Category Archives: albuquerque CPA , TAX advice

What to do with your old retirement plan when you change jobs

First and foremost, don’t take a lump-sum distribution from your old employer’s retirement plan. It generally will be taxable and, if you’re under age 59½, subject to a 10% early-withdrawal penalty. Here are three alternatives:

1. Stay put. You may be able to leave your money in your old plan. But if you’ll be participating in your new employer’s plan or you already have an IRA, keeping track of multiple plans can make managing your retirement assets more difficult. Also consider how well the old plan’s investment options meet your needs.

 

2. Roll over to your new employer’s plan. This may be beneficial if it leaves you with only one retirement plan to keep track of. But evaluate the new plan’s investment options.

 

3. Roll over to an IRA. If you participate in a new employer’s plan, this will require keeping track of two plans. But it may be the best alternative because IRAs offer nearly unlimited investment choices.

 

There are additional issues to consider when deciding what to do with your old retirement plan. We can help you make an informed decision — and avoid potential tax traps.

 

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Cost Segregation Studies

A great way to save some money on taxes if you own property. It basically moves the depreciation forward so you get the benefit now rather than later. Call us about it.

Jim Vaughn

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Summer Camp — Might save you taxes

The passing of Memorial Day marks the beginning of summer in the minds of many Americans. Although the kids might still be in school for another week or two, summer day camp is rapidly approaching for many families. Summer Camp — might save you taxes, what a great double benefit.  If yours is among them, did you know that sending your child to day camp might make you eligible for a tax break?

Day camp is a qualified expense under the child and dependent care credit, which is worth 20% of qualifying expenses (more if your adjusted gross income is less than $43,000), subject to a cap. For 2014, the maximum expenses allowed for the credit are $3,000 for one qualifying child and $6,000 for two or more.

Be aware, however, that overnight camp costs don’t qualify for the credit.

Additional rules apply, so please contact us to determine whether you’re eligible.

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HEARTBLEED BUG

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The “Heartbleed” bug has sent businesses and individuals into attack mode in order to prevent passwords from being disclosed, personal information from being compromised — and ultimately, assets from being stolen.

The IRS issued the following statement about Heartbleed:

“The IRS continues to accept tax returns as normal. Our systems continue operating and are not affected by this bug, and we are not aware of any security vulnerabilities related to this situation. We continue to monitor the situation and remain in contact with our software partners.”

The problem, which was disclosed last week, involves encryption software called Open SSL, which is extensively used by thousands of websites. The Heartbleed bug can cause sensitive information stored on servers to be disclosed, including passwords, usernames, personal information and credit/debit card numbers.

The vulnerability “can potentially impact Internet communications and transmissions that were otherwise intended to be encrypted,” according to an alert issued by the U.S. Department of Homeland Security (DHS).

The nature of the bug is complex and it is not yet clear exactly how long it has been a security flaw.

Many websites quickly applied patches to fix the vulnerabilities. CNet, an Internet consumer technology site, compiled a list of the 100 most popular websites and checked whether the Heartbleed bug was patched. According to the site, Google, Facebook, YouTube, Yahoo!, Reddit, Yelp, Dropbox and others have fixed the vulnerability.

However, as with any hacking threat, you should take the Heartbleed bug seriously and consider following these steps:

1. Change your passwords. This is a good idea to do periodically, but in the wake of Heartbleed, you should do it ASAP. The DHS says that you should only change passwords after the vulnerability has been fully addressed at individual websites. Use strong passwords with letters (including capitals), numbers and symbols. Keep passwords long, 10 or 12 characters if possible. To keep track of your various passwords, use a password manager.

2. If you have the option to do “two-factor authentication,” take it. This security feature is just as it sounds — to access accounts, you have to type in two factors. For example, it might require a password and then a code sent to your smartphone. It’s not available everywhere yet but it can add protection to help keep your data safe.

3. Clear your Internet browser cache, history and cookies. Again, this is a good idea to do on a regular basis. Exactly how to do this depends on the browser you use but here are some instructions for a couple of popular browsers:

  • For current versions of Internet Explorer. Go to Tools (an icon with gears). Choose “Safety” and then “Delete Browsing History.” There you can check “Temporary Internet files, Cookies, History,” etc.
  • For current versions of Firefox. Click the Firefox button at the top of the window. Select “History,” then select “Clear Recent History.” This opens up a pop-up box that asks for a time range to clear. Select “Everything” and check “Browsing and Download History, Cookies and Cache.” Then, click “Clear Now.”

4. Beware of e-mail messages promising instant solutions. Unfortunately, when crisis strikes, many unscrupulous people try to take advantage of others. In the coming days, you may receive e-mails that ask you to click on links to rid your computer of Heartbleed. Don’t fall for it.

5. Check your credit card and bank accounts and statements thoroughly. If you see suspicious or false charges, contact the issuer or institution immediately to limit your liability.

6. Closely monitor your e-mail accounts, social media accounts and other online assets for irregular or suspicious activity, such as abnormal purchases or messages.

