Thursday, September 27, 2012

Act soon to cut your 2012 taxes

Time is running out to make tax-saving moves for 2012. Here's a sampling of ideas to consider.

* Maximize the contributions to your employer's tax-deferred retirement savings plan, thereby saving taxes immediately and deferring taxes on earnings in your account. Also don't overlook an IRA contribution if you qualify.

* If you've held appreciated stock for more than one year, consider donating those shares to charity rather than making cash donations. You'll avoid paying taxes on the stock's appreciation, but can generally claim the full fair market value of the stock as a charitable deduction.

* Adjust your withholding. Increase the income tax withheld from your paycheck through year-end to cover extra amounts due from Roth conversions or other taxable income increases in order to avoid underpayment penalties. Alternatively, reducing your withholding to account for an overpayment puts money in your pocket now, instead of next year when you file your return.

* Schedule charitable contributions. Cash and checks mailed by year-end count as 2012 deductions, as do credit card charges you make by December 31. Donations of appreciated securities are deductible when you relinquish control. Allow extra time for stock transfers handled by your broker or a mutual fund company.

* Make family gifts. For 2012, the annual amount you can give away to any individual, free of gift tax, is $13,000 ($26,000 when you're married and make the gift with your spouse).

* Plan for elective health care expenses. Use up the balance in your flexible spending account (FSA) by year-end, and figure out how much you'll contribute in 2013. No FSA? You still have time to set up a health savings account (HSA) and make a deductible contribution.

* Remember required minimum distributions. Failing to take a required distribution from your traditional IRA before year-end could cost you 50% of the amount you should have withdrawn.

These are just a few of the tax-cutting moves you should review. For help in finding the right moves to make in your particular situation, give us a call.

Tuesday, September 25, 2012

Have you considered a SIMPLE plan for your business?

Many sole proprietors and small business owners agree on the following two issues: they pay too much in taxes and they have difficulty attracting and retaining good employees. One way to address both of these issues is to have your business sponsor a retirement savings plan. If you're self-employed or own a small business and don't currently have a retirement plan in place, consider setting up a SIMPLE plan.

SIMPLEs (Savings Incentive Match Plans for Employees) are available in two forms - SIMPLE IRAs and SIMPLE 401(k)s. SIMPLE plans are generally available only to small businesses that don't maintain any other retirement plan. If your business has more than 100 employees, you won't be eligible for a SIMPLE.

Most businesses will find the IRA version preferable to the 401(k) form of SIMPLE. Here's how SIMPLE IRAs work. Eligible employees (including yourself) can elect to have a portion of their earnings withheld each pay period, limited to $11,500 in annual deferrals ($14,000 for those aged 50 or older). The employees then direct how the deferrals will be invested within their own SIMPLE IRAs. Amounts withheld for the SIMPLE IRA reduce the employee's taxable income and grow tax-deferred.

The costs to set up and administer a SIMPLE IRA are minimal. However, as the employer, you're required to make contributions into your employees' SIMPLE IRAs on their behalf. You have the option of contributing either 2% of the wages of every eligible employee or making matching contributions up to 3% of the wages of those employees who participate in the plan.

Generally, the deadline for businesses to establish a SIMPLE plan for 2012 is October 1, 2012. To find out more about SIMPLE plans, give us a call.

Thursday, September 20, 2012

How to succeed in a new business

If the current job market has you thinking about starting a business of your own, take some steps to increase the odds that your business will succeed.

* The first step is an honest self assessment. Common characteristics of a successful entrepreneur are the drive to achieve and the willingness to take risks. To succeed in business, you need good organizational and people skills, confidence to make good decisions under pressure, and the emotional and physical endurance to work long hours. Experience in the type of business you're planning is a major factor.

* Take the time to do your homework. A business is more likely to fail if you're in a hurry to open the doors. Consult trade associations, other successful business owners, governmental agencies, and professional advisors for information relating to your new business. Is there a demand for your type of product or service? If so, who will your customers be, and where should you locate in order to be easily accessible to them? How will you set your prices to attract customers, yet maximize profits? How will you make your business stand out from the competition?

* Look for ways to limit your overhead expenses. For example, determine whether you should lease or buy your premises and equipment. If you only need an office to meet with clients, consider places that rent space on an as-needed basis and furnish secretarial help and equipment. Check out the benefits of an enterprise zone, where taxes and even the cost of utilities and phone service may be lower.

* Incorporate your research into a business plan. Have your accountant assist you with this. Chances of obtaining the necessary start-up capital improve if you have a clear business plan.

Opening a new business is the dream of many people. For guidance that can help improve the chances of success for your venture, give us a call.

Tuesday, September 18, 2012

Don't panic if the IRS sends you a letter

There are many reasons why the Internal Revenue Service could be contacting you. Some contacts involve very minor corrections; some are for serious changes that could involve a lot of money. Sometimes the IRS is correct in what they are seeking; sometimes they are wrong.

An IRS notice can be something as simple as a correction to a social security number or as significant as a billing for more taxes, plus interest and penalties.

So, what should you do if you get a letter from the IRS?

Here is a list of do's and don'ts concerning contact from the IRS.

* Don’t panic, but don't ignore the notice; the problem will not go away.

* Act promptly. A quick response to the IRS may eliminate further, more complicated correspondence.

* Follow the instructions in the IRS notice. Any correspondence you have with the IRS must make reference to the specific notice you are addressing.

* If you agree with the IRS adjustment, you do not need to do anything unless a payment is due.

* If the IRS is requesting more money or a significant amount of new information, be sure to contact your tax preparer immediately.

* Always provide your tax preparer with a copy of any IRS notice, regardless of how minor it appears to be.

* Keep a copy of all the IRS correspondence with your tax return copy for the year in question.

If you would like more information or assistance with any tax matter, please contact our office. We are here to help you.

Thursday, September 13, 2012

Changes scheduled for flexible spending accounts

Flexible spending accounts (FSAs) are popular with employees because they permit the use of pretax dollars for payment of medical expenses and dependent care costs.

If you use an FSA, be aware that changes are scheduled beginning next year. As part of the health care reform law passed in 2010, there will be a dollar limit on the amount that can be set aside for medical expenses. Effective for plan years starting in 2013, the maximum set-aside for medical expenses will be $2,500.

The limit on what can be set aside for dependent care costs will not change; it remains at $5,000.

Keep an eye on any upcoming legislation that could change these rules again.

Tuesday, September 11, 2012

IRS eases reporting requirement for small businesses

The “Affordable Care Act of 2010” requires employers to report the cost of coverage under an employer-sponsored group health plan on the employee's W-2 for 2012.

The IRS is easing this requirement for small companies. Employers issuing fewer than 250 W-2s will not need to include the cost of health care on W-2s for 2012. For these employers, the 2012 reporting is optional. And such reporting will not apply for future years until the IRS publishes guidance giving at least six months of advance notice of any change in the filing requirement.

Thursday, September 6, 2012

Investment Tax Tip

Consider tax-exempt investments as a means of cutting your income tax. There is an easy way to compare the yield on tax-exempt investments (such as municipal bonds) with the after-tax yield from taxable investments. Subtract your top tax bracket from 100 and divide the tax-exempt interest rate by that number. The result is the equivalent taxable return.

Tuesday, September 4, 2012

Retirement Tax Tip

Consider a Roth IRA if you qualify for one. The beauty of a Roth is that your investment grows tax-free, and qualified withdrawals from a Roth will be completely tax-free. Contact our office for more information.