Sunday, December 30, 2012

Renting Your Vacation Home

Learn about when and how to report rental income from a vacation home such as a house, condominium, mobile home or boat.

Thursday, December 27, 2012

Friday, December 21, 2012

Charitable Contributions

If you've made any donations to charity this year, you'll want to learn some important rules about deducting charitable contributions on your tax return.

Tuesday, December 18, 2012

Saturday, December 15, 2012

Year-End Tax Tips For Independent Contractors and Self-Employed Workers Who Need Income Tax Relief

With the recession and surging unemployment swelling the ranks of people reinventing themselves, millions of taxpayers are setting up home-based businesses and providing their services as self-employed independent contractors. Whether your new self-employed independent contractor status is a temporary measure or part of your long-planned road map to fortune and glory, there are tax dangers (plus surprisingly lucrative income tax relief) that should grab the attention of every self-employed independent contractor.
We know the IRS is targeting self-employed independent contractors. The government estimates that 85% of the $345 billion tax gap is due to self-employed individuals - freelance professionals and independent contractors who don't get a 1099 the way large business employees do. Being a self-employed independent contractor means you're the boss, unfortunately it also means you're the one on the hook for any problems with back taxes. How you handle your back tax problems will not only determine whether your business will succeed, but it also carries the real threat of jail time if you get it wrong.
To learn more ways to legitimately maximize deductions while avoiding IRS problems, check out Part 2 of this series on Tax Help Tips for Saving Money on Taxes for Freelance Professionals and Self-Employed Individuals.
Read on for my best year-end tax help tips to show self-employed independent contractors how to get the biggest income tax relief possible.
Year-End Income Tax Relief Tip #1: Did you owe back taxes because you made a mistake in your quarterly estimated taxes? If you've spent your life working as an employee, you may be delighted that the first money you receive as a self-employed independent contractor is a flat fee without any taxes taken out. But your joy should be short-lived, this is a case of the taxman being delayed but not denied.
Contact a tax attorney to make sure you have structured your business correctly. If you haven't gotten tax help from a tax attorney yet, there is still time to structure your business to get the maximum income tax relief before the year end. (After that you're stuck with your mistakes. Well, mostly. A good tax attorney or tax resolution specialist can still get you out of back tax trouble, but the best approach is to avoid owing back taxes in the first place.)
Year-End Income Tax Relief Tip #2: Are YOU really a self-employed independent contractor? Many businesses (large and small) mislabel their employees as "self-employed independent contractors" to get income tax relief and sidestep a host of state and federal laws. If your boss has you misclassified as a self-employed independent contractor and you file as one, you could be in a heap of trouble when the IRS comes knocking on either your door or your boss's door to collect back taxes. Suddenly, all those lovely deductions go out the window and your tax bill explodes. If you feel your boss has misclassified you as a self-employed independent contractor, contact a tax attorney or tax resolution specialist immediately for some self-employed independent contractor back tax help before the year ends.
Year-End Income Tax Relief Tip #3: Are your subcontractors really self-employed independent contractors or are THEY employees? While you may be a true self-employed independent contractor, you need to establish whether your subcontractors are self-employed independent contractors or employees. According to IRS Summertime Tax Tip 2009-20, "the cost of misclassification to employers in additional taxes, as well as administrative time, or the loss of tax-favored status for employee benefit plans, can be steep." If you're not sure, contact a tax attorney or tax resolution specialist to get tax help immediately.
Year-End Income Tax Relief Tip #4: Want to get income tax relief on your 2009 self-employed independent contractor work by delaying paying taxes until 2011? For a host of income tax relief reasons, a self-employed independent contractor might want to defer getting paid until next year. If you did work in 2009 but don't want to pay 2009 taxes on it, simply wait to invoice your clients until January 1, 2010. This 2009 income tax relief technique is perfectly legal for self-employed independent contractors as long as you pay taxes on that income in your 2010 tax return.
Year-End Income Tax Relief Tip #5: Get that root canal before New Year's. The secret to income tax relief is just like the secret to great comedy...timing. A self-employed independent contractor's medical expense deduction is limited to 7.5% of the self-employed independent contractor's adjusted gross income. If you haven't reached that cap yet, go have those dental procedures or that bit of elective surgery (we're not just talking about that nose, the swimsuit season will be here again before you know it). As long as you're under that 7.5% limit, you can get income tax relief from your standard variety medical expense deductions. A little known year-end income tax relief tip - you don't even have to pay for the medical procedures before January 1, 2010. Just put the medical charges on plastic and pay the minimum balance. As long as you had the procedures in 2009, the deduction is good. If your medical expenses are already over the 7.5% level of your self-employed independent contractor's adjusted gross income, you should delay breaking your leg until January 1st, 2010.
Year-End Income Tax Relief Tip #6: Pay your state taxes before the ball drops. As a self-employed independent contractor, one of the best income tax relief strategies is to pay your state estimated tax before December 31st. If you pay by December 31, 2009 you get the deduction (on your federal return) in 2009. You can also charge these expenses on your credit card(s) in 2009 and receive the deduction in 2009, even though you won't be paying for them until 2010. If you are having issues paying your estimated state taxes, a tax attorney can give you tax help to get the maximum income tax relief possible.
Year-End Income Tax Relief Tip #7: Make your stock market losses work to your advantage. If your personal portfolio has taken a nose dive, realize your tax losses before New Year's Eve. Long term capital losses can be used to offset long term capital gains, and up to $3,000 of ordinary income, with any remainder carried forward for use in future years. This is about getting income tax relief not whether you made the right investment choices. If you still believe those stocks will go up again, buy them back on January 1st. Keep in mind that some mutual funds can have high capital gains distributions even as they lose money. The best income tax relief advice is to ditch these first because they are hitting you with a double whammy. As a self-employed independent contractor you have access to some of the best retirement accounts out there like a SEP-IRA. To understand which investing should be done as part of a retirement account, and which should be in your personal portfolio and when to take losses for maximum income tax relief, get tax help from an experience CPA or tax attorney.
Year-End Income Tax Relief Tip #8: Give your personal gifts before Rudolph goes flying. As a self-employed independent contractor, you can give a friend or family member up to $13K annually before the year end without having to pay gift taxes. (Your spouse can give that same amount to the same individual.) You can also give that same amount to your child's or grandchild's tax-free 529 education plan. If you haven't funded such a plan yet, you can make a single contribution covering five years of gifting. That's $65,000 you can give per donor per recipient tax-free. (Your spouse can match that contribution as well.)
Year-End Income Tax Relief Tip #9: Give gifts to clients: Gifts to clients are limited to $25 per recipient per year, BUT if the gift has your embossed logo on it and tells about your services, it isn't a gift, it is an advertising or promotional expense. There is a fine line here, a quick call to a CPA or tax attorney for year-end tax help will help you stay on the right side of the law.
Year-End Income Tax Relief Tip #10: Take your retirement contribution to the max. Self-employed independent contractors have the best income tax relief vehicle the federal government has ever offered. While individual worker contributions to a simple IRA max out at $11,500, if you're under 50 in 2010 ($14,000 if you're over 50), how is this for serious income tax relief, as a self-employed independent contractor you can use SEP-IRAs to contribute 25% of your wages (or up to 20% of your Schedule C income) up to a maximum of $49,000. The income tax relief to a self-employed independent contractor are massive. A tax lawyer or CPA an give you the tax help to set up the right retirement vehicle for you.
I know that this is a long list but the income tax relief you can get from just paying attention to the calendar is huge. These 20 self-employed independent contractor tax help tips can make the difference between being a Grinch and having a Happy New Year. Your call.

