-07:00

It appears that the IRS is initiating a program to sniff out gift tax cheaters who are not properly filing their gift tax returns. The IRS estimates that between 60% and 90% of taxpayers who transfer real estate for little or no consideration to family members fail to file form 709 to report the gift. The IRS is now checking real estate transfer records for 15 states: Conn., Fla., Hawaii, Nebraska, NH, NJ, NY, NC, Ohio, PA, Texas, VA, WA, and Wisconsin. So far, over 500 taxpayers have been audited and many more are lined up for audit.

Our normal method of making these types of gifts is to form a partnership or LLC and then gift the partnership or LLC interest. In this case we can many times apply a minority and lack of marketability discount and there is no filing of the transfer of the real estate so nothing for the IRS to catch.

Remember, even if the gift is not taxable, if it exceeds $13,000 to any one person in a year, you are required to file a gift tax return on form 709. Our advice if your are making non cash gifts is to file a gift tax return even if you are under the $13,000 threshold to start the three year statute of limitations.

ACCOUNTANTS IN THE MOVIES

2011-10-01T12:13:00.000-07:00

In Hollywood, accounting can seem like a pretty glamorous profession, or not.

Rick Moranis played Sigourney Weaver's accountant neighbor and admirer Louis Tully in the 1984 comedy classic "Ghostbusters." Possessed by a demonic ghost, Louis is transformed from a mild-mannered accountant into the "Keymaster" and needs the help of Bill Murray, Dan Aykroyd, Harold Ramis, Ernie Hudson and the rest of the ghost-busting crew (along with their Proton Packs). Moranis reprised the role in the 1989 sequel "Ghostbusters II" and hopefully will come out of retirement to appear in "Ghostbusters III," which is set to be released next year.

WHICH WAY SHOULD I GO - MARRIED FILING JOINTLY OR MARRIED FILING SEPARATELY?

2011-09-29T09:27:00.000-07:00

Q. We have not filed our 2010 return. We are trying to decide if we should file married filing joint or married filing separately. What should we look at?

A. You really need to be working with a tax professional on this. If you are married, you generally have two choices: married filing jointly and married filing separate. In most cases, if you are married and choose to file as married filing separate, you will usually pay more tax. Usually. Some exceptions apply. But in the great majority of cases, you will pay more tax.

If you file as married filing separate, you still have to coordinate a bit with your spouse.
• While you include only your own income, deductions, exemptions and tax credits, you still have to include your spouse’s information, including Social Security Number or Taxpayer ID.
• You also have to elect the same deduction option as your spouse: you must both opt to itemize or you must both opt to take the standard deduction. You may not each independently elect itemized or standard deductions.
• If you file as married filing separate, you lose the option of claiming some tax preference items. For example, you cannot take the student loan interest deduction, the tuition and fees deduction, the education credits, or the earned income credit.

So why do it? There are a few scenarios where electing married filing separate status makes sense:
• Privacy. It’s rare that your spouse’s tax return will be made public but if it is, filing separately ensures that your own returns stay private. Who falls into this category? Generally, the spouses of politicians. Think Teresa Heinz-Kerry or Cindy McCain, both wealthy women in their own right who might not want the world to know their business.
• Trust (or lack thereof). These days, many married couples maintain separate accounts and have separate assets. Sometimes it’s for convenience purposes. Sometimes it’s to keep some semblance of independence. And sometimes it’s for professional reasons. That doesn’t always translate into separate tax returns. However, if you maintain separate financial lives to the point where you don’t understand/care/want to know what’s going on with your spouse’s finances, you may also not wish to file a joint tax return. You can’t simply claim ignorance if your spouse makes a significant error: the IRS expects you to review and understand your tax return before you sign it. If you don’t have a level of comfort signing a joint return, don’t. That’s a great reason to file separately.
• Protection. There’s a great line in the movie, Steel Magnolias when Truvy says to Clairee, “If you can achieve puberty, you can achieve a past.” It’s true. Many taxpayers these days marry someone with a past… past tax debts, defaulted student loans, you name it. It happens. Filing separately may preserve a spouse’s right to claim a refund (yes, you can file some extra papers to achieve the same goal but that’s an awful lot of work).
• Medical or Other Expenses. Occasionally one spouse has significant medical or other expenses but little income. Since medical expenses must meet that 7.5% floor before you can deduct them, joint filers may have a hard time meeting that threshold. However, a taxpayer filing separately with a relatively low income can hit the floor much more quickly. Ditto for miscellaneous expenses subject to the 2% floor. Keep in mind, though, that your spouse has to itemize if you do, so this only works if there are enough combined deductions between the both of you.
• Money. Sometimes, the numbers just work out better. And why pay more than you have to?

