Sunday, January 31, 2016

Top 11 Tax Return Preparation Errors

Here are the top 11 tax return preparation errors:
  1. Number transposition and spelling errors. This includes income and deduction amounts and client Social Security numbers, addresses and ZIP codes. Spelling errors should also be avoided – they indicate a lack of attention to what you are doing.
  2. Unreported 1099 income. Clients frequently leave out 1099s, but the preparer should make sure all 1099 items from last year are accounted for. Missing 1099s that were not final for last year should be accounted for.
  3. Tax payments. Entering incorrect and unpaid amounts can be avoided by requiring the client to provide “proof” of the payments. Entering “incorrect” amounts provided by the client is a major cause of tax notices.
  4. Keeping review notes after the return is completed. This can create liability issues if there is ever a controversy over the return. Review notes usually deal with errors and omissions and the type and quantity of them can indicate a lack of training, proper procedures, adherence to processes or care. Retaining these notes cannot ever help you.
  5. Not correcting reason for tax notices for prior year on this year’s return. This is a no brainer, but for many preparers there is a disconnect between a notice for last year’s return and the preparing of this year’s return.
  6. Not questioning numbers that stretch the imagination. My imagination is likely to be different from yours, but a client with high debt indicated by mortgage and home equity loan interest usually won’t be making cash charitable contributions equal to 8 percent of their gross income. Likewise for maximum allowable IRA contributions. Explain the requirements for substantiating these deductions and ask client if they have it.
  7. Not following up enough with clients to get missing information. This could create last-minute rushes and unhappy clients, even though it was because of client’s lack of response.
  8. Not specifically asking clients if they have, can sign or control a foreign bank account.
  9. Not telling client about items that aren’t on return. Items such as traditional and Roth IRAs, SEPs, making charitable contributions with appreciated stock, claiming a grown child with minimal income who lives with client as a dependent, or signing up for an employer’s 401k plan and/or flexible spending account, or partial exercising of ISOs to avoid AMT.
  10. High mortgage interest deductions. Excessive amounts (usually over $50,000) are a red flag for the IRS. Make sure the interest is not from excessive mortgages, that the funds were used for proper purposes or that the interest tracking rules have been complied with and if mortgage proceeds were used for investment purposes, it is properly reflected on the return.
  11. Alternative minimum tax. Watch for unapplied AMT credits and AMT NOLs, and state tax refunds reported as income even though not deducted in prior year because of AMT.

Saturday, January 30, 2016

Tax tips 2016: What advice does the IRS have for taxpayers? Where can I get tax forms?

Tax time is approaching and the Internal Revenue Service is letting taxpayers know what they should be looking out for this tax season.
Of course, this 2016 tax season is really all about the tax year 2015.
When is the deadline?
In Massachusetts it will be April 19 to file a return and pay any tax due, not on April 15, the IRS said. The Emancipation Day holiday in Washington, D.C., falls  on Friday, April 15 so the IRS has pushed the deadline back until Monday, April 18. Taxpayers in Maine and Massachusetts will have until Tuesday, April 19, because of Patriots Day observances on April 18.
What are my chances of getting a refund?
The IRS expects more than 70 percent of taxpayers to again receive tax refunds this year. Last year, the IRS issued 109 million refunds.
How much money is typically refunded?
The IRS said the average refund last year was $2,797.
What will make a taxpayer's life easier?
The IRS says taxpayers should have all year-end statements in hand before filing returns. This includes Forms W-2 from employers, Forms 1099 from banks and other payers, and for those claiming the premium tax credit, Form 1095-A from the Health Insurance Marketplace.
What is the fastest, safest way for me to get my refund?
Choose e-file and direct deposit, the IRS said. The IRS said it anticipates issuing more than nine out of 10 refunds in less than 21 days. 
Can I file online for free, or do I have to buy commercial software?
The IRSFree File program at began Friday, Jan. 15 and , and the IRS begins accepting and processing all tax returns on Tuesday, Jan. 19.
The software is free to those who qualify. Commercial partners of the IRS offer free brand-name software to about 100 million individuals and families with incomes of $62,000 or less. Seventy percent of the nation's taxpayers are eligible for IRS Free File.
Can I get IRS forms online?
Yes, the IRS provides online fill-able forms, electronic versions of IRS paper forms that taxpayers can use. They are available online at
Where can I get printed copies of IRS forms? The IRS no longer automatically mails them out to everyone.
You have four options, the IRS said:
1) Printable forms are available online at
2) Printed forms are available at local IRS Offices. This includes the Springfield office in the old federal building at 1550 Main St. It's open Monday to Friday, 8:30 a.m to 4:30 p.m. but closed for lunch from noon to 1 p.m. The number is (413) 788-0284.
Addresses for the other IRS offices in Massachusetts can be found
3) Printed forms are also available at many places in communities, the IRS said. Libraries and post offices offer free tax forms to taxpayers. Some libraries also have copies of commonly requested publications, the IRS said. Many large grocery stores, copy centers and office supply stores have forms you can photocopy or print from a CD.
4) Printed forms can be sent to you if you call the IRS at 1-800-TAX-FORM (800-829-3676) .

