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.
|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.
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.
Recently released IRS final regulations for the Affordable Care Act’s (ACA’s) employer shared-responsibility provision provide some short-term relief for midsize and large employers. Under the ACA, the shared-responsibility provision (commonly referred to as “play-or-pay”) applies to “large” employers — those with the equivalent of 50 or more full-time employees. Play-or-pay had been scheduled to go into effect in 2014 but last year the IRS pushed that out to 2015. Now, under the final regs, eligible midsize employers that otherwise would be considered large employers under the ACA won’t be subject to the provision until 2016. To qualify for the midsize-employer relief, an employer must:
- Employ on average fewer than 100 full-time employees or the equivalent during 2014,
- Maintain its workforce size and aggregate hours of service,
- Maintain the health care coverage it offered as of Feb. 9, 2014, and
- Certify that it meets these requirements.
The final regs also provide some relief for large employers that don’t qualify for the midsize-employer relief: In 2015, they can avoid the penalty for not offering minimum essential coverage by offering such coverage to at least 70% of their full-time employees, rather than the 95% originally scheduled. The 95% requirement will apply in 2016 and beyond. The final regs also clarify certain aspects of the play-or-pay provision. Please contact us if you’d like more information on the final play-or-pay regs or other ACA provisions.
|One of the most common mistakes investors make is forgetting to increase their basis in mutual funds to reflect reinvested dividends. Many mutual fund investors automatically reinvest dividends in additional shares of the fund. These reinvestments increase tax basis in the fund, which reduces capital gain (or increases capital loss) when the shares are sold.
If you neglect to include reinvested dividends in your basis, you’ll end up paying tax twice: first on the dividends when they’re reported to you on Form 1099-DIV, and again when you sell the shares and the reinvested dividends are included in the proceeds.
To help ensure you’re properly accounting for dividend reinvestments when you’re filing your 2013 tax return — or for other tax-smart strategies for your investments — contact us today.
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.
Tax planning and preparation are two separate activities, but are definitely connected.
Tax planning is the art of thinking out of the box about what your activities are and how they are accepted by IRS. This is mostly about listening to a client talk about their family, there business, their goals, and what they actually do to earn their money. Sometimes a person beleives they are running a business, but in actuallity they do very little; the children may have taken over the business, and the owner is really retired. BING! A possible tax planning opportunity.
After listening, then asking the questions is important. Get to the details on what the business is actually doing, does it manufacture something, when the owner thought it just installed something? These types of details and perspectives are what Tax Planning is all about.
The Tax Planning process then lays out different alternatives and compares them against the true taxes. It should be done for a period of years, projecting what will happen in the coming years. Some decisions may make sense for the first year, only to be a real problem in the second or third year. Depreciation is a good example of this…often a businessman will ask if he should buy a piece of equipment at the end of the year. Might be the right decision and it might give a good tax benefit. But, maybe the next year would need the benefit more, or maybe the method of depreciation should be looked at over a number of years. This is why tax planning and preparation must be done for more than one year.
Once several alternatives are presented, the tax planning has to step back to the business planning. Is the tax saving more than the actual economic cost. To go back to the depreciation question…is the business better off to have that new vehicle than to get by with its current vehicle for another year? Determine the real cost of that tax saving tool, and don’t forget to factor in the cost of capital required to either buy the equipment for cash or the interest on a loan used to buy the equipment.
And it is not just the business that needs to do tax planning. Selling of stocks, taking dividends in cash or stock, maxing out the 401K or planning in a Roth account…all part of the long term tax planning.
Tax Planning is so much more than you probably thought.
Accounting and Bookkeeping, what type of person should I be hiring for my accounting-bookkeeping needs?
There are several parts to an accounting and bookkeeping system and one of the best ways to determine what type of accountants or bookeepers you need is to do a flow chart of how the paperwork flows through the office or business. Sit down and draw boxes and lines to show who needs to handle each part of the work.
For instance, say you have a home repair business and the accounting-bookkeeping is just now working out. Flow chart the entire system. First, probably a customer calls in with a job request. A clerical person may take an order, this could create a paper or electronic record (which is best?). A job number may be attached to this accounting and bookeeping record. The tech is then dispatched to the job and when finished, an invoice may be hand or electronically written and given to the customer. This may have the job number attached to it.
Usually, the tech will pick up a check or process a credit card (on his phone) to record the payment and give a receipt to the customer. Then he is off to the next job.
From an accounting-bookkeeping point of view, this transaction has so far involved two people, the order taker and the producer. Now some additional parts need to be added to the system. The job has to be recorded as a sale in the books. The payment has to be recorded as an increase to the cash account. If the payment was by check, someone has to take it to the bank. If parts were purchased to do the work, those have to be recorded as a purchase and then they have to be paid for.
Many transactions like this eventually must be recorded in a set of books, and financial statements and tax returns are produced.
Accounting and bookkeeping are involved in all of these steps and they may be done by one person or each job may have a separate person, depending on the size of the business. It is important to discuss the accounting and bookkeeping flow with your outside, independent CPA to set out your flow chart of tasks so that it includes a system of checks and balances. Maybe the person who took the order should log that order and another person should record the payment. This “segregates” the duties so that there is less chance that one person could pocket the money and delete the transaction all together.
Most people are honest, but setting up your system to encourage honesty and keep those tasks separate is easier if you use that flow chart to show each step in the process.
Once the system is flow charted, you will be able to determine what the skills and background need to be for each task. Often a person calls themselves a “full charge bookkeeper” when they really are a good clerk. A clerk generally takes charge of one area, like paying the bills, whereas an accountant will probably be the one to do the financial statements. Again, your CPA should be able to help you set up the skills needed for each position.