will-you-get-audited-in-2012

Big tax changes are on the horizon, do you know what to expect? Whether our new president is Republican or Democratic, there WILL be changes, and your tax liability WILL increase for the 2012 tax year. But, how much?

Tax Forecasting

We try to keep our blog articles informative, not too “preachy” and not overly “pitchy”, but this is one that we just have to tell you is well worth doing! You need the expertise of a tax professional who keeps current on all of the latest tax code changes, as well as changes that are on the horizon. With our help, you can know how much your tax liability will be, and you’ll know early enough that you can make significant financial changes BEFORE the end of 2012 that can have a favorable impact and reduce the amount that you will owe! We call it Tax Forecasting.

What is Tax Forecasting

Tax Forecasting involves estimating your income and expenses for the remainder of the year, applying our knowledge of how to file your taxes to gain the greatest benefits, and making recommendations of actions that you can take that can greatly impact your tax liability.

Don’t Wait!

For Tax Forecasting to be an effective tool to reduce your taxes, you need to get started now! We recommend requesting your Tax Forecast by mid-November so that we can complete it in time for you to react and put our advice to work to save you tax dollars before the end of the year.

Contact Fredrick James Today to learn more about our Tax Forecasting service to help you save money on your taxes.

Visit us at FredrickJames.com. We serve clients throughout the world through our virtual office. Read more about our virtual office. If you have any questions or need assistance with your accounting, payroll or taxes please Contact us Today!

You’ve surely heard of the expiring “Bush Tax Cuts”. It’s big news, and we have blogged about it here. But, what you might not realize is that even if Congress decides to extend those Bush Era tax cuts, there are other changes coming that WILL increase your tax burden for 2013 and the coming years!

It’s true. There are a lot of tax breaks that are going away, and tax rates that are scheduled to increase in 2013. These include everything from increases in Capital Gains taxes (increasing from 15% to 20% in most cases… and up to 39.6% in others!) to decreases in Higher Education credits (decreasing from $2,500 to $1,800), and even changes to Small Business, Payroll and Estate Taxes.

Make no mistake, taxes are going up! There is some hope for you, though! Fredrick James can help you identify potential areas where you can make up for increases in one area with decreases in another area. But, it may take a little advanced planning to be sure that you’re doing everything right throughout this year so that you can qualify for certain deductions and credits on your next tax return. That’s why we recommend taking action now to prepare yourself for what is coming. Schedule a consultation with us as soon as possible. Let’s get started saving you some money!

Visit us at FredrickJames.com. We serve clients throughout the world through our virtual office. Read more about our virtual office. If you have any questions or need assistance with your accounting, payroll or taxes please Contact us Today!

Think you might have paid too much with your 2012 Federal Income Tax Return? Fear not, Uncle Sam has you covered! The IRS has procedures in place that make it easy for you to correct any errors you may have made on your tax return… even if it wasn’t really an error, but you just changed your mind!

IRS Form 1040X is the primary form used to amend or correct tax returns, though there are other forms that are required for certain changes. Tax refunds can be amended up to 3 years after the year they were filed for. So, right now, you could amend your taxes from 2011, 2010 or 2009.

You can use Form 1040X to correct simple mistakes or omissions, such as a neglected deduction. But, there are also a few other special situations that you might consider amending for, such as:

• To join separate returns for spouses who filed separately and later found that it would have been beneficial to file jointly.
• To take a refund for an overpayment that you may have elected to have applied to next year’s estimated tax.
• To claim a quick tax credit for casualty loss in a federally designated disaster area. This can be done by amending the prior year’s return rather than waiting until the next year!
• To change your method of deducting auto expenses should you find that your actual operating expenses exceed the standard federal mileage rate. (Note that once this change is made, it is usually not possible to return to the simple standard mileage method)

So, if you rushed through your taxes and think you might have missed something, come see us at Fredrick James. We can review your 2011 tax return, and if errors are found, or additional deductions can be taken, we can file your amended return for you to get your refund!

Visit us at FredrickJames.com. We serve clients throughout the world through our virtual office. Read more about our virtual office. If you have any questions or need assistance with your accounting, payroll or taxes please Contact us Today!

Everyone will pay more in taxes if the Bush Tax Cuts are left to expire at the end of 2012. Some changes will be subtle and others will be very dramatic. All of this depends on where you fall into the tax code.