Can I get someone to help me file my taxes without paying?
Yes, The Volunteer Income Tax Assistance program offers free tax help to people who make $54,000 a year or less, people with disabilities, the elderly and limited English speaking taxpayers who need assistance in preparing their own tax returns, the IRS said.
Tax assistance programs are run with IRS-certified volunteers. They provide free basic income tax return preparation with electronic filing to qualified individuals.
Also, Tax Counseling for the Elderly program offers free tax help for all taxpayers, particularly those who are 60 years of age and older. Tax counseling  specializes in questions about pensions and retirement-related issues unique to seniors.
What if I want to hire a tax preparer?
The IRS has a list of hints and things to look for. Among those hints is to only use tax people who have IRS Preparer Tax Identification Number. Anyone with a valid 2015 number is authorized to prepare federal tax returns.
What should I know about refund anticipation loans or refund advances?
The IRS wants consumes to know:
By agreeing to a refund-related financial product, taxpayers will not receive their refund from the IRS as the IRS will send their refund to the financial institution or lender. Advise taxpayers that refund ancicipation loans are interest bearing loans and not a quicker way of receiving their refunds from the IRS. If the financial institution does not receive a direct deposit within the expected time frame for whatever reason, the taxpayers may be liable to the lender for additional interest and other fees, as applicable for the RAL or other tax refund-related product.
What if I need a tax transcript for student loans or to buy a house?
The IRS has a Get Transcript Tool available online. Taxpayers should allow five to 10 days from the time they make the request to receive it by mail.
What about identity theft?
The IRS said it has made a number of changes to thwart identity thieves. Most of these changes are invisible to taxpayers. But the agency warns there will be new security requirements when preparing your taxes online, especially when taxpayers  sign in to your tax software account.
What do I need to do to comply with the Affordable Care Act?
The IRS said that the Affordable Care Act requires that a taxpayer and each member of the family either has qualifying health coverage for each month of the year, qualifies for an exemption, or makes an individual shared responsibility payment when filing their tax returns.
For most folks, that means simply checking a box on the tax return form. More detail is available at