So there you go. There is no rule that says, “Thou shalt elect married filing jointly.” Sometimes it makes sense to elect married filing separate. Sometimes. Run the numbers – or discuss with your tax pro – to see if it makes sense for you.

LONGTIME PARTNER

2011-09-28T13:00:00.000-07:00

I have to take a few minutes and pay tribute to Bob Sylvester CPA who died September 23, 2011

Bob Sylvester was a former partner of mine and a close friend. Bob had been ill for some time and he was in hospice for the past few weeks. Bob and I go way back. In 1972, Bob gave me a chance and hired me as new junior accountant with the firm of Lindell, Sylvester Lindell. He was my mentor and taught me a lot about business. Eventually we became partners to form Kopsa, Swanson & Sylvester accounting firm. In 1999, Bob became sick and retired to enjoy his family. Much of the success that I have had is attributable to valuable lessons from Bob. He will be missed.

To read more about Bob's life: Robert Sylvester

YOU MAY WANT TO UNWIND YOUR ROTH CONVERSION

2011-09-28T09:47:00.000-07:00

Many taxpayers elected in 2010 to convert their regular IRA to a Roth and either pay the tax in 2010 or spread it out over 2011 and 2012. If you converted your Roth as long as you timely filed your income tax return or got an extension to October 15, 2011, you have until October 17th “unwind” the conversion and treat it as if it never happened.

The primary reason for considering this is the drop in stock prices from 2010 until now. By unwinding the conversion, you may be able to then redo the conversion and save substantial tax this year.

For example, let’s assume a taxpayer had $500,000 in his IRA on June 1, 2010 when he converted it into a ROTH. Now, let’s assume the value of the ROTH is only $300,000. By unwinding the ROTH conversion, the taxpayer does not pay tax on the difference between the $500,000 last June and the $300,000 value now. At the highest tax bracket including applicable state income taxes, the total tax savings could approach $100,000.

Remember, you only have until October 17, 2011 to unwind this conversion

ACCOUNTANTS IN THE MOVIES

2011-09-22T12:04:00.000-07:00

In Hollywood, accounting can seem like a pretty glamorous profession, or not.

Charles Grodin plays Jonathan "The Duke" Mardukas, an accountant for the Mob who gets nabbed by bounty hunter Jack Walsh, played by Robert De Niro in the 1988 comedy-action hit "Midnight Run." To collect the $100,000 bounty on the Duke's head, De Niro needs to get him from New York to LA, but the Mafia and the FBI are both on their tails. Grodin made a bit of a mini-career out of playing accountants. In the 1993 flick "Dave," he appeared as CPA Murray Blum. In one scene, Murray the accountant helped President Dave Kovic, played by Kevin Kline, find an extra $650 million in the federal budget to open homeless shelters. We could use him in Washington now.

FEDERAL REGULATIONS MULTIPLY AT RECORD PACE

2011-09-22T07:51:00.000-07:00

With working with small businesses, I know first-hand the impact of federal and state regulations. The regulations are there to serve a useful purpose, but sometimes enough is enough. It seems like a vicious circle. The more regulations we have, the more bureaucrats we need, and more bureaucrats sit in their office and create more regulations…which create more bureaucrats.

The U.S. Chamber of Commerce reports that the administration last week "released version 2.0 of its regulatory review, which looks back at existing regulations to determine which regulations it can streamline or eliminate." In his commentary at http://www.chamberpost.com/, the U.S. Chamber's regulatory expert, Bill Kovacs writes that while the administration is to be commended for taking the initiative, "results of this look-back will not have a material impact on the real regulatory burdens facing businesses today." In 2007, there were around 110,000 federal regulations. Today, those rules are proliferating at a rate of about 4,000 additional regulations annually. There are currently more than 22,580 pages of federal regulations on environmental protection; 15,700 pages of tax code; 10,800 pages to regulate agriculture; 6,555 pages for the transportation sector; 5,575 pages on banking regulation; and 4,955 pages of labor law. Still, the rules keep coming. According to reports, the federal agencies added $9.5 billion in new regulatory costs in July alone by proposing 229 new rules and finalizing another 379 rule changes.

TALKING APPLE LINGO

2011-09-21T13:11:00.000-07:00

Apple Store employees are trained to say things a certain way.

• "That's stupid" or "That wasn't smart."
They say: "That's not recommended."

