Rhode Island Division of Taxation Announces Tax Amnesty Program * September 2, 2012 through November 15, 2012

The Rhode Island Division of Taxation is offering a Tax Amnesty program which will allow certain taxpayers to pay the full amount of overdue taxes plus seventy-five percent of any interest due, without having to pay the remaining interest and any penalty amounts due and without being subject to any other civil or criminal penalties.

Rhode Island's Tax Amnesty Program will run from September 2, 2012 through November 15, 2012 and applies to taxes due for taxable periods ending on or before December 31, 2011. The amnesty includes 2011 Rhode Island personal income tax returns, which were due April 17, 2012.

Rhode Island's Tax Amnesty program includes, but is not limited to, the following types of taxes:

• Corporate income tax
• Estate tax
• Fiduciary income tax
• Personal income tax
• Sales tax
• Use tax
• Cigarette and tobacco products taxes
• Employer taxes - unemployment, temporary disability insurance

Some exclusions to the Tax Amnesty program are: 

• Taxpayers facing criminal investigation are not eligible for tax amnesty.
• Taxpayers party to any civil or criminal proceedings pending in any court of the United States or the State of Rhode Island, for fraud in relation to any State tax imposed by the laws of the State and collected by the Tax Administrator.

For further information, including an amnesty application, click on the RI Division of Taxation Tax Amnesty web site:

http://www.taxamnesty.ri.gov/

Paying Off Debt the Smart Way

Being in debt isn't necessarily a terrible thing. Between mortgages, car loans, credit cards, and student loans, most people are in debt. Being debt-free is a worthwhile goal, but most people need to focus on managing their debt first since it's likely to be there for most of your life.
 
Handled wisely, that debt won't be an albatross around your neck. You don't need to shell out your hard-earned money because of exorbitant interest rates or always feel like you're on the verge of bankruptcy. You can pay off debt the smart way, while at the same time saving money to pay it off faster.
 
Assess the Situation 
First, assess the depth of your debt. Write it down, using pencil and paper, a spreadsheet like Microsoft Excel, or a bookkeeping program like Quicken. Include every financial situation where a company has given you something in advance of payment, including your mortgage, car payment(s), credit cards, tax liens, student loans, and payments on electronics or other household items through a store.
 
Record the day the debt began and when it will end (if possible), the interest rate you're paying, and what your payments typically are. Add it all up, painful as that might be. Try not to be discouraged! Remember, you're going to break this down into manageable chunks while finding extra money to help pay it down.
 
Identify High-Cost Debt 
Yes, some debts are more expensive than others. Unless you're getting payday loans (which you shouldn't be), the worst offenders are probably your credit cards. Here's how to deal with them. Don't use them. Don't cut them up, but put them in a drawer and only access them in an emergency.
 
Identify the card with the highest interest and pay off as much as you can every month. Pay minimums on the others. When that one's paid off, work on the card with the next highest rate. Don't close existing cards or open any new ones. It won't help your credit rating.
 
Pay on time, absolutely every time. One late payment these days can lower your FICO score. Go over your credit-card statements with a fine-tooth comb. Are you still being charged for that travel club you've never used? Look for line items you don't need. Call your credit card companies and ask them nicely if they would lower your interest rates. It does work sometimes!
 
Save, Save, Save
Do whatever you can to retire debt. Consider taking a second job and using that income only for higher payments on your financial obligations. Substitute free family activities for high-cost ones. Sell high-value items that you can live without.
 
Do Away with Unnecessary Items to Reduce Debt Load
Do you really need the 800-channel cable option or that dish on your roof? You'll be surprised at what you don't miss. How about magazine subscriptions? They're not terribly expensive, but every penny counts. It's nice to have a library of books, but consider visiting the public library or half-price bookstores until your debt is under control.
 
Never, Ever Miss a Payment 
Not only are you retiring debt, but you're also building a stellar credit rating. If you ever move or buy another car, you'll want to get the lowest rate possible. A blemish-free payment record will help with that. Besides, credit card companies can be quick to raise interest rates because of one late payment. A completely missed one is even more serious.
 
Pay With Cash 
To avoid increasing debt load, make it a habit to pay with cash. If you don't have the cash for it, you probably don't need it. You'll feel better about what you do have if you know it's owned free and clear.
 
Shop Wisely, and Use the Savings to Pay Down Your Debt 
If your family is large enough to warrant it, invest $30 or $40 and join a store like Sam's or Costco. And use it. Shop there first, then at the grocery store. Change brands if you have to and swallow your pride. Use coupons religiously. Calculate the money you're saving and slap it on your debt.
 
Each of these steps, taken alone, probably doesn't seem like much. But if you adopt as many as you can, you'll watch your debt decrease every month. If you need help managing debt give us a call. We can help.

Tips for Safeguarding Financial Records

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.

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.

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.

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.

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!