After the holidays, many of us cannot wait to get back into a routine. Getting back into bed at a reasonable hour and waking up for a productive day feels good. It’s like tackling every bullet on a to-do list, it’s nice to accomplish something, even if it is routine. If you need something easy to check off of your list for the new year, add this bullet:

• Filling out the Williams, Horning & Company Organizer

We’ve done our best to make it as easy as possible for you to give us all of the information we need to properly file your taxes. Year to year most people’s tax situation remains relatively consistent, the Organizer is a great way for us to identify items that may have changed. If we don’t know the information asked for within the Organizer, there is a good chance you will end up spending unnecessary time with us on the phone asking you these questions. So if you want to get started, all you have to do is:

1.) Visit www.ga-cpa.com and Login

After you click the Client Login link, a pop-up box will appear for you to enter your username and password.

2.) Fill Out The Organizer

There are many folders within the Organizer, but fortunately, you don’t have to fill out every single one. If you don’t have Rent & Royalty information, than you can skip that form.

The General and Questionnaire folders should be filled in by everyone.

Look through the other folders and see if anything else applies to you. Remember to hit the Save & Close button when you are done.

That’s all there is to it. Completing the Questionnaire will cut down on our accounting time and the time you have to spend on the phone, so everyone benefits. The Organizer is just a starting point for tax filing. Turbotax and other programs will ask for similar information, but automation can expose you to unnecessary risks. Filing taxes is the easy part. If you want to minimize your tax liability and audit exposure, you will need an experienced tax accountant.

For the new year, make it a point to communicate with your accountants, and at the very least, fill out the Questionnaire.

A CPA’s job is partially about assuaging the emotions that can lead to rash decisions. According to a recent study, the average mutual fund posted an 11.9% rate of return, as opposed to 3.9% for the average individual investor in a similar market.

What accounts for the discrepancy?

The individual investor is more prone to emotional decisions and abrupt moves with his/her portfolio and is more likely to succumb to the volatility of the market.

Smart investments aren’t just about making the right moves; they’re also about having self-control and refraining from making an emotionally driven mistake. A financial planner can help you make logical decisions and ensure your financial security.

In 1998, Ryan Leaf was the number two NFL draft pick behind Peyton Manning. Both players had brilliant college careers and received an enormous amount of hype, leading fans and media to speculate who would be the greater quarterback. Manning went on to break dozens of NFL records; Leaf was released after fifteen months, fourteen touchdowns and 36 interceptions. A concenus of football experts opinioned that the biggest difference between Manning and Leaf were there emotional behavior – Manning knew how to control his; Leaf did not.

Investing is similarly volatile. Emotional decisions based on hyped investment opportunities can lead to busts on a Leaf-like scale. However, there are steps you can take to help remove the emotional element and ensure a level-headed approach to financial planning.

Proper Allocation – Dividing your assets among stocks, bonds, and cash investments can help you to manage risk while not sacrificing too much reward potential. When developing an allocation strategy, it is important to keep in mind the time span of your investment goals, and the amount of risk you are willing to take on.

Diversify – Allocating your funds appropriately removes some of the risk of emotional investing. However, the shrewd investor must also diversify among these asset categories. If a client invests in several sectors of the banking industry, his portfolio is not entirely diversified. In order to truly mitigate risk, investments must be spread among several different industries.

Avoid Excessive Micromanagement – Sometimes it’s better to just leave your portfolio alone (temporarily, of course!) When you make a habit of buying into the hype and selling from the panic, you’re bound to end up in a cycle of stress and low returns. Feeling anxious? Talk to your CPA; they can help you to see the bigger picture.

A Warning About Indexed Annuities

If you’ve been looking into new investment options, you may have heard the chatter surrounding indexed annuities. These insurance products have been around since the 90s, but have recently been the focus of attention. Indexed annuities post gains based on changes in an index, such as the S&P 500 Composite Stock Price Index. While your investments can appreciate according to the market, your contract also provides that you cannot lose your initial investment.

This might sound ideal, but there are a few details about annuities that are worth considering. Indexed annuities harbor the largest commissions of any investment at around 9-12%.
These are enormously expensive products to market and annually administer. Commonsense should tell you those expenses have to be paid for by the buyer of the annuities.

So, although you can’t lose your money, you are receiving that benefit with a significant cost.  Your insurance company has to make money, and that profit is coming out of the gains of your investment.

Pulling Out Of An Indexed Annuity

Once you commit to an annuity, it’s very difficult to change your mind. Often, your contract locks in the money long term, and it can be very expensive to extract it again. So, indexed annuities may be a bit safer, but they yield less and have less liquidity than other investments like stocks or bonds.