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Wednesday, December 12, 2012

Year End Tax Tips

Business owners quickly turn their focus at the end of the year towards their small business taxes. We have provided a number of helpful tips for small business owners that can pay significant dividends for the following year.
Update Your Accounting
Although you know it is a wise move to always make sure your books are up-to-date, sometimes they are not as accurate as they should be due to all of the other tasks you find yourself doing on a daily basis. Understand your company's financial situation by keeping accurate and up-to-date books. Meet with your accountant for end of the year advice that could be beneficial to your organization.
Defer Income
If your cash flow can handle deferred income, it would be a good move to defer any income until after the New Year. Any payments to your company after the New Year will help cut your tax bill for that year. A deferral strategy should be developed by you and your accountant, and is based mainly in part to how your organization is structured (LLC, partnership, corporation, etc.).
Spend More
If our cash flow permits it (remember, cash is king!), don't wait to make a purchase you know you will need for the following year. Go ahead and purchase the products or services you know your business will need for the immediate future. This will help maximize deductions for the year. Some of the expenses you may need to purchase could include office supplies, paying off bills early, repairs and maintenance, and equipment purchases such as computers or machinery.
Write-Off Inventory
You company can enjoy the added deductions of any inventory you may have that has been damaged or are no longer in use.
Contribute to a Retirement Plan
A great way to reduce your income for this year is to set up a retirement plan or simply making additional payments to your plan before the end of the year. If you are making contributions to a retirement plan, check the contribution limits for your specific plan (401(k), Roth IRA, etc.). Consult with your accountant or financial planner about the best strategy for you when you are thinking about starting or contributing to your retirement plan.
The items listed above are some simple tax tips that could benefit your business at the end of the year. Talk to your accountant about specific strategies that could work with your business.

