With the 2012 hurricane season now under way and memories of tornadoes and other natural disasters fresh in our collective minds, now is the time for individuals and businesses to safeguard their tax records by taking a few simple steps.
Take Inventory
Gather all of your documents and make an inventory list. You may find everything in a single location, but more likely than not, you’ll have to hunt around to find all of your documents. Don't forget to check computer files, storage boxes, file cabinets, old and new computers and laptops, thumb drives, and external hard drives and backup disks.
Depending on how complex your finances are, you may opt for a single list or choose to make two separate lists. The first list might include items such as insurance policies, mortgages and deeds, car titles, wills, pension and retirement-plan documents, powers of attorney, medical directives, and so on. The second list might contain a list of less essential documents such as brokerage accounts, loans that have been paid off, end-of-year bank statements, and copies of old tax returns and supporting documentation.
Create a Backup Set of Records and Store Them Electronically
Keeping a backup set of records -- including, for example, bank statements, tax returns, insurance policies, etc. -- is easier than ever now that many financial institutions provide statements and documents electronically, and much financial information is available on the Internet. Even if the original records are provided only on paper, they can be scanned and converted to a digital format. Once the documents are in electronic form, taxpayers can download them to a backup storage device, such as an external hard drive, or burn them onto a CD or DVD (don't forget to label it).
You might also consider online backup, which is the only way to ensure that data is fully protected. With online backup, files are stored in another region of the country, so that if a hurricane or other natural disaster occurs, documents remain safe.
Visually Document Valuables
Another step you can take to prepare for disaster is to photograph or videotape the contents of your home, especially items of higher value. Call us for more help compiling a room-by-room list of belongings. A photographic or video record can help prove the fair market value of items for insurance and casualty loss claims. Store the photos or video with a friend or family member who lives outside the area, or as part of your online document backup.
Update Emergency Plans
Emergency plans should be reviewed annually. Personal and business situations change over time, as do preparedness needs. When employers hire new employees or when a company or organization changes functions, plans should be updated accordingly and employees should be informed of the changes.
Check on Fiduciary Bonds
Employers who use payroll service providers should ask the provider if it has a fiduciary bond in place. The bond could protect the employer in the event of default by the payroll service provider.
If disaster strikes, call us right away. We can help you get back copies of tax returns and all attachments, including your Form W-2. We're here to help.
Monday, July 16, 2012
Thursday, July 12, 2012
Supreme Court Upholds Health Care Law
The Supreme Court recently upheld the constitutionality of the 2010 health care reform legislation. In addition to the changes to the U.S. Health Care System, below are some of the tax-related provisions.
Individual mandate. The law contains an "individual mandate" - a requirement that U.S. citizens and legal residents have qualifying health coverage or be subject to a tax (or shared responsibility penalty) after 2013.
Higher Medicare payroll tax on wages. Under the provisions of the new law, which take effect in 2013, most taxpayers will continue to pay the 1.45% Medicare hospital insurance tax, but single people earning more than $200,000 and married couples earning more then $250,000 will be taxed an additional 0.9% (2.35%) total on the excess over those base amounts. Self-employed persons will pay 3.8% on earnings over the threshold.
Medicare payroll tax extended to investments. Beginning in 2013, a Medicare tax will, for the first time, be applied to investment income. A new 3.8% tax will be imposed on net investment income of single taxpayers with AGI above $200,000 and joint filers over $250,000. Net investment income is interest, dividends, royalties, rents, gross income from a trade or business involving passives activities, and net gain from disposition of property (other than property held in a trade or business). Net investment income is reduced by properly allocable deductions to such income. However, the new tax won't apply to income in tax-deferred retirement accounts such as 401(k) plans. Also, the new tax will apply only to income in excess of the $200,000/$250,000 thresholds. So if a couple earns $200,000 in wages and $100,000 in capital gains, $50,000 will be subject to the new law.
Floor on medical expenses deduction: raised from 7.5% of adjusted gross income (AGI) to 10% effective for tax years beginning after Dec. 31, 2012. The AGI floor for individuals age 65 and older (and their spouses) will remain unchanged at 7.5% through 2016.