Annuities have gained popularity largely because of fear due to the stock collapse in 2008. Investors have become timid when dealing with the volatile stock market, and negativity in the media only initiates and confirms that fear. Your financial portfolio can suffer from emotions like fear and panic, so it’s best to approach annuities from a logical, well-researched point of view.

Of course, your CPA can always help you to reach the conclusions that are right for you and your family. But even after they’ve helped you decide what to do with your financial portfolio, the job is just beginning. They also counsel you and help you to be happy with your financial standing.

Build smartly, protect smartly, and talk to your CPA.

Preservation of financial resources is a hot topic right now. The baby boomers are anyone born between the years 1946-1964, a period of time that includes nearly 80 million Americans. Given an average retirement age of 65, 2011 is the first year that baby boomers will begin to hang up their hats, and that’s just the beginning. There are still eighteen years to come, each of which will see the retirement of millions of Americans.

Financial resources and quality of life go hand in hand, so it’s important to handle your assets with care and prudence. With the current average lifespan, a non-smoking retiree will spend nearly as much time in retirement as he or she spent working. Thus, you must find a way to allocate your money for acceptable risks, desirable rewards, and optimal sustainability. Remember, your CPA can help.

The single most important factor in your retirement is the value of your dollar. The goal is to figure out a way to maintain the same standard of living as the very first day of retirement. Critical allocation of your investments between fixed income investments ( bonds) and stocks and knowing when and how to change the allocations provides the retiree the greatest control and probability of a quality financial retirement. Given the time-span of the retiree, the stock market alone may be too volatile to incorporate all of your assets. This is money you need to live off of, so combining your stocks with a more stable investment is a safer way to go.

Many retirees should choose to invest 40, 50, or 60 percent of their assets in stocks. This decision is subject to several considerations which you can work out with your family and your CPA.

• What are your living costs?
• What are you getting from Social Security?

Using the answers to these important questions, you can determine how much you need from your financial portfolio to live comfortably.

Work with a CPA to allocate a section of your portfolio to a low-risk investment, like a bond. Any remaining assets can then be invested in a diversified stock portfolio, giving you a safe place for more consistent growth without sacrificing the larger potential returns of the stock market.

You can always talk to your CPA with questions about these critical fiscal decisions. They are there to help!

Every stage of life has its own unique demands. In second grade, a two-dollar per week allowance meant at least upper-middle class status. A few decades later, your fiscal situation is likely to be quite different.

Our financial lives are broken up into three main stages: Accumulation, Preservation (retirement), and Distribution. For today’s post, we’ll focus on the Accumulation stage. The secret formula to accumulating wealth is skill building, saving, and investing.

Skill Building

When you’re beginning to build your financial future, the smartest, most reliable strategy is to hone a skill. Become the best at whatever you want to do. If your skill set provides a unique value, you’re more likely to add to your wealth regardless of market conditions.

Saving

The next step in the Accumulation stage is savings. It may sound trite, but constructing a solid safety net is a crucial step in your financial portfolio. In order to start thinking about investments, you must first have adequate savings to invest. A solid savings account contains a three to six month buffer at your cost of living and should cover you in case of any unexpected events.

Investing

Once you’re comfortable with your savings, it’s time to think about building a healthy investment portfolio. Although it’s certainly important to know the market, it may be even more important to know yourself. Smart allocation is vital, and has to do as much with the investor as the investment.

What are your investment goals?

If you have the luxury of starting early, you’re most likely aiming toward long-term wealth accumulation. In this case, you might be willing to take on a few high risk/high reward investment opportunities. If you’re able to ride out the highs and lows in the economy, you might be more willing to take on the volatility with greater potential yield inherent in the stock market.

If you’re looking to save for a child’s college education or a family vacation, you might look toward safer, more modest investments. Potential gains are lower when you put your money in cash equivalents like treasury bills or money market funds, but it’s also less likely that you’ll suffer major losses.

Of course, the best way to negotiate your investment strategy is to talk to your CPA. (S)he can help you make the smartest decisions for your unique needs.

What If The Worst Case Scenario Happened?

In cases of death, the last thing you would want to be concerned about is accessing bank savings, investments, and other financial accounts. For shared accounts, bills still need to be paid and taxes need to be filed. A living will is an excellent document to help guide the process afterwards, but you still need to know where finances are stored and have access to all financial account information.

Sometimes, it might be good enough to know where all of the financial documentation is stored, but ideally, you should know more than that. Trusting your partner entirely for your own finances can lead to much more dire situations.

