Friday, December 27, 2013

Employees get more than a paycheck

Surveys show that employees tend to underestimate the amount of money that their employer is spending on employee benefits. It's up to you to get them to realize their paycheck is only part of the compensation they are receiving as employees.

Make your employees aware of their total compensation package. After all, your employees can't appreciate all those extra dollars the company pays if they don't know about them.
In conjunction with preparing an employee's W-2 for 2013, prepare a list of the amounts that make up his or her total compensation package. Consider going over each employee's total benefits package during the employee's annual review.

Your benefits summary should include such items as the following: salary, bonus, pension plan contribution, deferred compensation, medical and dental insurance, life insurance, disability insurance, FICA (social security & Medicare), worker's compensation, and unemployment insurance.


Also include the number of paid vacation days, personal days, sick days, and the value of employer-provided benefits such as work clothing, parking, and meals.

Monday, December 23, 2013

Are disability insurance benefits taxable?

Have you decided to include disability insurance as part of your financial plan? If so, the next decision is how to pay the premiums. Here's why: The choice you make now can affect the taxability of the benefits received later.

For example, say your employer offers disability insurance as part of a cafeteria plan. When you sign up, the premiums are deducted from your paycheck before taxes. You're getting a current break in the form of excluding the premiums from income, and later payouts of policy benefits are generally taxable to you.

What if you pay part of the premium with after-tax income and your employer pays the rest? In that case, policy benefits are split into taxable and nontaxable portions.

Illustration: You pay 40% of the premium and your employer pays 60%. Benefits are 60% taxable.

If you opt to buy a policy yourself, premiums are not deductible on your personal tax return, and benefits you collect are not taxable.


Like other aspects of financial planning, choosing insurance involves weighing your alternatives and selecting what's most suitable for achieving your goal of protecting and growing assets. Give us a call. We'll help ensure that your financial plan remains on track.

Friday, December 20, 2013

Stay alert for holiday fraud

Thieves and con artists thrive during the holidays. All that good cheer, all those weary and distracted shoppers, all that money being spent - it's a fraudster's paradise. Here are a few tips to keep the bad guys at bay, whether you're shopping online or at your local mall.

*Stick with reputable merchants. During the holidays, your e-mail in-box may be filled with unsolicited messages urging you to "click here." Don't. Scammers set up websites that mimic legitimate stores. Their sole purpose is to extract personal information from unwary consumers. If you don't know the merchant, either type in the web address yourself or, better yet, shop elsewhere.

*Take care with charities. Of course, many legitimate church groups and nonprofit organizations engage in fund-raising activities during the holidays. If you're confident that the group is above-board, go ahead and donate. But if you catch a whiff that something's not quite right - the solicitor is too pushy or the guy at your front door evades reasonable questions about the organization - hold on to your money.

*Be attentive at the mall. Thieves love to lurk in and around shopping malls. So be aware. Take only the cash and credit cards you need to make purchases. Don't be fooled by someone selling $10 Rolex watches or $50 Armani suits. Some crooks even hang out in store parking lots stalking potential targets. In one scam, a thief will approach a woman in a parked car and inform her that the vehicle is damaged. When she gets out to check, the thief's partner absconds with the lady's purse. If an activity or person seems suspicious, call 911 or mall security.


*Be on guard with gift cards. These little pieces of plastic can be great stocking stuffers, but they're also prime targets for crooks. Scammers have been known to copy numbers from gift cards hanging in store displays. They then call a toll-free number to learn when the card is activated and use the card number to make purchases. One way to avoid this is to buy from retailers who keep gift cards behind the checkout register.

Wednesday, December 18, 2013

Should you use a bank line of credit?

Just exactly what is a bank line of credit and who should be using one? A bank line of credit is not a great deal different from a credit card. You make draws against your line of credit from time to time as you need cash. You pay interest only on the amount of the loan balance outstanding. You are expected to make payments and occasionally bring your outstanding balance to zero. Let's look at an example.

Let's say that your bank has arranged for you to have a $100,000 line of credit. You are not obligated to draw any of it at any given time, and you will pay no interest until you actually make a draw (much as you do with a credit card).

Assume that you want to build up your inventory for the holiday shopping season and need $30,000 to do so. After your inventory purchase, you still have $70,000 available even if the $30,000 is still outstanding, but you are only paying interest on the $30,000. You may have several occasions during the year to borrow on your line of credit. Since your line of credit is intended for short-term cash needs, your banker expects your balance to be paid down as your cash flow improves.
 