7. Ask businesses that have your data if they are vulnerable and what they have done to patch the bug.

8. Check for the “s.” After a website you are visiting has addressed the vulnerability, the DHS states you should “ensure that if it requires personal information such as login credentials or credit card information, it is secure with the HTTPS identifier in the address bar. Look out for the “s,” as it means secure.

These are general Internet security tips. There is no way to guarantee that you will not be affected by Heartbleed or other attacks but you can make yourself less vulnerable by taking certain steps.

 

© Copyright 2014. All rights reserved.
Brought to you by: Vaughn CPA, LLC

 

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Don’t inadvertently miss filing deadlines

If you still file a paper return, it’s important to know the IRS’s “timely mailed = timely filed” rule: If your tax return is due April 15, it’s considered timely filed if it’s postmarked by midnight on April 15. But just because you drop your return in a mailbox on the 15th doesn’t mean you’re safe.
Consider this example: On April 15, Susan mails her federal tax return with a payment. The post office loses the envelope and, by the time Susan realizes what has happened and refiles, two months have gone by. She’s hit with failure-to-file and failure-to-pay penalties totaling $1,000.
To avoid this risk, use certified or registered mail. Alternatively, you can use one of the private delivery services designated by the IRS to comply with the timely filing rule, such as DHL Same Day service. FedEx and UPS also offer a variety of options that pass muster with the IRS. But beware: If you use an unauthorized delivery service — such as FedEx Express Saver® or UPS Ground — your document isn’t “filed” until the IRS receives it.
If you haven’t filed your return yet and are concerned about meeting the deadline, another option is to file for an extension. Doing so has both pluses and minuses, depending on your situation. Please contact us if you have questions about what you should do to avoid penalties for failing to file or pay.
© 2014

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Your 2013 return may be your last chance for 2 depreciation-related breaks

 
If you purchased qualifying assets by Dec. 31, 2013, you may be able to take advantage of these depreciation-related breaks on your 2013 tax return:

1. Bonus depreciation. This additional first-year depreciation allowance is, generally, 50%. Among the assets that qualify are new tangible property with a recovery period of 20 years or less and off-the-shelf computer software. With only a few exceptions, bonus depreciation isn’t available for assets purchased after Dec. 31, 2013.

2. Enhanced Section 179 expensing. This election allows a 100% deduction for the cost of acquiring qualified assets — including both new and used assets — up to $500,000, but this limit is phased out dollar for dollar if purchases exceed $2 million for the year. For assets purchased in 2014, the expensing and purchase limits have dropped to $25,000 and $200,000, respectively.

Even though this may be your last chance to take full advantage of these breaks, keep in mind that the larger 2013 deductions may not necessarily prove beneficial over the long term. Taking these deductions now means forgoing deductions that could otherwise be taken later, over a period of years under normal depreciation schedules. In some situations, future deductions could be more valuable, such as if you move into a higher marginal tax bracket.

Let us know if you have questions about the depreciation strategy that’s best for your business.

© 2014

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2013 higher education breaks

Tax credits can be especially valuable because they reduce taxes dollar-for-dollar; deductions reduce only the amount of income that’s taxed. A couple of credits are available for higher education expenses:
1. The American Opportunity credit — up to $2,500 per year per student for qualifying expenses for the first four years of postsecondary education.
2. The Lifetime Learning credit — up to $2,000 per tax return for postsecondary education expenses, even beyond the first four years.
But income-based phaseouts apply to these credits. If your income is too high to qualify, you might be eligible to deduct up to $4,000 of qualified higher education tuition and fees. The deduction is limited to $2,000 for taxpayers with incomes exceeding certain limits and is unavailable to taxpayers with higher incomes.
If you don’t qualify for breaks for your child’s higher education expenses because your income is too high, your child might. Many additional rules and limits apply to the credits and deduction, however. To learn which breaks your family might be eligible for on your 2013 tax returns — and which will provide the greatest tax savings — please contact us.

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Substantiating Contributions for 2013

To support a charitable deduction, you need to comply with IRS substantiation requirements. This generally includes obtaining a contemporaneous written acknowledgment from the charity stating the amount of the donation, whether you received any goods or services in consideration for the donation, and the value of any such goods or services. “Contemporaneous” means the earlier of 1) the date you file your tax return, or 2) the extended due date of your return. So if you made a donation in 2013 but haven’t yet received substantiation from the charity, it’s not too late — as long as you haven’t filed your 2013 return. Contact the charity and request a written acknowledgement. And don’t take the substantiation requirements lightly. In one U.S. Tax Court case, the taxpayers substantiated a donation deduction with canceled checks and a written acknowledgment. The IRS denied the deduction, however, because the acknowledgment failed to state whether the taxpayers received goods or services in consideration for their donation. The taxpayers obtained a second acknowledgment including the required statement, but the Tax Court didn’t accept it because it wasn’t contemporaneous. Additional substantiation requirements apply to some types of donations. We can help ensure you meet them so you can enjoy the deductions you’re expecting.

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