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What to do Now to Avoid Tax Time Regrets

Nov 17

Posted by lhendricks in Financial Planning, Health Insurance, Individual Tax, Small Business Management, Small Business Tax | 1 Comment

While most of us are focused much more on the upcoming holidays than we are on tax season, keeping a few things in mind as the year comes to a close will spare us some headaches of regret come tax time.   Here are some ideas for keeping your tax bill low.

Make a charitable contribution. Be sure you have given to your church or favorite charity by year’s end.  The holidays are a great time for charitable giving; many people give donations to a person’s favorite charity in their name, in lieu of a physical gift.  Most charitable contributions are tax deductible.

Invest in your retirement account. Traditional retirement accounts reap a double benefit.   Most people can deduct the amount they contribute to their retirement account each year using the Saver’s Tax Credit.  The second benefit of traditional retirement accounts is that they can grow tax free until they are withdrawn, becoming a nest egg for your future.

Repay early withdrawals from a retirement account within 60 days. If you made an early withdrawal from a retirement fund this year and did not roll it over immediately into another retirement account, that money becomes part of your taxable income.  Withdrawals before age 59 ½ are considered early.  Not only will that income be taxed, but also most often adds an extra 10% penalty on your federal tax return.  If however, you are able to re-contribute the money withdrawn from your retirement account within 60 days of receiving it, you can avoid both tax and penalties.

Contribute the maximum to your HSA. If you have an HSA (a Health Savings Account paired with a High Deductible Insurance Plan), you may reduce your 2011 taxable income by contributing the maximum amounts allowed.  The contribution limits are $3050 for an Individual HSA, and $6150 for a family HSA.  The beauty of this is that you have until April 15th of 2012 to make your 2011 contributions.  Just be sure to specify that whether the contributions are for 2011 or 2012.

Build a college fund. Your contributions into a Qualified Tuition Plan, or 529 Plan can build the dream of debt free college attendance for yourself or a loved one.   Contributions to a QTP grow tax free.  While there is no immediate federal tax benefit in the year of contribution, there can be hefty benefits on your Indiana State Tax Return.  Indiana residents receive a 20% refund of qualified contributions to Indiana-based QTP’s, up to $1000 per year.

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FINDING THE NICHE – FINALLY LISTENING

May 25

Posted by lhendricks in Online Marketing, Small Business Management, Strategic Partner, Uncategorized | 2 Comments

STRATEGIC PARTNER FEATURE:

Denise Speer, President of C3-Indy shares her journey to success

It’s been an exciting first year and a half in business for C3-Indy, but I have to admit that the last few months have been the best.  That’s when I finally “heard” what my contacts, colleagues, and clients were saying…and adjusted my offerings to meet those needs.

When I first started my business, my passion was solely focused around technology and wanting to train and implement various forms of technology, including CRM (AddressTwo was the only one I chose to resell after doing extensive research and testing), Microsoft online software and Office 2007.  Which sounds all nice and convenient, and it worked . . . somewhat , but it still didn’t provide a service that was being sought by clients versus me having to seek clients.

What I learned about this episode was that, while I believed I was providing a service that entrepreneurs and small businesses (my passion’s target market) needed and wanted, it was, in fact, delivering a service that caused more work and angst.  Although they understood the importance of the products and even purchased the products, received the training, etc.; they were not in a position to use the products.  When I followed up with them a few weeks or months after training, I found that although they were paying for the services, they were not implementing the processes…in other words, they weren’t using the software!

More than once they asked me during training “Can you just do this for us?” and “Isn’t there an easier way?” to which, I’m embarrassed to admit, I replied more than once, “I don’t offer that service.”   When it finally dawned on me that my entrepreneurs and small business offers really NEEDED my abilities to do the work for them instead of teaching them, my business exploded.  I finally saw that I had to narrow my scope of offerings and go deeper into providing the labor.

I learned the value that virtual assistance offers and have never looked back.  I hired my first team member a few weeks ago and it has gone extremely well.  Lovely, (yes that is her name!)  is able to take care of the client services and has allowed me time to continue expanding my business…the ideal scenario for a growing business.

