Blog

New Forms May Holdup Your 2014 Tax Refund

Author: Keith Huggett

The IRS has added a new form to be completed for tax year 2014.  If you were successful in signing up for healthcare benefits required by the Affordable Care Act, you are now required to send in form 1095-A, which you can get from the Health Insurance Marketplace. Please be aware that this example is a draft, not the form to file.  Form 1095-A  will list all of the individuals in your household who receive the benefits and how much the government has spent subsidizing their premiums.

The Health and Human Services Department (HHSD) will be in charge of issuing the forms.  The lack of confidence in the HHSD primarily stems from the difficulties associated with the ACA website. Justifiably, tax professionals are concerned about their ability to have all the forms out and in the hands of the millions of Americans by the January 31st deadline.

1095-A provides information you need to complete Form 8962, Premium Tax Credit (PTC). You must complete form 8962 and attach it to your tax return if you wish to claim the Premium Tax Credit or if you received premium assistance through advance credit payments. If you or your family members enrolled in more than one qualified insurance plan then you will receive a Form 1095-A for each plan.

States who operate their own health insurance marketplaces are also required to issue their own forms to those receiving their benefits. Though the biggest responsibility falls on the shoulders of the HHSD to get the forms to the individuals residing in the 36 states that it serves.

Remember, this form only applies to those Americans who were able to sign up for health insurance through the healthcare exchange.  If you obtained your health insurance elsewhere, this does not apply to you.  If you have any questions regarding this form, or your tax return, please contact the qualified tax professionals at The Tax Office, Inc.

Keeping Up Can Help You Spot Errors

Author: Keith Huggett

Have you ever wondered why reconciling your bank accounts is so important? By reviewing your transactions in your bookkeeping software, QuickBooks, Intaact, Xero, and comparing them to your bank statements and/or credit card statements, you are able to make certain that all of your transactions are accounted for so that everything matches and is accurate. Reconciling your accounts should be a monthly process, allowing you and your books to stay up to date.

To simplify the reconciliation process, keep these tips in mind:

• Match the beginning balance in your software to your statement's beginning balance. It is important that these two figures match. If there is a discrepancy, contact your bookkeeper and ask why.
• Keep it simple. Once you have your beginning balance input, move forward by inputting the ending date, ending balance, and any interest income or charges. Now it's just a matter of checking off those transactions that are matched with your software and bank account.
• Make sure you are recoding your transactions in the correct place.  Using the correct income and expense account is critical.
• Should trouble arise during your reconciliation, either make posts to the "Ask My Accountant" or contact your bookkeeper directly. 
• Use your software's report function.  Print out and save a copy of your reconciliation report.

What to do with your Vacation Home after Vacation

Author: Keith Huggett

Vacation time is over and your family is getting ready to return to life in the faster lane.  What do you do with your vacation home? Will you close it up for the rest of the year? Will you rent it out so that others may benefit?  If you choose to rent out your vacation home, there can be tax implications.

Rental Income - Rental income in general is taxable.  If you rent out your vacation home for less than 14 days, the income is tax free.  If your renter stays more than 14 days you need to report the income on your tax return. You can deduct rental expenses, but your deductions are limited because the amount of expenses you can deduct depends on whether the property is a business or a personal residence in the eyes of the IRS. The IRS determines this by calculating the proportion of personal use to the amount of time you rent the property.  If you use your vacation property for less than 14 days or less than 10% of the time you rent the property, the IRS classifies your rental as a business.  If you use your property for longer than the 14 days or 10% of the time it is rented, the IRS will classify your rental as a personal residence.

Deductions - Renting out your property will also incurr some expenses.  Depending upon how the IRS classifies your property will define what you can claim as a deduction. If classified as a business, you have to apportion eligible deductible expenses (i.e., cleaning, repairs, utilities) according to the amount of personal or rental usage. To determine the percentage of expenses you can deduct, divide the number of days rented by the total number of days of used (personal days plus rental days). Once you have that, your expenses can be itemized on your tax return.

If your rental is classified as a personal residence, you are able to deduct things like property tax and mortgage interest along with the itemized expenses.

Record Keeping -  As always, it is important to keep accurate, detailed records.  Items you will want to keep include receipts and invoices, mortgage statements and the like. Keeping a record of all improvements and repairs made to the rental is also of high importance. Having a separate checking account especially for the rental property can make documenting your rental expenses easier.

Audit Proofing Your Rental - Always treat your rental as a business. To keep the IRS uninterested in you, you need to make sure that you look like a business. Keep clean books, have separate bank accounts, and make sure you keep accurate records of repairs. Keep those receipts.  “Audit-proof” your rental property just as you would “baby-proof” your home, it just might keep both you and your property a little bit safer.