Friday, January 29, 2016

6 retirement-planning mistakes to avoid

Like the New Year which we just ushered in, gone are the old methods or strategies that retirees once relied on such as interest rates from long term CDs or bonds, and home equity or reverse mortgages. But with low interest rates and the current housing market, retirees may have to adjust to an entirely new normal.
Retirees can eliminate much of their stresses when it comes to retirement planning by avoiding six mistakes that many have made or will make.
Mistake no. 1: Not taking advantage of the retirement-planning tools available
Retirement accounts like IRAs or 401(k)s are vital and important sources of income for retirees, and many employers provide accounts for their employees to invest in. Working individuals of all ages should establish these accounts and regularly contribute to them. Most employers will even match the funds in your 401(k), which is free money that can go to your retirement so it's wise to contribute the fullest amount possible to achieve the fullest match possible.
The best part about 401(k) contributions is that they are deducted from your paycheck before taxes, therefore they're a piece of untouched income that won't require taxes paid on them upon receipt and can grow until they are needed or have to take mandatory distributions (by age 70 ½).
Mistake no. 2: Misunderstanding all the opportunities for retirement saving available
Some retirees believe their portfolios are diversified because they own investments through different money managers, when in reality they are limited to one portion of the financial market. These investments give an illusion of diversification but may just be repeats of the same type of stocks or invested in the same sector of the industry without including global holdings or varied types of stocks.
In fact, with the rapid globalization occurring, investors would be wise to put their earnings in countries who have experienced or are predicted to experience significant growth. Investors consume products from all over the world and why not take advantage of the retirement income they can receive from investments in the same places?
Another mistake is putting money in the most talked about investments at the present moment. By the time word gets around about an investment, it's probably already too late to make significant money on it. Retirees should educate themselves on the available investments with predicted growth and that have potential to gain recognition in time. However, be aware of fees (see Mistake no. 4) that accompany investments with significant monetary consequences.
Mistake no. 3: Borrowing or cashing out your 401(k)
While you can borrow from your 401(k) early, it doesn't mean that you should. These funds will either have to be paid back and will lose out on long periods of growth they could have had, limiting your retirement income or taxed if it's not paid back and you change jobs.
Another example is that many people make the mistake of cashing out their 401(k) accounts when they switch career positions. While it can provide a sum of money in the interim, that can be quickly diminished by taxes owed on the amount, as well as additional penalties imposed.
Mistake no. 4: 12b-1 mutual fund, hidden 401(k) and investment fees
The reality is that while returns aren't guaranteed, fees sure are. Humans are return driven and it's only natural for funds to be picked for their potential offerings. However, the potential growth or returns on an investment can be offset by thousands of dollars in fees.
While at first the fees owed don't seem like much, this amount compounded over time can put a hefty financial burden on your retirement income. In fact, it may even add up to a six-figure difference in the long run because you don't just lose the money paid in fees but also the growth that money could have achieved.
Also, make sure that your investments are under supervision of a tax professional to ensure that minimal is lost in taxes. Many accountants do not specialize in tax planning, so make sure to work with a professional that can help lower your taxes by employing different strategies that many have not have thought of.
Mistake no. 5: Failing to plan
A plan is crucial to ensuring retirement success. Go through a list of important life questions with a financial professional who can help you from the start.
Just like a road trip, having a general idea of the path will only require course adjustments along the way, but without a destination or road in mind, the trip can't even begin. Retirement income is not something that can be summoned immediately, and the smallest amounts of savings right now over time can provide a big, positive impact.
And if you do have a plan, make sure you are actively engaging in it, assessing investment performance or making adjustments after big life changes.
Mistake no. 6: Starting too late
Retirees can no longer rely on Social Security or the "three-legged stool" to keep them afloat in retirement years. Health-care-cost coverage is no longer guaranteed, and retired couples may need quite a few hundred thousand dollars in their hands to ensure quality health care in their retirement years.
The longer you wait, the more years compounded, the more growth you may be missing out. The bottom line is to start saving now, and you will see some significant accumulation when you'll need it the most.

Wednesday, January 27, 2016

The fastest way to get your tax refund

For millions of Americans, tax refund time is drawing near, and the checks will be averaging about $3,200.
I've always said setting yourself up to always get a tax refund isn't good cash flow planning. You overpay your taxes all year, then wait to file a bunch of complicated forms to prove you've overpaid your taxes. After sending the forms to the IRS to ask for your money ... you wait some more.
Doesn't sound like a smart thing to do, right?
But of course, lots of people like getting a tax refund because it's their way of forcing themselves to save money during the previous year. And others, despite their best efforts to balance what they've paid in taxes with what they'll owe, get a refund because of changes in their financial situation during the year. And some get a refund because they engaged in some good year-end tax planning.
So, if you're one of the over 40 million Americans who'll get a refund this year, here's how to get that money as quickly as possible.
Step 1: Prepare you tax return online
About half of all individuals chose to do their own preparing and filing of their tax returns. While many online tax prep services are available, the most widely used, reviewed and recommended are Intuit's TurboTax or the suite of online services offered by H&R Block or Jackson Hewitt. If you've been using one of their programs, there's little reason to switch.
One plus in an online service from either H&R Block or Jackson Hewitt is that if you start out using their online service and then find that you need professional help, you can walk into any of their tax-prep centers, where they'll review, prepare and file your return.
Step 2: E-file your tax return
If you use tax-prep software, the e-filing process is straightforward. It allows you to electronically "sign" your return. The benefits of e-filing your tax return include getting an electronic acknowledgement from the IRS that your return has been received and getting a faster tax refund.
Step 3: Direct deposit your tax refund
Direct deposit has become the most popular way to receive a refund. Last year over 85 percent of them were directly deposited into taxpayers' accounts. If you use a tax preparer, make sure to let them know you want your refund directly deposited, but most tax pros will ask.
You can even choose to have the refund split up among as many as three different accounts at U.S. financial institutions. Use Form 8888, Allocation of Refund, making sure to provide the correct bank account and routing numbers.
Note that if you try to directly deposit a refund from a jointly filed return into an individually owned account, some institutions will reject that deposit, which will delay your refund. Check with your bank to ensure it'll accept the direct deposit in this case.
How much can e-filing and direct deposit speed up your tax refund? Here's the breakdown depending on how you choose to file your return and receive your check.
  • If you file by paper and request a paper check: Six weeks or more.
  • If you file electronically and request a refund by paper check: Four weeks or more.
  • If you file your electronically and elect direct deposit: About 10 business days.
That's a clear-cut case for e-filing and direct deposit.