The Bush tax cuts were passed in 2001 as the Economic Growth and Recovery Tax Act. This was in response to a beginning of a recession and 9/11. The cuts increased the child tax credit from $500 per child to $1000, the standard deduction for married couples was increase to eliminate the marriage penalty, contribution limits for savings plans were increased, and tax rates were lowered.

Later in 2003, The Jobs and Growth Tax Relief Act of 2003 added tax cuts to dividends and capital gain. The impact of the Bush Tax Cuts saved the country from a recession and allowed us to work past 9/11.

Tax Rates Before & After Expiration of Tax Cuts

What should you expect for 2013? As you can see from the Tax Bracket Chart above we will be paying more income taxes.

Dividend Tax Rates. Dividend tax rates were also cut, and the current tax rate on dividends is 15%. If Congress makes no additional policy changes this year, dividend rates will revert your ordinary tax rates listed above.  Long Term Capital Gains rates are also at 15% now. These will increase to 20%.

What else? The current child tax credit of $1,000 will be reduced to $500; the standard deduction will be lowered for married couples, and limits will be placed on savings plans.

Other increases in your taxes will be derived from the new tax law changes that take affect at the end of the year. Currently medical expenses can be deducted as an itemized deduction. Total medical expenses, doctor visits, co-pays and dental can be deducted if they exceed 7 ½% of adjusted gross income. The new change in 2013 will raise this limit to 10% of adjusted gross income. For example, your adjusted gross income was $100,000 for 2012 this means you would have to exceed $7,500 in medical expenses to add to itemized expenses. After 2012 with the same adjusted income you will now have to exceed $10,000 before you can include any medical expenses as part of your itemized expenses.

Lastly, is alternative minimum tax. More people will fall into AMT if congress does not extend the threshold amounts. Once you fall into AMT everything changes for a tax payer. Itemized deductions, exemptions, and credits become limited.

What actions should you take?  Schedule a meeting with Fredrick James Accounting for a tax forecast for 2012. Let us help you to lessen the impact of these expiring tax cuts and other tax changes by planning ahead!

The Bush era Tax Cuts were not designed to last forever, be prepared to pay more in taxes 2013.

Visit us at FredrickJames.com. We serve clients throughout the world through our virtual office. Read more about our virtual office. If you have any questions or need assistance with your accounting, payroll or taxes please Contact us Today!

We’ve discovered some good news for the savvy small business owner. The IRS has extended a 2011 payroll tax cut through the end of February 2012. This tax cut is a 2% reduction in Social Security tax from 6.2% o 4.2%. (which they assure us will have no effect on our Social Security benefits in the future) How does this help the small business owner? Read on.

Part of the law that gives us this tax cut is a “recapture” provision to help the government get some of that money back from those who earn more than $110,100 per year. Since this only applies to the first two months of the year, that is prorated to $18,350. If you earn more than $18,350 during the first two months of 2012, you’ll have to repay that 2% in the form of an income tax increase on income earned during that period when you pay your 2012 federal income tax.

If that didn’t click, read it again. What it means is that if you pay yourself $9,000 per month during the months of January and February, you’ll save about $360 in Social Security tax and avoid the recapture that would require you to pay it back. So, if you normally pay yourself more than that, it would benefit you to be sure to pay yourself less for that period. And if you normally pay yourself less than that, you’d get the benefit by paying yourself more for that period. How much you pay yourself for the remainder of the year will not have an affect on this.

Aside from this small quirk, employers need to implement the new payroll tax rate as soon as possible in 2012 but not later than Jan. 31. For any Social Security tax over-withheld during January, employers should make an adjustment in workers’ pay as soon as possible but not later than March 31.

If you have any questions or need help with your personal or business taxes Contact us Today. We serve clients throughout the world through our virtual office. Read more about our Virtual Office. If you have any questions or need assistance with your accounting, payroll or taxes please Contact us Today!

The American Dream Doesn't Include Worrying About Tax Documentation

Last week we went over the individual tax payer’s record keeping requirements, this week I want to discuss what business owners should be holding onto and for how long.

Obviously businesses have a more extensive list of record keeping requirements than individual do but it’s an important detail not to be overlooked as it will help you to avoid unpleasant surprises in an audit.

Businesses are all different, but in this case documentary evidence for business deductions, those that are reasonable and ordinary in the course of business, is generally the same for all types of business entities.

