Bunching Your Deductions Can Provide Big Tax Benefits

By Holly · Comments (0)
Wednesday, March 3rd, 2010

If your tax deductions normally fall short of itemizing your deductions or even if you are able to itemize, but only marginally, you may benefit from using the “bunching” strategy.

The tax code allows taxpayers to utilize the standard deduction or itemize their deductions if that provides to be a greater benefit.  As a rule, most taxpayers just wait until tax time to add everything up and then use the higher of the standard deduction or their itemized deductions.

If you want to be more proactive, you can time the payments of tax-deductible items to maximize your itemized deductions in one year and take the standard deduction in the next.

For the most part, itemized deductions include medical expenses, property taxes, state and local income taxes, home mortgage and investment interest, charitable deductions, unreimbursed job-related expenses and casualty losses.  The “bunching strategy” is more commonly associated with medical expenses, tax payments and charitable deductions; although, there are circumstances where the other deductions might be come into play.  There are many opportunities to bunch deductions, and the following are examples of the most commonly used with the “bunching” strategy:

• Medical Expenses – You contract with a dentist for your child’s braces. He may offer you an up-front lump sum payment or a payment plan.  By making the lump sum payment, the entire cost is credited in the year paid, thereby dramatically increasing your medical expenses for that year.  If you do not have the cash available for the up-front payment, then you can pay by credit card, which is treated as a lump-sum payment for tax purposes.  If you use a credit card, you must realize that the credit card interest is not deductible and you need to determine if incurring the interest is worth the increased tax deduction.  Another important issue with medical deductions is that only the amount of the total medical expenses that exceeds 7.5% of your income is actually deductible.  If you are caught by the Alternative Minimum Tax (AMT), then only the amount that exceeds 10% of your AGI is actually deductible.  So, there is no tax benefit of bunching medical deductions if the total is less than 7.5% (10% if taxed by the AMT).

If the current year is an abnormally high-income year, you may, where possible, wish to put off making medical expense payments until the subsequent year when the 7.5% (10%) threshold is less.

• Taxes – Property taxes are generally billed annually at mid-year and most locales allow the tax bill to be paid in semi-annual or quarterly installments.  Thus, you have the option of paying it all at once or paying in installments.  This provides the opportunity to bunch the tax payments by paying one semi-annual (or 2 quarterly) installment and a full year’s tax liability in one year and only paying one semi-annual (or 2 quarterly) in the other year.  In doing so, you are able to deduct 1-½ year’s taxes in one year and ½ a year’s taxes in the other. If you are thinking of being late on the property tax payments as means of bunching, you should be cautious.  The late payment penalty will probably wipe out any potential tax savings.

If you reside in a state that has state income tax, the state income tax paid or withheld during the year is deductible as a federal itemized deduction.  So, for instance, if you are making state quarterly estimates, the fourth quarter estimate is generally due in January of the subsequent year.  This gives you the opportunity to either make that payment before December 31st, and be able to deduct the payment on the current year’s return, or pay it in January before the January due date and use it as a deduction in the subsequent year.

A word of caution about the itemized deduction for taxes!  Taxes are only deductible for regular tax purposes.  So, to the extent you are taxed by the AMT, you derive no benefits from the itemized deduction for taxes.

• Charitable Contributions – Charitable contributions are a nice fit for “bunching” because they are entirely payable at the taxpayer’s discretion.  For example, if you normally tithe at your church, you could make your normal contributions during the year and then prepay the entire subsequent years’ tithing in a lump sum in December of the current year, thereby doubling up on the church contribution one year and having no deduction for charity in the other year.  Normally, charities are very active with their solicitations during the holiday season, giving you the opportunity to make the contributions at the end of the current year or simply wait a short time and make them after the end of the year.

If you think a “bunching” strategy might benefit you, please call this office to discuss the issue and set up an appointment for some in-depth strategizing.

If you have questions, please call this office at 888-564-5777.

