Accounting

Evaluating Accountants

Posted in: Accounting, Blog by Whitney Recker on April 7, 2011 | No Comments

When you bite into a steak you know quickly whether it’s good or not. You might even be able to compare it to the last one you ate and say whether this one is better or worse.

When the plumber comes and unclogs your drain you at least know that the plumber performed the task at hand although you may not know whether it was done for a good price or not.

But how do you know whether your accountant is any good? Ironically, I hear many people swear by their accountant. Yet I know, since I am an accountant, that a large number of my colleagues are NOT up to the challenge of being “good” at least not by my standards. In accounting we have a unique perspective on the quality of our colleagues because we follow each other. We get to see what the others do. We even get to see what they charge. Sometimes the results are appalling.

For example, I’ll tell you about the case of the beauty salon operator who never earned more than 5 figures ($10,000) in addition to the salary she pulled. Yet an accountant down the street charged her $4,100 just to re-key her Quickbooks file into MAS 90 because he didn’t understand Quickbooks. That’s unethical …but not illegal. I routinely run across cases where the accountant would not let the client write off home office expenses because that would be “waving a red flag.” One of the most appalling situations became clear when I hired an accountant who had a dozen or so clients of his own on the side. I shared with him the virtues of incorporating the businesses but was told by the accountant that he would never share that info with his clients because he didn’t know how to do corporate tax returns. Needless to say he didn’t continue to work for me. Recently on Linked In, there was a discussion about how the IRS is getting strict with tax PREPARERS over how they complete returns. The commenter concluded that we shouldn’t claim Earned Income Credits for real estate investors. I had to point out that if the client didn’t qualify, the point was moot but if they did qualify then it is the tax preparer’s PROFESSIONAL OBLIGATION to include the claim for the credit AND to fight for it should it be called into question. I think that accountant should leave the profession. So how do you tell whether your tax preparer/accountant knows what they are doing AND is willing to fight for you to get every benefit to which you are entitled?

First we must understand that tax prep can be more than a math problem. I say “math problem” because in the case of math problems it doesn’t make a difference who does the problem – the answer should be the same. This might describe those wage earners who have simple situations and simple tax returns. However, at some point tax prep is no longer a math problem. There are decisions that have to be made like whether to write off asset purchases all at once or over time. Or, which education credit is better? Do you qualify for the first time home buyers credit? So let’s be clear there are professional differences of opinion. But beyond those, if you have a deduction or credit and you aren’t claiming it…there’s a problem, receipts or not. I was surprised to learn that clients will stay with an accountant even though something just didn’t seem right. I remember a case where we were able to amend the returns and recoup $5,000 a year for each of three years (that’s about $25,000 in deductions not taken originally). However, the client used that accountant for eight years. We could not recoup the other five years because they were too old. So why didn’t the client move sooner? Well the answer is twofold. Part of the answer lies in who the client might change to. That is, how does one know whether the next accountant will be better or worse? The other part of the answer seems to lie in our innate reluctance to admit we made a mistake in choosing our current accountant in the first place. I think this also helps to explain why we stand behind them so fervently although we have no clear evidence to support our endorsement of them. We retreat to notions of good personality, attentiveness, responsiveness (he returns phone calls) and the like. Not being accountants the general public has nothing else on which to base their assessment …or do they? I think we may be unique in this way but we understand the dilemma that people face so we offer to review prior year tax returns for free. This accomplishes several things: 1) we get to know the prospect on paper, that is, his circumstance and financial condition, 2) we have a basis for commenting on what has transpired to date and may recommend corrective action, 3) in the worst case, we confirm that the prospect’s current accountant is performing up to standards. But the review will at least begin a discussion about qualifications and/or competency. How are “Enrolled Agents” different from CPA’s? What are the advantages of a “Team Approach?” Does your accountant charge you to research tax issues? Followed by, how do you know? Does your accountant aid in understanding and planning or does he just “dump” the return to you, take it or leave it? Does your accountant help you with other financial matters besides income tax?

In conclusion, take advantage of the free reviews. At least TRY to determine whether your accountant is good or not. Come to an understanding of the different professional designations and the different approaches to providing service. Don’t get caught in a “penny wise: pound foolish” trap where you select the cheap tax preparation method (including do-it-yourself) not realizing that saving maybe a couple hundred dollars on prep fees might cost you thousands of dollars in overpaid taxes. A GOOD tax preparer will more than pay his own way.

Did You Know?