One big mistake a lot of smaller businesses make is not having a separate business checking account. This is a big “no-no”. Get your business checking account set up if you don’t have one and use it for all transaction to prove gross income and business expenses.  If faced with an audit, you can bet the auditor will probably reconcile this account and if any personal deposits or disbursements appear, you’d better have the paperwork to back that up.

What to keep for business deductions:

• Receipts
• Canceled checks
• Bills
• Petty cash slips
• Bank statements (bank statements are very important for electronic receipts)

Receipts should list the name and location of vendor, dates, itemized charges, number of people, and written explanation of the expense to prove its business purpose.  For entertainment expenses, you must document the business relationship of those attending.

Canceled checks are very important for proving amounts, but do not necessarily prove business purpose.

Business expenses should be recorded as close as possible to the actual time of the expense.

There are a few exceptions for Travel, Meals and Entertainment where documentation is relaxed:

1. Under an accountable employee reimbursement plan that adopts the per diem method, which is a fixed daily reimbursement amount
2. A travel expense (except for lodging) less than $75
3. A receipt for transportation is not available (e.g. taxi fare)

I would highly recommend NOT making estimates, they are rarely allowed (except in extraordinary situations where records are destroyed). This is especially true for Travel, Meals and Entertainment, and deductions related to listed property (items commonly used for personal use), all of which have very strict deductibility requirements.

Fred’s Fast Tax Tip: Records for business assets should be retained through the statute of limitations for the tax year in which the assets are disposed of. This is important for audits that investigate depreciation expense.

Employment records must be retained for 4 years after the tax is due or paid, whichever is later.

As important as proper record keeping is for successfully responding to tax audits, record keeping is just as important for effectively managing a business (small or large) in terms of cash flow, short-term working capital needs, and profitability over the long-run.

Record keeping and analysis of accounting reports ultimately reveal where a business needs improvement and where growth opportunities exist. So, you’ve got even more good reasons to keep on top of your business record-keeping! If it all gets to be too much, and you’re losing the battle then I would recommend you find a qualified bookkeeper to help you whip your books in shape. Then kick back, put your feet up on the desk and give yourself some much deserved praise for being such a savvy business owner!

IRS closing S-Corp Tax Loop Holes

As a trusted tax advisor I am in the position of researching new proposed tax laws and passing that information on to my clients. Sometimes a new bill comes along that I feel is important for my clients and readers to get a heads up on due to the major tax implications. This latest bill has quietly moved through the House and is on its way up the ladder.

A bill titled “The American Jobs and Closing Tax Loopholes Act of 2010″ was passed by the house on 5/28/2010. The US House and Senate plans to raise the taxes of Small Business Owner S-Corporation’s starting in 2011 through H.R. 4213. This bill targets small personal and professional service businesses with 3 or fewer professionally skilled individuals (performing artists, athletes, accountants, lawyers, actuaries, architects, consultants, engineers, health professionals, veterinarians, lobbyists, brokers, and investment advisors) with the goal of raising over $11 billion in SECA Tax over the next 10 years!

So what does this mean to me?

The SECA tax is an additional 15.3% of taxable income earned by S-Corporations.  This is only the beginning of this far reaching SECA Tax.  If our elected officials pass this bill for small personal and professional service businesses, it is only a matter of time until a SECA tax is placed on all S-Corporations. The tax implications are huge! For example:  an S-Corporations owner who has a taxable income of $50,000 from his or her S-Corporation business could be taxed an additional $7,650 on top of the Federal Taxes.

What can I do?

It’s important to let your representative’s know how you feel about this bill, and quickly. Click the link below to contact your Senator now!  Let your Senator know if you don’t agree with H.R. 4213, “The American Jobs and Closing Tax Loopholes Act of 2010″, Section 413: the 15.3% SECA tax on S-Corporations could hurt small business in the United States.

To contact your senator:

http://www.senate.gov/general/contact_information/senators_cfm.cfm

Click here to read the white paper on this bill.

So today is Tax Day and as the final return is filed, the last client steps out the door and we all sit back to congratulate ourselves on a job well done, it is also the day we launch our new Blog!

Because we are a progressive accounting firm that believes in utilizing the latest tools and technology to help us educate our clients and improve their lives, it was a natural fit to settle in here.

Now that the stress of Tax Day is behind you, join us this next year as we bring you information, updates and news on the latest tax laws, tips for saving money, investing wisely and more.

We want to help ensure that next Tax Season is something you won’t need to anticipate with trepidation!