Bookmark and Share
Categories : Tax Information
Comments (0)

2010 Tax Brackets Change Little Due to Inflation

By Holly · Comments (0)
Monday, March 1st, 2010

To keep taxpayers from being pushed into higher tax brackets or from losing tax benefits simply because of inflation, the federal tax code since the 1980s has included inflation adjustments for tax brackets, exemptions, high-income phase-outs of various deductions and limitations, allowable retirement savings and the annual gift-tax exclusion, just to mention a few.  For example, indexing tax brackets lowers tax bills when there is inflation by including more of one’s income in a lower bracket, such as the 15% rather than the 25% bracket.

In 2010, for the first time ever, those inflation adjustments will be virtually nil because of a very low inflation rate.  This means that taxpayers with the same taxable income in 2010 as in 2009 will not see much of a tax savings due to inflation.  For example, joint filers with a taxable income of $100,000 will pay approximately $13 less in income taxes in 2010 than on the same income for 2009, compared with a $313 savings between 2008 and 2009.  A single filer with taxable income of $50,000 will owe $6 less next year, compared to a $156 savings due to the significantly higher inflation rate between 2008 and 2009.

The lack of change for 2010 creates a level playing field for taxpayers from all brackets, but those with high incomes actually stand to benefit in 2010 because “stealth taxes,” those that don’t involve changing tax rates, are being phased out. Among them are limits on itemized deductions and personal exemption amounts.

If you have questions, please call this office at 888-564-5777.

Bookmark and Share
Categories : Tax Information
Comments (0)

It Is Tax Time! Are Your Ready?

By Holly · Comments (0)
Friday, February 26th, 2010

If you’re like most taxpayers, you find yourself with an ominous stack of “homework” around TAX TIME! Unfortunately, the job of pulling together the records for your tax appointment is never easy, but the effort usually pays off when it comes to the extra tax you save! When you arrive at your appointment fully prepared, you’ll have more time to:

• Consider every possible legal deduction;
• Better evaluate your options for reporting income and deductions to choose those best suited to your situation;
• Explore current law changes that affect your tax status;
• Talk about possible law changes and discuss tax planning alternatives that could reduce your future tax liability.

Choosing Your Best Alternatives

The tax law allows a variety of methods for handling income and deductions on your return. Choices made at the time you prepare your return often affect not only the current year, but later-year returns as well. When you’re fully prepared for your appointment, you will have more time to explore all avenues available for lowering your tax.

For example, the law allows choices in transactions like:

Sales of property. . . .

If you’re receiving payments on a sales contract over a period of years, you are sometimes able to choose between reporting the whole gain in the year you sell or over a period of time, as you receive payments from the buyer.

Depreciation. . . .

You’re able to deduct the cost of your investment in certain business property using different methods. You can either depreciate the cost over a number of years, or in certain cases, you can deduct them all in one year.

Where to Begin?

Ideally, preparation for your tax appointment should begin in January of the tax year you’re working with. Right after the New Year, set up a safe storage location – a file drawer, a cupboard, a safe, etc. As you receive pertinent records, file them right away, before they’re forgotten or lost. By making the practice a habit, you’ll find your job a lot easier when your actual appointment date rolls around.

Other general suggestions to consider for your appointment preparation include. . .

• Segregate your records according to income and expense categories. For instance, file medical expense receipts in an envelope or folder, interest payments in another, charitable donations in a third, etc. If you receive an organizer or questionnaire to complete before your appointment, make certain you fill out every section that applies to you. (Important: Read all explanations and follow instructions carefully to be sure you don’t miss important data – organizers are designed to remind you of transactions you may miss otherwise.)

• Keep your annual income statements separate from your other documents (e.g., W-2s from employers, 1099s from banks, stockbrokers, etc., and K-1s from partnerships). Be sure to take these documents to your appointment, including the instructions for K-1s!

• Write down questions you may have so you don’t forget to ask them at the appointment. Review last year’s return. Compare your income on that return to the income for the current year. For instance, a dividend from ABC stock on your prior-year return may remind you that you sold ABC this year and need to report the sale.

• Make certain that you have social security numbers for all your dependents. The IRS checks these carefully and can deny deductions for returns filed without them.