Fraud

Innocent spouse relief is a defense that is meant to protect people in cases of coercion. Simply ignoring your finances because they are handled by a spouse is not a valid defense for fraud. Fraud catches business partners and spouses off guard in a worst case scenario.

As fbtbankingresource.com states: between the “innocent” partner and the judgment creditor, the innocent partner was in the better position to have ordered his affairs to prevent the fraud and “the congressional policy behind Section 523(a)(2)(A) is meant to discourage a partner from taking an “ostrich” approach with regard to monitoring another partner’s activities.”

Basically, you are supposed to be the steward of your finances. If someone does something dishonest with your accounts, it is your responsibility to catch them first.

From Bizology:

The comment most often heard when this is discovered is “That guy was my friend.”

Here are a few ‘red flags’ you may want to watch for that could be an indication of fraud or employee dishonesty.

• Excessive drinking or gambling
• Refusing access to records
• Rewriting records for ‘neatness’
• Overriding internal controls
• Attempts to dodge or direct an internal audit
• Unusually high volume of product returns, damaged goods or promo’s
• Payroll and other expense increases without a corresponding sales increase

What You Need To Know In Order To Protect Yourself

So if you are partnered in a business and one of your partners commits fraud, you still bare the responsibility. If you know the implications of financial fallout, you will make it a priority to carry out regular financial discussions.

In college, parents normally do not care about each individual grade their kid earns. But every semester or quarter, they do expect to know their final grades. Financial discussions need to be similar. You do not necessarily need to track every transaction together, but you need to know where you stand. Know where your financial records are stored, look at tax returns, and keep track of your balances. If you need help getting this information organized and handled by professional you can contact us at 770-667-1177.

Every year, thousands of people make tax decisions based upon misinformation. No one really knows what the stock market is going to do tomorrow so that hearsay is easy to filter out, but tax code seems more concrete and knowable. Since tax information is often disseminated through family, friends, and business contacts that you trust, it makes the information more believable. If a trusted colleague said you could save money, it is worth a shot. Right?

The Trouble With Half-Truths

We take on several cases every year when we are approached by someone under an IRS examination. The story sounds something like this:

“Ten years ago, I talked to my friend who is very successful in real estate. He told me I could deduct rental losses from my taxes. Since then, I’ve written off losses and now the IRS wants to know why I’ve had ten years of rental losses and still maintained the property.”

The truth is, writing off rental losses depends on some conditions like:

• Are you actively or passively involved with the activity?
• What is your taxable gross income?
• Do you have income from other rental or passive activities?

Each answer can take you in a completely different direction. The initial advice sounded reasonable because it contained a hint of truth. With the right conditions, there are situations in which property owners can write off rental losses. The problem is that if you do not meet the criteria, you can be red flagged, audited, and fined by the IRS.

Rumors

Some people are more susceptible to bad advice than others. This year we were approached by the children of an older woman that was in assisted living. In 2002, someone had told her she did not need to file tax returns anymore. She did not pay or file taxes for the nine following years. By 2010, she started receiving IRS notices demanding $90,000 in taxes. It turned out that the $90,000 related to the sale of her primary residence, the gain was never reported as exempt (which it was) because nothing was reported for the year of the sale. For most other years she in fact did not have to pay taxes, but she did meet the requirements to file taxes, the two can be very different. That may sound like an extreme example but it is not as uncommon as you may think.

Last year, a jewelry dealer operating since 2004 was claiming $25,000 in losses and $100 in income. Half of her losses were in “business mileage”. A friend of hers told her that was what she did on her taxes and the taxpayer continued the practice for 7 years. The “business mileage” she claimed was not entirely unrelated to the business, but it certainly did not meet the qualifications for a mileage deduction.Fortunately, we caught it before the IRS did and educated the client on best practices, but claiming losses and little income in a business is normally a huge red flag for the IRS. They have no problem picking these out of the haystack and coming in for an audit.

Don’t Trust Hearsay

Ignorance is not an alibi with the IRS. If your spouse, friend, or parents do your taxes and they misfile something, you are still liable for the tax, interest and possible penalties. If you take advice from someone and file incorrectly, you are still liable. You can relieve some of your liability and tax burden by hiring a CPA to help you plan, organize, and file correctly every year. If you are going to listen to a non-CPA, ask if they have been audited before on the issue they are advising you on. If they have not, try to find someone who has been audited before. They will probably tell you to talk to a good CPA, keep phenomenal records, and plan ahead. If you would like to discuss your particular situation or questions, you can call us at 770-667-1177.

There is more to “it depends” than accountants trying to cover their legal liabilities. The tax code can look very similar to the flowchart above. For added complexity, the tax code changes year-to-year. What was true before may not be anymore. Similar to how doctors analyze patients by asking a slew of questions, accountants have to drill down to provide accurate answers to clients.

