What do the new reporting requirements affect?

Starting with returns for years ended December 31, 2012 and later it is believed to file your Business Tax Returns (1065, 1120S and 1120), as well as Individual Tax Returns with business or rental activities reported on Form 1040 Schedules C, E and F, the questions as to whether Form 1099s needed to be issued and whether they were in fact issued need to be answered. In 2011, it was a possible to leave the question unanswered and still file the return.

If the Form 1099s should have been issued but were not, it is believed to be a red flag for the IRS to conduct a Form 1099 audit.

High-level Form 1099s should be issued to vendors and subcontractors who receive payment for services rendered in excess of $600 per calendar year. This requirement is only applicable to individuals and entities taxed as partnerships including certain LLCs. These forms do not need to be issued to corporations or s-corporations. There are other reasons and thresholds for issuing Form 1099s that are more industry specific, such as Interest Income and Rental Income. Additional guidance on all the requirements can be found on the IRS website. You should review the Form 1099-Misc. Instructions to familiarize yourself with the requirements applicable to your business or set-up a meeting with us to discuss how 1099 Reporting Requirements impact you and your business.

No one wants to pay taxes unnecessarily. Yet every year, thousands of Americans flock to tax accountants all over the country and ask the same question, “How can I pay less taxes?”

Most of the CPA’s will maintain their professional demeanor and retort with some basic questions that might result in a deduction, but they bite their lips and withhold the real answer. What they would much rather say, but they don’t is something like this: “Minimizing your tax liability isn’t a last minute activity. Everything needs to be planned, structured, and documented throughout the year” AND “Is it really worth it to lower your taxes if you wind up reducing your overall cash flow with no other benefit?”

Reducing Tax Liability Throughout The Year

The reason they don’t say it is because no one wants to hear it. Besides being a boring answer, everyone thinks CPA’s have a access to a secret black box and with the right knowledge, they can magically reduce your tax liability. Unfortunately, no panacea exists. Proper planning, structuring, and record keeping throughout the year takes hard work and that hard work can help contribute to lowering your tax liability.

Ongoing Relationship With Your CPA

Talking with your CPA about what is going on in your life and what you are planning on doing can give them ideas about how to equally spread your tax burden or time the tax when you are most able to pay it. They can do this by letting you know how to time your savings or purchases so that one year is not a major unexpected financial hit compared to another. Sitting down and talking with a CPA for a half hour a couple times a year isn’t a very compelling way to spend your time. But if you are interested in lowering your tax burden, it will certainly be a valuable use of your time.

Asking Specific Questions

General questions like, “How do I lower my taxes?” may not help, but if you ask about specifics, you might get a different response:

• “I’m considering buying a home. How might that affect my taxes?”
• “I’m moving my family somewhere else. Would that make a difference?”
• “I’m thinking about selling my boat. Will that impact my tax liability this year?”

These specific questions have more specific answers. Without knowing the details of someone’s life, CPA’s will have a hard time lowering your tax burden. So instead of waiting until the last minute, sit down with a CPA at the beginning of the year to make a plan. Starting tax planning at the beginning of the year will help you get the results you want from your CPA.

Susan Williams presents donation check to Cumming Fraternal Order of Police

We are proud to make a donation to the Sgt. D.P. Land Memorial Lodge 82 of the Fraternal Order of Police, located in Cumming, GA. This organization of law enforcement officers supports many community outreach programs. Some but not all of these include: the Activity Fund of the Cumming Nursing Center, Christmas gifts for the residents of Abba House, the Injured Officer’s Fund , the Big Brother/Big Sister Mentoring Program, the Georgia Sheriff’s Youth Homes, and the Back to School Program which buys school supplies for needy children. They also use donated funds to sponsor their “Shop With A Cop” Program which provides each needy child selected for the program Christmas shopping money and a uniformed officer escort at Wal-Mart to buy what they want or need. Many children spend a good deal of their money on gifts for their families!
We are proud to support these dedicated public servants in their efforts to better the lives of our fellow citizens.