• Compare deductions from last year with your records for this year. Did you forget anything?

• Collect any other documents and financial papers that you’re puzzled about. Prepare to bring these to your appointment so you can ask about them.

Accuracy Even for Details

To ensure the greatest accuracy possible in all detail on your return, make sure you review personal data. Check name(s), address, social security number(s), and occupation(s) on last year’s return. Note any changes for this year. Although your telephone number isn’t required on your return, current home and work numbers are always helpful should questions occur during return preparation.

Marital Status Change

If your marital status changed during the year, if you lived apart from your spouse, or if your spouse died during the year, list dates and details. Bring copies of prenuptial, legal separation, divorce, or property settlement agreements, if any, to your appointment.

Dependents

If you have qualifying dependents, you will need to provide the following for each:

• First and last name
• Social security number
• Birth date
• Number of months living in your home
• Their income amount (both taxable and nontaxable)

If you have dependent children over age 18, note how long they were full-time students during the year. To qualify as your dependent, an individual must pass five strict dependency tests. If you think a person qualifies as your dependent (but you aren’t sure), tally the amounts you provided toward his/her support vs. the amounts he/she provided. This will simplify making a final decision about whether you really qualify for the dependency deduction.

Some Transactions Deserve Special Treatment

Certain transactions require special treatment on your tax return. It’s a good idea to invest a little extra preparation effort when you have had the following transactions:

Sales of Stock or Other Property: All sales of stocks, bonds, securities, real estate, and any other type of property need to be reported on your return, even if you had no profit or loss. List each sale, and have the purchase and sale documents available for each transaction.

Purchase date, sale date, cost, and selling price must all be noted on your return. Make sure this information is contained on the documents you bring to your appointment.

Gifted or Inherited Property: If you sell property that was given to you, you need to determine when and for how much the original owner purchased it. If you sell property you inherited, you need to know the date of the decedent’s death and the property’s value at that time. You may be able to find this information on estate tax returns or in probate documents.

Reinvested Dividends: You may have sold stock or a mutual fund in which you participated in a dividend reinvestment program. If so, you will need to have records of each stock purchase made with the reinvested dividends.

Sale of Home: The tax law provides special breaks for home sale gains, and you may be able to exclude all (or a part) of a gain on a home if you meet certain ownership, occupancy, and holding period requirements. If you file a joint return with your spouse and your gain from the sale of the home exceeds $500,000 ($250,000 for other individuals), record the amounts you spent on improvements to the property. Remember too, possible exclusion of gain applies only to a primary residence, and the amount of improvements made to other homes is required regardless of the gain amount. Be sure to bring a copy of the sale documents (usually the closing escrow statement) with you to the appointment.

Purchase of a Home: If you purchased a home during 2009 and you are a first-time homebuyer or a long-term homeowner after November 6, 2009, you may qualify for a substantial tax credit.  Be sure to bring a copy of the escrow closing statement if you purchased a home.

Vehicle Purchase: If you purchased a new car (or cars) this year, you can deduct the sales tax.  If the car was a hybrid vehicle or one that qualifies as a lean burn vehicle, you may also qualify for a special credit.  Please bring the purchase statement to the appointment with you.

Standard Deduction: If you usually take the standard deduction, you should be aware that a portion of your property taxes, certain vehicle sales taxes and disaster casualty losses can be deducted as part of your standard deduction this year without itemizing your deductions.  Be sure to bring your property tax statements, car purchase statements and records relating to any losses incurred in a federally declared disaster area.

Home Energy-Related Expenditures: If you made home modifications to conserve energy (such as special windows, roofing, doors, etc.) or installed solar, geothermal, or wind power generating systems, please bring the details of those purchases and the manufacturer’s credit qualification certification to your appointment.  You may qualify for a substantial energy-related tax credit.

Ponzi Scheme or Bank Failure Losses: If you suffered losses as the result of a Ponzi scheme or as the result of a bank failure, there is special tax treatment for these types of losses.  Please be prepared with the details of the losses and the amounts lost.