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Sunday, December 9, 2012

End of Year Tax Preparation - What Does Your CPA Need - Really?

It is that time of year again when you are ready to think about what you need to give to your bookkeeper or accountant. Here is a simple and easy to understand list of the paperwork and the reports that person needs to help them prepare your taxes as easily and 'pain free' as possible. No need to put things off this tax season.
Most accounting software programs are very much the same when it comes to running reports so you'll find the steps below similar for other programs too. The Secret to getting this done is in setting aside a half day to do it in. If you wait you pay extra for a "Rush" job, also known as a PIA fee by all bookkeepers and accountants alike. Yes, if you procrastinate then you are an entertaining and anonymous topic of conversation at lunch meetings!
End of Year Information To Prepare For Your Accountant:
1 - All 1099/1096, W-2, W-3 Information on you and your business
2 - December Previous year and January current year Bank Statements and reconciliation reports
3 - Petty Cash reconciliations
4 - Credit Card charges and End of Year Finance Charges
5 - List of Inventory and Assets
6 - Mileage
7 - Home business Use breakouts
8 - Payroll Reports from payroll company
9 - Quarterly reporting tax forms
10 - Draw and investment or payroll information on partners or shareholders
11 - End of Year Balance Sheet, Profit and Loss Statement and Trial Balance
To Retrieve These Reports From Your Accounting Software:
1 - Open company
2 - On menu across top
Click on: REPORTS
3 - On the reports menu
Click on: Company and Financial
4 - Pick the date range of "last fiscal year"
5 - On the reports menu
Click on: Company and Financial
6 - Pick the date range of "last fiscal year"
7 - On the reports menu
Click on: Company and Financial
8 - Pick the date range of "last fiscal year"
9 - On the reports menu
Click on: Accountant and taxes
10 - Pick the date range of "last fiscal year"
11 - On the reports menu
Click on: Employees and Payroll
12 - Pick the date range of "last fiscal year"
13 - "Run" and "Print" all these reports and make a copy for your file and your CPA
(This menu example was taken from the reports section of an accounting software program that is considered the 'industry standard" to most CPA professionals and bookkeepers).
Now you can make that appointment with your tax person and sit back and enjoy the stories you are about to hear from those people who will wait until the last minute to get their paperwork ready and who are slamming their heads against a wall trying to get their reports done. If you took my advice then about now, you may be asking yourself... where is that wine opener anyway!?