Although I have often been accused of being “stubborn” and perhaps that is the reason I wasn’t “hearing” what my clients were saying, I am glad that I was stubborn enough to stick with my company and finally get to see it flourish.

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ALTERNATE SOURCE OF SMALL BUSINESS FUNDING

May 12

Posted by lhendricks in Banking, Business Planning, Financial Planning, Small Business Management, Strategic Partner | No Comments

STRATEGIC PARTNER FEATURE:

By:  Sheila and Chris Hussey with Interface Financial

One of the main problems facing small business owners today is the ongoing issue of how to make cash flow stretch to accommodate their growth plans.

Their problem is not new.  It has been prevalent for a long time and yet there are still only a few viable financing methods available for small businesses.

When the need for capital arises, the first thought is to approach a bank for assistance.  A bank can provide a term loan, a line of credit or perhaps an SBA loan.  Unfortunately, there seems to be reluctance among the banks to offer loans to small businesses in the $25,000 to $50,000 amount range.

The reasons for this reluctance seem to be two-fold. First, banks are ‘equity’ lenders.  They expect their customers to have established equity in the form of capital and retained earnings before the bank can accommodate their needs.  Small businesses are typically under capitalized, and many have been in business for less than three years.  They are just at a point in their existence where the business is starting to become profitable. Consequently, when the need arises for additional working capital, the customer cannot meet the bank’s balance sheet requirements.

Secondly, for banks to make small business loans they must do so on a profitable basis. Lending $25,000 to a small company has approximately the same administrative cost to the lender as lending $100,000 – $200,000. It is natural that the lender will choose the larger opportunity, as it carries the similar administrative cost but yields a higher return.

Where does this leave your small business?

Most business owners would agree that if their business were 100% ‘Cash on Delivery’, they would have cash to fuel their growth plans.  Unfortunately, today’s business market is not that simple. Customers expect terms on their purchases, usually 30 days, which can grow to 45-60 days.  The problem is then compounded by the reluctance of many businesses to ask for payment, even overdue payments, so as not to jeopardize the relationship with the customer.  So for a business to survive, it must extend terms and tie up valuable working capital in passive accounts receivable.

Entrepreneurs can find relief from this often-crippling cycle by utilizing a financial service known as ‘Invoice Discounting’. This service immediately turns quality, current accounts receivable into cash for the supplier. It leverages the company’s assets now to get cash for growth.

Invoice Discounting is sometimes confused with factoring. However, in a factoring arrangement, the factor normally requires all receivables to be included in the lending arrangement and also requires monthly minimum sales requirements. The factor expects to undertake the accounts receivable administration work including day-to-day contact with the customers.

These features are not present in a typical invoice discounting facility. It is a ‘use it as you need it’ arrangement designed specifically to act as a bridge in meeting the needs of small businesses during their formative period.

From a practical point of view, Invoice Discounting is quick and straightforward. There is a minimum of paper work. When the goods are shipped and an invoice is generated, the Invoice Discounter purchases the invoice and releases cash to the company usually within a matter of hours. The company (the supplier) and the invoice discounter work together in terms of the administration and collection of the purchased receivable. This ensures that there is no disruption in the valuable supplier-customer relationship.

This system is fast, cost effective and very user friendly.

When the bank says NO or NO MORE there is no need to give up – there may be a viable alternative in the form of a professional invoice discounting service.

Sheila and Chris Hussey are the owners of The Interface Financial Group based in Batesville, IN.  The Interface Financial Group provides Invoice Discounting to local small business.  To find out more about Invoice Discounting, please contact Sheila or Chris at (812) 212-9850 or e-mail them at chrisjhussey@interfacefinancial.com.

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What Happens after I File?

Apr 20

Posted by lhendricks in Business Planning, Individual Tax, Small Business Management, Small Business Tax, Year-end Support | 1 Comment

IRS Tax Tip 2011-76

Now that the federal income tax filing deadline is in your rear-view mirror, what happens after you file? A lot of taxpayers have post tax-filing questions such as what records do I keep and more importantly, “Where’s my Refund?” The IRS has answers for you below.