Responding to an IRS notice isn’t always easy, but don’t fret. Most IRS notifications can be dealt with rather painlessly if you know what you are doing. You can try calling the IRS, but it tends not to achieve the desired result and can often be time consuming as hold times often exceed 15 minutes. The person you talk to probably will not be able to resolve the notice for you and will likely tell you to send in additional documentation to support your position.

Most IRS notices include a recalculation of your tax based on information excluded from your return and a new amount of tax to pay to the IRS. The notice will include the calculation on your original return and the revised calculation per the IRS. There are thousands of reasons the IRS sends notifications and the majority of them are very simple to resolve.

If you agree, you should send the IRS the additional tax calculated by the date indicated in the notice. If you disagree, you should write an explanation why you disagree and include supporting documentation. Since mail is the best route, you’ll want to ensure that the response is post-marked by the date indicated.

Properly Sending Your Response

Regardless of whether you agree or disagree, any written communications with the IRS should be sent via certified mail so that you receive a receipt of sending. You should also keep a copy of your response.

If another notice comes through without responding to what you’ve sent, you should call and make sure they’ve received your original response. If they claim they have not received your response, you will have the proof that you did respond by the due date and it will be easy to resend your original response.

A Cold Response

Sometimes the IRS will send you another notification because they have received your response but they still disagree. At that point, you should contact a professional to get involved. A CPA will understand the notification and how to deal with the IRS. If you would like assistance in responding to an IRS notification, we’ll be glad to help.

Claiming exemptions for dependents  is a great way to lower your tax bill. It is standard practice for parents to claim their children through the college years. It is also becoming more common for people to claim their elderly parents when they support them financially, Unfortunately, claiming dependents is one of the most common reasons tax returns are rejected for electronic filing. How can that happen?

There are a few scenarios where trying to claim dependents can lead to a headache. Every scenario shares a common bond, they involve a breakdown of communication between two people filing their returns. In cases of a college students with a summer or part-time job, divorce, and live-in parents, the right to claim the dependency exemption might be blurry. Without proper communication the second person who tries to claim the exemption will not be able to because the IRS’s electronic filing system will not accept a return with a listed dependent that has already been claimed on a another return.

The Teen With A Job

Kids in high school or college love their independence. They have the physical ability to do adult things, but they still have to learn from experiences. One of those adult things is filing taxes which isn’t all that exciting, but getting a refund at the beginning of the year is a nice bonus. Often times, without consulting mom or dad, they forget to indicate that they are claimed as a dependent on another person’s return.

While they get excited about their refund, your return may get rejected for E-file when you try to claim them. Since parents tend to have more complicated returns and therefore file later than their children it may be months later that the parents realize their child has already filed and claimed themselves. The child then must amend their return to show they are a dependent of another or the parent has to remove the dependent.

The Ex

Sometimes parents split custody of their children 50/50. This can happen in situations of divorce or situations were the parents have never married. Without a clear cut plan, preferably in writing showing who gets the child’s exemption, the first parent to file the return will get that year’s exemption.

We have not seen great success in trying to prove to the IRS that you are in fact entitled to the exemption and the other parent is not, when the other parent files first. Depending on other items on your return the exemption may make the difference of a few thousand dollars.

The Live-Ins

Many older people have done their own taxes for years. They don’t see any reason why they should do it any differently just because they are living in your home. You might be the head of household and support them, but they still think of themselves as independent.

When tax season rolls around make sure you talk to your children, former spouse (or child’s other parent) and your own parents about how they plan on file their taxes. Breakdowns in communication about dependents are all too common. If you want to decrease your tax liabilities, the process starts in your home. Of course it is important to understand what criteria need to be meet to claim someone as a dependent. If you’ve encountered problems trying to file your return because of a mixup with dependents, give us a call today and we’ll be glad to help.

Key Tax Benefits:

• Tax credit of up to $5,600 for hiring veterans who have been looking for a job for more than six months, as well as a $2,400 credit for veterans who are unemployed for more than 4 weeks, but less than 6 months.
• 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.

