“IT’S LATER!”

We’ve been telling you since the start of the year that tax planning is the key to paying the minimum tax possible. We’ve urged you to come in for your free tax analysis, but we’ve been disappointed that you haven’t accepted our offer.

Most of you agree that tax planning is a good idea that can save you money. But you’ve procrastinated, and made excuses to avoid taking advantage of the opportunity. You told yourself “I’ll wait ‘til later, after April 15.” Then after April 15, you said “I’ll wait ‘til later, when it’s closer to the end of the year.” Then, as the year drew to a close, you said “I’ll wait ‘til later, after the election results are in.”

Well, guess what. It’s later.

December 31 is just a few short weeks away. If you we don’t sit down to talk before then, your best planning opportunities will vanish, just like Cinderella’s carriage turning back to a pumpkin. And trust us here — you do not want to be left without a ride home that night!

December 31 is even more important this year than usual, because there’s so much uncertainty in the air. Will the Bush tax cuts be extended? How much will the new Obamacare taxes cost you? What opportunities are you missing to save? We can’t give you the answers if we don’t sit down to plan.

Do it before it’s too late. We’ll find the mistakes and missed opportunities that may be costing you thousands today, and show you how smart planning can save thousands more tomorrow. So call now to schedule your Analysis!

TAXPAYER RUNS HER CAT HOBBY THROUGH HER CORPORATION AND GETS SKINNED

You don't want to run your hobby through your corporation. 

Financing a hobby through a corporation comes with a double tax whammy.  The firm can’t write off the losses. And the owner has a taxable dividend equal to the amount of out-of-pocket costs that the corporation paid for the activity.

A cat breeder and fancier found this out when she had her profitable consulting firm operate her cattery. The cattery won championships, but it was extremely unprofitable.  An Appeals Court held that the cattery wasn’t a trade or business of the corporation, but was instead the personal hobby of the shareholder (DKD Enterprises, 8th Cir.).

BOOTH RENTER PUTTING MONEY FOR TAXES ASIDE

Q: In the last year I decided I would finally use my nail license and start working in a salon. I started out as a booth renter, and am happy I did, even with little to no clientele in the beginning. I am now working full time in the salon, paying rent and buying my own supplies. I have tried to do some research but can’t figure out a percentage that I should be putting aside for taxes. I live in Colorado if that matters. I have been setting aside 20% so far since I worked another full time job in the beginning of this year. So I’m not worried about owing this year, but I want to know what percentage I need to be saving from now on!

A: Without knowing the clients tax situation as a whole, it is almost impossible to answer this questions.  There are so many variables involved such as, Income, deductions, number of dependents, withholdings from another job just to say the least.

Just know that the taxpayer will have to pay income tax on all their taxable income (Adjusted Gross income – Exemptions - Standard Deduction or Itemized Deductions =  Taxable Income) Depending on what that amount is, the taxpayer can start anywhere from 15% Federal tax up to 35% Federal tax plus the applicable state tax.  Also, the taxable income earned from the booth rental will also have an additional 13.3% self employment tax.  For 2013, this will increase to 15.3%.  For example, in 2012 a single taxpayer in Colorado who makes $40,000 net income from booth rental with no other source of income and take the standard deduction would have total tax of $9,862 of federal and state tax or right under 25% of total income.

It is highly recommended that the taxpayer speak with their tax advisor prior to the end of the year and have some pretax planning done.  This way all the taxpayers income and deductions can be projected out to see what tax bracket the client is in as well as estimate the tax liability so there are no surprises on April 15^th.

HERE IS WHAT EXPERTS ARE SAYING ABOUT THE FUTURE OF THE AFFORDABLE CARE ACT

I just spent 2 days attending the National Tax Conference.  One of the speakers was a specialist in health care reform.  The more I learn about the act the more confusing it is.  Here are a few of his comments of the unexpected outcome of the act that he thinks will come about as employers and taxpayers become more aware of the act. 

·         Many owners may consider transferring enough ownership to prevent combination of entities into one “employer” for tax purposes.  This will help keep the employee number under 50 to avoid providing expensive insurance for full time employees. 

·         Many employers will increase  the amount of self coverage that they pay for, but may eliminate or substantially reduce family coverage.

·         Because employers will be encouraged to keep employees under 30 hours, lower income workers will most likely need to work at least two jobs to make a living.   Therefore, these employees will need two jobs to have a chance at making a living.

·         Many employers may eliminate health insurance coverage completely.  This will place these employees into the “public” exchange plan.  Employers will consider this since it may be substantially cheaper to simply pay the penalty and adjust pay for upper level employees.