What you need to know before you file your taxes

Whether you file your taxes yourself, or have a tax professional do it for you, you may be at risk.

You're giving your social security number, your giving your date of birth, these are the two only things you really need to have your tax identity stolen.

Anyone who gets paid to file taxes must have a PTIN number with the IRS otherwise it's an illegal return.

If you're filing by yourself,  file early in order to prevent thieves from stealing your return.

Tax Law Changes for 2016:

1. Tax Due Date: April 18, 2016

2. Tax penalties related to the Affordable Healthcare Act (Obamacare) have increased. The penalties are $285 per adult or 2% of your income above the filing
     threshold. The penalties will increase again for 2016 to $695 per adult or 2.5% of income.

3. Tax Brackets will be rising slightly by 0.4% in 2016.

4. The Standard Deduction for Head of Household will go up to $9300.00 in 2016.

5. Personal Exemptions will go up in 2016 to $4050.

6. Contribution Limits on Health Savings Accounts are going up. HSA's are a great to save money by using pre-tax dollars to save for medical expenses.
Qualified Medical expenses are out of pockets expenses like co-pays, deductibles or expenses that the insurance company does not reimburse you for. For
2016 the individual contribution limit will remain the same, but for families, the maximum contribution for 2016 will increase $100 to $6750.

7. The maximum allowable Earned Income Credit will go up slightly in 2016.

8. The AMT exemption is higher for 2016 it will go up $300 for individuals to $53,900, while joint filers will see an increase of $500 to $83,800.

9. The Lifetime Estate Exemption is increasing to 5.45 million for individuals and 10.5 million for couples.

Common Tax Filing Mistakes:

1. Input errors with Social Security Numbers. This will cause an e-file reject, so make sure you check the numbers on the return.

2. Misspelled or different names. Names on the return must match what is on the Social Security Card. This also causes the IRS to reject your return.

3. Math miscalculations. This can be minimized by using a tax software program such as H & R Block's. However, you still need to make sure you transfer the
correct numbers from forms such as W-2s, 1099Rs, etc. If the IRS catches a math error, they will change your return and refigure your taxes.

4. Tax Computation errors on taxable Social Security, Earned Income Credit, Child Tax Credit, etc. Make sure you use the proper forms or schedules for
calculating credits, deductions, etc.

5. Filing Status. A lot of people do not understand the tax laws surrounding each filing status. Head of Household is one of the most misunderstood. This
can trigger an audit by the IRS, especially when the income is too low or the names listed on the return do not match the taxpayers.

6. Direct Deposit number was input incorrectly. TRIPLE CHECK THESE NUMBERS. Once your return is filed, you can not change it. If the Deposit is bounced
by the Bank, the IRS will mail a check to the address on the return.

7. Not including all income on your return or including the information from Tax documents. This year, it is imperative that you do not file your return,
if you have insurance from the Marketplace without the FORM 1095A. You must reconcile with the government the tax credit you were given with your
income on the tax return. Other commonly missed forms are the 1099Misc., 1099INT, 1099DIV. You will receive a letter from the IRS as these forms are
reported to them.