Refund Information
You can go online to check the status of your 2010 refund 72 hours after IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after you mail a paper return. Be sure to have a copy of your 2010 tax return available because you will need to know your filing status, the first Social Security number shown on the return, and the exact whole-dollar amount of the refund. You have three options for checking on your refund:

  • Go to http://irs.gov and click on “Where’s My Refund”
  • Call 800-829-4477~24 hours a day, seven days a week, for automated refund information
  • Call 800-829-1954 during the hours shown in your tax form instructions
  • Use IRS2Go. If you have an Apple iPhone or iTouch or an Android device you can download an application to check the status of your refund.

What Records Should I Keep?
Normally, tax records should be kept for three years, but some documents — such as records relating to a home purchase or sale, stock transactions, IRAs and business or rental property — should be kept longer.

You should keep copies of tax returns you have filed and the tax forms package as part of your records. They may be helpful in amending already filed returns or preparing future returns.

Change of Address
If you move after you filed your return, send Form 8822, Change of Address, to the Internal Revenue Service. If you are expecting a paper refund check, you should also file a change of address with the U.S. Postal Service.

What If I Made a Mistake?
Errors may delay your refund or result in notices being sent to you. If you discover an error on your return, you can correct your return by filing an amended return using Form 1040X, Amended U.S. Individual Income Tax Return.

Visit the IRS website at http://www.irs.gov for more information on refunds, recordkeeping, address changes and amended returns.
Links:

YouTube Videos:

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Can’t File on Time? Get an Extension until Oct. 17

Apr 15

Posted by lhendricks in Accounting Set-up, Bookkeeping, Business Planning, Individual Tax, Small Business Management, Small Business Tax, Year-end Support | No Comments

Reposted from IRS Newswire:

WASHINGTON — Are you unable to complete and file your federal individual tax return by the April 18 deadline? If so, you can request an extension of time to file, which will automatically give you until Oct. 17, 2011, to submit your tax return to the Internal Revenue Service.

An extension gives you an additional six months to file your tax return. But keep in mind that an extension of time to file is not an extension of time to pay. All outstanding balances are due on April 18, 2011.

The IRS expects to receive approximately 10 million extension requests in 2011, which is about the same as last year.

Numerous Ways to Get an Extension

In order to get an extension, you need to file Form 4868 with the IRS.

Taxpayers can electronically file Form 4868 through IRS Free File or Free File Fillable Forms. Using Free File to prepare and electronically submit Form 4868 is free to everyone, regardless of income.

Paid preparers can also electronically file Form 4868 as can tax software that you run on your computer.

Finally, a paper version of Form 4868 is available for download from IRS.gov. However, the IRS will only provide an acknowledgement of your extension request if you e-file or Free File the request.

When you request an extension, you need to estimate your tax liability andpay any balance due by the April 18 deadline. If you are unable to pay the total balance due, you should pay as much as possible and apply for an installment agreement.

Video: Last-Minute Tax Tips: English

For this and other videos, see: YouTube/IRSVideos

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Don’t Miss Out on Depreciating Your Rental!

Apr 6

Posted by lhendricks in Accounting Set-up, Bookkeeping, Individual Tax, Small Business Management, Small Business Tax, Year-end Support | No Comments

If you rent property to others, be sure you’re up to date on what counts as income, as well as all the expenses you can claim.  You’ll report both the income and expenses on Schedule E, Supplemental Income and Loss.

Rental income is any type of payment you receive from someone as compensation for using or living on your property.  If you and your tenant agree that they will provide some work or service in lieu of money for rent, count the going rate for that type of work as rental income.  If you receive advance rent, go ahead and include it in the year you received it.  Security deposits, however, are treated differently.  If you plan to reimburse a security deposit to the tenant when the lease is over, don’t include it as income when you receive it.  (*Note that states have differing rules regarding security deposits; check to see if your state requires you as a landlord to put the security deposit into a special account.*)  If you don’t end up giving all of the security deposit back when the renter leaves, include the amount you keep as rental income at that time.