Posted in: Accounting, Blog, Business Planning by Whitney Recker on March 8, 2011 | No Comments

The IRS does not initiate communication with taxpayers through e-mail.  If you do receive this type of request, it is most likely an attempt from identity thieves to get your private tax information. 

The latest scam going around involves the electronic tax payment system. The system was setup by the IRS to allow people to pay taxes online, which is convenient.  Frankly, it has been a smashing success. Alas, the scammers have figured out a way to use it to their benefit.

The scam works like this.  You get an email from the “Antifraud” division of the IRS.  The email states that someone has tried to you a tax number assigned to you and deposited cash in the account. The IRS has then frozen the money, but you can get it back by clicking on the provided link. The page that pops up then asks you to verify your identity by providing a lot of sensitive personal information the scammer can use to steal your identity.

Anything you receive in your inbox that purports to be from the IRS is not legitimate.

8 New Tax Rules

Posted in: Accounting, Blog by Whitney Recker on March 7, 2011 | No Comments

Every year brings with it some changes to our ridiculously complex tax code. (Sometimes we could swear the IRS is in cahoots with tax preparers, constantly changing the tax code in order to keep them steadily employed!) 2010 saw its fair share of changes, especially “thanks” to the surprising end-of-the-year compromise between the White House and Republicans that resulted in the 2010 Tax Relief Act.

So, before you start preparing your 2010 taxes, let’s be sure you know about all of the important new tax rules–big and small–that could impact your tax return.

Let’s start with something basic to get warmed up…

New Tax Rule #1: New Mileage Deductions

Deducting miles driven for work or other purposes can be a huge tax break and save you significant money. Too bad the IRS cut the standard mileage deduction rates for 2010. Here are the new rules:

·The deduction for business mileage is 50 cents per mile (a 9% cut!)
·The deduction for medical and moving purposes is 16.5 cents per mile
·The deduction for miles driven related to charitable work stays at 14 cents per mile (OK, so maybe the IRS doesn’t have a heart made of stone).

New Tax Rule #2: New Existing and First-time Home Buyer Credits

In order to help stimulate the housing market, the government created a special credit for first-time homebuyers.  The program rules have changed every year since. 

In 2010, President Obama extended the $8,000 credit through September 2010. In order to qualify for the 2010 credit, you must NOT have owned a home in the United States in the three years prior to buying this home.

In addition, there is a tax credit for existing homebuyers for 2010. Eligible homebuyers receive a tax credit of 10% of the purchase price up to $6,500. In order to qualify for this credit, you must have lived in the same residence for five consecutive years at some point in the past eight years.

Both credits apply to homes that had a signed contract by April 20, 2010 and closed on by September 30, 2010.

There are income limits and other special rules, so be sure to ask your tax advisor or do your research to learn all the details.

New Tax Rule #3: Three New College Costs Rules

The Hope Credit has been replaced with a new credit called the American Opportunity Tax Credit. You can now get a $2,500 “higher education tax credit” available for each student for the first four years of college. The credit is based on 100% of the first $2,000 of tuition and related expenses, including books, paid during the tax year and 25% of the next $2000 of tuition and related expenses paid during the tax year (subject to income phase-outs starting at $80,000 for singles and $160,000 for joint filers).

The December tax compromise included a new deduction for families with college costs. Every family can deduct up to $4,000 of college tuition and fees in 2010 and 2011. NOTE: The new form for taking this deduction will be available from the IRS in February.

Also, for anyone with a “529″ college savings plan…computers and Internet access qualify as “qualified education expense” for the 2010 tax year, so you can pay for them tax-free.

New Tax Rule #4: Energy and Appliance Tax Credit

If you made any energy efficiency improvements to your home in 2010, you may be eligible for a tax credit.

You can deduct up to 30% of the cost–up to $1,500–for many energy improvements to your existing home. The credit does NOT apply to rental properties or new homes.

Approved improvements include new windows, insulation, high efficiency furnaces, water heaters and air-conditioning. It also covers alternative energy such as solar equipment, small wind turbines and fuel cells.

New Tax Rule #5: Roth IRA Conversion Rules

As of January 1, 2010, anyone with a traditional IRA could convert it to a Roth IRA. The income threshold for converting an existing IRA to a Roth IRA–which was $100,000–has been eliminated.

If you converted in 2010, you owe taxes now on those proceeds now at your current tax rate. But for 2010 only, you can spread the tax due over two years. Half the conversion is taxed on your 2011 return and half on your 2012 return.