8. Charitable contributions. Keep track of the items you donate and you must have a receipt. This is especially true if you give over $250. cash. All
organizations must be qualified as tax exempt from the IRS.

Tuesday, January 26, 2016

Estate Planning Checkup: 3 Items to Review Now

If your relationships have changed, you may need an update.

Remember that as your life changes, so trust your estate plan. Here are a few check-ins that will keep you and your family protected.
I hate to be the one to break it to you, but creating an estate planisn’t quite enough. In order to make sure your plan is as up-to-date and comprehensive as possible, it’s important that you review it over the years; I often recommend that people give it a checkup every few years.
1. Update Existing Planning Documents
If you have existing health care advance directives, durable powers of attorney, wills and/or revocable trusts, check to see whether it’s time for an update. For instance, if you’ve moved to a different state, purchased real estate in another state, or if the value of your assets has changed significantly from when your documents were first prepared, then your estate plan should be updated to reflect those changes.
Health issues can be reasons for a change: Have any issues arisen for you or your family? Family members with special needs, substance abuse, or mental illness may require extra assistance.
Also, make sure that the people that you’ve named in your plan as fiduciaries — such as your health care agent, attorney, executor, or trustee — are still appropriate. If your personal or professional relationships have changed, check to see whether your estate plan documents need an update.
2. Check Your Life Insurance Coverage
Particularly if relatives depend on your income, life insurance is a critical part of an estate plan. (It can also help you pass tax-free money to heirs — particularly important if you have a large estate or live in a state that has its own inheritance tax.)
As part of a regular checkup, you should consider whether any significant life changes require adjustments to your life insurance coverage. Review your beneficiary designations to make sure they name the appropriate people, and ask yourself the following questions: Have you gotten married or divorced? Have you had additional children, or have older graduated college or moved out of the house? Have you changed jobs and lost employer-provided life insurance? Has your spouse or partner cut back on his or her work schedule? Have you purchased a more expensive home with a bigger mortgage?
A yes on any of the preceding could be a reason to adjust your life insurance coverage.
3. Review Your Assets
The way you own your assets should generally work seamlessly with your estate plan. If your estate will be subject to either federal or state estate tax, for instance, it may be best to split up ownership of assets between you and your spouse to help minimize those taxes.
The federal estate tax exemption amount is now portable, meaning that a surviving spouse can claim the deceased spouse’s unused exemption amount — but state tax rules are different. Therefore, if you live in a state with an estate tax and all assets are in your spouse’s name, your heirs could face higher taxes after both of you die than if those assets were split up.
Similarly, if you have a revocable trust, you’ll probably want to make sure that you’ve transferred ownership of your assets into that trust. Doing so will help your heirs avoid the hassle and cost of probate upon your death; it will also simplify management of your assets if you become incapacitated.
A good estate plan is imperative to help protect your loved ones. Even if you have one, it’s important that you continue to take care of it.

Monday, January 25, 2016

Tax filing season is underway, and IRS says most Americans to get refund

Good news this year for those who procrastinate about filing taxes:

You don't have to file until Monday, April 18, because Emancipation Day celebrations take place on Friday, April 15 — the usual tax deadline — in Washington, D.C.
Meanwhile, if you are ready to file, you can, because the IRS began accepting tax returns Tuesday.
There are few things to be aware of this tax-filing season, Chattanooga-area tax preparers say.
First, if you have health insurance through your employer, you don't have to wait to get a form that proves that in order to file. Second, Congress made permanent a long list of personal and business tax breaks, including one that lets Tennessee residents deduct sales taxes if they itemize.
Employers mistakenly tell their employees not to file their taxes until the employee has gotten a 1095-B or 1095-C form that proves the employee has employer-provided health care that exempts them from needing insurance through the Affordable Care Act, or Obamacare, Marketplace.
Only people who have bought insurance through the marketplace need to wait for a 1095-A form that proves that in order to file.