Car Expenses: Where you have used one or more automobiles for business, list the expenses of each separately. The government requires that you provide your total mileage, business miles, and commuting miles for each car on your return, so be prepared to have them available. If you were reimbursed for mileage through an employer, know the reimbursement amount and whether the reimbursement is included in your W-2.

Charitable Donations: Cash contributions (regardless of amount) must be substantiated with a bank record or written communication from the charity showing the name of the charitable organization, date and amount of the contribution.

Cash donations put into a “Christmas kettle,” church collection plate, etc., are not deductible. For clothing and household contributions, the items donated must generally be in good or better condition, and items such as undergarments and socks are not deductible. A record of each item contributed must be kept, indicating the name and address of the charity, date and location of the contribution, and a reasonable description of the property. Contributions valued less than $250 and dropped off at an unattended location do not require a receipt. For contributions of $500 or more, the record must also include when and how the property was acquired and your cost basis in the property. For contributions valued at $5,000 or more and other types of contributions, please call this office for additional requirements.

If you have questions, please call this office at 888-564-5777.

Bookmark and Share
Categories : Tax Information
Comments (0)

Tips for Year-End Donations

By Holly · Comments (0)
Wednesday, February 24th, 2010

Individuals and businesses making contributions to charity should keep in mind several important tax law provisions that have taken effect in recent years.

One provision offers older owners of individual retirement arrangements (IRAs) a different way to give to charity. There are also rules designed to provide both taxpayers and the government greater certainty in determining what may be deducted as a charitable contribution. Some of these changes include the following.

Special Charitable Contributions for Certain IRA Owners – An IRA owner, age 70 ½ or over, can directly transfer tax-free up to $100,000 per year to an eligible charitable organization. This option, only available through 2009, applies to eligible IRA owners, regardless of whether they itemize their deductions. Distributions from employer-sponsored retirement plans, including SIMPLE IRAs and simplified employee pension (SEP) plans, are not eligible.

To qualify, the funds must be contributed directly by the IRA trustee to the eligible charity. Amounts so transferred are not taxable and no deduction is available for the amount given to the charity.

Not all charities are eligible. For example, donor-advised funds and supporting organizations are not eligible recipients.

Transferred amounts are counted in determining whether the owner has met the IRA’s required minimum distribution rules. Where individuals have made nondeductible contributions to their traditional IRAs, a special rule treats transferred amounts as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions.

Rules for Clothing and Household Items – To be deductible, clothing and household items donated to charity must be in good used condition or better. A clothing or household item for which a taxpayer claims a deduction of over $500 does not have to be in good used condition or better if the taxpayer includes a qualified appraisal of the item with the return. Household items include furniture, furnishings, electronics, appliances, and linens.

Guidelines for Monetary Donations - To deduct any charitable donation of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. Bank records include canceled checks, bank or credit union statements, and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date.

Donations of money include those made in cash or by check, electronic funds transfer, credit card, and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.

The following additional reminders are offered to help taxpayers plan their holiday-season and year-end giving:

• Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of the year count for 2009. This is true even if the credit card bill isn’t paid until next year. Also, checks count for 2009 as long as they are mailed this year.
• Only donations to qualified organizations are tax-deductible. IRS Publication 78, available online and at many public libraries, lists most organizations that are qualified to receive deductible contributions.
• For individuals, only taxpayers who itemize their deductions can claim deductions for charitable contributions. This deduction is not available to people who choose the standard deduction. A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceeds the standard deduction.
• For all donations of property, including clothing and household items, a receipt is required that includes the name of the charity, date of the contribution, and a reasonably-detailed description of the donated property.  A receipt from the charity is not required if a donation valued at less than $250 is left at a charity’s unattended drop site.  However, the taxpayer must keep a written record of the donation that includes the foregoing information, as well as the fair market value of the property at the time of the donation and the method used to determine that value. Additional rules apply for a contribution of $250 or more.
• The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value of the vehicle is more than $500. Form 1098-C, or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.
• If the amount of a taxpayer’s deduction for all non-cash contributions is over $500, a properly-completed Form 8283 must be submitted with the tax return.
If you have questions regarding your specific situation and planned year-end contributions, please call the office for additional information.

