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.
Friday, June 8, 2012
Start Planning Now for Next Year's Tax Return
This year's tax deadline may have come and gone already but it's never to early to start planning for next year. With that in mind, here are eight things you can do now to make next April 15 easier.
Adjust your withholding. Why wait another year for a big refund? Now is a good time to review your withholding and make adjustments for next year, especially if you'd prefer more money in each paycheck this year.
Store your return in a safe place. Put your 2011 tax return and supporting documents somewhere secure so you'll know exactly where to find them if you receive an IRS notice and need to refer to your return. If it is easy to find, you can also use it as a helpful guide for next year's return.
Organize your recordkeeping. Establish a central location where everyone in your household can put tax-related records all year long. Anything from a shoebox to a file cabinet works. Just be consistent to avoid a scramble for misplaced mileage logs or charity receipts come tax time.
Review your paycheck. Make sure your employer is properly withholding and reporting retirement account contributions, health insurance payments, charitable payroll deductions and other items. These payroll adjustments can make a big difference on your bottom line. Fixing an error in your paycheck now gets you back on track before it becomes a huge hassle.
Consult a tax professional early. If you are planning to use a tax professional to help you strategize, plan and make financial decisions throughout the year, then contact us now. You'll have more time when you're not up against a deadline or anxious for your refund.
Prepare to itemize deductions. If your expenses typically fall just below the amount to make itemizing advantageous, a bit of planning to bundle deductions into 2012 may pay off. An early or extra mortgage payment, pre-deadline property tax payments, planned donations or strategically paid medical bills could equal some tax savings.
Strategize tuition payments. The American Opportunity Tax Credit, which offsets higher education expenses, is set to expire after 2012. It may be beneficial to pay 2013 tuition in 2012 to take full advantage of this tax credit, up to $2,500, before it expires.
Each household's financial circumstances are different so it's important to fully consider your specific situation and goals before making large financial decisions. If you need help with tax planning for 2012 give us a call. We can help you prepare an approach that works best for you. Feel free to contact us any time you have questions or concerns. We can help you stay abreast of tax law changes throughout the year--not just at tax time.
Friday, May 25, 2012
IRS Impersonation Scheme
The IRS does not send taxpayers unsolicited e-mails about their tax
accounts, tax situations, or personal tax issues. If you receive such
an e-mail, most likely it's a scam.
IRS impersonation schemes flourish during filing season. These schemes
may take place via phone, fax, Internet sites, social networking
sites, and particularly e-mail.
Many impersonations are identity theft scams that try to trick victims
into revealing personal and financial information that can be used to
access their financial accounts. Some e-mail scams contain attachments
or links that, when clicked, download malicious code (a virus) that
infects your computer or directs you to a bogus form or site posing as
an IRS form or Web site.
Some impersonations may be commercial Internet sites that consumers
unknowingly visit, thinking they're accessing the genuine IRS Web
site, IRS.gov. However, such sites have no connection to the IRS.
As with any situation like this, don't open any emails or attachments
from a source you are not familiar with.
If you want to know whether a site is legitimate or if you think you
have been the victim of identity theft or fraud, please contact us. We
definitely don't want you to get scammed.
accounts, tax situations, or personal tax issues. If you receive such
an e-mail, most likely it's a scam.
IRS impersonation schemes flourish during filing season. These schemes
may take place via phone, fax, Internet sites, social networking
sites, and particularly e-mail.
Many impersonations are identity theft scams that try to trick victims
into revealing personal and financial information that can be used to
access their financial accounts. Some e-mail scams contain attachments
or links that, when clicked, download malicious code (a virus) that
infects your computer or directs you to a bogus form or site posing as
an IRS form or Web site.
Some impersonations may be commercial Internet sites that consumers
unknowingly visit, thinking they're accessing the genuine IRS Web
site, IRS.gov. However, such sites have no connection to the IRS.
As with any situation like this, don't open any emails or attachments
from a source you are not familiar with.
If you want to know whether a site is legitimate or if you think you
have been the victim of identity theft or fraud, please contact us. We
definitely don't want you to get scammed.
Monday, May 7, 2012
Tips for Turning Your Vacation Into a Tax Deduction
1. Make all your business appointments before you leave for your trip.
Most people believe that they can go on vacation and simply hand out their business cards in order to make the trip deductible. Wrong.