Refunds for most
Most Americans have incentive to file, because the IRS expects more than 70 percent of taxpayers to again receive tax refunds this year. Last year, the IRS issued 109 million refunds, with an average refund of $2,797. And they should come fast. The IRS anticipates it will issue more than nine out of 10 refunds in less than 21 days.
Many of the refunds are boosted by the earned income tax credit (EITC), a subsidy for working people that has been in place since 1975. It has the support of politicians on the left and right ranging from Democratic President Barack Obama to Republican Speaker of the House Paul Ryan, both of whom would like to see the EITC expanded — though they disagree on how best to do that.
Some tax preparation firms offer "refund anticipation loans," that are secured by and repaid from the tax filer's refund.
But such loans have come under fire from consumer advocates who say they prey on the poor.

The IRS expects more than 150 million individual returns will be filed this year, and more than four out of five returns — above 80 percent — are expected to be filed electronically, with a similar proportion of refunds issued through direct deposit.
Seventy percent of the nation's taxpayers are eligible for IRS Free File. Commercial partners of the IRS offer free brand-name software to about 100 million individuals and families with incomes of $62,000 or less.
You can find more about electronic filing alternativss at
Stonger ID fraud protections
The IRS says it's working diligently with state tax authorities and the tax industry to address tax-related identity theft and refund fraud. As part of the Security Summit effort, stronger protections for taxpayers and the nation's tax system have gone into effect for the 2016 tax filing season.
There will be new security requirements when you're preparing your taxes online, especially when you sign in to your tax software account, the IRS says, to better protect your tax software account and personal information.
The new measures attack tax-related identity theft from multiple sides. Many changes will be invisible to taxpayers but help the IRS, states and the tax industry provide new protections.
"As part of our Security Summit initiative, the IRS has been working closely with the tax industry and state revenue departments to provide taxpayers with stronger protections against identity theft during the tax filing season," IRS Commissioner John Koskinen said in a statement.

Sunday, January 24, 2016

3 Tax Tasks to Tackle Now


If you're one of those people who every April curses themselves and says, "Next year, I'm going to start doing my taxes early," well, guess what? It's next year – and it's early. So if you want this to be the year you don't file at the last minute in a sweaty panic, here's what you should be doing now.
Gather that paperwork. Let's assume you've been to the ball before, and you know the dance moves here. We won't spend much time on this. Just know that you should gather paperwork related to anything you'd want to show the IRS to substantiate any deductions you're taking. That paperwork includes:
Anything the IRS sends you. Also be sure to put everything in a designated folder, says Thomas Walsh, an Atlanta-based certified financial planner with the Palisades Hudson Financial Group.
"In January, you will begin to receive important tax documents online or in the mail, such as Form W-2 reporting employment income or Form 1099 reporting taxable investment account activity," he says.
Receipts. These would be for things like charitable or medical deductions, as well as any paperwork related to any mileage you deduct.
Hopefully, you're keeping a mileage log, says Garrett Gregory, a former IRS attorney who runs Gregory Law Group, a Dallas-based firm that specializes in taxes, with his wife, Deborah.
"However, the IRS can challenge a mileage log. So in addition to the log, we need something that substantiates the total miles driven for the year," Gregory says. "An easy way to do this is show an oil change receipt from the beginning of the year and one from the end of the year. This will show that the total number of miles claimed on the mileage log is reasonable."
Estimated tax payments. If you're self-employed, make sure you have copies of the estimated tax payments throughout the year and hand that to your accountant, says Chris Smith, a certified public accountant and owner of CB Smith & Associates Inc., in Cumming, Georgia.
Or, if you're doing your taxes yourself, gather them – you'll still need them, unless you have an amazing memory.
"A lot of people are confused on when the payment was made versus for what tax year the payment was for," Smith says. "For example, an April payment could be for the current year's estimated taxes or a prior year tax payment made with the filing of an extension. Individuals need to distinguish that."
And you may want to talk to your boss about your taxes. "Check with your employer now to see if you can be reimbursed for any work-related expenses you've incurred over the past year," says Mike Campbell, a San Francisco-based tax partner at BDO USA, a business services practice headquartered in Chicago.
Campbell also suggests that while you're immersed in paperwork, you put anything aside you can, or write anything down or save receipts that might help you organize your taxes for next year.
"Postponing the gathering of data later in 2016 often can lead to missed deductions just due to the passage of time. Get a head start while it's still fresh," Campbell says.
Look for ways to reduce your tax bill. Think of the usual suspects, like retirement funds and your kids' college education.
For instance, Deb Repya, vice president of advanced markets for Allianz Life, says, "People often overlook the ability to make contributions to a Roth IRA."
She adds that "this is a great strategy because qualified distributions from a Roth upon retirement are income-tax-free, even growth within the account. Even better, these contributions can be made up to the April tax filing deadline and still apply to your 2015 tax return, though [they are] not tax deductible."
Or, again, maybe you can reduce your tax bill by doing something you want to do anyway: Put money into your child's college education.
"Depending on the state you reside, you may be able reduce your state tax bill for 2015 by making a contribution to a section 529 college savings plan," Walsh says.
Make an appointment now to do your taxes soon. Make the appointment with yourself if you aren't hiring a tax preparer. Circle a date on the calendar in February or early March and stick to it. But if you get a lot of tax-related paperwork in the mail, like 1099s, be careful that you don't file too early. Even though 1099s should be in your mailbox by early February, sometimes there are stragglers. You don't want to file and then have a rogue 1099 show up in your mailbox. But you certainly want to pick a date with plenty of weeks to go before mid-April.
Why? So many reasons. If you owe money, you'll have more time to budget for whatever you have to send in, and if you're due a refund, you'll get it sooner. If something goes wrong in the tax planning, and you realize you're in over your head and need professional help, or you didn't collect all of your paperwork, you'll presumably have time to address it without having to ask for an extension. And the more time you have, the more time you have to spend working on your taxes. While that may be a pain, it will likely save you money in the long run.
For instance, Deborah Gregory says that if you're self-employed, you might want to "set up an employee pension plan and shelter the lesser of 25 percent of income, or $53,000 for 2015. This has to be set up before the filing deadline of April 18, 2016, so it's important to get your taxes done early to determine if this strategy makes sense."
Of course, if you're a true procrastinator, you didn't pick up on most of that. You simply read that last sentence as, "You have until April 18, three extra days past the usual April 15, to file your taxes."
Good luck.