If you have questions, please call this office at 888-564-5777.

Bookmark and Share
Categories : Tax Information
Comments (0)

Deduction Tips for Contributors to Haiti Relief Effort

By Holly · Comments (0)
Monday, February 22nd, 2010

Haiti Contributions Deductible on 2009 Return – Congress has passed a bill (HR 4462) to permit taxpayers contributing to Haitian relief charities to elect to treat contributions made after Jan. 11, 2010, and before Mar. 1, 2010, as if the contributions had been made on Dec. 31, 2009. If the election is made, Haiti relief donations would be deductible on the 2009 return, not the 2010 return. This option would be available only if the contribution is made in cash and otherwise meets the requirements for charitable contribution deductions under Code Sec. 170 as summarized below.

• Contributions to domestic, tax-exempt, charitable organizations providing assistance to individuals in foreign lands are tax-deductible, provided that the U.S. organization has full control and discretion over the uses of donations.
• Contributions to foreign organizations generally are not deductible, nor are contributions to benefit specific individuals or families.
• To substantiate charitable contributions of money, regardless of amount, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution.  One additional substantiation method is allowed individuals for Haitian relief contributions: monetary contributions made via text message on a cellular telephone may be substantiated with a telephone bill that shows the charitable organization’s name, contribution date, and the amount of the contribution.
• Contributions are deductible in the year made unless donated for Haitian relief after Jan. 11, 2010, and before Mar. 1, 2010, in which case the contribution can be taken in on either the 2009 or 2010 return.  To claim the donations, the taxpayer must itemize deductions.
• Generally, the deduction for charitable contributions is limited to 50% of the taxpayer’s adjusted gross income, with a 5-year carryover period for excess deductions. The Haitian relief donations are subject to the normal limitations and carryover.
For high-income taxpayers, there is also a limitation on overall itemized deductions for 2009, but there is no overall limitation for 2010.  Therefore, the tax benefit for these individuals may be greater by waiting until 2011 to claim their Haitian relief donations on their 2010 returns.

On its website, the IRS has posted deduction tips for taxpayers planning to make contributions to aid Haitian earthquake victims.

California – At this time, California does not conform to the accelerated deduction for Haiti contributions but did enact conformity when similar federal legislation was passed in regards to Indian Ocean tsunami contributions.  It is anticipated that California will likely conform.

If you have questions, please call this office at 888-564-5777.

Bookmark and Share
Categories : Tax Information
Comments (0)

Taxes & Worker Status: Employee vs. Independent Contractor?

By Holly · Comments (0)
Thursday, February 18th, 2010

If you are a small business owner, whether you hire people as independent contractors or as employees will impact the amount of taxes you withhold from their paychecks, as well as the amount and types of taxes you pay.  Furthermore, it will affect how much additional cost your business must bear, what documents and information must be provided to you, and what tax documents must be given to the individuals you are hiring.
The obvious advantage to treating an individual as an independent contractor is avoiding the added expense of payroll taxes and employee benefits.  Unfortunately, the decision is not an optional one, and employers must be careful when making the decision, lest they set themselves up for a payroll audit and back taxes, penalties and interest.
According to industry sources, the IRS will begin auditing companies in early 2010, focusing their efforts on businesses failing to pay taxes on fringe benefits and misclassifying workers as independent contractors instead of W-2 employees.

Here are some things every business owner should know about hiring people as independent contractors versus hiring them as employees.

  • Three characteristics are used by the IRS to determine the relationship between businesses and workers: Behavioral Control, Financial Control, and the Type of Relationship.
  • Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.
  • Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job.
  • The Type of Relationship factor relates to how the workers and the business owner perceive their relationship.
  • If you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are most likely employees.
  • If you can direct or control only the result of the work done, and not the means and methods of accomplishing the result, then your workers are probably independent contractors.
  • Employers who misclassify workers as independent contractors can end up with substantial tax bills.  Additionally, they can face penalties for failing to pay employment taxes and not filing required tax forms.
  • Workers can avoid higher tax bills and lost benefits if they know their proper status.
  • Employers can request the IRS to make a determination on whether a specific individual is an independent contractor or an employee by filing a Form SS-8 (Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding) with the IRS. A worker may also file Form SS-8, requesting an IRS determination. IRS does not issue determinations for proposed or hypothetical situations.