You must have at least one business appointment before you leave in order to establish the "prior set business purpose" required by the IRS. Keeping this in mind, before he left for his trip, Tim set up appointments with business colleagues in the various cities that he planned to visit.
2. Make Sure your Trip is All "Business Travel."
In order to deduct all of your on-the-road business expenses, you must be traveling on business. The IRS states that travel expenses are 100% deductible as long as your trip is business related and you are traveling away from your regular place of business longer than an ordinary day's work and you need to sleep or rest to meet the demands of your work while away from home.
3. Make sure that you deduct all of your on-the-road -expenses for each day you're away.
For every day you are on business travel, you can deduct 100% of lodging, tips, car rentals, and 50% of your food. Tip:The IRS doesn't require receipts for travel expense under $75 per expense--except for lodging.
4. Sandwich weekends between business days.
If you have a business day on Friday and another one on Monday, you can deduct all on-the-road expenses during the weekend.
5. Make the majority of your trip days business days.
The IRS says that you can deduct transportation expenses if business is the primary purpose of the trip. A majority of days in the trip must be for business activities, otherwise, you cannot make any transportation deductions.
Consult us before you plan your next trip. We'll show you the right way to legally deduct your vacation when you combine it with business. Bon Voyage!
Most people believe that they can go on vacation and simply hand out their business cards in order to make the trip deductible. Wrong.
You must have at least one business appointment before you leave in order to establish the "prior set business purpose" required by the IRS. Keeping this in mind, before he left for his trip, Tim set up appointments with business colleagues in the various cities that he planned to visit.
2. Make Sure your Trip is All "Business Travel."
In order to deduct all of your on-the-road business expenses, you must be traveling on business. The IRS states that travel expenses are 100% deductible as long as your trip is business related and you are traveling away from your regular place of business longer than an ordinary day's work and you need to sleep or rest to meet the demands of your work while away from home.
3. Make sure that you deduct all of your on-the-road -expenses for each day you're away.
For every day you are on business travel, you can deduct 100% of lodging, tips, car rentals, and 50% of your food. Tip:The IRS doesn't require receipts for travel expense under $75 per expense--except for lodging.
4. Sandwich weekends between business days.
If you have a business day on Friday and another one on Monday, you can deduct all on-the-road expenses during the weekend.
5. Make the majority of your trip days business days.
The IRS says that you can deduct transportation expenses if business is the primary purpose of the trip. A majority of days in the trip must be for business activities, otherwise, you cannot make any transportation deductions.
Consult us before you plan your next trip. We'll show you the right way to legally deduct your vacation when you combine it with business. Bon Voyage!
Wednesday, March 7, 2012
It's Not Too Late to Make a 2011 IRA Contribution
If you haven't contributed funds to an Individual Retirement Arrangement for tax year 2011, or if you've put in less than the maximum allowed, you still have time to do so. You can contribute to either a traditional or Roth IRA until the April due date for filing your tax return for 2011, not including extensions.
Be sure to tell the IRA trustee that the contribution is for 2011. Otherwise, the trustee may report the contribution as being for 2012 when they get your funds.
Generally, you can contribute up to $5,000 of your earnings for 2011 or up to $6,000 if you are age 50 or older in 2011. You can fund a traditional IRA, a Roth IRA (if you qualify), or both, but your total contributions cannot be more than these amounts.
Note: IRA contribution limits remain the same in 2012 - $5,000, or $6,000 if age 50 or older.
Traditional IRA: You may be able to take a tax deduction for the contributions to a traditional IRA, depending on your income and whether you or your spouse, if filing jointly, are covered by an employer's pension plan.
Roth IRA: You cannot deduct Roth IRA contributions, but the earnings on a Roth IRA may be tax-free if you meet the conditions for a qualified distribution.
Each year, the IRS announces the cost of living adjustments and limitation for retirement savings plans. In 2011 and 2012, however, the contribution limits for defined benefit and defined contribution plans did not change as the Consumer Price Index did not meet the regulatory thresholds.
Saving for retirement should be part of everyone's financial plan and it's important to review your retirement goals every year in order to maximize savings. If you need help with your retirement plans, give us a call. We're happy to help.
Be sure to tell the IRA trustee that the contribution is for 2011. Otherwise, the trustee may report the contribution as being for 2012 when they get your funds.