Do not use a line of credit for capital purchases. If you need to expand your building or buy new equipment, arrange a term loan for that specific acquisition. You should not use a credit card for such an investment, and you should not use your line of credit for that either.

If your business has at least two years of making a profit, you may well qualify for a bank line of credit. Start by checking with your current bank. Your banker would like to keep your business, and if your financial statements support it, you will most likely be offered a loan. Lines of credit for small amounts may not require collateral. On larger loans, you may need to put up collateral, and you may need a co-signer.

A bank line of credit can make your operation more efficient. There is comfort in knowing that you have a reliable source of instant cash for your short-term needs.

Most banks are willing to make loans to businesses that have uneven income cycles. You may want to shop around for the best loan terms. Some banks may already have several customers in your industry and do not want more (perhaps a bank examiner's concern). Accordingly, their terms may be less favorable than some other bank or credit union.

Please contact us if you would like assistance in preparing a request for a bank line of credit.


Monday, December 16, 2013

Time is running out for 2013 tax cutting

There's not much time left for you to make beneficial tax moves for 2013. Consider these possibilities.

* Maximize retirement plan contributions. For 2013, you can put $17,500 in a 401(k) plan, $12,000 in a SIMPLE, or $5,500 in an IRA. If you're 50 or older, you can set aside even more as "catch-up" contributions.

* Decide whether to sell investments to offset gains or losses already taken this year. You can deduct $3,000 of net losses against ordinary income.

* Estimate your tax liability for 2013, taking the new Medicare tax increases for higher-income taxpayers into account. If you'll be underpaid, adjust your final quarterly tax payment or your December withholding.

* December 31 is the deadline for taking a 2013 required minimum distribution from your traditional IRA if you're 70½ or older. Miss this requirement and a 50% penalty could apply.

* Purchase needed business equipment to use the first-year $500,000 expensing option for new and used equipment and 50% bonus depreciation for new equipment.

* Make energy-saving home improvements that could qualify for a lifetime tax credit of up to $500.

* Finalize annual gifts to use the 2013 exclusion from gift tax on gifts of up to $14,000 per recipient.


Contact our office for details on these and other year-end tax moves.

Friday, December 13, 2013

Tax strategies for charitable giving

Now that the holiday season has arrived, you might decide to step up your charitable donations to boost your deductions for 2013. Here are six timely strategies.

1. Audit-proof your claims. The IRS imposes strict substantiation rules for charitable donations. In fact, you're required to keep records for all monetary contributions, no matter how small. The best approach is to obtain written documentation for every donation.

2. Charge it. The deductible amount for 2013 includes charitable gifts charged by credit card before the end of the year. This covers online contributions using a credit card account. So you can claim a current deduction for donations made as late as December 31.

3. Give away appreciated stock. Generally, you can deduct the fair market value (FMV) of capital gain property owned longer than one year. For instance, if you acquired stock ten years ago for $1,000 and it's now worth $5,000, you can deduct the full $5,000. The appreciation in value isn't taxed.

4. Sell depreciated stock. Conversely, it usually doesn't make sense to donate stock that has declined in value, because you won't receive any tax benefit for the loss. Instead, you might sell the stock and donate the proceeds. This entitles you to a capital loss on your 2013 return plus the charitable deduction.

5. Clean out the storage space. The tax law permits you to deduct charitable gifts of used clothing and household goods that are still in "good used condition or better." Don't be so quick to discard items that can be donated to charity.

6. Donate a car. The deduction for a donated vehicle valued above $500 is generally limited to its resale amount. However, if the charity uses the vehicle for its tax-exempt purposes, you may be able to deduct its fair market value.


Call us for more details on the tax rules governing charitable contributions.

Wednesday, December 11, 2013

Take a credit for saving

Depending on your income, you might qualify for a tax credit of up to $1,000 for contributing to an IRA or other retirement plan. Don't overlook this "saver's credit" as an opportunity to both cut your 2013 tax bill and increase your retirement nest egg. You have until April 15, 2014, to make a 2013 IRA contribution that could qualify for the credit.

Monday, December 9, 2013

Supporting a parent could cut your taxes

If you provided more than half a parent's support in 2013, you may be entitled to a $3,900 dependency exemption. If other family members helped to provide support, you can use a "multiple support agreement" to decide who gets the exemption for 2013. Paying a caretaker or paying for a parent's medical expenses might qualify for a tax credit or deduction. For details, contact our office.

