Complicated Filing Season Ahead for 2015

IRS Commissioner John Koskinen addressed hundreds of attendees at the AICPA National Tax Conference recently and noted that the 2015 tax season will be one of the most complicated tax seasons ever. This is, in part, because two new provisions introduced in the Patient Protection and Affordable Care Act of 2010.  They include the premium tax credit and the individual shared-responsibility payment or “individual mandate” to maintain minimum essential health coverage.

 

Congress has not made it easier by its late action or inaction on legislation to extend temporary tax provisions that mostly expired at the end of 2013. This continued uncertainty is stressing out the entire tax community, including the IRS. Kevin Thompson, CPA says “I thought things could not have been worse than they were for tax season 2014. This is setting up to be just that.”

 

If nothing is decided into 2015, or contains new or modified provisions, the IRS may need to delay the start of filing season which will delay the processing of returns. Thompson says, “Last year we were delayed until almost March 1 in the ability to file tax returns. It made for a miserable March and April.”

 

Reductions in the IRS’s funding have made it even harder to provide reasonable service to taxpayers, provide enforcement and update old technology systems. Its budget has declined by 7% since 2010.

 

Many taxpayers have found it impossible to get through to the IRS to have questions answered because call centers are not working efficiently. The average wait time has been 34 minutes. For the practitioners priority hotline, the average wait time is 52 ½ minutes.

 

The IRS asked for $430 million for processes, forms and regulations and $300 million to improve its information technology systems for fiscal 2014.  They received zero. “As an organization, the IRS is underfunded and overwhelmed. I am not sure they can achieve any mandate without funding. That said, I am not an advocate of additional spending. Instead, I would like to see the IRS partner with tax practitioners to ensure that taxes are prepared and filed timely and collection matters are dealt with in a timely fashion.”

 

Koshinen has been attempting to improve online taxpayer and practitioner service to be comparable to a typical financial institution. A sore point has been the fact that the IRS had to shut down its e-filing system for maintenance from Oct 11 – Oct 13 on the eve of the extended date for 2013 returns. Generally, the IRS takes advantage of holidays to perform maintenance tasks. Those who filed returns that week will be given relief from late penalties.

 

The IRS is making an effort to combat tax identity theft. Koshinen calls it “one of the three or four most important issues we’re dealing with.” The greatest number of identity theft cases took place between 2010 and 2012.  1,200 – 1,500 people were investigated, arrested, and sentenced and more safeguards implemented. Improper payments to identity thieves are much lower but still a problem with an anticipated 3,000 to 4,000 victims in 2015.  Most amateurs have been taken off the streets leaving organized crime and syndicates all over the world.

 

The IRS has improved in correcting victim’s accounts and has reduced the time from one year to 120 days which is still too long. Ongoing initiatives to fix the problem include consolidating victim assistance in a single IRS unit and a pilot program offering identity protection personal identification numbers to all taxpayers in in regions where identity thieves have operated. Currently the pilot program is available in Georgia, Florida, and D.C.

 

“In summary” says Thompson, “I feel like a psychic predicting a train wreck. Failure seems inevitable.”

 

 

kevin@kevinthompsoncpa.com  or call him @ (310) 450-4625.

The Donald Sterling Case – A Lesson In updating boilerplate trust clauses

As we watched the Donald Sterling case play out on the news, we were reminded of the importance of making sure our boilerplate trust clauses are as we want them to be. LA Clippers owner Donald Sterling was stripped of his rights to not sell the team by his estranged wife, whose lawyers and doctors deemed him incompetent.

 

Mrs. Sterling gained control of the trust by becoming sole trustee. She was then eligible to control the trust and negotiate the sale of the Clippers Basketball team.  The reason is; Donald Sterling signed a clause in the trust that allowed his wife to take over in the event that he was shown to be mentally incompetent. Two doctors, who were not Donald Sterling’s personal doctors made the determination that Mr. Sterling had early stage Alzheimer’s or another brain impediment and was at risk of making errors in judgment that would be detrimental to the team.

 

Donald Sterling and his lawyers challenged this decision and were unsuccessful in proving that he was perfectly capable of carrying out his business affairs.

 

The moral of the story is that it’s critical go over your boilerplate clauses in detail to avoid a scenario like the Sterling’s are playing out in front of the press.