If you have any questions regarding renting out your rental property, please contact us.  The specialists at The Tax Office, Inc., can provide you with answers, show you what deductions are available to you and much more.

Changes in your life may affect your taxes.

Author: Keith Huggett

Mid-year is the perfect time for tax planning. The following are some events in your life that can affect your tax return. Acting promptly, and being prepared for change by planning ahead can lessen any unpleasant surprises at tax time:

• Are wedding bells in your future? Did you divorce or become a widow(er)?
• Have you changed your employment? Did your spouse start a new job?
• Has your income level changed?
• Did you have a gain from the sale of stocks or bonds?
• Did you invest in or sell a rental property?
• Did you start up a new business? Did you sell a business?
• Did you buy or sell a home?
• Are you retiring this year?
• Were you able to refinance your home or take out a second home mortgage this year?
• Did you receive an inheritance this year?
• Do you have children? Do you have a tax-advantaged savings plan in place?
• Are you taking advantage of your tax-advantaged retirement savings?
• Have you purchased any new equipment for your business?
• Are you planning to purchase a new vehicle for your business and dispose of the old one? It makes a significant difference whether you sell or trade-in the old vehicle.
• Do you have documentation to prove your cash and non-cash charitable contributions?
• Are you making your estimated tax payments? Do you need to make estimated tax payments?
• Do you have substantial investment income or gains from the sale of investment assets? If so, you may be hit with the 3.8% surtax on net investment income and need to adjust your advance tax payments.
• Did you make any unexpected withdrawals from your IRA or pension plan?
• Have you stayed abreast of the new changes to the tax laws?

A Deductions Checklist...

Author: Keith Huggett

Many people, including real estate professionals,  don’t fully appreciate just how much money they can save with tax deductions.  Almost everything you buy for your real estate business is tax deductible as long as it is ordinary and necessary and the cost is reasonable. These deductions can really add up as savings for your business. There are dozens of possible tax deductions for real estate professionals.

• Advertising – The costs of signs and advertisements for the rental property.

• Auto – Landlords are entitled to a tax deduction whenever they drive anywhere for their rental activity. Keep a mileage log to track your starting location, destination, purpose, and mileage. Using a mileage app on your smart phone can simplify this task.

• Depreciation –  Landlords get back the cost of real estate through depreciation. This involves deducting a portion of the cost of the property over many years.

• Equipment / Computers / Furniture – These items are only deductible to the extent used for business. These are capitalized and deducted through depreciation over time.

• Home Office – Working from a home office allows you to deduct a portion of your home mortgage interest, homeowner’s insurance, utilities and property taxes toward your rental business. This is true whether you own your home or apartment or are a renter.

• Home Owner’s Association Dues – HOA's often charge association dues.  These dues are used to provide maintenance services for the home owners.  Renting out your property makes these fees deductible for rental activities.

• Interest – You can claim the mortgage interest paid on loans used to acquire or improve rental property and interest paid on credit cards used to purchase goods or services used in a rental activity.

• Insurance – You can deduct the premiums you pay for almost any insurance for your rental activity. This includes fire, theft, and flood insurance for rental property, as well as landlord liability insurance.

• Lawn Service / Pest Control / Carpet Cleaning – The cost of services not paid for by a tenant are deductible.

• Professional Fees – Any costs you pay to an attorney for eviction, a management company, engineer or CPA, etc. are deductible as they relate to the rental business.

• Repairs – Repairs may be expensed (deductible this year) OR capitalized and depreciated (deducted over many years) depending on the size and nature of the expenditures. There is a difference between making repairs and making improvements on your home.

• Telephone – Only the business portion of your phone usage is deductible.

• Utilities –  If utilities not paid by the tenant, these costs can also be deducted.

Avoiding IRS Red Flags

Author: Keith Huggett

When it comes to the IRS everyone likes to avoid them if possible.  Sometimes you can, sometimes you can't.  It's always helpful to have some tax relief tips to illustrate ways to keep them at bay.  Suffering through a tax audit is no fun; it's often an intimidating, time-consuming process that can turn out to be very costly, especially if additional penalties are assessed.  To illustrate the top 5 tips for avoiding IRS red flags, the Tax Office, Inc., has put together a short infographic, the Top 5 Tax Relief Tips, to assist you.

In order to avoid the IRS flags, it is imperative that you report 4 out of the 5 tips correctly. Unfortunately one comes down to blind luck and there isn't a lot you can do to influence that.