·         It is cheaper for employers to have younger employees to keep their average premiums downs, so there will be an advantage to reduce the number of older employees.

 

“BLACK FRIDAY” TAX PLANNING PUTS TAXES ON SALE

The holidays are here, and millions of Americans kicked off the season with “Black Friday” shopping. Braving the crowds and the cold, facing scorn from family they’ve left behind, they line up at obscenely early hours (or duck out of Thanksgiving dinner before the pumpkin pie is even served) to save $20 on a DVD player or $40 on a flat-screen television.

It’s sad, but true, that most Americans spend more time planning their “Black Friday” shopping than they spend planning their taxes. But that can be an expensive mistake!

What if the IRS had a sale? What if the IRS let you discount your taxes by thousands of dollars, this year and every year to come? And what if they let you do it from the comfort of your home or your office, without lining up in the pre-dawn hours of a chilly November morning? Would you give thanks for a sale like that?

You’re probably not holding your breath for the scrooges at the IRS to hold a “sale.” The good news is, you don’t have to wait for that to happen. You just need a plan. Tax planning is the key to paying the legal minimum, especially with the “fiscal cliff” looming on the horizon. And a good tax plan can pay for a holiday season full of gifts and fun.

Have we showed you how “Black Friday” tax planning can save thousands?

SALON AND SPA INDUSTRY HITS LOWEST LEVEL IN FOUR QUARTERS

Salontoday.com reports: After experiencing a modest increase in second quarter 2012, the Professional Beauty Association’s (PBA) Salon/Spa Performance Index (SSPI) fell to its lowest level in four quarters. The SSPI registered 101.9 in the third quarter of 2012, a 1 percent decline from second quarter 2012 and the same as third quarter 2011. Furthermore, the Current Situation Index fell 1.8 percent and the Expectations Index declined .2 percent versus second quarter 2012 respectively.

To read the article in full: CLICK HERE

BE CAREFUL - CANCELLATION OF A LIFE INSURANCE POLICY MAY BE A TAXABLE EVENT

I have seen this happen to unsuspecting clients a few times in my career. Payments are made on a life insurance policy. After a few good years, the policy builds up a cash value. This build up of cash value is not taxable. The policy holder quits making payment. In actuality what happens is the cash value of the policy makes the payments. This is not really a taxable event; what this is is the policyholder borrowing money from the policy. Still no tax.

But here comes the tax. If the policyholder cancels the policy, then this is treated as forgiveness of the loan and, as the case below shows, it is taxable.

The Tax Court has concluded that a taxpayer had taxable income when his life insurance policy lapsed with a loan outstanding. This constructive distribution was effectively a payment of the policy proceeds that was gross income to the taxpayer to the extent that it exceeded his investment in the contract.

 

White, TC Summary Opinion 2012-108

2013 STANDARD MILEAGE RATES UP

The Internal Revenue Service today issued the 2013 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2013, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 56.5 cents per mile for business miles driven
• 24 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

The rate for business miles driven during 2013 increases 1 cent from the 2012 rate.  The medical and moving rate is also up 1 cent per mile from the 2012 rate.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle.  In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical, or charitable expense are in Rev. Proc. 2010-51.  Notice 2012-72 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

BUSTED BY THE IRS

The New York Post reports Bumble and Bumble salon mogul busted after IRS says he hid $29.6M.  Just in case you have not seen the article: CLICK HERE

GET THEM WHILE YOU STILL CAN

OUTRAGEOUS MARKUPS YOU PAY EVERY DAY

I saw this in the December Reader's Digest. I thought you might find interesting.

Learn smart ways to avoid the hidden costs of convenience.

6,000% - Text Messages - Phone users commonly pay 10 cents per text message, but sending it might cost the carrier only a sixth of a cent.  If the same markup applied to a short phone call, the call would cost $120.

4,000% - Bottled Water - A $2 bottle of water costs only about 5 cents to produce.

1,275%  - Movie Theater Popcorn - Theaters know that viewers will pay more for movie snacks, so they hike up the prices:  A bag of popcorn that costs 37 cents to make can easily sell for $5.  One Michigan man found the price so outrageous that he is suing his local theater.

300% - Wine at a Restaurant - Restaurants routinely charge as much as $30 for bottles of wine that retail online for $7 or $8.  Check in advance whether the restaurant allows BYOB, or opt for a nonalcoholic beverage.

40% - Precut Produce - Precut fruits and vegetables may save you time, but they definitely won't save you money:  Grocery stores charge almost 1.5 times more for precut than for uncut produce.