 

Estate Planning Tips

  • Review all “boilerplate” clauses in your estate planning documents to make sure that you spell out what determines mental incompetence.
  • Make sure to plan for any sort of disability of impairment that could affect your ability to carry on business.
  • Be careful whom you choose as a successor trustee should you become unable to conduct business.  Consider estrangement from a spouse as a reason to disqualify your successor trustee.
  • Avoid conflicts with successor trustees by putting a checks and balances system in place.  Weigh their vested economic benefits as a reason someone would use to unseat you. You might want to consider designating a second trustee.
  • Mandate that a determination of incompetence must come from your own personal physician rather than from an opposing party.
  • If a relationship becomes estranged it’s a good idea to review all estate planning and financial documents that have to do with control issues and otherwise.
  • Determine which trustees will be accountable.  This may be a spouse, children or other advisers.
  • Designate a guardian for yourself and your property in the event of a court proceeding. That guardian will hold your durable power of attorney and give them legal standing to defend you in court if needed.
  • Review your estate planning and financial documents regularly and make sure your boilerplate trust clauses are up to date.

Kevin Thompson CPA can help you review your financial documents. Call him today.

 

kevin@kevinthompsoncpa.com  or call him @ (310) 450-4625.

Baby Boomers and Retirement Plans – Possible Solutions

Now that Baby Boomers are getting older, those in defined contribution plans such as (401 (k) and 403 (b), are finding that they aren’t sufficient to provide income for the duration of the retiree’s life. Although 403 (b) plan annuities are better, the problem still may exist.

 

Although plan sponsors have focused on the need to save for retirement, but have been lax in preparing Baby Boomers to address needs after retirement commences.  Plan sponsors are not required to provide post retirement help, however, when they do, they face fiduciary responsibility.

Some of the risks Baby Boomers risk in retirement are:

Because they are living longer, retirement savings need to last until end of life. From 2000 – 2014, the life expectancy of a 65 year old has increase by 3 years.  There is a great probability that at least one spouse will live to be 95 or more.

 

There are market challenges that could affect their retirement income. If a serious downturn were to occur, either right before or after retirement, the retiree may be forced to use up investment income to pay expenses and has less of a chance to recoup.

 

They may not be sure of how much they can withdraw in order to make sure they have enough left for life.  Many experts recommend that a 65 year old retiree withdraw no more than 4 % per year (adjusted for inflation) in order to have a 90% chance of their money lasting for 30 years.

 

Their mental state may decline as they get older. A person 85 or older is often not capable of making smart financial decisions on their own.

Possible Solutions

Traditional annuities have a fixed monthly payment that is guaranteed for the life of the retiree and spouse. With an annuity, the retiree pays some or all of his account balance to the insurance company and they in turn pay the retiree for life.  There are no market fluctuations and they know how much they will take in each month and for how long.

 

Kevin Thompson, CPA says “annuities are always under fire and cast asunder by many. I believe they can serve to fill the financial gap created by longer lives.” Thompson went on to say “recently we discovered that a client thought he had retired with income for life. He did, but only his life. If his wife outlives him, and there is a very high likelihood of that, she would not receive his retirement income. We worked with a reputable insurance company to provide an annuity that would kick in and continue the income for her life. Needless to say, she slept better with that sense of relief not having to worry about retirement income.”

 

GWB’s (Guaranteed withdrawal benefits) also guarantee income for life under certain conditions.  The retiree invests all or part of his account in a managed fund. (Usually a target date or balanced fund)  The GWB has two parts.  An Equity factor in which the account grows with contributions and investment gains, and the protection factor.  As long as the retiree’s withdrawals do not exceed a certain percentage of the highest account balance, the insurance company pays at the same rate if the investments are consumed.  The retiree may take larger withdrawals from investments to pay expenses if needed, although this reduces later payments.

 

Thompson says “I am not smart enough to understand the ministrations and fine print of these types of contracts. I just know that more often than not, what people think they have is not what they have. And the sooner they figure that out, the better. With time we can fix so much.”

Fiduciary Concern

Sometimes the fiduciary concerns of considering the retiree’s needs and recommending products to meet those needs are overwhelming. Because of this the Department of Labor has created a regulatory safe harbor.