Speaking of IRAs, anyone age 70 or older can now donate up to $100,000 of their IRA to charity and not have to report the withdrawal as income. Even better, you also get to deduct the donation to charity! The donation also counts as part of your required minimum distribution for the year. Three benefits in one good deed!

New Tax Rule #6: New Employment and Unemployment Rules

·The payroll “tax holiday” is still in effect for 2010. That means that workers get a tax credit of 6.2% on their earned income–but the credit maxes out at $400 for single filers and $800 for joint filers. The credit is, of course, subject to income limits and starts phasing out at $75,000 for singles and $150,000 for joint filers.
·The first $2,400 of unemployment benefits you receive in 2010 is no longer tax-deductible.
·Employer’s can now pay for up to $230 a month in parking fees and/or transit passes tax-free.

New Tax Rule #7: Keeping the Alternative Minimum Tax at Bay

The dreaded alternative minimum tax (AMT) is snaring more and more taxpayers each year…as many as 28,000,000 families in 2010. Congress doesn’t seem inclined to actually do anything to FIX the long-term problem here, but they do keep putting new bandages on the situation.

To hold the number of taxpayers subject to the AMT at bay, the new law increases AMT exemptions for 2010 to $47,450 for individuals and $72,450 for joint returns.

You can now also use personal tax credits against the AMT.

New Tax Rule #8: BIG Changes to Estate Taxes

This is one time we were happy to see Congress not get something done! Because Washington was too dysfunctional to enact new legislation, there is NO estate tax for 2010.

The estate tax was re-instated for 2011 as part of the year-end 2010 Tax Relief Act. The new rules for 2011 include a maximum 35% tax rate on anything you pass on to your loved ones after the $5,000,000 exemption. That’s up from $3.5 million in 2009, so if you should be so fortunate to have a large estate, you can pass along more of your wealth before the estate tax kicks in.

Plus, the annual gift exclusion is $13,000 per individual per year. That means if you are lucky enough to have money you wish to pass along to your heirs (or anyone!), you can give each individual up to $13,000 tax-free each year.

Smart estate planning is key to keeping your hard-earned wealth in your family’s hands–NOT Uncle Sam’s–when you pass.

The more things change, the more they stay the same

For all of the changes to the tax code, some things didn’t change in 2010.

·The maximum contributions for qualified retirement plans such as IRAs and 401(k)s haven’t budged for 2010. You can still contribute $5,000 to your IRA if you are less than 50 years old. Those of us age 50 and over get to contribute $6,000. The 2010 maximum contribution for 401(k), 403(b) and 457 plans also stays the same at $16,500. If you are age 50 and over, it’s $22,000.

See, age does have its benefits!

·Each personal exemption you claim is still worth $3,650.
·The standard deduction for married couples filing joint returns is still $11,400.

Conclusion

So there you have it – some of the most significant tax changes you need to know. We admit not as much fun as reading PEOPLE magazine or Sports Illustrated, but nonetheless important information to help minimize your taxes.

President Obama has promised to simplify our tax code. We’ll believe it when we see it! In the meantime, don’t wait for the government to lower your taxes. Take control and use our tips for cutting your taxes now.

Slash your Tax Bill

Posted in: Accounting, Blog by Whitney Recker on March 3, 2011 | No Comments

We know just how frustrated you feel having to deal with the taxman. But have no fear, PBS is here. We’ll show you how to cut your taxes to the bone, protect yourself against IRS audit notices, steps to take when you do get a notice and tips for getting through an IRS audit in one piece. You don’t have to go through this alone. We’re right here with you!

Before we show you how to deal with the IRS when they come calling, we want to show you how to minimize your taxes now. Here are some quick tips you can use to slash your tax bills:

1. Use every tax-deductible investment plan available. Contribute to an IRA, 401(k) plan, or similar tax-deductible, tax-deferred pension program. Start with whatever plan is tax-deductible and invest as much as possible in this account. If your employer offers any matching funds in your 401(k) plan, take 100% full advantage of them.

2. Double the tax deduction claimed for your kids. Instead of paying your kids an allowance, or having them get part-time jobs somewhere else, hire your kids to work in your part-time business and pay them a salary. What’s the benefit? You keep the dependency exemption—and you get a tax deduction for the salaries you pay your kids. Stuffing envelopes, cleaning your office, typing and filing are all bona fide business expenses. Your kids may even want to open their own IRA account—let ‘em! They’ll be millionaires by the time they’re 40!