• "Do you have any questions?"
They say: "What questions do you have?"

• "Unfortunately."
They say: "As it turns out...."

We say GREAT customer service training!!!

TAXES ON THE CUTTING EDGE

2011-09-21T10:37:00.000-07:00

Q. My 14-year-old son is cutting lawns this summer. Does he have to report this income?

A. Yes, if it exceeds $400. However, the income can be sheltered from federal income tax by the standard deduction. The normal standard deduction for 2011 is $5,800. However for dependents, the standard deduction is the lesser of: 1) Earned income plus $300, or 2) $5,800. In other words, he most likely will not owe federal or state taxes. That's the good news.

Here is the bad news. If your sons net income is over $400 he will need to file a return and pay self-employment tax.

'BUREAUCRACY GONE WILD: OBAMA'S UNHELPFUL ADVICE TO A FARMER'

2011-09-20T07:27:00.000-07:00

(Politico) -- Politico.com reports on the publication's unsuccessful attempt to get an answer to a simple question from a farmer. The story was written after an ag producer in Illinois told President Obama recently when he visited Illinois that he was concerned about, "more rules and regulations — including those concerning dust, noise and water runoff — that he heard would negatively affect his business."

According to the story, the president, on day three of his Midwest bus tour, replied: "Contact USDA. Talk to them directly....my suspicion is, a lot of times, they're going to be able to answer your questions and it will turn out that some of your fears are unfounded." MJ Lee, a Politico.com reporter, writes that when he "decided to take the president's advice and call the USDA for an answer to the Atkinson town hall attendee's question," he found himself "in a bureaucratic equivalent of hot potato — getting bounced from the feds to Illinois state agriculture officials to the state farm bureau." After more than four hours of phone calls spread over two days, "still no answer to the farmer's question."

Full Story

And these types of bureaucrats will soon be running our health care system.

FEDERAL BUDGET VS. HOUSEHOLD BUDGET

2011-09-17T13:28:00.000-07:00

This information has been running around the Internet. I thought it explains our predicament really well.

The Federal Budget
1) U.S. Tax revenue: $2,170,000,000,000
2) Fed budget $3,820,000,000,000
3) New Debt: $1,650,000,000,000
4) National debt: $14,271,000,000,000
5) Recent Budget cut: $38,500,000,000

Now remove 8 zeros and pretend it is a….

Household Budget:
1) Annual family income: $21,700
2) Money family spent: $38,200
3) New dept on credit card: $16,500
4) Outstanding balance on credit card: $142,710
5) Total budget cuts: $385

The family is not going to make it.

Now those are some numbers I can relate to!

LABOR BOARD ISSUES RULE REQUIRING EMPLOYERS TO POST NOTICES ON UNION RIGHTS

2011-09-15T07:20:00.000-07:00

The National Labor Relations Board (NLRB) in Washington, D.C., has just issued an advance copy of its final rule requiring nearly every U.S. employer to post a notice in the workplace about the right to organize a union. The rule will take effect in 75 days, or on November 14th. For a fact sheet, visit: http://www.nlrb.gov/

I am on the Nebraska Chamber of Commerce board of directors and earlier this year, the Nebraska Chamber of Commerce & Industry signed onto comments regarding NLRB's proposed rule, arguing, among other things, that the notice requirement is unnecessary, biased and beyond the authority of the NLRB. It appears the NLRB did make some modest changes to its February draft. For example, it dropped the requirement that employers must "distribute the posting by e-mail, Twitter or other electronic means." NLRB member, Brian Hayes (R) voted against the final rule, while Chair Wilma Liebman (D) and members, Mark Pearce (D) and Craig Becker (D) voted to approve. With NLRB Chair Liebman's term expiring soon, some analysts believe that the NLRB may issue a flurry of decisions over the next few weeks.

ACCOUNTANTS IN THE MOVIES

2011-09-14T07:57:00.000-07:00

In Hollywood, accounting can seem like a pretty glamorous profession, or not.

Cher won an Academy Award playing accountant Loretta Castorini in the 1987 romantic comedy "Moonstruck." She works as an accountant for several Brooklyn businesses, including her uncle's deli, and is engaged to be married to Danny Aiello, until she falls for his younger brother, played by Nicolas Cage. When the moon hits your eye like a big pizza pie, that's amore!