Friday, December 6, 2013

An HSA may be a good choice for you



Health savings accounts (HSAs) allow taxpayers with high-deductible health insurance plans to set aside pretax dollars that can be withdrawn tax-free to pay unreimbursed medical expenses. You might find an HSA to be the right choice for you and your family. The 2014 contribution limit to an HSA is $3,300 for individuals and $6,550 for families, with a $1,000 catch-up contribution for older individuals.

Wednesday, December 4, 2013

Energy credits still available

The IRS reminds taxpayers that certain energy credits are still available. If you haven't already taken advantage of them, this may be the year to make energy-efficient improvements to your home. You may be entitled to a credit of 10% of the cost of certain energy-saving improvements such as insulation, windows, doors, skylights, and roofs. The credit has a maximum lifetime limit of $500; the credit for windows is limited to $200. Not all energy improvements qualify, the IRS cautions taxpayers, so be sure you have the manufacturer's credit certification statement (usually available with the product's packaging or on the manufacturer's website).

Monday, December 2, 2013

IRS sends "possible income underreporting" notices

Form 1099-K is a new information return sent to businesses by "payment settlement entities" reporting the amount of credit card and other electronic receipts that were processed for the business. The IRS also receives a copy of Form 1099-K and cross checks the reported amounts with the business's total income reported on its tax return. Where the numbers don't seem to make sense, the IRS sends notices to businesses telling them they "may have underreported gross receipts." Notices go on to say "This is based on your tax return and Form(s) 1099-K, Payment/Merchant Cards and Third Party Network Transactions that show an unusually high portion of receipts from card payments."

The IRS has sent thousands of letters labeled "Notification of Possible Income Underreporting" to small business owners. The notification project is ongoing as part of the IRS's campaign to deal with the "tax gap," the difference between taxes owed and taxes actually collected.


If you receive a notice, contact us immediately so that we can determine what response is required.

Friday, November 29, 2013

Balance risk and return to create investment balance

Even if you're not an investment expert, you're probably familiar with the term "diversification." It means not putting all your eggs in one basket. Diversification calls for choosing the right mix of investments to keep a balance between risk and return.

* Choose the right investment mix. While there is no single asset mix appropriate for all investors, most people should have some combination of stocks, bonds, and cash in their portfolio. The right investment mix for you depends on your age, income, family responsibilities, and your tolerance for risk.

* Take a look at your mutual funds. Many mutual fund investors believe that they are well-diversified, even though they aren't. For example, it's possible that different mutual funds own many of the same stocks or similar stocks in the same industries. Whether you're thinking about buying a fund for the first time or you already own several of them, it pays to do a little digging. All mutual funds are required to publish a list of their complete holdings at least twice a year. Get the most recent listing for your funds and compare them for overlapping investments.

* Consider the big picture. When you review your portfolio for diversity, consider the investments both inside and outside your retirement accounts. They are parts of the same picture. Doubling up on the same investment in both types of accounts may decrease your diversification and increase your risk.

* Keep an eye on your 401(k). As a general rule, you should avoid being too heavily invested in any one company's stock, including that of the company for which you work. If your employer matches your 401(k) contribution with company stock, consider other investments for your own 401(k) contributions and for the money you invest outside your 401(k) plan. When you're allowed to do so, consider selling enough company stock to rebalance your 401(k).


Don't risk your financial future by putting too many eggs in one basket. If we can help evaluate your situation, give us a call.

Wednesday, November 27, 2013

Don't let taxes cloud your economic decisions

Some tax-cutting strategies make good financial sense. Other tax strategies are simply bad ideas, often because tax considerations are allowed to override basic economics.

Here's one example of the tax tail wagging the economic dog. Let's say that you run an unincorporated consulting business. You want some additional tax write-offs, so you decide to buy $10,000 of office furniture that you don't really need. If you're in the 28% tax bracket and you deduct the entire cost, this purchase will trim your tax bill by $2,800 (28% of $10,000). But even after the tax break, you'll still be out of pocket $7,200 ($10,000 minus $2,800) - and stuck with furniture that you don't really need.

There are other situations in which people often focus on tax considerations and ignore the bigger financial picture. For example:

* Someone increases the size of a home mortgage, solely to get a larger tax deduction for mortgage interest.

* A homeowner hesitates to pay off a mortgage, just to keep the interest deduction.

* Someone turns down extra income, because it might "push them into a higher tax bracket."