 

The regulation stipulates that a fiduciary must be able to conclude that at the time the selection of the product is made, the insurance company is capable of making all future payments. Thompson says “in 2008 when the world was collapsing about us, most of the insurance companies (except AIG) stood strong, met their obligations and provided reserves for future needs.” The public believes this requires monitoring. The movie Too big to fail memorialized just how true that is.

 

Cost of the product is also considered but mostly the financial integrity of the provider. “Cost should always be one of the elements of the decision. But the financial stability of the underlying insurance company should be the number one reason to write the policy.”

 

Taking into consideration the risks that Baby Boomers face and the need for in-plan solutions, fiduciaries must consider offering products that are guaranteed lifetime income and do so in an informed manner. Kevin Thompson, CPA in concert with his professional affiliates can work with you to provide sufficient income now and into the future. Please contact him for a complimentary retirement review.

 

kevin@kevinthompsoncpa.com  or call him @ (310) 450-4625.

 

 

 

Is Your Tax Professional Professional?

After the IRS’s tax return preparer’s regulation program was defeated in federal court, IRS Commissioner John Koskinen made that comment that the IRS should make available a voluntary tax return preparers certification.  The AICPA responded to the commissioner with much concern and noted that the IRS would make much better use of funding to identify and crack down on incompetent and/or unethical tax preparers.

 

Koskinen had urged Congress to regulate tax preparers in the past, but stated that if the legislation did not pass, he recommended the certification as an interim step.

 

The AICPA is not convinced and noted 3 reasons for concern:

  • It would cause confusion regarding what would be considered to be proficiency among preparers.
  • Taxpayers may have the impression that certain preparers would be endorsed by the IRS.
  • It would not solve the issue of regulating unethical or fraudulent tax preparers.

The AICPA also feels that the IRS would be moving to implement the program without a solid proposal or input from the public.  They recommend that the IRS focus on the current tax preparer program (PTIN) as well as increased taxpayer education rather than the voluntary certification they are proposing. “When I purchased Action Tax (www.action-tax.com) I was shocked how little regulation existed in that sector” said Kevin Thompson, President. “That industry operates similarly to CPA and EA practices but with little or no oversight.”

 

The enrolled agent program is already in place for tax return preparers who desire to be licensed by the IRS.  The IRS plan to validate other preparers who have not been subjected to the same regulatory responsibilities as enrolled agents would invalidate the enrolled agent program.  The AICPA recommends that the IRS use the PTIN program to track preparer’s activities, and identify any fraud or incompetence.  The suggest instituting compliance programs to make it more difficult for incompetent or unethical preparers to practice. Thompson says “one of my goals is to grow Action Tax into a multi office and maybe even multi state operation. The high volume practices are often filled with highly talented individuals that perform remarkably for their clients.”

 

The AICPA would prefer the IRS to implement a solid enforcement strategy rather than the certification program.  The current PTIN program allows the IRS to accumulate data on the activities of certain tax return preparers.  It would like the IRS to more clearly define “preparer” for PTIN purposes and exclude non-signing preparers who are supervised appropriately by professional and licensed tax preparers. Thompson says “I am a CPA and I know that we are held to a higher standard. I also know that the IRS is not equipped to resolve this public dilemma. I believe the solution lies in a joint effort led by the AICPA (www.aicpa.org) and NAEA (www.naea.org) to eliminate the confusion, provide order to the marketplace and assist the American taxpayers.” There are two examples of how this might work;

 

First, nearly 100 years ago, there were Public Accountants (PA) and Certified Public Accountants (CPA). Thompson says “except for the CIA (all humor intended) we didn’t have the internet then and I don’t know how it was regulated nor how much confusion existed.” In the early 1900’s, they merged these under the AICPA and grandfathered many of the PA’s into the AICPA. “I am sure this provided some measurable clarity to the American public.” Today there are in excess of 700,000 CPA’s in the US.

 

Enrolled agents were created in the Enabling Act of 1884 to examine and validate war loss claims. The Treasury Department was experiencing an extreme incidence of fraudulent claims and did not have the manpower to handle it. The scope of their jobs was enhanced with the passing of the Revenue Act of 1913. Today the rolls of EA’s stands nearing 50,000.

 

I think these two organizations, with the oversight of the government can provide the process to organize, train and regulate ALL preparers.