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Thursday, December 6, 2012

QuickBooks Tips - Year End Tasks for Filing Taxes

The end of the year always adds even more tasks to your already busy schedule, and sometimes it is simply overwhelming and I've often been asked - "What do I need to do?"
Intuit has built a very good "QuickBooks Year-End Guide/Checklist" and it's included right in your QuickBooks program by going to the Help Menu and choosing Year-End Guide.  Over the next few days, we'll cover each topic listed in the Year-End Guide, and offer some additional tips on each of the three sections: Tasks to prepare for filing taxes, Tasks to do if you use subcontractors, Tasks to do if you have employees and some Tips for the upcoming year.
Tasks to prepare for filing taxes:
Reconcile all bank and credit card accounts - now really you should have been doing this every month...but if for some reason it's been several months since these accounts were reconciled here's a quick way to reconcile multiple months all at once - accurately.
  1. Determine which month was the last month that was reconciled.
  2. Gather all of your bank or credit card statements and put them in order; oldest on top and most recent on the bottom.  If you don't have all the statements, please don't be tempted to just "skip" that month, contact the bank and ask for a copy, or if you have on-line banking capabilities get a copy off the internet.
  3. In QuickBooks go to the Banking Menu and choose Reconcile.
  4. In the Begin Reconciliation window
    • Choose the Account you wish to reconcile (you can choose either your bank account or your credit card account) from the drop down Account List.
    • The Statement Date should be the ending date of your most recent statement.
    • The Beginning Balance should be the same as the Beginning Balance of your oldest statement.  If for some reason the amounts are not the same, click the link that says "What if my beginning balance doesn't match my statement?" and follow the instructions in the QuickBooks Help file to determine what is wrong and how to correct the problem.
    • The Ending Balance should be the amount shown as the ending balance on your most recent bank statement.
    • Enter any Service Charge for the most current statement only - (we'll put the rest in manually), please don't be tempted to "add them all up" and put that amount here.
    • Enter any Interest Earned for the most current statement only - (we'll put the rest in manually), please don't be tempted to "add them all up" and put that amount here.
    • Click the Continue button which will bring you to the Reconciliation window.
    • To enter Service Charges and/or Interest Earned for additional months, leaving the reconciliation window open, from the Banking Menu - choose Use Register and enter the transactions individually using the closing date of the statement as the date of the entry.  Additionally you might want to create "Other Names" called Bank Service Charge and Interest to use in the Payee Field when recording these transactions, just to make reconciling easier.
  5. Working from the statements, oldest one first, just go through and check off each deposit and check until you are finished.
  6. If you find checks or deposits on the statements that are not in your QuickBooks file, go to the Banking Menu and choose Use Register, record the transaction with its original date, assigning the amount to either Ucategorized Income or Uncategorized Expenses - so that later you can run a Year to Date Profit and Loss Report, zoom in on those accounts and find the hard copy of the original transaction and correct the entry or entries.
Verify petty cash entries for the tax year - again, this is something that you should be doing every month, but if you have several months that you need to reconcile, it can be accomplished following the instructions above.
Make year-end accrual adjustments and corrections - I usually suggest that you work with your accountant on these matters.
Close your books - I usually suggest that you close your books for the fiscal year with a password - only the QuickBooks Administrator can do this, but it does prevent accidental changes to already reconciled transactions by others.  Of course, the QuickBooks Administrator can make changes to transactions as required and a closing date exception report can be generated by going to the Reports Menu, choosing Accountant & Taxes, and then selecting the Closing Date Exception Report.  With QuickBooks 2011 you don't need to worry about this effecting Non-Posting transactions such as Estimates & Purchase Orders.
Adjust Retained Earning - QuickBooks does this automatically, so there should be no need for you to have to do this manually.
Review details of all new equipment purchased during the year - if you are using QuickBooks Premier (including Premier Contractor, Manufacturing, etc.) you should and can enter details about your fixed asset purchases by going to the Lists Menu and choosing Fixed Asset Item List - otherwise you will have to track these items on an Excel Worksheet, a Word Document, or in QuickBooks itself by adding Sub-Accounts to your main Fixed Asset account for each piece of Equipment that was purchased and adding as much detail as possible in the Name, Description, and Notes boxes.
Make all asset depreciation entries and adjustments - I usually suggest that you work with your accountant on these matters.
Review fringe benefits that need to be reported on Form W-2 - Fringe benefits can include Health and Life insurance, public transportation subsidies, moving expense reimbursements, employer provided vehicles, educational reimbursements plans, group-term life insurance, employee loans that are forgiven, and Union Fringe Benefits.  If you aren't sure if any of the benefits that you offer your employees should be included on their W-2's consult your accountant.
Take a physical inventory and reconcile with book inventory - it is important that you take a year end physical inventory; I usually suggest that you include a copy of that physical inventory sheet for your accountant and let them give you the appropriate adjusting entries to record in QuickBooks.
Print financial reports - from the QuickBooks Year-End Guide/Checklist click on this topic for reports to print.  Keep in mind that these reports will not have adjusting entries from your accountant and that amounts will change.  I would recommend that when you create the suggested reports that you modify them and add a report subtitle called "Prior to Adjusting Entries".  After you have entered the adjusting entries from your accountant, rerun these same reports adding a new subtitle called "After Adjusting Entries".
Print income tax reports to verify tax tracking - from the QuickBooks Year-End Guide/Checklist click on this topic for an explanation of what is involved for this action item.  You should ask your accountant for help in setting up the correct tax tracking for each item on your Chart of Accounts.
Import your tax-related data to Turbo Tax or ProSeries - from the QuickBooks Year-End Guide/Checklist click on this topic for an explanation.  If you do not prepare your own tax returns you can definitely skip this section.
Print and mail forms W-2, W-3, 1099, 940, 941, and 1096 - remember you no longer need to buy pre-printed W-2 and W-3 forms as QuickBooks will print these forms on plain paper; you will still need to purchase preprinted 1099 and 1096 forms.
Archive and back up your data - backing up your data is something that you should be doing on a very regular basis as part of a disaster recovery plan in the event of computer virus, computer failure, etc.
Archiving your data is something that you should do if your file is large - contains more than 3 years of data - although some businesses will have extremely large files after only 2 years.  Creating a new company file each year is not necessary and not recommended for contractors; you probably have jobs that span over the course of 2 calendar years or more and you will want access to complete details relating to those jobs for job costing reports.  There are, howeve,r times when creating a new file is appropriate, such as you have several years of data with early years containing lots of data entry errors, or your data file has become damaged and cannot be repaired.

