Wednesday, January 14, 2015

Recommended Service providers

Over the years I have worked with many different service providers and have had good experiences and bad experiences. I can, and have assisted my clients with various other types of services beyond tax and accounting, but there are other fields of expertise that enable me to perform my services.

The desired result is that you - my - client gets the best service. This takes outside qualified experts in their respective fields.

Of course I like to work with people who work well with me and who I already have an established relationship with. Relying on other professionals is the smarter and most efficient way to operate.

If you need professional services that correlates to my services such as: Payroll, Financial planning, Bookkeeping, Legal, QuickBooks etc. Here are a quick bit of information and services that each of these of these people provide. If you do contact them please mention my name thank you

Here are the experts that I recommend:

Trucking Industry
Mike Ritzema 
The trucking industry is complex and requires and expert
Mike specializes in this area and I highly recommend him, and is highly regarded in this area of expertise.  All of the truckers who I have referred to him have told me later on that they have been very pleased with him.
Also IFTA tax returns for trucking firms and various other taxes etc..  that require attention

Estate Planning and General Business Law
Brian Plachta
Possibly the most friendly, personable attorney out there.
Brian does his homework, is affordable and has a wealth of experience.
My clients love him because of his down to earth style
Again, I have never had a client walk away unhappy with him

Non-Profit Accounting and Tax
Non-profit accounting and tax also requires a CPA who specializes in this area.
Tax returns, setup and bookkeeping for Non-Profits is Lin's area of expertise.
Lin and I have worked together for over 15 years.  I highly recommend her

Lin Beenen CPA
Linda C Beenen CPA PLLC

Saturday, January 10, 2015

6672 Trust Fund Penalty and EFTPS

The issue of what is Trust Fund and what is not Trust Fund can be a problem because of EFTPS.

EFTPS is the Electronic Federal Tax Payment System and was put in places some 15 years ago, gradually all businesses have become required to make all Federal tax payments using it.

The Regulations say that officers and responsible persons are personally liable for "Trust Fund" taxes, but in reality, it's not possible to pay the trust fund portion of the tax first.

First, the Trust fund portion of payroll taxes is generally levied to an officer, or an individual who is determined to be the responsible person.    If the business is still operational, then, presumably, the business is still paying wages, as well as the payroll taxes on those wages.

Second, The IRS allows payments for unpaid payroll taxes to be applied as the taxpayer desires.   Thus if the company is heading for financial failure, the person responsible for making the payroll taxes may wish to designate how the payments are to be made.

The IRS has longstanding policy that allows it to apply non-designated 6672 payments in manner it saw fit.  Fit means that the payments are first applied towards Non-6672 penalties, then to the 6672 penalties.  Thus even as the penalty in total is being paid down, the Trust Fund portion does not get paid down.  It is only after the non-trust fund portion of the tax is paid that the trust fund portion gets paid.

The only way to know this, is to check the balance periodically and check the officers' balance and compare the results.

If the business is still in operation, and is paying the payroll tax liability it is required to use EFTPS

The problem is that EFTPS does not allow payments to be "designated" for trust fund.

While the business remains in operation, and uses EFTPS, the 6672 portion cannot be designaated, the officer remains on the hook while until the entire tax (and penalty and interest) is paid in full.

There is a method for asking that the IRS remove any liens that the officer may have,  otherwise, this just emphasizes the importance of keeping current on payroll taxes.

Divorce Tax Considerations

Here are a few things you need to know regarding divorce and taxes
  1. Splitting assets between husband and wife without considering the property’s basis
  2. Losing the benefit of the child tax credit the, HOPE and Lifetime Learning Credit, and
  3. losing the deduction for qualified tuition and related expenses
  4. Assuming that the payment of attorney and expert fees is deductible
  5. Filing a joint return
  6. Disguising child support as alimony
  7. Forgetting to specify that alimony ends at death
  8. Assuming that the capital gains tax or gain from sale of principal residence is based on
  9. the client’s share of the proceeds
  10. Letting alimony payments drop off too quickly
  11. Fighting over the dependency exemption when the client cannot make use of it
  12. Not consulting a tax expert

Rules for Deducting Donated Services

A question that gets asked routinely is if you can take a deduction for services.  For example, if a taxpayer is a professional chef, and cooks at a charitable event, or a web site developer helps a charity set up their website, it is a legitimate question to ask if the time spent can be deducted as a donation.