 

The second example is in how we handle immigration. Remember in 1986 President Reagan signed a sweeping immigration bill that allowed all immigrants that had entered the country illegally, eligible for amnesty and citizenship. I think we can work with the AICPA and the NAEA to create the process for private regulation of the tax preparation industry by providing an amnesty for existing preparers and a licensing process for new preparers coming into the industry.

 

The AICPA suggests the IRS use penalties and sanctions that are already available to penalize shady tax preparers. Thompson says “there will always be those that are shady and need punishment. But the vast majority of tax preparers are fine, upstanding individuals trying to help US taxpayers perform their civic duty – prepare and file tax returns annually.”

 

In summary, the AICPA proposes the IRS reconsider the voluntary certification program, listen to public and industry concerns and make a more informed decision before moving forward.

 

kevin@kevinthompsoncpa.com  or call him @ (310) 450-4625.

 

 

Earned Income Credit is a Victim of Tax Fraud

The Earned Income Credit (EIC) was designed to aid needy families but unfortunately is being used by those who are using it fraudulently. Last year, the IRS paid more than $13 billion in tax credits to people who may not be eligible.

 

This abuse of this program is hurting anti-poverty programs and those who truly need its benefits.

 

J. Russell George, the Treasury Inspector General remarked, “The IRS can and must do more to protect taxpayers from waste, fraud and abuse.”

 

The IRS has begun fighting this abuse and is improving its efforts to oversee EITC payments. It has expressed concern and is preparing a major review to find better ways to discern valid claims from excessive ones. Kevin Thompson, owner of Action Tax (www.action-tax.com) attended a conference in Long Beach this year. At that conference the big buzz was “EIC is the largest fraudulent program ever in existence.” Thompson goes on to say “the spokesperson said the IRS does not know how to stop this abuse and we are going to look to you (tax preparers), our Partners, to help reduce and ultimately eliminate the fraud being perpetrated.”

 

The Earned Income Tax Credit is one of the country’s most extensive anti-poverty programs. More than 27 million families received almost $62 billion in credits in 2011.

 

Families must work to earn the credits but there are limits on income. The amount of the credit depends on the amount of income and number of children in the household.

 

For example:  A husband and wife with 3 or more children can earn up to $52,427 and still qualify. A family with 2 children can earn up to $49,186.

 

The maximum credit this year is $6,143 for a family with 3 or more children. For 2 children it will be $5,460.

 

Original Article

 

kevin@kevinthompsoncpa.com  or call him @ (310) 450-4625.

 

Billion Dollar Business Marketing Strategies That May Work for Your Business

“I get the immediate question” says Kevin E. Thompson, CPA; “what does a CPA know about Marketing?” “A great question” says Thompson and replies  “I know very, very little and it is still worthwhile to share these small, low-cost opportunities to grow business.”

 

Facebook, Mint.com and AppSumo.com have collectively reached almost 1.5 billion people due to their remarkable marketing strategies. An insider relates what he’s learned from working with all three companies.

 

Give your audience something they want as an incentive. – Think about offering targeted promotions, partnerships, special access that’s compelling enough for them to want to have. Mint.com launched their online site with more traffic than their competitors because they incentivized people who opted in early by offering them a badge they could place on their own websites that read, “I want Mint,” or “My money’s on Mint.”  Bloggers from all over the Internet who were in personal finance began to promote the site. They wrote positive reviews and created the buzz.

 

AppSumo became known for their giveaways. One offered 10 free Dropbox pro accounts for life. If they shared the giveaway on social media, they earned more entries. This strategy earned them over 50,000 email opt-ins.  Dropbox had a similar audience so it was a match made in heaven.

 

Tips to incentivize:

  • Offer special access or a giveaway that includes entries for sharing.
  • Be clear to your readers what they will be receiving and emphasize that there is limited time or the incentive is scarce.
  • Work with other businesses to do cross promotions.  This allows you to access their audiences. “This is a great and easy” says Thompson. “My wife owns and operates a bridal salon. On Saturday, the busiest day of the week, she has the local bakery bring in cake samples for brides and family. This allows the bakery to get in front of the bride before they make the decision on the cake for the wedding.”

 

Ask to Sponsor a website - Up and coming sites rather than the most popular ones give you a better chance of developing a strong relationship.  You can find sites that resonate with your customers by checking out the website Buzzsumo and enter in your niche topic or your website address.