Why does it matter if you keep track of your expenses?  Because they reduce the profit you make on renting that property, which reduces your taxes!

There are several rental property expenses that can be deducted; don’t miss out on these!  Almost everything you do to maintain or improve the property counts as an expense.  Here is a list of expenses you need to keep track of:  maintenance, improvements, advertising, management commissions, utilities, insurance, legal fees, homeowners’ association dues, cleaning costs, mortgage interest and travel costs associated with managing the property.

Don’t forget to depreciate that house, too!  Depreciation is an often-missed and potentially big deduction.  There is a myth out there about depreciation: “If you don’t depreciate, you don’t have to pay tax when you sell the rental property.  This is not true!  Tax code says that depreciation will be counted upon the sale of a rental, “allowed or allowable.”  This means that when you sell your rental home, the IRS will count the depreciation deduction you were allowed to take, even if you never took it!  So, take the depreciation deduction on your rental.  A residential rental property generally depreciates for 27.5 years, and a commercial rental property for 39 years.  Make sure you are benefitting from all the deductions allowed to you!

IRS Publication 527, Residential Rental Property, includes information on rental income and expenses you can deduct if you rent out property.

For more information on rental income and expenses see Publication 527. This publication can be downloaded from http://www.irs.gov or ordered by calling 800-TAX-FORM (800-829-3676).

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What to Do if You Can’t Afford to Pay Your Taxes

Mar 30

Posted by lhendricks in Financial Planning, Individual Tax, Small Business Management, Small Business Tax, Year-end Support | No Comments

Article reposted from Accounting Today

With tax season winding down, millions of taxpayers may be looking at tax bills they can’t afford to pay but can’t afford to ignore either.

“If you can’t pay what you owe, still file a tax return and make payment arrangements with the IRS,” said CCH principal federal tax analyst Mark Luscombe. “Otherwise, you’re immediately facing a failure-to-file penalty as well as interest, additional costs and potentially a tax lien or levy down the road.”  In February, the IRS issued new rules to help soften the blow for taxpayers who can’t afford to pay their taxes when owed. These new rules include increasing the threshold at which the IRS files a tax lien and expanding the installment and offers in compromise programs to allow more taxpayers to qualify.  Despite the changes, taxpayers still face a host of consequences for not paying taxes when owed and need to understand the options available to address their tax debt, CCH noted.

Ramifications of Ignoring Tax Deadlines

If a taxpayer does not file a tax return and pay the taxes owed when due, the IRS can take several steps, including:

• Failure-to-file penalty. The taxpayer faces a penalty of 5 percent of the tax due for every month or any fraction of a month that the return is overdue, capped at 25 percent. Additionally, failing to file a federal tax return is a misdemeanor and carries a maximum fine of $25,000 for individuals or a one-year prison term.

• Substitute tax return. The IRS can file a substitute tax return for the taxpayer based on information it has from other sources. The substitute tax return will not include exemptions or expenses to which the taxpayer may be entitled. So, it may overstate the actual tax liability.

• Levies and liens. Next, the IRS will start a collection process. This can include a tax levy or tax lien. With a tax levy, the IRS can seize your property – for example, your house, car, bank account or wages – to pay your taxes if you failed to make arrangements to settle your debt. A tax lien is a claim used as security for a tax debt and can have a direct impact on a taxpayer’s credit rating. If a tax liability remains unpaid after the IRS issues a notice and demand for payment, a tax lien is automatically filed to record a claim by the IRS to all property owned by the taxpayer.

Under the new IRS procedures, liens will not be filed until a taxpayer owes more than $10,000 in taxes (up from $5,000). Additionally, the new rules make it easier for a taxpayer to have a tax lien withdrawn from their record after paying their tax debt. However, they need to make a formal request to the IRS for the withdrawal. Also, if the taxpayer enters into a direct debit installment agreement with the IRS, they can have the tax lien withdrawn while they are paying off the debt.