IRS APPROVES LEAVE-SHARING PROGRAMS TO HELP HURRICANE SANDY VICTIMS

IRS has announced that employees won't be taxed when they forgo vacation, sick, or personal leave in exchange for employer contributions of amounts to charitable organizations providing relief to Hurricane Sandy victims. Employers may deduct the amounts as business expenses.

Treatment of leave based-programs.

Some employers have set up programs where employees can donate their vacation, sick or personal leave in exchange for the employer making cash payments to qualified tax-exempt organizations that provide relief for the victims of Hurricane Sandy. The IRS has announced that it will not assert that cash payments an employer makes to organizations in exchange for vacation, sick, or personal leave that its employees elect to forgo constitute gross income or wages of the employees if the payments are:

(1) made to the qualified organizations for the relief of victims of Hurricane Sandy; and

(2) paid to qualified organizations before Jan. 1, 2014.

Nor will giving employees the choice to participate cause employees to be considered in constructive receipt of income. However, employees who participate in a leave-sharing donation program won't be allowed to claim a charitable contribution deduction for the value of forgone leave excluded from compensation and wages.

As for employers, IRS won't assert that payments made under a leave-sharing donation program are deductible as charitable contributions.

Thus, the employer will be able to deduct the payments without being subject to the various charitable contribution limits to C corporations.

Treatment of Form W-2. Amounts representing leave-sharing donations need not be included in Box 1 (wages, tips, or other compensation), Box 3 (Social Security wages, if applicable), or Box 5 (Medicare wages and tips) of Form W-2.

In other words, these amounts also will be free of income- and payroll-tax withholding.

Participation in these programs can help both employees who itemize and those who don't. For example, a non-itemizer who forgoes $2,000 worth of leave will get the equivalent of a $2,000 deduction that would not be available if he took the leave and contributed $2,000 in cash himself.

The lower adjusted gross income (AGI) from participating in the program may make it possible for the employee to achieve a greater tax benefit from any of the numerous deductions and credits that are reduced as AGI increases. For example, participation may yield a higher deduction for a contribution to a traditional IRA. Itemizers can also benefit from the lower AGI. Both itemizers and non-itemizers can save Social Security taxes on the amount foregone. On the downside, participation could result in smaller retirement plan contributions depending on how compensation is defined under the employer's retirement plan.

IRS WARNS CONSUMERS OF POSSIBLE SCAMS RELATING TO HURRICANE SANDY RELIEF

WASHINGTON – The Internal Revenue Service today issued a consumer alert about possible scams taking place in the wake of Hurricane Sandy.

Following major disasters, it’s common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers. Such fraudulent schemes may involve contact by telephone, social media, email or in-person solicitations.

The IRS cautions both hurricane victims and people wishing to make disaster-related charitable donations to avoid scam artists by following these tips:

• To help disaster victims, donate to recognized charities.
• Be wary of charities with names that are similar to familiar or nationally known organizations. Some phony charities use names or websites that sound or look like those of respected, legitimate organizations. The IRS website at IRS.gov has a search feature, Exempt Organizations Select Check, which allows people to find legitimate, qualified charities to which donations may be tax-deductible. Legitimate charities may also be found on the Federal Emergency Management Agency (FEMA) Web site at fema.gov.
• Don’t give out personal financial information — such as Social Security numbers or credit card and bank account numbers and passwords — to anyone who solicits a contribution from you. Scam artists may use this information to steal your identity and money.
• Don’t give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the gift.
• Call the IRS toll-free disaster assistance telephone number, 1-866-562-5227, if you are a hurricane victim with specific questions about tax relief or disaster related tax issues.

Scam artists can use a variety of tactics. Some scammers operating bogus charities may contact people by telephone to solicit money or financial information. They may even directly contact disaster victims and claim to be working for or on behalf of the IRS to help the victims file casualty loss claims and get tax refunds. They may attempt to get personal financial information or Social Security numbers that can be used to steal the victims’identities or financial resources.

Bogus websites may solicit funds for disaster victims. Such fraudulent sites frequently mimic the sites of, or use names similar to, legitimate charities, or claim to be affiliated with legitimate charities, in order to persuade members of the public to send money or provide personal financial information that can be used to steal identities or financial resources. Additionally, scammers often send e-mail that steers the recipient to bogus websites that sound as though they are affiliated with legitimate charitable causes.

Taxpayers suspecting disaster-related frauds should go to IRS.gov and search for the keywords “Report Phishing.”

More information about tax scams and schemes may be found at IRS.gov using the keywords “scams and schemes.”