 

Contact the creators and influencers sharing your posts about sponsoring their site.

 

Survey your current readers to find out what other sites they visit in your niche.

 

Email sites with the subject line “Sponsoring Your site” and see what response you get.

 

Focus on listening to your audience and create content to educate them. – Add a blog to your site with articles that provide valuable content to gain trust with potential customers.  Mint.com, a website that requires its readers to enter their banking and credit card info, was able to gain trust by providing a blog that educated readers about personal finance issues.  The blog receives high traffic and interest.

 

Learn from failures by listening and deciphering your audience’s fears and desires and then tweak your strategy for better results.

 

Create an email drip campaign using an auto responder system to further educate your audience and build a relationship with them.

 

Expand Internationally – Facebook reported in 2013 that less than 20% of its audience came from the US and Canada.  The company localized language for countries where the social network was available.  Use Facebook ads or other affordable options, targeted at various countries to build international presence. “One of our three primary focuses for growth in 2014-2015 is international tax compliance. Look for us to be using FB to assist in that growth” says Thompson. “My Marketing Director, Hillary, with Top Hat Marketing, has been testing our results with FB for several months. We look forward to an emerging campaign that will drive new international customers to our offices.”

 

Be clear on what your niche is and make sure it is marketable. –

 

 

A successful niche must be able to solve other people’s problems. “For years” says Kevin, “my experts would tell me it was all about niche marketing. Although I listened to what they said, I never heard nor acted on the advice. We have always had a niche in the entertainment business but never really marketed to it. With FB and other social sites, we can get in front of potential customers very efficiently.”

 

Invest in an attractive design for your online presence.  This includes your website and landing pages. Consider how your design communicates your brand’s trustworthiness.

 

Before invest heavily in design, make sure your niche idea is marketable enough and that you can provide a solution for your customers that will make you a profit.

 

Use your knowledge to create content – Find out what readers are looking for on the Internet that relates to your niche. Facebook, for example, has trending topics.  Build content and products based on those trends.  Be willing to show how you may have been wrong, how you changed your mind about something or how you came up with your solution.

 

If something is working, run with it. – Facebook realized that importing address books and emailing those people built their audience significantly. They began to add a variety of address books. They eventually bought a company that imported addresses.  Mint.com was very successful in providing infographics.  AppSumo found that spending money for ads was making them money.  They increased their ad budget.

 

It’s important to track what is giving you results in your business. “My friend Dave Williams, may he rest in peace, always said you get what you measure. So track where customers come from and do more of that.”

 

Focus on the actions that bring you results. “In our Action Tax division, little cards attached to tax returns that said WE LIKE REFERRALS gave us new customers every year.”

 

Survey your customers regularly to find out where they found you and what their experience has been with your company.

 

Find a way to get your customers to give you permission to talk to them.

 

The most important business building tool is to collect email addresses from customers who have opted in to receive your content.  Install an opt-in box with a compelling incentive to get potential customers to opt-in.  It is illegal to communicate with them without permission.

 

Realize that what works for others in your niche may not work for you. – You may read tons of marketing strategy but that doesn’t mean it will work for your particular business.  For example, Facebook never did content marketing.  They relied on word of mouth, SEO and address book importing.  Mint grew from SEO and by targeting small blogs in the personal finance space.  AppSumo didn’t get any bang from using SEO at all.  Their subscribers came from product promotion, free incentives and ads.

 

Summary

Each company must create a marketing plan that works for their own individual needs.

 

Focus on analyzing trends and results to come up with a marketing plan that fits your business.

 

Take other successful companies strategies and only take away what would actually work for your company.  Don’t try to force a strategy that is clearly not a fit. “I call that R & D “ says Thompson “Rob and Duplicate.”

 

Original Article

 

kevin@kevinthompsoncpa.com  or call him @ (310) 450-4625.

 

The Truth About the IRS Compromise Program as Heard in Radio Ads

Have you been listening to radio ads that promise to get you out of paying your taxes?  They claim that a taxpayer can settle their tax balances that are owed to the IRS with an Offer in Compromise (OIC).   Many taxpayers who are unable to pay outstanding amounts are eager to listen to anything that would possibly give them a break.  However, the truth is; most of these claims are over-hyped and have little chance of being accepted.

