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Dear Valued Client,
Happy New Year! This office would like to take this opportunity to thank you for your continued patronage of our firm and wish you and yours a very happy New Year. This edition of our newsletter covers some important steps to prepare for your upcoming tax appointment. Being organized for your appointment allows us to consider every legal deduction. This firm relies on satisfied clients as the primary source of new business, and your referrals are both welcome and most sincerely appreciated! Sincerely, Steve Trojan, CPA It’s Tax Time! Are You Ready?If you’re like most taxpayers, you find yourself with an ominous stack of “homework” around TAX TIME! Unfortunately, the job of pulling together the records for your tax appointment is never easy, but the effort usually pays off when it comes to the extra tax money you save! When you arrive at your appointment fully prepared, you’ll have more time to:
The tax law allows a variety of methods for handling income and deductions on your return. Choices made at the time you prepare your return often affect not only the current year, but later year returns as well. When you’re fully prepared for your appointment, you will have more time to explore all avenues available for lowering your taxes. For example, the law allows choices in transactions such as: Sales of property If you’re receiving payments on a sales contract over a period of years, you are sometimes able to choose between reporting the whole gain in the year you sell or over a period of time, as you receive payments from the buyer. Depreciation You’re able to deduct the cost of your investment in certain business property using different methods. You can either depreciate the cost over a number of years, or in certain cases, you can deduct them all in one year. Higher Education Expenses If you are paying college expenses for yourself, your spouse, or your dependent(s), you may qualify for a tax benefit of either an above-the-line tax deduction or a tax credit. Where to Begin? Ideally, preparation for your tax appointment should begin in January of the tax year with which you’re working. Right after the New Year, set up a safe storage location—a file drawer, a cupboard, a safe, etc. As you receive pertinent records, file them right away, before they’re forgotten or lost. By making the practice a habit, you’ll find your job a lot easier when your actual appointment date rolls around. Other general suggestions to consider for your appointment preparation include…
To ensure the greatest accuracy possible in all details on your return, make sure you review personal data. Check name(s), address, social security number(s), and occupation(s) on last year’s return. Note any changes for this year. Although your telephone number isn’t required on your return, current home and work numbers are always helpful should questions occur during return preparation. Marital Status Change If your marital status changed during the year, if you lived apart from your spouse, or if your spouse died during the year, list dates and details. Bring copies of prenuptial, legal separation, divorce, or property settlement agreements, if any, to your appointment. Dependents If you have qualifying dependents, you will need to provide the following for each:
Some Transactions Deserve Special Treatment Certain transactions require special treatment on your tax return. It’s a good idea to invest a little extra preparation effort when you have had the following transactions: Sales of Stock or Other Property: All sales of stocks, bonds, securities, real estate, and any other type of property need to be reported on your return, even if you had no profit or loss. List each sale and have the purchase and sale documents available for each transaction. New for 2011, when a broker knows the purchase price of the stock that was sold during the year, the brokerage firm is required to show that amount on the broker transaction report, Form 1099-B. Purchase date, sale date, cost, and selling price must all be noted on your return. Make sure this information is contained on the documents you bring to your appointment. Gifted or Inherited Property: If you sell property that was given to you, you need to determine when and for how much the original owner purchased it and its value when you received it. If you sell property you inherited, you need to know the date of the decedent’s death and the property’s value at that time. You may be able to find this information on estate tax returns or in probate documents. If the property was inherited from someone who died in 2010, special complicated rules may apply in determining your inherited basis. Please call for further details. Reinvested Dividends: You may have sold stock or a mutual fund in which you participated in a dividend reinvestment program. If so, you will need to have records of each stock purchase made with the reinvested dividends. If you sold mutual fund shares, you may have received a statement from the fund that shows your average cost basis for the shares sold and any “wash sale” adjustments. Be sure to bring this statement to your appointment along with the purchase and reinvestment records you have. Sale of Home: The tax law provides special breaks for home sale gains, and you may be able to exclude all (or a part) of a gain on a home if you meet certain ownership, occupancy, and holding period requirements. If you file a joint return with your spouse and your gain from the sale of the home exceeds $500,000 ($250,000 for other individuals), record the amounts you spent on improvements to the property. Remember too, possible exclusion of gain applies only to a primary residence, and the amount of improvements made to other homes is required regardless of the gain amount. Be sure to bring a copy of the sale documents (usually the closing escrow statement) with you to the appointment. Home Energy-Related Expenditures: If you made home modifications to conserve energy (such as special windows, roofing, doors, etc.) or installed solar, geothermal, or wind power generating systems, please bring the details of those purchases and the manufacturer’s credit qualification certification to your appointment. You may qualify for a substantial energy-related tax credit. Car Expenses: Where you have used one or more automobiles for business, list the expenses of each separately. To