Saturday, January 23, 2016

6 tax breaks your CPA may be missing for your business

For individuals, a new year means resolutions, goals and reflections. In business, those same things occur as companies try to assess, plan and adjust to try to make certain that the next year is better than the previous year.
The annual reckoning is important for any firm, whether large or small. Each year there are tax law changes and government programs that can have a significant financial impact on revenues and profits. Many small businesses don’t have the time or the know-how to keep up with all the changes annually. As a result, it is important for them to work with an experienced, reliable partner that knows how to maximize federal, state and local tax credits.
Here are some examples of federal tax deductions many businesses might overlook, but there are also many more.
Startup Costs
If you start a new business, you can actually deduct expenses incurred before business operations began. These costs can include things like expenses related to exploring a business opportunity. The deduction must be taken in the first year of business, and it can be as much as $5,000. If your startup costs are more, you can claim up to $50,000 amortized over 15 years. You can get full details from IRS Publication 535.
Uncollectable debt
Does a vendor that has since gone out of business owe you money? If so, you might be able to take the unrecoverable debt as a tax write-off. According to IRS regulations, “you can deduct the entire amount, less any amount deducted in an earlier tax year.” What some business owners don’t realize is worthless bad debts can be fully deducted up to seven years from the original due date.
Health insurance premiums
If you are a self-employed business owner or you own more than 2 percent of an S corporation, you can deduct health insurance premiums paid for yourself, your spouse, your dependents and any child under 27. The deduction is taken as a personal expense on your Form 1040, rather than as a business expense.
Inventory costs
If your business manufactures products or purchases and resells products, you can deduct costs related to your inventory, according to the IRS. This includes expenses such as storage, raw materials, shipping costs, building overhead, etc. The cost of labor to make or sell the products is also deductible, including employee costs such as contributions to retirement plans. It is important to note that expenses can only be deducted once, so if you take a deduction for cost of goods sold, you cannot deduct that cost again as a business expense.
Legal and professional fees
Fees that you pay to lawyers, tax professionals or consultants generally can be deducted in the year incurred. If the work clearly relates to future years, however, they must be deducted over the life of the benefit you get from the lawyer or other professional.
Also, interest and carrying charges of loans to finance your business are fully deductible. That includes personal loans you take out to help fund business expenses. Make sure to keep good records so you can show the money was used appropriately.
If you haven’t completed your business and tax-planning strategy for 2016, it isn’t too late. This is a great time to consult with an experienced, professional accounting firm that can help you earn a bigger profit while making sure you don’t pay any more taxes than required by law.