 

In 2013, the IRS only approved 31,000 applications for OIC.  The IRS, on the other hand, allowed 4 million installment agreements in 2013 to enable taxpayer to repay what they owe. Kevin Thompson, CPA, President of Action Tax (WWW.ACTION-TAX.COM) says “my experience with this process is there is much hullaballoo and not much action. Most taxpayers either do not qualify or cannot navigate the very difficult process that the IRS has created. I cannot imagine entering this trek without experienced, knowledgeable counsel.”

 

The Government Accountability Office (GAO) reported in 2010 that more than 16 million taxpayers owed money to the IRS.  “These taxpayers are under great risk of liens and levies and other devices the IRS can use to collect taxes owed.” As discussed above it takes highly experienced professionals to assist these taxpayers in these circumstances. “It’s the main reason we recently acquired Cool Tax Services into the Action Tax family of services. I see 31,000,000 taxpayers that need our assistance. Matthew Cooling, EA, Founder of Cool Tax Services says “I have been involved with and preparing OIC’s for more than five years. Joining the Action Tax family will allow me the opportunity to apply this experience to clients of Action Tax, both existing and prospective.”

 

In order to be eligible for the OIC qualification, they take into account a computation of your ability to pay before the IRS runs out of time to collect the debt. This is called the collection statute expiration date.   You can use this OIC Pre-qualifier toolto see if you qualify.

 

Cooling says “you will need to be able to prove that you can’t pay the total balance owed before the collection statute expires, using net equity in assets plus any future income. The IRS will then calculate your future income as the amount it can collect on a monthly basis.”

 

Once your ability to pay is determined, the IRS will determine if you qualify for an OIC or if you have to pay the taxes owed to the IRS.

 

Qualifying for an OIC does not mean you will obtain one. To obtain one, you must be able to pay the offer amount, which is the computed amount required to be paid to the IRS to settle the debt.  The formula used to compute the offer is different than the formula used to determine your qualification.

 

In order to calculate the offer amount, you must complete your due diligence. You may at first find that the offer amount is too high to consider an OIC as an option.  You may also discover that your computed net equity and assets and monthly income were miscalculated, which resulted in an offer amount that is larger than you expected and too much to pay.

 

A tax professional will be more accurate in computing the OIC’s financial requirements and help you avoid a long and costly investigational process or find you a better alternative.

 

Although the number of OICs accepted is small, compared with the number of taxpayers applying, more taxpayers are qualifying and obtaining OICs due to the 2011 IRS Fresh Start Initiative, which has made it easier to qualify.  In 2014, the IRS received 30% more OIC applications compared with 2010 and the acceptance rate increased to 42% up from 25% in 2010. Matthew says “The Fresh Start Initiative is the first real effort by the IRS to assist taxpayers in need. Although not salvation for the needy taxpayers, it is a step in the right direction.”

 

If you definitely have a financial hardship, you may want to consider qualifying for an OIC.  However, the process is complicated and it is recommended that you consult your tax professional to make sure you qualify and to expedite the process.

 

Action Tax is here to help.  Contact us at:

 

Kevin Thompson, CPA kevin@action-tax.com or call him @ (310) 450-4625 x102.

Matthew Cooling, EA matthew@action-tax.com or call him @ (310) 450-4625 x109.

 

Legal Tricks to Maximize your Business Tax Opportunities

Tax BillBusiness tax preparation can be just as daunting for a business owner as it is for an individual taxpayer. Business tax laws are complex, and it’s often wise to consult with a tax attorney or tax accountant. With several taxes to take into consideration, a business can easily find itself in a financial bind if not properly prepared. Luckily, there are ways to lower business tax and ensure that your business is pulling all the possible (and, most importantly, legal) stops to enter tax season with a clear mind.

 

Here are 3 tricks to securing the money your business deserves

 

1. Retirement/Health Account Contributions
Maximizing your use of 401k/IRA’s will allow you to deduct from your taxable income the amount paid into the account, thus reducing your total taxable income (for more information on your retirement plan options, please review IRS Publication 560, Retirement Plans for Small Business www.irs.gov/pub/irs-pdf/p560.pdf. “These retirement contributions can be done often times with and without employees” says Kevin E. Thompson, CPA, Santa Monica, CA.