3. Time the purchase of investments. It usually makes sense to purchase a stock or mutual fund after dividends are distributed. If you buy shares on Monday at $10/share, and a $1 dividend is paid out on Tuesday, the share price drops to $9/share. Reinvest your dividend, and you again have $10 invested—but now you have to pay 28¢ in taxes on your $1 dividend. If you wait until after the dividend is paid out you still have $10 invested, but you owe no taxes.

Sell a stock or mutual fund before dividends are distributed. Sell after the distribution, and you’ll get a lower share price plus you’ll owe taxes on the dividend. (Stock dividend payout dates are listed in The Wall Street Journal, and mutual fund families will give you the date dividends are declared—just call and ask.)

4. Use your charitable mileage deduction. This is one of the most overlooked deductions. The IRS gives you 14¢/mile (plus tolls and parking fees) for traveling to or from volunteer work. And don’t forget the miles you travel to drop off old clothes at the Salvation Army.

5. Give cash or tangible assets the “tax-smart” way. When you make your charitable contributions this year, be a tax-smart Santa. If you have an asset that has gained in value, give the charity the asset outright. You avoid the capital gains tax and you get to deduct a larger charitable contribution. If you have an asset that has lost value, sell the asset, use the loss to offset any other capital gains, then give a cash contribution and take the charitable deduction.

6. Take a tax-deductible vacation by setting up job interviews in the region you’re visiting. As long as your interview is for a job in the line of work you’re currently in, some of the costs of your vacation may be tax-deductible—even if you don’t get the job. These costs include: airfare, car mileage, car rental and passport fees. Remember, your visit has to be mostly business to be tax-deductible. You can’t take a deduction for one job interview during a week’s trip to the Bahamas.

Tax document checklist

Posted in: Accounting, Blog, Business Planning by Whitney Recker on March 2, 2011 | No Comments

Taxes are no fun, but they are inevitable. So we’re here to show you how to save time and eliminate some of the stress that goes along with tax season, starting with our Tax Document Checklist–a list of some of the key paperwork that you’ll need.

There is NOTHING more frustrating than sitting down to do your taxes and realizing that you are missing an important document. Here’s a simple way to be sure that doesn’t happen to you…use this simple checklist to track your tax documents as they arrive so you know exactly what you have and what is still missing.

Print it out now and pop it into your 2010 tax folder so you have it handy the minute your first tax document arrives.

Income Related Documents

   Form W-2 for all employers for whom you and your spouse worked during the year
   Unemployment compensation: Forms 1099-G
   Miscellaneous income including business income, rent, etc. Forms 1099-MISC
   Partnership, S Corporation, & trust income: Schedules K-1
   Retirement Plan Distributions (from IRAs, pensions, annuities, etc.): Forms 1099-R
   Social Security/RR1 benefits: Forms RRB-1099

Investment Related Documents

   Interest income – Form 1099-INT
   Dividend income – Form 1099-DIV
   Proceeds from the sale of stocks, bonds, etc. – Form 1099-B

Homeowner Related Documents

   Mortgage interest: Form 1098
   Sale of your home or other real estate: Form 1099-S
   Form 1099-C if your lender cancelled or forgave a portion of your debt. Normally considered taxable income, debt forgiveness on your principal residence is exempt from federal taxes through 2012. (You’ll need Form 982.)

Miscellaneous Documents

   State and local income tax refunds: Form 1099-G
   Tuition statement - Form 1098-T

Often Overlooked Tax deductions

Posted in: Accounting, Blog, Business Planning by Whitney Recker on March 1, 2011 | No Comments

Don’t you love beating the IRS? We get a perverse pleasure from not paying taxes, so we put together some tips to help you pay less to the IRS.

• Points you pay for a mortgage or loan for improvement of your home.
• Unemployment and disability taxes your state withholds.
• Expenses related to seminars you attend for business purposes. Deductible items include registration fees, travel, lodging and 80% of the cost of your meals.
• Travel expenses you incur when checking on income-producing property.
• Cost of telephone, postage, office supplies and automobile operation (trips to and from broker).
• Books, magazines, and newsletters on investment, financial, or tax matters, including appropriate daily papers (e.g., The Wall Street Journal, The New York Times).
• Out-of-pocket expenses incurred in changing jobs. Include the cost of printing résumés or traveling to an interview.
• A portion of health insurance for the self-employed.
• Deductible items on December credit card statement, even if paid in the following year.
• Medical expenses.
• Charitable contributions.
• Miscellaneous business expenses.

Remember: You can only deduct business and miscellaneous deductions if they exceed 2% of your adjusted gross income.