The short answer is no you cannot

The general reasoning behind the rule is that if you do not report the income, you do not get the charitable deduction.

Charitable deductions are not allowed for contributed services. This includes blood donations, advertising, or broadcasting newspapers or radio. Reg §1.170A-1(g).

The rules apply even if the services involve the production of a final product.

The tax returns for Non-profit organizations recognize donated services, in general the amounts are the same.

So, if you want the charitable deduction, you have to donate a product or cash that has been acquired with income that you have paid tax on in the past.

2014 Health Insurance Policies that Count for Obamacare

Health insurance for 2014
For 2014, you are required to have minimum essential coverage. There are several options.
Coverage from you employer,
Purchased insurance through the Marketplace.
Medicare, Medicaid, and health care programs for veterans
Insurance that you purchase personally from an insurance company
Dept of Health & Human Services recognizes some insurance policies as coverage.

Compiled, Reviewed and Audited Financial Statements

Compiled, Reviewed and Audited financial Statements can only be prepared by Certified Public Accountants that undergo a peer review every 3 years.   Additionally, Certified Public Accountants who perform these services are required to have professional insurance and must keep their Certified Public Accountant license in a current status by taking 40 hours of education credits annually.

A compilation is a CPA prepared financial statements from information provided by management.

A "reviewed" financial statement is the next level of assurance that a CPA can apply to a company's financial statement. A reviewed financial statement is a compilation, plus a CPA applies inquiry and analytical procedures to financial statements provided by management to determine if they are reasonable.

An "Audited" financial statement is a reviewed financial statement plus verification of elements of the statements by outside parties, physically inspecting assets and observations, and testing selected transactions and examining supporting documents. An audit is the highest level of assurance that the accountant can provide and that the financial statements are in compliance with generally accepted accounting principles.

Vehicle Expenses Simplified; Title and Depreciation also Explained

This is a brief overview of how vehicle expenses work, including : Title or Ownership of the vehicle, and Depreciation
If you drive a vehicle for business, there are two options for deducting your vehicle expenses on your tax return (1) the standard mileage rate or (2) actual expenses. Which is better? it depends.
Ownership (or Title) to the vehicle does not matter for your tax deduction.  IRC§162 allows a deduction for business use of a vehicle.   Business use is the use of a vehicle for Business Purposes
Also, note each vehicle that you use for business can only use one method - you cannot switch from one method to the other.
The Standard Mileage Rate Method
 With the standard mileage rate, you take a deduction per business mile driven.  IRS sets the standard mileage rate annually.  To calculate the your deduction multiply your business miles by the IRS mileage rate.
To use this method you would keep track of how many miles you drive for business. You need to substantiate the business use with things like date, destination and purpose.
 The Actual Expense Method
 You can deduct the actual cost of using your car for business.  This requires more record keeping, you must keep track of your costs such as
gas, oil, repair, maintenance, fees, parking, registration, tires, insurance, washing, towing charges, etc..
These costs are apportioned for your business versus your personal use.
The Formula for deducting Actual Expenses is as follows:
Business Miles / Total Miles = Equals Business Percentage Used  X  Actual Expenses = Deduction
Depreciation is also deductible.  It is the Cost of the vehicle divided by 5 years, and is apportioned
 Which Method Is Best for You?
How much it costs per mile to drive a car in the United States. on average, the cost is 39.7 cents per mile to drive a car in 2014. The standard mileage rate deduction for 2014 is 56 cents per mile.
The average cost of driving a vehicle is generally less than the actual costs.
As a rule, most people get a greater tax deduction using the standard mileage rate.

Friday, January 9, 2015

Christmas Returns and How Retailers are Combatting Return Scams

Return fraud is up at retailers, especially now after the Christmas holidays

Much of that stems from returning used or reconditioned products, without a receipt, or a receipt.
Overall, one in six returns are fraudulent the National Retail Federation found.

That is actually lower than in the past but there are reasons why the rate may be dropping.

Several retailers now require identification, and maintain a database to track returns by individuals, many retailers have changed policies requiring a receipt that can be traced back to the purchase using the merchants point of sale software.

Best Buy shortened its return days, and special orders are not refundable. Sears also shortened its return days for appliances.

Macy's implemented a restocking fee of 15%

The largest area of fraud however is the most difficult to detect. Collusion between employees and fraudsters can be the most difficult because employees have the ability to manipulate the internal control systems that are in place and designed to detect fraud.