 

Increasing contribution to your employees’ health insurance costs can also help lower your business tax, as well as provide compensation and a money saving alternative to salary increases. This is because a contribution increase of “x” dollars to an employee’s medical insurance eliminates a number of taxes that an employee would otherwise have to pay if the increase was attributed to salary increase.

 

2. “Bunch” Deductions
Bunching itemized deductions can help reduce tax liability and increase a business’ tax benefits. Maximizing your business’ expenses at the end of the year, rather than the beginning of the next, will help ensure that these expenses fall within the necessary income thresholds for some deduction categories and will earn you a deduction in the current tax year for those expenses. For instance, if your business is planning on a major expenditure, your best option would be to making the purchase at end of year; or, if your business spends “x” amount of dollars in office supplies monthly, forecasting for the next few months and bunching this expense into one large purchase will help lower business tax. “This is a very common, oft overlooked opportunity for most small businesses” says Thompson. “In December, we are all crunched for time and forget to do our tax planning. By bunching our deductions in December instead of letting them fall into January, we miss thousands of dollars of deductions that can have a significant impact on the tax obligations.” Of course, this bunching does not help with City Business taxes like Los Angeles and Santa Monica that are based on gross receipts. https://latax.lacity.org/laweb/F-logon.jsp

 

It is also beneficial to consider all possible deductions for your business—travel expenses (i.e vehicle and business trips), employee training, equipment repairs and losses due to theft are a few areas to consider when reviewing tax deductions. “And remember” adds Thompson “by charging using a credit card BEFORE the end of the year, you can deduct the expense even if you do not use the travel item until next year.”

 

3. Give Back
Donating to charity is a sure way to lower your business tax bill. By first ensuring that the charity in question is qualified and all donations are tax deductible, donating unwanted equipment can earn you a tax incentive from the IRS. Keep in mind, however, that the IRS requires written acknowledgement from the organization for contributions of or valued up to $250. “When giving back,” Kevin Thompson CPA says “there is a difference between a pure contribution and advertising. When you write a check to the general fund at the YMCA, it is most likely a contribution. However, when you buy an ad or sponsor a hole at the annual golf tournament, that is most likely advertising expense.” Thompson says, “this is more than semantics. Advertising is always 100% deductible where charitable deductions have certain limitations.”

 

By implementing these simple tricks at tax time, your business can find itself drastically reducing taxable income in a safe and legal way. However, certain applicable tax deductions vary by business, so it is important to understand what your business can deduct from taxable income. For more information regarding your business taxes, and to learn about other beneficial tax deductions, call Acosta Tax and Advisory, PA for a free consultation.

 

*this is personal legal or tax advice – please consult with a CPA to discuss your personal situation.

 

**We offer Business Tax Preparation Services in Redondo Beach and Santa Monica, CA..

 

kevin@kevinthompsoncpa.com  or call him @ (310) 450-4625.

 

Reporting Alimony and Avoiding a Mismatch

If you are divorced and either receiving or paying alimony the IRS may start looking at how each of you reports on your tax return.  When one of you takes a deduction for alimony, the other should be reporting it as income. This gets tricky, if for example, a payment is made late and isn’t received until early January and there is overlap in reporting.

 

According to the TIGTA report, the IRS tracks this transaction because there is a line next to the alimony deduction on the tax return that requires the ex-spouse’s Social Security number.  The IRS is then able to match up each tax return and often will investigate if numbers look suspicious. Many times adjustments need to be made.

 

On a percentage basis, however, very few discrepancies are investigated. For example, in 2010, there were 567,887 returns deducting approx. $10 Billion in alimony. Almost half ex-spouse returns didn’t match. The net difference came to $2.3 Billion. Out of 266,190 unmatched returns, the IRS only audited 10,870.  Only 2,000 further examinations were held after that.  Only 4% of tax returns in which one of the pair was dead wrong were acted upon by the IRS. “This difference is significant” says Kevin Thompson, CPA, an expert in tax aspects of family law “and the IRS will find a way to close that gap.” If it is a simple mistake, than the service will offer adjustments and make the appropriate spouse make the corrections. “But, if this is a case of the paying spouse deducting more than they are provided by the agreement, this could get ugly. Even uglier than the divorce was initially.”