1. The Earned Income Credit - To qualify for the EITC, you must follow the rules and file a tax return even if you do not owe any tax or are not required to file. To see if you qualify for the EITC, the IRS has several publications to assist you. In short, there are specific requirements for the EITC including age, earned income, and qualified dependent criteria, to which you must qualify for. Also, if you are married, you cannot file as "Married Filing Single" and claim the EITC.

2. Claiming Head of Household Status - Consider the following questions before claiming:

• What makes you “unmarried”?

• What is a closely-related dependent mean?

• Have you correctly performed the “Support” and “Residency” tests?

• Have you paid more than half of the cost to maintain a home for yourself and your qualifier?

3. Random Chance - Here's where being lucky or unlucky comes into play.  The IRS uses a computer program to randomly select tax returns for audit purposes.  According to the IRS, "Your return may be selected for examination on the basis of computer scoring. A computer program called the Discriminant Inventory Function System (DIF) assigns a numeric score to each individual and some corporate tax returns after they have been processed. If your return is selected because of a high score under the DIF system, the potential is high that an examination of your return will result in a change to your income tax liability."

4. Reporting Income - During the course of the year you may or may not incur 1099 income.  If you accidentally forget to include this information in your return it will cause IRS issues for you.  Be sure to include all of your income when filing your taxes.

5. Missing Information - The IRS requires that specific information be included on your tax return otherwise it will be rejected.  This information includes your signature, SSNs, date, and filing status.  Leaving out this information can result in he return of your tax return, the delay of any refund you were expecting, and also the possibility of audit.

Never give the IRS a reason to further “examine” your tax returns.  People usually get audited because the information they provided; the income, expenses and credit information just doesn’t add up and the IRS wants to know why. While it’s impossible to avoid all tax audits (because some are randomly selected), staying compliant will go a long way toward audit prevention.

If you are an individual or small business who is under audit or are concerned about being audited in the future, it is in your best interest to consult a qualified tax professional experienced in IRS audits to discuss your tax options and an audit strategy.  At The Tax Office, Inc., we’ll champion your cause with the proper government agency to gain a satisfactory solution to your collection, audit or other tax representation issues. 

Contact us for a confidential, no cost or obligation discussion of your tax issues, or call at 916-773-7053.

Planning for Your Future Doesn't Get a Vacation

Author: Keith Huggett

The weather's warm, the lake is calling...but wait! So is your tax bill.  Summertime is the perfect time to revisit your tax plan.  I know it's not quite as much fun as throwing out your fishing line and bringing in the perfect trout, but it is a necessary evil.  Here are some tips that may help you benefit in the end:

1. Look at your retirement plan.

• Elective contributions – the ones you ask your employer to withhold from your paycheck – these lower your current-year taxable income. 
• Compare the amount you’re currently depositing in your account to the maximum allowed, and make adjustments to spread the impact over the rest of the year.
• ​The maximum 401(k) contribution for 2014 is $17,500. 
• If you’re 50 or older this year, add an additional $5,500.

•  If you are currently setting aside money to pay for your child's college expenses in a taxable account, you could open a 529 plan instead.

• Broaden your tax-planning focus to include family members. 
  ​For instance, say your parents or children are in a lower tax bracket than you are. Employing them in your sole proprietorship can provide net tax savings.

•  Recordkeeping is essential. 
  • ​Examples of tax breaks that may be disallowed if you cannot provide proof include: charitable contributions, gambling losses, vehicle costs, and travel and entertainment expenses. 
• ​If you neglected to start tracking these expenses at the beginning of the year, get going now.
• Using your smartphone to assist you with recordkeeping is a simple trick. There are many apps out there that can help you keep track of mileage and receipts, just to name a few.

• Keep your college student qualified as your dependent by monitoring the “support” test. 
  • The rule: Generally, your child cannot provide over one-half of his or her own support during the year.
  • Other relatives may qualify as your dependents, including parents in nursing homes.

These are just a few tips that can assist you with your mid-year tax planning.  There are still many other options available to you that may reduce your year-end tax bill.  If you have questions regarding tax planning, as always the Specialists at The Tax Office, Inc., suggest you speak to a professional. We are here to help you in any way that we can. Please, contact us with your questions. Our goal is to help you grow your business.

Payroll Outsourcing May Benefit Your Business

Author: Keith Huggett

No matter how you slice it, payroll functions are cumbersome and costly. Even automated systems that simplify manual recordkeeping can only do so much to cut down on payroll-related headaches, particularly when it comes to payroll tax filing. 

Your best option? Outsource some or all of your payroll functions to us. An expert accounting firm like ours can provide advice and services tailored to your company's needs, freeing employees for customer service and other revenue-driving functions. We can handle just your tax filings or manage the entire payroll process for you.