RELEIF FOR EMPLOYERS OWING BACK PAYROLL TAXES

During the Sept. 12, 2012 IRS webinar titled “Payment Alternatives – When You Owe the IRS,” Traci Suiter, lead public affairs specialist with IRS's Small Business/Self-Employed Division, explained the criteria that must be met for a business owing payroll taxes to qualify for an In-Business Trust Fund Express Installment Agreement (IBTF-Express IA). These plans don't require detailed financial information and may help the owner to avoid a responsible person penalty.

Background on installment agreements.

IRS may enter into written agreements with any taxpayer under which that taxpayer may make payment on any tax in installment payments if IRS determines that the installment agreement will facilitate full or partial collection of the tax liability.

Before entering into such an agreement, IRS determines if it's appropriate for the circumstances and then sets up the agreement, processes the payments and monitors the taxpayer's compliance with the agreement. If a taxpayer fails to comply with any of the installment agreement's terms, the agreement is deemed to be in default and IRS has the right to terminate the agreement.

Guidance on IBTF-Express IAs.

In order to qualify for an IBTF-Express IA, a business owing payroll taxes must satisfy the following requirements:

• They must owe $25,000 or less at the time the agreement is established. If they owe more than $25,000, they may pay down the liability before entering into the agreement in order to qualify.
• The debt must be paid in full within 24 months or prior to the Collection Statute Expiration Date (CSED), whichever is earlier.
• They must enroll in a Direct Debit installment agreement (DDIA) if the amount they owe is between $10,000 and $25,000.
• They must be compliant with all filing and payment requirements.

One of the advantages of applying for an IBTF-Express IA is that a business is generally not required to provide a financial statement or financial verification as part of the application process, so the agreement is likely to be approved more quickly than other payment alternatives. The Internal Revenue Manual (IRM) also notes that it is IRS policy not to pursue the trust fund recovery penalty against an individual in a business that has set up an IBTF-Express IA.

To request an IBTF-Express IA, a business may call the number on the tax bill, or (800) 829-4933. A business could also complete Form 9465, Installment Agreement Request, and send it to the address on the tax bill (or the address on page 2 of the instructions for Form 9465). Suiter noted that applications for the payroll tax installment agreement are not currently available online, but said that may change in the future.

Further information on the program is available on the Small Business/Self-Employed section of the IRS website on the webpage called “Fresh Start Installment Agreements.”

PAYING TAX ON INCOME UNDER $600

Q.  A friend of mine says I do not have to pay tax on amounts received if it is under $600.  If that is true I have been overpaying my taxes for several years.  Is that true?

A.  This is probably one of the most repeated tax myths out there. So, let me clear it up for you quickly: income is income, no matter the amount. The threshold for required reporting from the payor is $600; which means that if payments are at least $600, a federal form 1099 must be issued. Some folks believe that if no 1099 is actually issued, you don’t have to report it. That’s not true. You have to report all of your income, from whatever source, on your tax return unless it’s otherwise excluded.

TRAVEL PET PEEVES

As you know I travel a lot. During my travels I stay in a lot of different hotel rooms and am able to notice a lot of things that are good, bad and ugly about hotels. Here you have my annual list of the top hotel pet peeves.

Hotel pet peeve #1 - Hotel alarm clocks with small numbers to read without glasses and 500 buttons to push to set the alarm.

Hotel pet peeve #2 - One electrical plug-in.

Recently I was staying in Washington DC at the Wardman Marriott. I needed to plug in my iPad and phone. I ended having to plug in my phone on the bathroom sink. No outlet was close enough to charge close to the bed.

Hotel pet peeve #3 - Using a key card in the slot to turn on electricity to the room.

Many energy friendly hotels now require that you take your hotel room card and put it into a receptacle inside the door to turn on the electricity in the room, thus saving energy when you are out of the room. This works great until you need to charge your laptop while you are away and all the electricity is turned off when you leave the room.

Hotel pet peeve #4 - Hotel shampoo bottles with letters too small to read without glasses.

Just about 10 or 15 years ago I had great eyesight. Today I have to have reading glasses to read almost anything. How come they make the shampoo bottles so hard to read that you almost have to wear glasses into the shower? I usually find that many hotels have a body wash, shampoo, conditioner and body lotion bottles. Without my glasses I could be using body lotion for conditioner and body wash for shampoo. All they need to do is put in big letters on the bottle, SHAMPOO.

Hotel pet peeve #5 - Drapes that don't close all the way.