“You want to avoid having a tax lien,” Luscombe said. “It’s a costly and disruptive experience. Your credit rating will be affected, you can have difficulty buying or selling a home and it could even affect your ability to get a job.”

Three Main Tax Debt Payment Options

Steps taxpayers can take to help avoid a tax lien include either finding a way to pay the taxes owed outright or working with the IRS to arrange a payment schedule and possibly agree to reduce the amount owed.

1. Borrow, liquidate assets or charge to pay the debt. Taxpayers who owe and can’t pay their entire tax bill when it’s due, but can pay the full amount within 120 days, can ask the IRS for a short-term administrative extension.

Taxpayers who need more time have just a few options: They can try to secure a bank loan, such as a home equity loan, cash out a retirement account or use their credit card.

While going into debt to pay off a debt may not seem the best option, the interest rate and fees assessed by a bank or credit card issuer may be lower than the interest and penalties assessed by the IRS. Credit card payments must be made electronically, through personal tax software, a paid tax preparer or through credit card service payment providers.

Penalties for withdrawing from a retirement account may be more substantial. However, taxpayers may also want to explore this option with their tax advisor if other resources are unavailable.

2. Enter into an installment agreement with the IRS. The IRS is required to accept installment payments if a taxpayer has a good filing and payment record over the past five years, the amount owed is not more than $10,000 and it can be paid off in full within three years.  Under the new rules, the agency also is allowing small businesses to enter into “streamlined” installment agreements if their debt is below $25,000 (up from $10,000) and they agree to pay it off in 24 months. The new streamlined installment agreement is available to small businesses that file as an individual or as a business. To participate, the small business must enroll in a direct debit installment agreement.

3. Reach an offer in compromise with the IRS. In some instances, the IRS may accept less than the full amount due. This typically occurs if the taxpayer can show that the full tax debt could never be collected or they have a dispute with the IRS as to how much is owed, but neither party wants to enter into a legal battle to resolve the issue.

Under the new rules issued in February, more people may be eligible to participate in offers in compromise. Taxpayers with incomes of up to $100,000 (up from $50,000) and who have a tax debt below $50,000 (up from $25,000) can now request an offer in compromise from the IRS.

There’s a $150 fee charged for offers in compromise. Certain low-income individuals can ask for a waiver. Additionally, an initial non-refundable payment must be made with an offer in compromise.


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401k Early Withdrawal

Mar 21

Posted by lhendricks in Individual Tax, Small Business Management, Small Business Tax, Year-end Support | No Comments

If you have ever withdrawn money early (before age 59 ½) from a traditional retirement fund, you probably felt a big sting on your tax return that year.  Did you know that if you have to withdraw money early, there are some ways to avoid that painful extra 10% penalty?  Of course, if you roll over the entire withdrawn amount into another retirement account within 60 days, including any taxes withheld, you won’t be subject to the 10% penalty.  Bu-u-u-t, if you have spent or kept the money, check these options out.  If any of these situations apply to you, you may save yourself some money:

  • Your medical expense was more than 7.5% of that year’s Adjusted Gross Income.  Say your AGI was $100,000, and your medical expense was $10,000.  That would mean that $2,500 is over 7.5% of your AGI.  So, up to $2,500 could qualify for the exception from the 10% extra penalty.
  • You were permanently and totally disabled.  (In IRS terms, this generally means you cannot be gainfully employed for a year or more.)
  • You are a qualified reservist ordered to active military duty on or after December 31, 2007.
  • You purchased your first home in the year you took money out of your retirement fund.
  • You paid for higher education expenses in the year you took money out of your retirement fund.
  • You were unemployed and paid health insurance premiums in the year you took money out of your retirement fund.

Remember, you will be taxed on any money you take out early from a traditional retirement fund.   Avoiding that extra 10% penalty helps a bunch, though!  Be sure to fill out IRS Form 5329 to receive the exception from penalty.

For more details and exceptions, see IRS Publication 575, Pension and Annuity Income

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