If you need more information about the critical determination of a worker’s status as an independent contractor or employee, please give this office a call at 888-564-5777.

Bookmark and Share
Categories : Payroll, Tax Information
Comments (0)

To Terminate or Motivate?

By Holly · Comments (0)
Tuesday, February 16th, 2010

You come in to your office each day to an employee who lacks motivation and does the minimal amount of work to “get by”. He or she may leave early or come in late, all too often. Maybe they spend too much time surfing the web. You may have avoided terminating this person because you don’t want to expose yourself to the “risks” of termination or deal with the time it takes to replace him/her, all valid thoughts to consider. Yet, consider the repercussions of not terminating this person.

When an employee is not motivated to do their job and their performance is not up to par, it can affect more than their own productivity. Other employees are seeing a lower work standard set. Employee morale may be impacted. In addition, you spend time and energy to coach and monitor this person. All of these issues affect the focus of the business and ultimately, impacts your bottom line.

Before terminating this employee, there are steps to take to mitigate risks of litigation. Ensure that you have provided this individual with feedback regarding their performance or lack thereof. Have you been conducting performance reviews that show where the employees’ performance needs improvement? Is he/she aware, through face to face conversations or written documents, that you are not happy with their effort (site specific actions) or commitment to the organization? If you have given them verbal feedback, make sure you have documented and filed those conversations.

If you feel confident in your ability to terminate this person with minimal risks, know that now is a good time to replace this person. Your recruiting efforts will reap many more candidates than you have seen in recent years. With the economy still down and the unemployment rate high, there are plenty of eager candidates available, making your chances of finding that employee, who may shine, that much easier.

Terminating employees, while a difficult decision, is not one to be taken lightly. However, it is an undertaking that should be considered if there are legitimate, non discriminating reasons for the action. It is always advisable to consult with an HR Professional or an Employment Attorney before taking action.

If you decide to keep this employee on payroll, at least until you have been able to provide proper documentation, remember that feedback to employees should not just be about what they are doing right or wrong, but specific actions that need to be taken to improve performance. You may be surprised to find performance improving with direct communication and that the employee can be a productive member of your team.

For More Information on Payroll and Bookkeeping Services in the San Francisco Bay Area, give us a Call at 888-564-5777 or take our online assessment on this site.

Bookmark and Share
Categories : Payroll
Comments (0)

Tips for Taxpayers Starting a New Business

By Holly · Comments (0)
Friday, February 12th, 2010

Anyone starting a new business should be aware of their federal tax responsibilities.  Here are several things you should know if you plan on opening a new business this year.

  1. First, you must decide what type of business entity you are going to establish.  The type your business takes will determine which tax form has to be filed.  The most common types of business are the sole proprietorship, partnership, corporation and S corporation.
  2. The type of business you operate determines what taxes must be paid and how you pay them.  The four general types of business taxes are income tax, self-employment tax, employment tax and excise tax.
  3. An Employer Identification Number is used to identify a business entity.  Generally, businesses need an EIN.  Please call this office to determine whether your business needs an EIN and assistance in obtaining one if it does.
  4. Good records will help ensure the successful operation of your new business.  You may choose any recordkeeping system suited to your business that clearly shows your income and expenses.  Except in a few cases, the law does not require any special kind of records.  However, the business you are in will affect the type of records that will have to be kept for federal tax purposes.  If you need assistance or guidance in setting up your business records, please give this office a call.
  5. Every business taxpayer must figure taxable income on an annual accounting period called a tax year.  The calendar year and the fiscal year are the most common tax years used.
  6. Each taxpayer must also use a consistent accounting method, which is a set of rules for determining when to report income and expenses.  The most commonly used accounting methods are the cash method and an accrual method.  Under the cash method, income is generally reported in the tax year it is received and expenses are deducted in the tax year it is paid.  Under an accrual method, income is generally reported in the tax year it was earned, if not yet received, and expenses are deducted in the tax year it is incurred.