 

Unfortunately, this isn’t something that can be tracked accurately using just a computer. It can be argued in court that the payment qualifies as deductible alimony or not.  Part of this may be because there is a lack of provision that payments terminate on the death of the recipient.  Just because the agreement does not say that payments terminate at death, doesn’t mean that they will continue. It depends on state law.

 

Even though the computer may find the discrepancy, it usually involves a live person to sort out the mess. This usually involves arguments and appeals and court appearances. Thompson says “Caution must be taken and confirmations must be had. We have reached out to divorced people and asked for the confirmation of the alimony paid/received. When someone thinks the IRS is looking, they usually pay attention.”

 

The IRS is understaffed when it comes to enforcement personnel. They don’t always get to it right away if at all.

 

A tax professional will always take the position of what is most favorable for their client and point out risk factors. AICPA ethics forbid tax professionals from playing audit lottery.  You may get caught for a number of reasons:

 

  • Not reporting the interest and dividends you get a 1099 for.
  • Claiming payments to the IRS that you didn’t actually make.
  • Not picking up alimony that your ex deducted.

 

The IRS may not do anything about the above, but it’s better to be safe than sorry.  It’s better to do things right in the first place.

 

It’s important that attorneys draft reasonable and clear agreements between two divorcing spouses to avoid any chance of making tax reporting mistakes.

 

TIGTA has recommended that the IRS send out warning notices to let people know they may need to amend their returns.

 

As the laws are written now, mismatches in alimony reporting cannot be fixed without enough IRS staffing in that area and Congress is not providing that.  Until that happens, making sure you are compliant with the current laws is the safer way to go.

 

For help sorting out alimony reporting, consult Kevin Thompson, CPA.

kevin@kevinthompsoncpa.com  or call him @ (310) 450-4625.

 

Original Article

 

What Baby Boomers Need to Consider When They Are Ready to Retire

As Baby Boomers prepare to retire, they are facing tough financial decisions in order to make their finances last for the duration of their lives. These concerns include:

 

  • The best time to take Social Security benefits
  • When to tap into retirement assets
  • Health and long term care insurance
  • Income producing investments to consider before liquidating a retirement profile

 

The end result of these decisions carry even more weight than they did when they were accumulated. However, there is not as much room for error as there was when mistakes and risks could be smoothed over by market fluctuations from the past.

 

John Reeve, a Redondo Beach based Financial Advisor specializing in the area of Retirement and Aging says “Each person’s situation is unique and the entire history must be considered.” He continues “the trend toward robo-advisors has left many Baby Boomers in the hands of software systems that are not as apt to consider a person’s individuality and needs. A personal advisor is able to implement informed withdrawal strategies that can minimize the total taxes paid during retirement which will increase that person’s wealth and financial longevity.”

 

Boomers are finding that their investment portfolios are falling short. Traditional income producing investments often lag behind inflation and unseen expenses may diminish the return. This is leaving some Boomers to scratch their heads and wonder “What do I do next?” “This is scary” says Reeve. “As we age, we lose the ability and the opportunities to accumulate wealth.” Most Boomers believe that the assets they have accumulated will be the only assets available for retirement. “There is no Golden Parachute awaiting retirees as they enter the Golden Years.”

 

A proficient tax advisor teamed with a savvy financial advisor are able to present strategies that a client may not be aware of that will be best for their individual situation. They may include investments in stock, bonds, cash or cash equivalents. A real estate trust, for example, can provide additional income as other assets are de-accumulated. And annuities can be instrumental in replacing pensions or other monthly cash flow.

 

Reeve says “Kevin and I recently worked a case with a retired couple. If the husband passed first, the surviving wife would lose his pension benefits. We repurposed some assets and positioned them to handle the lost benefit in the event of that unfortunate loss.”

 

Baby Boomers should seek guidance from reliable tax and financial planning professionals to address any investment risks they may decide to take in retirement. Their advisor will help them choose suitable options that are both traditional as well as alternative to make sure their portfolio is balanced, diversified and income producing.

 

John Reeve is a Financial Planner that is an expert in financial planning for Baby Boomers who are planning for retirement.

 

Kevin Thompson CPA is a tax professional that is an expert in tax planning for Baby Boomers who are planning for retirement.

 

Contact them here:

 

kevin@kevinthompsoncpa.com  or call him @ (310) 450-4625.

john@johnreeve.com  or call him @ (310) 353-2355