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Monday, December 3, 2012

How The New Tax Laws Might Impact Your Finances

Taxpayers (and tax professionals) are facing a unique set of challenges as the November Presidential election approaches and end-of-the-year tax planning looms. If Congress and the White House fail to act by December 31st, favorable Bush-era tax cuts will expire, along with a variety of business and investment tax breaks, raising income tax rates to levels last seen in 2001.
Unfortunately, our current political and legislative environment only adds to the uncertainty as Republicans and Democrats are both hesitant to act until they know who will occupy the White House next year. This political gridlock combined with a fragile economy and the possibility of rising tax rates has been dubbed by many as Taxmageddon. So what does all this mean for taxpayers? How will the 2012 tax filing season be affected and what approach should taxpayers take for tax planning in 2013? Our best advice is to stay informed of the possible changes that may affect your business and your personal tax position.
Staying in the Know
Many favorable tax provisions expired at the end of 2011. Unless Congress acts and passes retroactive changes by December 31st, many taxpayers will be affected by the following expired provisions when filing their 2012 income tax returns. Historically, many of these temporary provisions have been extended, but this year there is no guarantee that Congress will take action in time.
1. Increase in the alternative minimum tax exemption (AMT Patch),
2. Deduction for state and local tax for itemized filers,
3. Deduction for PMI (premium mortgage insurance) for itemized filers,
4. Provision for Tax - free IRA withdrawals for charitable donations (for those over age 70 ½ ).
Another handful of provisions are set to expire by the end of 2012, and it is unlikely that Congress will address these provisions until after the Presidential election. The IRS warns that late-year law changes make for an administrative nightmare and often result in delayed filings. While taxpayers (and the IRS) remain hopeful for tax reform, we may not see progress until late December making tax planning nearly impossible. Expiring provisions include the following:
1. Bush-era tax cuts in marginal income tax rates,
2. Reduced tax rates on dividends and long-term capital gains,
3. Marriage penalty relief provisions,
4. Expanded refundable credits for the child tax, adoption and earned income credit
5. The moratoria on the phase outs of itemized deductions,
6. The payroll tax cut, which reduced an employee's share of Social Security taxes by two percentage points, and
7. A variety of previously extended temporary tax provisions (tax extenders) which affect individuals, businesses, charities, energy, community development, and disaster relief.
What's New For 2013?
Despite the uncertainty of what will happen to the expired and expiring tax provisions, the recent Supreme Court ruling to uphold the Affordable Care Act will affect taxpayers beginning January 1, 2013. This ruling requires all Americans to purchase health insurance or pay a penalty beginning in 2014. To fund this health care mandate, the following two items will be effective in 2013.
Medicare Tax Increase: Beginning in 2013, higher-income taxpayers will be subject to an additional 0.9% tax on earned income. The tax applies to income in excess of a single person's wage and self-employment income over $200,000, or a married couple exceeding $250,000. There is no employer match as this tax increase is entirely paid by the employee or the self-employed individual. There will be employer withholding, but if you are self-employed, you will need to build this into your quarterly tax estimates.
Investment Tax Increase: Beginning in 2013, higher income individuals with net investment income will be subject to a 3.8% tax of the lesser of two amounts: net investment income or the excess of the taxpayer's modified adjusted gross income over a $200,000/$250,000 threshold amount. Net investment income includes Interest, dividends, annuities, royalties, and rents, income from a passive business, capital gains and other net gains from the sale of property.
So, Now What?
So what does all this mean for you as a taxpayer and how will this impact your tax planning for 2012 and 2013? The threat of Taxmageddon is real and will likely affect every American household, regardless of income. It's important for each taxpayer to understand that the outcome of the Presidential election coupled with the potential tax law changes make for a foggy and unpredictable future. Today, due to this uncertainty, your trusted tax advisor may not have answers to all of your tax questions and tax concerns.
While taking the most conservative planning approach, by assuming all of the laws will expire or will not be extended, may cause you to pay higher than necessary estimated tax payments or to withhold too much federal tax from your wages, taking a more aggressive approach could cause you to have an unprecedented tax liability at the end of the tax year, as well as additional penalties. Taking a middle ground approach, may put you into either one of the aforementioned predicaments. In the end, it all comes down to being flexible and "staying in the know" so that whatever the outcome, you are prepared, ready to act quickly, and can make educated decisions.

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