This new law provides an expanded work opportunity tax credit to businesses that hire eligible unemployed veterans and for the first time also makes part of the credit available to tax-exempt organizations. Businesses claim the credit as part of the general business credit and tax-exempt organizations claim it against their payroll tax liability. The credit is available for eligible unemployed veterans who begin work on or after November 22, 2011, and before January 1, 2013.

If you are interested in hiring a veteran, there are a multitude of tools at Joining Forces that can help you to connect.

Help solve a growing problem:

Unemployment among former servicemen is getting worse, especially the young ones:

• The unemployment rate among veterans returning from Iraq and Afghanistan has risen to 12.1%. The national unemployment rate for October was 9.0%, while the overall veterans’ unemployment rate was 7.7%. However, the joblessness rate for Gulf War-era II veterans, of which two thirds are younger than 35 years old, is 12.1%, up from 10.6% at this time last year.
• The youngest veterans are the ones having the hardest time finding work. According to BLS, “Young male veterans (those ages 18-24) who served during Gulf War-era II had an unemployment rate of 21.9% in 2010.” [BLS Employment Situation, 11/4/11; BLS Employment Situation of Veterans, 10/20/11; BLS Veterans Employment Figures, 11/4/11.]
• “Young veterans are more than twice as likely to be homeless as their non-veteran counterpart, and young veterans in poverty are almost four times more likely to be homeless than their non-veteran counterparts in poverty.” [HUD’s 2010 Annual Homeless Assessment Report (AHAR), 10/28/11.]

If you are interested in hiring a veteran, there are a multitude of tools at Joining Forces that can help you to connect.

Beyond Tax Benefits:

The bill does much morethan give businesses incentives to hire former servicemen:

• Improving the Transition Assistance Program (TAP): The VOW to Hire Heroes Act will make TAP mandatory for most servicemembers transitioning to civilian status, upgrade career counseling options, and resume writing skills, as well as ensuring the program is tailored for the 21st Century job market.
• Facilitating Seamless Transition: This bill would allow service members to begin the federal employment process prior to separation in order to facilitate a truly seamless transition from the military to jobs at VA, Homeland Security, or the many other federal agencies in need of our veterans.
• Expanding Education & Training: The VOW to Hire Heroes Act provides nearly 100,000 unemployed veterans of past eras and wars with up to 1-year of additional Montgomery GI Bill benefits to qualify for jobs in high-demand sectors, from trucking to technology. It also provides disabled veterans up to 1-year of additional Vocational Rehabilitation and Employment Benefits.
• Translating Military Skills and Training: This bill will also require the Department of Labor to takea hard look at what military skills and training should be translatable into the civilian sector, and will work to make it easier to get the licenses and certification our veterans need.

If you are interested in hiring a veteran, there are a multitude of tools at Joining Forces that can help you to connect.

Late Payment Penalty

The late payment penalty is usually 1⁄2 of 1% of any tax (other than estimated tax) not paid by April 17, 2012. It is charged for each month or part of a month the tax is unpaid. The maximum penalty is 25%.

You are considered to have reasonable cause for the period covered by this automatic extension if at least 90% of your actual 2011 tax liability is paid before the regular due date of your return through withholding, estimated tax payments, or payments made with Form 4868. (request for automatic extension). If you do not file Form 4868 before the regular due date, or if you file after the extension date, you will be subject to a penalty.

Late Filing Penalty

The penalty, if not filed or properly extended is usually 5% of the amount due for each month or part of a month your return is late. The maximum penalty is 25%. If your return is more than 60 days late, the minimum penalty is $135 or the balance of the tax due on your return, whichever is smaller.

Payment Plan

If you can not meet this year’s tax liabilities, you should first seek out alternatives to payments plans (home equity loans, loans from family members or possibly credit cards). As a rule of thumb these alternate methods will likely be cheaper in the long run for dollar amounts less than $5,000. In the $5,000 and up range or when alternate financing is not available a payment plan through the IRS might be worth it. An installment plan might be beneficial in some cases but they require more diligence. You need to make sure the IRS is drafting your payments. They have very specific rules as to who can and cannot be on an installment plan.