If you are contemplating starting a business or if you already have an existing one, please call this office at 888-564-5777, if you need assistance with your accounting, bookkeeping, payroll or sales tax reporting, or other federal and state compliance issues.

Bookmark and Share
Categories : Business, Tax Information
Comments (0)

What to Do If You Haven’t Filed a Prior Year’s Return

By Holly · Comments (0)
Monday, February 8th, 2010

The failure to file a federal tax return can be costly — whether you end up owing more or missing out on a refund.

There are several reasons taxpayers don’t file their taxes. Perhaps you didn’t know you were required to file. Maybe, you just kept putting it off and simply forgot. Whatever the reason, it’s best to file your return as soon as possible. If you need help, even with a late return, the IRS is ready to assist you.

Here are some things to consider:

  • Failure to File Penalty - If you owe taxes, a delay in filing may result in a “failure to file” penalty, also known as the “late filing” penalty and interest charges. The longer you delay, the larger these charges grow.
  • Losing Your Refund - There is no penalty for failure to file if you are due a refund. However, you cannot obtain a refund without filing a tax return. If you wait too long to file, you may risk losing the refund altogether. The federal deadline for claiming refunds is three years after the return due date. For example, the last day for claiming a federal refund for your 2004 tax return will be April 15, 2008.
  • EITC - Individuals who are entitled to the Earned Income Tax Credit must file their return to claim the credit even if they are not otherwise required to file.

Whether or not you must file a tax return will depend upon a number of factors, including your filing status, age and gross income. Please call for assistance at 888-564-5777.

Bookmark and Share
Categories : Tax Information
Comments (0)

Are You Recording Information for 1099s?

By Holly · Comments (0)
Monday, February 1st, 2010

If you use independent contractors to perform services for your business or rental and you pay them $600 or more for the year, you are required to issue them a Form 1099 after the end of the year to avoid facing the loss of the deduction for their labor and expenses.  (This requirement generally does not apply for payments made to a corporation.)

Many small business owners and landlords overlook this requirement during the year, and when the end of the year arrives and it is time to issue 1099s to contractors, they realize they have not collected the required documentation. Often it is difficult to acquire the contractor’s information after the fact, especially from those contractors with no intention of reporting the income.

As example, you have a repairman out early in the year, pay him less than $600, then use his services again later, and as a result, the total you’ve paid him for the year exceeds the $600 limit.  You realize you overlooked getting the information needed to file the 1099s for the year, and so will have to spend your valuable time contacting the repairman to obtain the information.  Therefore, it is good practice to always have individuals who are not incorporated complete and sign the IRS Form W-9 the first time you use their services.  Having a properly completed and signed Form W-9 for all independent contractors and service providers eliminates any oversights and protects you against IRS penalties and conflicts.

IRS Form W-9, “Request for Taxpayer Identification Number and Certification” is provided by the government as a means for you to obtain the data required from your vendors in order to file the 1099s. It also provides you with verification that you complied with the law should the vendor provide you with incorrect information. We highly recommend that you have a potential vendor or independent contractor complete the Form W-9 prior to engaging in business with him or her.

If you have questions or need copies of the Form W-9, please call this office at 888-564-5777.  We can also assist you with your 1099 filing requirements next January.

Bookmark and Share
Categories : Bookkeeping, Tax Information
Comments (0)
« Previous Page
Next Page »

Sign Up For eCourse

Register for our FREE eCourse to learn how to manage your business finances better in 7 easy steps.

Sign Up For Newsletter

Register for our FREE eNewsletter to receive monthly small business financial tips, advice and due date reminders to keep your business books in order.

Subscribe Now!

Get the latest blog updates delivered via email.

Sum of All Numbers Categories