WATCH OUT, THE IRS MAY WANT YOUR QUICKBOOKS FILE

2011-09-13T10:17:00.000-07:00

Recently, the courts have given the IRS the right to demand your software files. The IRS has gotten very aggressive in demanding the actual accounting software file, especially Quickbooks and other common software accounting programs. Before the advent of these software programs, providing a print out of the actual accounting data was usually sufficient for the IRS during an exam.

Now, with most agents being able to utilize these accounting software packages on their computers, they are demanding a backup of the whole accounting software, even if there are years in the accounting software that are not under exam. Also, any comments, memo or notes section of your software would be available for review by the IRS.

Just be careful what you write in your accounting software comments section. And remember, an IRS agent may be reading it in the future.

MY THOUGHTS ON THE PAYROLL TAX CUT IN OBAMAS NEW PLAN

2011-09-12T08:30:00.000-07:00

President Obama will send his new jobs creation plan to Congress on Monday September 12th. He pitched it first in the Rose Garden surrounded by the kinds of folks that make for good press (vets and teachers, for example) and then send it to Congress for consideration.

I am not going to comment on all of the details of the plan at this time. First of all the press has given the details plenty of coverage and more importantly the specifics of the plan change and it goes through the legislative process. Outlining it early seems to confuse people when provisions that started out in the plan change. Once we see what the final bill, if any, looks like we will let you know.
I do want to give you my thoughts on the payroll break that is in the plan. Obama wants to extend the holiday and make the cut even deeper. The extension is a no-brainer.

Impact on Individuals

Making the cuts a bit larger is an interesting suggestion. Clearly, taxpayers like it when taxes get cut. But let’s keep this in perspective. It’s not a huge benefit for most taxpayers (a family making $40,000 would keep an extra $440 over the span of the year – or about $8/week). But most concerning, these are cuts to payroll taxes which are out of the Social Security fund. The Social Security fund is in enough trouble already and now they are putting less money in. That is hard for me to understand. How are we going to make that up later? Oh I know… Thanks kids and grandkids. Constantly banking on the idea that we’ll make up extra funds later is how we’ve gotten ourselves into the pickle we’re in now.

Impact on Business

Obama also wants to cut payroll taxes for businesses by 50%, to 3.1%, on the first $5 million in wages. As a business owner, I love this idea. But as a tax professional, I worry about it – for the same reasons articulated above. And I will say that while the cuts might make me happy because it’s less money out of my pocket, it wouldn’t make my business likely to hire new employees. Temporary fixes like that rarely benefit small businesses, in my opinion, because the long term consequences of a new hire are so uncertain. With the added responsibilities under the new health care law, for example, a temporary cut in payroll taxes won’t encourage small businesses to hire. I think they’re still going to be looking to cut employees – and take on cheaper, benefit-free independent contractors – rather than make new hires for employers. But maybe that’s just me.

In contrast, another business tax break in Obama’s plan that I do think has legs is the tax credit for hiring workers who have been out of a job for at least six months. The break is a $4,000 tax credit – not bad. Remember that tax credits are a dollar for dollar reduction in taxes which can be fairly significant, depending on your tax rate.

In terms of comparison of the two employer-side tax breaks, the tax credit for new hires is equal to the suggested “payroll tax cut” for employers paying nearly $130,000 in wages. In other words, you would pay $130,000 in wages as an employer under the new scheme before you would “save” as much as the amount of the credit. However, the payroll tax cut puts more in your pocket as you go while a tax credit generally gives you more of a benefit come tax time.

“Back to School” Tax Planning Beats an Apple for the Teacher!

2011-09-11T06:52:00.000-07:00

September is halfway over , and school is back in session. If you have kids, you’ve probably already met the teachers. You may have even watched a football game or two.

It’s probably been a long time since you’ve sat in a classroom yourself. But school is never out if you’re looking to make the most of your money in today’s challenging economy.

What classes would you take to keep more of your income in your pocket? Try these:

• Math 1040: Where are tax rates headed?
• History 2008: Lessons from last year’s mistakes?
• Social Studies 463: Write off meals and entertainment
• Chemistry 162: Is there a “secret formula” for paying less?
• Anatomy 213: What’s the best strategy for healthcare benefits?

If you want to keep the most of what you make, you can’t wait ‘til finals for answers. You need to study now. Putting tax-wise ideas and strategies in place today could help avoid an ugly surprise when “Report Cards” come due April 15!

Email us today for your free tax analysis. We’ll find the mistakes and missed opportunities that may be costing you thousands today, and show you how “back to school” tax planning can save thousands more tomorrow. We guarantee you’ll leave with valuable new lessons, or we’ll donate $50 to your local school. Email now to schedule your Analysis.