Part of being a professional includes saying, “it depends”. “It depends” is another way of saying, “90% of the time, what I’m saying is accurate, but there are important exceptions, so I need to collect more information.” The CPA simply does not have enough information to provide an accurate answer. Further questioning will help rule out the exceptions, a concrete answer can be given, and life can continue with less ambiguity.

Staying Out Of Trouble

While CPA’s want to save you money on your taxes, being the best stewards of your finances involves a high degree of responsibility. Giving people the answer they want to hear is a shortcut that could have devastating consequences.

Instead of getting frustrated with an accountant because they are not providing a clear answer, understand that deferring an answer takes both knowledge and self-control. If you would like to find out the definitive answer to any of your accounting questions, call us today at 770-667-1177 and we will let you know more than “it depends”.

Once a year, for a simple hour of your time, you could be on your way to saving much more money on your taxes than you might expect. While most CPA’s would be glad to field a call from their clients, some people are reluctant to call because they fear being charged for every minute. It is somewhat of a stereotype, a perception that CPA’s stand by a phone holding a stopwatch. The second they answer the phone, the clock starts ticking.

While the reputation is undue, an accountant’s time is definitely valuable and some people take advantage of their generosity. For CPA’s, there are often two, polar opposite forms of client communication when it is not tax time. We will call the two polarized groups Type 1 and Type 2. Type 1 clients are the kind that call all of the time and bombard CPA’s with every little detail. Type 2 clients never call even though checking-in would be beneficial.

Type 2’s Who Become Type 1’s

This information is for the large group of Type 2’s – those who never call even though they stand to save on their taxes.

Here is a secret: most of the time, your CPA’s will be glad to hear from you and discuss how to appropriately plan your tax situation without tacking on a huge fee. It will generally depend on the time commitment for them to appropriately serve your needs. If it is something that they do not need to research extensively they will often not charge you and  they will chalk it up to goodwill for maintaining the relationship.

CPA’s do not like to advertise that they sometimes offer free consulting because Type 1 clients would take advantage of their generosity. Talking to your CPA on a regular basis, anywhere between two to four times a year, will lead to proactively protecting yourself from an audit, properly planning taxes, and dealing with any problems before tax season begins. But most people wait too long and learn the hard way.

Many Type 1’s, the ones who constantly call, started off as Type 2’s. Then through some unfortunate event, they were burned by the IRS or an unfavorable tax bill.

Special Events

The most common way to pay more in taxes than you should is through improper planning or no planning at all. Tax planning is especially important for any transactions out of the ordinary. Prior to any unique transactions, talk to your CPA. We see a countless number of clients every year who miss their opportunity to save because they did not communicate during the tax year. In many cases once the ball drops in Time Square, the tax year is closed and all a CPA can do for you is make sure that what happened is reported properly and advise you about similar events in the future.

For example, if you are giving money to others, avoiding a gift tax is probably preferred. Grandparents may want to help financially for college costs of their grandchildren, but if they send the money directly to the child, it maybe subject to a gift tax. Instead, they could pay the tuition directly to the school and avoid a gift tax. If you are planning on transferring any large sum of money to someone else, it is always wise to discuss it with a CPA beforehand.

Correctly planning income is another area where people pay additional tax unnecessarily. In some situations, instead of claiming ordinary income, some people can claim a capital gain which is subject to a lower tax rate. Last year, we had three business partners in a partnership who had a unique situation that generated $600,000 in commission income that was taxed at approximately 30% on their individual returns costing them a total of $180,000 ($60,000 each) in tax. With proper planning, they could have sold the partnership’s future rights to purchase the asset that was owned by a related entity whose sale generated the commission in the first place. The sale of the future right to purchase the asset would have been a long-term capital gain for the partnership and subject to a 15% tax rate at the individual level. They would have saved approximately $90,000 ($30,000 each). As a result, they keep in touch with us much more frequently and have been able to structure subsequent transactions in a more beneficial way.

Do not wait to think about your taxes until they come due. Instead of making any assumptions or trusting an industry expert, consult a CPA and plan for the year ahead to minimize your tax.

Do You Have The Answers To All Of Your Questions?

• Are you considering implementing a SIMPLE plan for your small business?
• Are you a candidate for a deferred exchange for real estate?
• Are you considering a change in ownership for your S-Corp?

Any of the above items and many more may be on your mind. We can offer you guidance and advice to achieve the best outcome for your business and tax situation. If you have questions, call 770-667-1177 and we will be glad to help! We may even be able to recommend a strategy or plan that you have not considered or were unaware of.