Friday, January 22, 2016

Save Taxes By Being A Tax Contrarian


n 2015, contrarian investors were the winners. With both the Dow Jones Industrial Average and the S&P 500® Stock Index in negative territory for the year, the smart money defied traditional logic and invested where the lemmings were loath to go.
The same could be said about maximizing tax savings. You have to resist the temptation to follow the traditional behaviors of tax planning if you want to be a tax contrarian.
Here are some tips for avoiding “same old same old” tax strategies for yourself and your business. With the right tax advisor, opportunities can exist to save on taxes. It just takes breaking bad habits. And it’s a new year, so why not?

Look beyond the deduction
A rookie mistake is to assume the only way to save taxes is to obtain a deduction. Tax deductions are great, but deferrals, recharacterizations and advantageous tax-year timing can also pay dividends. In fact, in some cases, it is smart to intentionally pay taxes up front.
For example, consider the Roth 401(k) feature in a qualified plan. It seems counterintuitive to use after-tax contributions in a 401(k) when pre-tax dollars can be used.
The reality is that designating some or all of a 401(k) contribution to a Roth can save future taxes. Sure, the contribution is now after-tax, but the account builds tax-deferred and generally pays out tax-free. You’ve paid tax on the seed but not on the harvest.
Another example, this time for your business, is supplementing a qualified plan with a nonqualified deferred compensation plan for key employees. Even though the company informally funds the plan by setting money aside, it doesn’t get an immediate tax deduction for its outlay. The deduction only comes when the compensation is actually paid out.
In the meantime, however, the company benefits from a golden handcuff on its executive, receives an accounting credit for the future deduction and owns a corporate asset to offset its liability.
The deferred deduction is minor compared to the other benefits of setting up the plan.

Tax planning involves more than saving taxes today
Just as diversifying an investment portfolio is advisable, so too is diversifying taxes. What is usually tax-deferred today will be taxed tomorrow and perhaps at higher rates.
Take, for example, the money in a qualified plan or IRA. Deferring taxes is a great feature, but that money will eventually be taxed, and at ordinary income tax rates (versus capital gains).
Some business owners and executives can have too much of a good thing by concentrating all their wealth in qualified plans. The price they pay is higher taxes when the money comes out. A diversification strategy makes more sense.
In addition to accumulating wealth in qualified plans and IRAs, some dollars can be directed to capital gains property while other money can go into tax-advantaged products.
An obvious example of capital gains property for a business owner is company stock. With proper exit planning, the growth in the value of the business represents a source of wealth that will be taxed at a lower capital gains rate when the stock is sold. As far as tax-advantaged products, examples include municipal bonds, cash value life insurance and annuities. These products have differing tax advantages and represent opportunities to diversify taxes.

New and exotic doesn’t necessarily mean smart and efficient
Contrarian tax planning calls for focusing on tried-and-true techniques before being bedazzled by the newest and shiniest scheme marketed in a promoter newsletter. What profit is there in being the test case for a tax trick that may not work?
In consumer products, it’s natural to want the latest and greatest. The same doesn’t necessarily apply in the world of finance. Particularly in the area of taxes, it’s often the pioneers who get shot.
For example, a popular estate planning technique used by wealthy business owners is called a “Zeroed-Out GRAT”. This is a grantor retained annuity trust that discounts the supposed worth of the arrangement to the point where it’s valued at almost nothing for gift tax purposes.
While this is a commonly used concept today, it took the Walton family (of Walmart fame) nearly 10 years of litigation with the IRS to have the Zeroed-Out GRAT accepted by the government.
The best tax advice is to get advice that fits your specific needs. Find a tax advisor who knows what tax opportunities already exist and make them work for you.

Stay current
On the flip side, tax law is constantly changing. Be sure to stay current on new opportunities. Consider these very recent examples.