claim auto-related business expenses, the government requires that you provide your total mileage, business miles, and commuting miles for each car on your return, so be prepared to have that information available. If you were reimbursed for mileage through an employer, know the reimbursement amount and whether the reimbursement is included in your W-2. Charitable Donations: Cash contributions (regardless of amount) must be substantiated with a bank record or written communication from the charity showing the name of the charitable organization, date, and amount of the contribution. Cash donations put into a “Christmas kettle,” church collection plate, etc., are not deductible unless verified by receipt from the charitable organization. For clothing and household contributions, the items donated must generally be in good or better condition, and items such as undergarments and socks are not deductible. A record of each item contributed must be kept, indicating the name and address of the charity, date and location of the contribution, and a reasonable description of the property. Contributions valued less than $250 and dropped off at an unattended location do not require a receipt. For contributions of $500 or more, the record must also include when and how the property was acquired and your cost basis in the property. For contributions valued at $5,000 or more and other types of contributions, please call this office for additional requirements. Foreclosure or Cancellation of Debt: If you lost your home to a foreclosure, short sale, or voluntary reconveyance, you will have to report both the sale of the home and cancellation of debt (COD) income. However, you may be able to exclude the gain and the COD income under provisions of the tax code. The lender may issue either a Form 1099-A or 1099-C or both. These forms should be retained as they include valuable information needed to report the transaction and exclude debt relief income. It may also be appropriate to contact this office in advance to determine exactly what additional information must be assembled in order to complete your return. If you had credit card debt discharged, the amount discharged is taxable income and you will receive a 1009-C. If, at the time the debt was forgiven, you were insolvent (where your liabilities were more than your assets), you will be able to exclude the debt relief income to the extent your liabilities exceeded your assets. Please call the office in advance of your appointment to determine what information will be needed. Are You Liable for a Gift Tax Return?Frequently, taxpayers think that gifts of cash, securities, or other assets they give to other individuals are tax-deductible and, in turn, the gift recipient sometimes thinks income tax must be paid on the gift received. Nothing is further from the truth. To fully understand the ramifications of gifting, one needs to realize that gift tax laws are related to estate tax laws.When a taxpayer dies, the value of his or her gross estate (to the extent it exceeds the excludable amount for the year) is subject to estate taxes. Naturally, individuals want to do whatever they can to maximize their beneficiaries’ inheritances and limit the estate’s amount of inheritance tax. Because giving away one’s assets before dying reduces the individual’s gross estate, the government has placed limits on gifts, and if those gifts exceed the limit, they are subject to gift tax that must be paid by the giver. Gift Tax Exclusions – Certain gifts are excluded from the gift tax.
(1) Amounts paid by one individual on behalf of another individual directly to a qualifying educational organization as tuition for that other individual.
(2) Amounts paid by one individual on behalf of another individual directly to a provider of medical care as payment for that medical care. Payments for medical insurance qualify for this exclusion. If, during the year, your gifts exceed the sum of the annual, education, and medical exclusions, you are required to file a gift tax return (even if you have not exceeded the lifetime limit). Gifts of Capital Assets – Sometimes a gift might be in the form of securities, real estate, or other items that have appreciated in value. In these situations, the gift value is the item’s fair market value at the time of the gift. However, when the recipient of the gift sells that asset, he or she will measure his or her gain from the giver’s tax basis. For example, a parent gifts 100 shares of XYZ, Inc. worth $9,000 to his or her child. If the parent originally paid $5,000 for the shares and if the child sold the shares for $9,000, the child (the recipient) would be liable for the tax on the $4,000 gain. In effect, the parent (giver) transferred the taxable gain in the stock to the child. This can be beneficial from a tax standpoint if the child is not subject to the “kiddie tax” rules and is in a lower tax bracket than the parent. Caution: Watch out for unintended gifts such as an elderly parent placing a child on the title of the home or other assets. Gift-Splitting by Married Taxpayers - If the gift-giver is married and both spouses are in agreement, gifts to recipients made during a year can be treated as split between the husband and wife, even if the cash or property gift was made by only one of them. Thus, by using this technique, a married couple can give $26,000 a year to each recipient under the annual limitation discussed previously. If you have additional questions or would like this office to assist you in planning an appropriate gifting strategy, please give us a call. Are You Required to File 1099s?If you use independent contractors to perform services for your business and you pay them $600 or more for the year, you are required to issue them a Form 1099 after the end of the year to avoid facing the loss of the deduction for their labor and expenses and to avoid a monetary penalty. The 1099s for 2011 must be provided to the independent contractor no later than January 31, 2012.In order to avoid a penalty, copies of the 1099s need to be sent to the IRS by February 28. The 1099s must be submitted on magnetic media or on optically scannable forms (OCR forms). This firm prepares 1099s in OCR format for submission to the IRS along with the required 1096 transmittal form. This service provides recipient and file copies for your records. Use the worksheet to provide us with the information we need to prepare your 1099s. Please attempt to have the information to this office by January 20, so that the 1099s can be provided to the service providers by the January 31 due date. If you have questions, please call this office. 2012 Standard Mileage Rates AnnouncedThe Internal Revenue Service has issued the 2012 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical, or moving purposes.Beginning on January 1, 2012, the standard mileage rates for the use of a car (also vans, pickups, or panel trucks) will be:
The standard mileage rates for business, medical, and moving uses are based on an annual study of the fixed and variable costs of operating an automobile that is conducted by an independent contractor for the IRS. 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 (i.e., a fleet). Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. New Credits for Hiring VeteransCongress recently passed legislation that extends and expands the Work Opportunity Credit (WOTC) for hiring unemployed veterans. This effectively gave a one-year lease on life to the WOTC, but only with respect to qualified veterans who begin work for the employer before January 1, 2013. For all other classifications, the credit ended at the close of 2011.Under the new law, effective for individuals who begin work for the employer after November 21, 2011, a qualified veteran is a veteran who is certified by the designated local agency as falling within one of the following five categories:
Credit Limited to OASDI - The credit is allowed against the OASDI (Social Security) tax that the exempt employer would otherwise have to pay on the wages of all its employees during the one-year period beginning with the day the qualified veteran goes to work for the tax-exempt organization and cannot exceed the OASDI tax for that one year period. Other limits applicable to tax-exempt employers:
Modifying QuickBooks Reports Gives You Better Insight Into Past, Future: Part 1If you make one resolution about improving your accounting procedures in 2012, it should be this: Make extensive use of the tools that QuickBooks offers for report modification. Comprehensive, meticulously-shaped reports that flow out of your carefully-constructed records and transactions are your reward for pounding on the keys every day, conscientiously recording income and expenses.QuickBooks supplies you with a wide variety of pre-formatted reports whose modification options can help you do focused, critical analysis of your financial data. The right set of numbers will help you understand your history and plan for the future more effectively. Note: The reports discussed and pictured here shows only one possible set of customization options. There are many variations. We can answer your questions. Check your preferences When you created your company file in QuickBooks, you chose between reporting on a cash (income and expenses are recorded when money changes hands) or accrual (recorded when you invoice or receive a bill) basis. This affects summary reports, but not those that break out individual transactions or are simply lists. If you want to change this, click Edit | Preferences | Reports & Graphs | Company Preferences and click the desired button:  Figure 1: You can establish a preference for your summary reports' basis here. You can set other preferences in this window that will affect your report output here, too, as you can see. Altering the display Open the Income by Customer Summary report (Reports | Company & Financial). Change the dates to reflect a range you'd like to see. Want the data displayed by different time increments – like week or quarter – instead of just the total? Click the arrow next to Columns and select Four week.  Figure 2: You can do some report display alterations from this toolbar; the options it offers vary by report. By default, your report rows display alphabetically. If you want to view a column by total in ascending or descending order, select the column by hovering over the top number until the magnifying glass appears, and click on it. Click the arrow next to Sort by and choose Total, then click the AZ [down arrow] icon (in some reports, there will be other options here). Additional options in this toolbar let you:
Click Customize Report to open this window:  Figure 3: This window outlines your report's content options. Some of the options here duplicate what you saw in the toolbar. In addition, you can switch between Accrual and Cash for just this report, and add subcolumns in some. The latter is a complicated operation, one that you must understand well in order to glean any insight from it. We can help you with this. Sometimes the subcolumns are generic, as shown in the screen above. In other reports, they're very specific to that group of data. Clicking on Revert takes you back to the default format, and Advanced opens additional options specific to the current report. More customization = more insightful results = more informed financial choices Transaction reports have many similarities and two major differences: You can change the column order by hovering your cursor over the column label until a hand appears. Click, hold and drag the column to the desired spot and let go. You can also add or delete columns by clicking Customize Report and checking or unchecking labels.  Figure 4: In transaction – or detail – reports, you can alter the column structure. Learn the mechanics of report display modification well, and your company's finances will come into much sharper focus, improving the wisdom of future choices. Up next month: filtering your reports for additional clarity. If you have questions on this or any other QuickBooks feature, call or email us. We’re your partner and we’re here to make your business better.
The SMT & Associates, Inc. newsletter is available via e-mail on a free subscription basis. You can subscribe or unsubscribe at any time. For more information about - SMT & Associates, Inc., go to http://smt-associatescom.client-sites.com. This message was sent using ClientWhys Persyst. View our permission marketing policy. Circular 230 Disclosure, United States Treasury regulations effective June 21, 2005 require us to notify you that to the extent of this communication, or any of its attachments, contains or constitutes advice regarding any U.S. Federal tax issue, such advice is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that can be imposed by the Internal Revenue Service. |