How come I always find a room where the drapes do not always close all the way so that spotlight shining up on the hotel is always shining in my eyes all night long? I wakeup in the middle of the night and think the sun is up. After looking at the clock, which I cannot read, finding my glasses, and seeing that it is the middle of the night, it is hard to get back to sleep.

Hotel pet peeve # 6 - Charging for wi-fi.

It still irks me that some of the best hotels charge $10 to $15 a day for internet access in the room. If Starbucks can provide free wi-fi so can Marriott.

Please let me know what you think.

WHERE YOU SIT DETERMINES WHAT YOU SEE

I found this article in the Harvard Business Review. I thought you might find interesting.

What do you see in this picture?
Depending on how you look at it, you'll see the silhouette of two faces or a vase. It's a classic illusion that psychologists use to demonstrate that all of us have biases that influence how we interpret events. To some extent we see what we unconsciously want to see.

Understanding this kind of perceptual distortion is crucial for getting things done in organizations. Most projects or processes require collaborative work with people who come from other parts of the organization — different functions, levels, locations, or business units — and who see the world differently. If you assume that these people perceive the assignment or challenge in the same way that you do, you'll be severely frustrated or disappointed. In fact, you'll be on much firmer ground if you start with the assumption that each person comes to the table with a different spin on the situation.

The first thing to do in any cross-organizational assignment is to develop alignment and create a shared understanding of the problem, the situation, and the expectations. For example, one diversified technology company recently launched a project to improve the effectiveness of their sales force, involving collaboration between teams in the field (sales and sales support) and corporate. Team members from the field came in with the goal of reducing "bureaucratic distractions" from corporate functions. In contrast, the corporate representatives wanted the field folks to comply more quickly to data requests so that they could better target sales opportunities.

Given these different perceptions of "the problem" the team easily could have become trapped in unproductive blaming or hardened their positions. Fortunately, the team leader understood the different perceptions and encouraged everyone to listen, repeat, and appreciate each others' starting points. Eventually each side realized that both positions were valid, which opened up the possibility of joint problem solving. So over the next few weeks, the team figured out which data requests provided the most value, and which could be streamlined or eliminated. Based on these insights, the team sparked a significant improvement in the sales numbers over the next six months.

Of course, overcoming perceptual bias is not a one-time exercise. Just because the people in our example learned how to work together on one project doesn't mean that they won't revert back to their earlier blinders when they reenter their regular environments. In fact, there is a Stockholm syndrome effect for most people in organizations, in which they take on the biases and attitudes of those around them. Not long ago I was talking with an executive who had recently been promoted from a business unit to the corporate center. She was complaining how the business managers all wanted to do things their own way and not comply with cross-company standards — and then sheepishly admitted that she was one of those non-compliant managers only weeks earlier.

One of the best ways to overcome ongoing perceptual distortion is to rotate between functions, levels, and locations. This doesn't have to be as drastic as changing jobs or restacking cubes; it might mean regularly having lunch with someone from another part of the company or volunteering for a cross-functional project. This way, you'll gradually gain a broader perspective and not get so locked into any one silo. But even if you do move between areas, don't assume that others see things the way you do. All of us see the world in different ways — which may make alignment that much harder, but at least makes things a lot more interesting.

LAST WEEK’S BLOG

Last week I decided that I was going to tell people who I was supporting for president and why. I knew there would be some ramifications for this and I was right.

I was called a “Right Ring Radical”, a “stooge for the Republican Party” and some other names that I probably shouldn’t say. . I was disappointed that none of the people that criticized my blog told me what was wrong with my rationale.  They just called me names.  People, the countries deficit problem is huge and it needs to be dealt with. We can’t close our eyes and leave things as they are. I looked forward to receiving some comments of people telling me why I was wrong which I did not get.

I think that everybody should be able to have their opinion. That’s why we have a free country.  Because of my comments, we had several people unsubscribe to my blog. It’s interesting. I try to give information that hopefully can help people in their business but, apparently, the information I give is not enough to offset the anger they felt because I dare to express my opinion.

I apologize if I offended you.

WHAT I’VE BEEN UP TO

On October 31, I was honored to make a presentation to the Nebraska CPA Annual Meeting on income tax updates.  As part of my presentation I reviewed all the cases, rulings and the future of income taxes with the 190 CPA’s that were in attendance.

It is always an honor to make this presentation but it is also stressful.  This is not only stressful on me; it is stressful to the firm.   It takes me a considerable amount of time to put the Tax Update together and our staff does a terrific job of making sure everything gets done while I am engrossed in putting this project.

The good thing about the program is that it does make me look at all the court cases, revenue rulings, procedures and happenings over the last twelve months so that I am completely up to date.

Knowledge is Power!