Considerations For Extending

Taxes can become more complicated when you file late because you will need to look at last year’s data and transactions that took place as long as 21 months ago. There is not a limit to how many years you can file for an extension. Many individuals and businesses do it multiple years in a row.

The Audit Factor

We have found no truth in the rumors that the IRS is more or less likely to audit people who file later. Generally speaking, you should pay as much as you can by April 17th  (for 2012) and file the extension. You can include your payment with the extension Form 4868. If you are not filing by April 17th make sure you have filed for an extension and keep a copy.

Why would you want to accelerate this year’s taxes?

Just looking at your tax burden through a narrow lens once a year will mean some years you might have a very low burden, but the next year, it might spike because of increased income or decrease because of less available deductions. Instead of focusing every year on getting your tax burden as low as possible, it might be financially smarter to figure out how to reduce your overall tax burden throughout the years.

Income Acceleration Strategies

Acceleration strategies try to front load your tax burden into a year where your payout might otherwise be relatively low. If you plan on making more money in the next year, losing deductions, or already know that your tax burden will increase the next year, you may want to pay as much as possible this year to reduce next year’s tax burden.

You can accelerate your income by making sure customers pay within the year instead of next on a cash basis. On the cash basis, asking for larger up-front payments reduces your overall business risks and allows you to claim income sooner. Some businesses will discount packages, so that if you pay now, you receive a reduced rate. For example, 5 months of service for the price of 6 will get generate income earlier in the business process.

Deduction deferral is a component of income acceleration. Try to put off things you want to buy for your business until January. So hold off on office supplies, equipment, and computers until the next year so that you can receive the deduction on next years taxes.

Income Deferral Strategies

If this year’s tax burden has the potential to be much higher than usual, you will want to make sure you receive all of the deductions you can while simultaneously holding off income. Do the opposite of everything above. Don’t send invoices in the end of December. Wait to send them until the beginning of January. If you think you are going to need new equipment within the next few months, buy it before the new year. Pay bonuses in December instead of January.

Tax planning is pretty easy if you understand the basics. Your accountant should know what deductions you should take in any given year. They can help you plan ahead of time so that you know what you can do before January comes. If you need help tax planning, give us a call at the number above for a free consultation. We’d be glad to help.

Friends and social websites can help to vet babysitters and provide background checks. But even after reading glowing reviews or receiving a great referral, parents will interview to see if a babysitter is the right fit. Finally, after the first babysitting experience, parents will ask the babysitter how things went and they will ask their kids too. Hiring a babysitter is a carefully made choice because our children are extremely important to us.

How important are your finances to you?

Some people think that when they hire an accountant to do their taxes, they don’t have to understand how their finances work, or check-in for a review. That’s like saying you don’t need to know how to parent because you have a good babysitter. In the end, your finances are still your responsibility.

If you have planning sessions and consistently communicate with your accountant, you are probably doing it right. At a minimum to make your finances work you need to:

1.) Review Your Tax Returns

You should always keep copies of your tax returns in a safe, organized place. Tax returns are a good gauge of where you are at financially, which is why banks want to see them before you receive a mortgage. It’s OK to let your accountant handle your tax filing, but its not OK to have your return filed with no knowledge of what is or is not being reported to the IRS.

2.) Invest In Your Knowledge

People understand why investing their money is important, but so is investing in knowledge. Financial investments require individuals to make informed decisions. You can have all of the money in the world, but without knowledge of how finances work, you are bound to lose it.

Reviewing a tax return doesn’t require a college course or online tutorial. As long as you have a reputable accountant, you can talk to them and ask them questions. Gradually, you will begin to understand how financial processes work. With open and consistent communication with your accountant, taxes and finances will become less of a mystery which will help you achieve better results in the years to come.