Small businesses that cannot afford inhouse accountants often struggle with payroll tax issues. Some questions that often come up include:

• How are employee payroll taxes determined?

• How often does payroll tax filing need to occur?

• Do I need to file paperwork each time I make a payroll tax deposit?

• What happens if a mistake is made in payroll tax calculations?

In addition to unanswered questions and uneasy feelings, if your company is handling payroll taxes internally, you may be spending unnecessary time and money. Here are just some of the areas where your people may be wasting valuable, billable hours:

• Setting up and maintaining complex payroll reporting and calculations

• Completing, filing, routing and saving extensive tax-related paperwork

• Tracking payroll tax deadlines and making payments or deposits

When you are paying people for their time, their time becomes your money. You can probably find more useful, value-added functions for your team than babysitting payroll forms. At the same time, it is essential to keep accurate payroll records and perform payroll tax filing on time. The consequences of dropping the ball on employment taxes can be disastrous, as the IRS assesses steep fines on late or missed payments.

So you probably find yourself in a quandary where payroll is concerned. You're trying to economize on related staff time and costs, but keeping up with strict government requirements is a challenge.

Let us take this onerous burden off of your hands. Contact us at The Tax Office today for a free consultation. We have decades of experience in accounting, tax and payroll management that we will happily put to use for you.

Cloud-Based Accounting Has Many Advantages

Author: Keith Huggett

Still unclear on the concept of cloud-based -- or virtual -- accounting? It simply means sharing applications and data over the Internet.  Instead of residing on your PC's hard drive or network, your financial software and records are stored on remote servers maintained by your provider. This is also called hosting.

There are numerous advantages to managing your business accounts this way; here are the top three:

Virtual accounting allows access from anywhere, 24 hours a day.

Need to pull up some numbers while on a business trip? How about share real-time financial data with business partners and employees located across town or many miles away? Cloud-based solutions allow 24/7 remote access to your data by anyone with a web-enabled computer or supported mobile device and login credentials. Your CPA can perform analysis and reporting  for you without leaving his or her office.

Cloud computing is easily scalable.

The host company handles the physical infrastructure in virtual accounting systems, and can quickly allocate resources like storage and processing power as your business needs grow. Hardware issues are no longer a matter for your internal IT staff to handle, and it only takes a few clicks to add or remove users in a cloud-based software system.  Contrast this with the hours -- or even days -- it might take an inhouse IT professional to install the hardware and software needed to set up new users.

Data security and regular backups exist in the cloud.

A reputable cloud solution provider will use 128-bit data encryption and offer antivirus and firewall protection. It will also perform regular backups to ensure that data is fully recoverable in the event of a disaster. An added plus: Software upgrades are automatically handled by the vendor, and you don’t have to worry about maintenance.

Cloud computing can be a daunting subject at first glance. At The Tax Office, we will gladly take the time to explain how our virtual accounting solutions can mesh with your existing operation and allow you to focus on growing your business. Contact us today; we would love to work with you to design on an optimal solution for your company.

How to Prepare for the Switch

Author: Keith Huggett

Ever lost a significant chunk of critical financial data stored on your hard drives or network? If so, you know how difficult and time-consuming it was to recover. You may even have lost sales during that period because of your information breakdown.

Recent studies indicate that a loss of 20 megabytes of accounting data costs around 21 labor days and $19,000 to reinstate and/or re-enter. And when 44 percent of data failures are directly attributable to hardware malfunctions, you can easily see the rationale for moving your data to a cloud-based accounting service, which will store your applications and data on remote servers that use the Internet to exchange information with you. Specialists at these firms are committed to remote network security, integrity and backups.

However, the last thing you want is to lose your data while making the transition to cloud-based accounting. Here are a few tips to help keep your data safe.

• Back up data securely before the move. Though it's rare, problems can crop up during the transition, causing corruption or loss of data. Having a backup will allow you to restart the process.

• Do not work on data while you are in transition. Data that is in flux is not safe, and can cause system problems.

• Make sure that your inhouse employees are properly trained. Studies show that 32 percent of data loss can be attributed to human error. Staff should be thoroughly trained on the transition to cloud-based accounting and know how to use the new system.

• Although your data will be housed on cloud-based servers, your employees will likely access information and work through laptops, tablets and PCs. To avoid data corruption due to viruses, be sure that all hardware is properly protected with antivirus and anti-malware software. Free programs like Microsoft Security Essentials and Malwarebytes provide easy protection against this type of data loss.

For more information about making the transition to cloud-based accounting, contact us at The Tax Office today. We're experts in both technology and accounting, and we'll offer the support you need every step of the way.