Increased penalties on nonqualified distributions from HSAs and Archer MSAs. The law increases the tax distributions from a health savings account or an Archer MSA that are not used for qualified medical expenses to 20% (from 10% for HSAs and from 15% for Archer MSAs) of the disbursed amount, effective for distributions made after Dec. 31, 2010.
Limit health flexible spending arrangements (FSAs) to $2,500. An FSA is one of a number of tax-advantaged financial accounts that can be set up through a cafeteria plan of an employer. An FSA allows an employee to set aside a portion of his or her earnings to pay for qualified expenses as established in the cafeteria plan, most commonly for medical expenses but often for dependent care or other expenses. Allowable contributions to health FSAs will be capped at $2,500 per year, effective for tax years beginning after Dec. 31, 2012. The dollar amount will be indexed for inflation after 2013.
Now that the Supreme Court has ruled on the law, the IRS is expected to issue much more guidance in the coming months on the various tax provisions.
Although much of the uncertainty over the legislation has been removed due to the Supreme Court's decision, there are renewed pledges by Republicans and the expected Republican nominee for President, Mitt Romney, to repeal the law in its entirety.
To ensure compliance with IRS Circular 230, any U.S. federal tax advice provided in this communication is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer (i) for the purpose of avoiding tax penalties that may be imposed on the recipient or any other taxpayer, or (ii) in promoting, marketing or recommending to another party a partnership or other entity, investment plan, arrangement or other transaction addressed herein.
Individual mandate. The law contains an "individual mandate" - a requirement that U.S. citizens and legal residents have qualifying health coverage or be subject to a tax (or shared responsibility penalty) after 2013.
Higher Medicare payroll tax on wages. Under the provisions of the new law, which take effect in 2013, most taxpayers will continue to pay the 1.45% Medicare hospital insurance tax, but single people earning more than $200,000 and married couples earning more then $250,000 will be taxed an additional 0.9% (2.35%) total on the excess over those base amounts. Self-employed persons will pay 3.8% on earnings over the threshold.
Medicare payroll tax extended to investments. Beginning in 2013, a Medicare tax will, for the first time, be applied to investment income. A new 3.8% tax will be imposed on net investment income of single taxpayers with AGI above $200,000 and joint filers over $250,000. Net investment income is interest, dividends, royalties, rents, gross income from a trade or business involving passives activities, and net gain from disposition of property (other than property held in a trade or business). Net investment income is reduced by properly allocable deductions to such income. However, the new tax won't apply to income in tax-deferred retirement accounts such as 401(k) plans. Also, the new tax will apply only to income in excess of the $200,000/$250,000 thresholds. So if a couple earns $200,000 in wages and $100,000 in capital gains, $50,000 will be subject to the new law.
Floor on medical expenses deduction: raised from 7.5% of adjusted gross income (AGI) to 10% effective for tax years beginning after Dec. 31, 2012. The AGI floor for individuals age 65 and older (and their spouses) will remain unchanged at 7.5% through 2016.
Increased penalties on nonqualified distributions from HSAs and Archer MSAs. The law increases the tax distributions from a health savings account or an Archer MSA that are not used for qualified medical expenses to 20% (from 10% for HSAs and from 15% for Archer MSAs) of the disbursed amount, effective for distributions made after Dec. 31, 2010.
Limit health flexible spending arrangements (FSAs) to $2,500. An FSA is one of a number of tax-advantaged financial accounts that can be set up through a cafeteria plan of an employer. An FSA allows an employee to set aside a portion of his or her earnings to pay for qualified expenses as established in the cafeteria plan, most commonly for medical expenses but often for dependent care or other expenses. Allowable contributions to health FSAs will be capped at $2,500 per year, effective for tax years beginning after Dec. 31, 2012. The dollar amount will be indexed for inflation after 2013.
Now that the Supreme Court has ruled on the law, the IRS is expected to issue much more guidance in the coming months on the various tax provisions.
Although much of the uncertainty over the legislation has been removed due to the Supreme Court's decision, there are renewed pledges by Republicans and the expected Republican nominee for President, Mitt Romney, to repeal the law in its entirety.
To ensure compliance with IRS Circular 230, any U.S. federal tax advice provided in this communication is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer (i) for the purpose of avoiding tax penalties that may be imposed on the recipient or any other taxpayer, or (ii) in promoting, marketing or recommending to another party a partnership or other entity, investment plan, arrangement or other transaction addressed herein.
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