Generally, you can contribute up to $5,000 of your earnings for 2011 or up to $6,000 if you are age 50 or older in 2011. You can fund a traditional IRA, a Roth IRA (if you qualify), or both, but your total contributions cannot be more than these amounts.
Note: IRA contribution limits remain the same in 2012 - $5,000, or $6,000 if age 50 or older.
Traditional IRA: You may be able to take a tax deduction for the contributions to a traditional IRA, depending on your income and whether you or your spouse, if filing jointly, are covered by an employer's pension plan.
Roth IRA: You cannot deduct Roth IRA contributions, but the earnings on a Roth IRA may be tax-free if you meet the conditions for a qualified distribution.
Each year, the IRS announces the cost of living adjustments and limitation for retirement savings plans. In 2011 and 2012, however, the contribution limits for defined benefit and defined contribution plans did not change as the Consumer Price Index did not meet the regulatory thresholds.
Saving for retirement should be part of everyone's financial plan and it's important to review your retirement goals every year in order to maximize savings. If you need help with your retirement plans, give us a call. We're happy to help.
Friday, March 2, 2012
Payroll Tax Cut Extended to the End of 2012
Payroll Tax Cut Extended to the End of 2012; Revised Payroll Tax Form Now Available to Employers
From the IRS newswire February 23, 2012
WASHINGTON - The Internal Revenue Service today released revised Form 941 enabling employers to properly report the newly-extended payroll tax cut benefiting nearly 160 million workers.
Under the Middle Class Tax Relief and Job Creation Act of 2012, enacted yesterday, workers will continue to receive larger paychecks for the rest of this year based on a lower social security tax withholding rate of 4.2 percent, which is two percentage points less than the 6.2 percent rate in effect prior to 2011. This reduced rate, originally in effect for all of 2011, was extended through the end of February by the Temporary Payroll Tax Cut Continuation Act of 2011, enacted Dec. 23.
No action is required by workers to continue receiving the payroll tax cut. As before, the lower rate will have no effect on workers' future Social Security benefits. The reduction in revenues to the Social Security Trust Fund will be made up by transfers from the General Fund.
Self-employed individuals will also benefit from a comparable rate reduction in the social security portion of the self-employment tax from 12.4 percent to 10.4 percent. For 2012, the social security tax applies to the first $110,100 of wages and net self-employment income received by an individual.
The new law also repeals the two-percent recapture tax included in the December legislation that effectively capped at $18,350 the amount of wages eligible for the payroll tax cut. As a result, the now repealed recapture tax does not apply.
The IRS will issue additional guidance, as needed, to implement the newly-extended payroll tax cut, and any further updates will be posted on IRS.gov.
As always, should you have any questions, please feel free to contact your trusted advisor at DiSanto Priest & Co. 401.921.2000
From the IRS newswire February 23, 2012
WASHINGTON - The Internal Revenue Service today released revised Form 941 enabling employers to properly report the newly-extended payroll tax cut benefiting nearly 160 million workers.
Under the Middle Class Tax Relief and Job Creation Act of 2012, enacted yesterday, workers will continue to receive larger paychecks for the rest of this year based on a lower social security tax withholding rate of 4.2 percent, which is two percentage points less than the 6.2 percent rate in effect prior to 2011. This reduced rate, originally in effect for all of 2011, was extended through the end of February by the Temporary Payroll Tax Cut Continuation Act of 2011, enacted Dec. 23.
No action is required by workers to continue receiving the payroll tax cut. As before, the lower rate will have no effect on workers' future Social Security benefits. The reduction in revenues to the Social Security Trust Fund will be made up by transfers from the General Fund.
Self-employed individuals will also benefit from a comparable rate reduction in the social security portion of the self-employment tax from 12.4 percent to 10.4 percent. For 2012, the social security tax applies to the first $110,100 of wages and net self-employment income received by an individual.
The new law also repeals the two-percent recapture tax included in the December legislation that effectively capped at $18,350 the amount of wages eligible for the payroll tax cut. As a result, the now repealed recapture tax does not apply.
The IRS will issue additional guidance, as needed, to implement the newly-extended payroll tax cut, and any further updates will be posted on IRS.gov.
As always, should you have any questions, please feel free to contact your trusted advisor at DiSanto Priest & Co. 401.921.2000
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