Small retailers are especially vulnerable, as they lack the ability to implement sophisticated internal controls.

Immigrants Tax Responsibilities

Immigrants First Year Tax Responsibilities
Immigrants and students, and foreign nationals who are in the USA are eventually faced with the situation that they are required to pay US income taxes.  Making that determination about when you are responsible for paying taxes is the beginning, there are a host of questions that need to be answered as well.

This article’s focus is more narrow.  The focus here is to illustrate the difference between a resident and a non-resident alien.  In general, resident aliens are on their way to becoming US citizens, and an important step in that process is to become familiar with US taxes.  When to start, and how to go about starting can be confusing, but as you will see below, is very important to obtaining your US citizenship.

Resident and nonresident aliens are taxed differently. Resident aliens are for the most part taxed the same way that US citizens are taxed.  Nonresident aliens pay tax based on the source of their income if it is in conjunction with a US business.

Non-resident aliens income is generally calculated using one of 2 techniques; Time, and Geography.
Time basis is calculated by a formula of the amount of time you worked in the US versus outside of the US.  You would use this method if you had one employer, but lived inside and outside the US.

Geographical basis is a formula that is based on where you earned your income.  If you work part of the year for an employer in another country, then move to the US and worked for a US employer, the Geographical formula would be more appropriate.

Determining if you are a resident alien or a non-resident alien is the first step.

There are 2 general tests to determine of you are a resident or a non-resident alien for tax purposes.

Green Card Test: 
If, according to the immigration laws, you have been given the privilege of residing permanently in the United States then you generally have this status

Substantial Presence Test:
To meet the Substantial Presence test, you need to be physically present in the United States on at least: 31 days during 2013, and also 183 days during the 3-year period that includes 2013, 2012, and 2011.  To do this you would count the number of days that you were presents during those years.

Once you have met one of the above criteria, you then make your first year choice.  Your first year choice is begins the first day of the month that you qualify for the choice. Then you are treated as a U.S. resident for the rest of the year.

Filing Status
Once you have made the determination that you are a Resident Alien, you need to determine if you will be filing single or married filing jointly or head of household.  In general, If one spouse makes the determination that he or she is a resident alien, they can have their spouse be treated as a resident alien.

When you file, you can claim an exemption for your spouse, even if your spouse had no gross income for U.S. tax purposes. You can also claim your spouse as an exemption if he or she has not come to the United States.

You can claim an exemption for each person who qualifies as a dependent according to the rules for U.S. citizens.  The dependent must be a citizen or national of the United States or be a resident of the United States, Canada, or Mexico for some part of the calendar year in which your tax year begins.

If you are a Resident Alien you may have to file Form 8938, Statement of Specified Foreign Financial Assets, to report the ownership of foreign assets

If you are a student nonresident alien, with a temporary status, you generally are not permitted to work while you are in the United States. But, in some cases, a student is granted permission to work. Social security and Medicare taxes are not withheld from pay for the work unless the student is considered a resident alien.
Any student who is enrolled and regularly attending classes at a school may be exempt from social security and Medicare taxes on pay for services performed for that school.

Agricultural Workers
Agricultural workers that are temporarily admitted with H-2A visas generally are exempt from social security and Medicare taxes.

Getting an taxpayer identification number
Form W-7 is used to apply to the IRS for a taxpayer identification number.

Getting an identification number does not change your immigration status or your right to work in the United States and does not make you eligible for the earned income credit

The documents and information that are needed to complete the form are used for the purpose to document your identity.

When would you need to get a taxpayer identification number?
1. In the case where one spouse already has a taxpayer identification number, but his or her spouse does not, and together, they would like to file jointly, the form would be used to get an identification number for the spouse.
2. A dependent child who does not have an identification number would also need an identification number to be claimed on a tax return.
3. A person who is determined to be a resident alien but who is not eligible for a SSN.

Remember your foreign owned bank accounts
There has been a lot of activity in recent years to locate offshore bank accounts, so also be sure to report on your tax return the existence of any foreign bank accounts that you own.

Credit for Foreign Taxes
There is a tax credit on your US tax return for foreign income taxes that are paid.

If you are a in the process of immigrating to the US, you need to be aware of your tax responsibilities.  The US tax courts do not allow ignorance as a valid reason for not complying with US taxes, and could lead to problems in obtaining valid US citizenship.