* An investor holds an appreciated asset indefinitely, solely to avoid paying the capital gains tax.


Tax-cutting strategies are usually part of a bigger financial picture. If you are planning any tax-related moves, we can help make sure that everything stays in focus. For assistance, give us a call.

Monday, November 25, 2013

Plan for the return of some tax break phase-outs

Are you familiar with PEP and Pease? Though they sound like a pop duo, the terms refer to tax rules known as phase-outs that can impact how much federal income tax you owe.

Phase-outs are reductions in the amount of deductions, credits, and other breaks you can claim on your tax return. Though generally based on adjusted gross income, phase-outs vary in rate, amount, and how they're calculated.

Here's an overview of PEP and Pease, two tax breaks that are once again subject to phase-out this year.

* Personal exemption phase-out (PEP). If you're married filing jointly for 2013 and your income exceeds $300,000, the PEP will reduce the amount you claim for yourself, your spouse, and your dependents.

The personal exemption for 2013 is $3,900. But when PEP applies and your income increases, your deduction is reduced accordingly.

* Itemized deduction phase-out. You probably already know that some itemized deductions are limited. For instance, to claim a deduction for medical expenses, your out-of-pocket costs for this year have to exceed 10% of adjusted gross income (AGI). This threshold remains at 7.5% of AGI if you are 65 or older. Miscellaneous itemized deductions, such as unreimbursed employee business expenses, are limited to amounts over 2% of AGI.

* There's also an additional phase-out called the Pease provision that limits the amount of total itemized deductions - after the above reductions. For 2013, Pease kicks in when your income exceeds $300,000 ($150,000 if you're married filing separately).


Other phase-outs limit the amount and deductibility of IRA contributions; the education, adoption, and childcare credits; and the alternative minimum tax exemption. Please call for a review of how phase-outs affect you and what you might be able to do to avoid them.

Friday, November 22, 2013

Check the tax issues if you are caring for elderly parents

As the population in the U.S. continues to age, more and more people will find themselves caring for their parents. Here are some of the tax breaks that caregivers should consider.

* If you provide more than half of your parent's support, you may be able to claim your parent as a dependent on your tax return. To be eligible, your parent can't earn more than $3,900 in 2013, excluding their nontaxable social security and disability income.

* What if you and your siblings all pitch in to support a parent? Anyone who contributes at least 10% of the total support can be the one to claim the $3,900 exemption if all of you sign a multiple support agreement.

* Even if a parent's income exceeds $3,900 this year, you can still deduct the medical expenses paid on the parent's behalf, as long as you provide more than half of his or her support.

* If you hire someone to take care of your parent while you work, you might qualify for the dependent care tax credit. Your parent must be physically or mentally incapable of caring for himself.

* Unmarried individuals who support a paren
t can file their tax returns as "head of household." To qualify, your parent doesn't need to live with you. Instead, as long as you pay more than half of the cost of maintaining your parent's main home, including a rest home or nursing facility, you qualify for this preferential tax treatment.

For more information about the tax issues affecting caregivers and their parents, please give us a call.


Wednesday, November 20, 2013

How to make employee reviews more constructive and less painful

It's the time of year when you may be scheduling employee reviews. Usually the annual employee performance review is dreaded by both supervisor and employee. The employee knows he'll have to hear about those mistakes from months ago, and the supervisor will finally have to discuss those issues he's been avoiding all year. Too often, the result is discomfort and embarrassment all around. Usually both parties fudge a little and are glad that it's over for another year. Too bad, because another chance for open communication and feedback has been lost.

To improve the process, consider holding performance appraisals more frequently, perhaps even quarterly. This can help make the appraisal less of a "special event" and more of a routine exchange of information. It also means your feedback is more directly related to your employee's recent performance, rather than coming months later.

Of course, even quarterly appraisals don't substitute for immediate feedback. If an employee does something wrong, or something good, tell him or her immediately. Point out the problem, make sure the employee acknowledges it, and make clear what you expect in the future. And if it's something good, the employee will appreciate receiving a pat on the back. With immediate feedback, there should never be any surprises at review time.

At the end of every appraisal, summarize the discussion and put the highlights in writing. Make sure your employee gets a copy. Before the next appraisal, ask your employee to review the copy and prepare his thoughts on his most recent performance. Ask him to present his opinions to start the discussion. If there are areas needing improvement, agree on an action plan and put that in writing too. And that might be a two-way street. It could involve your providing training or taking actions to support the employee, so make sure you're living up to the agreement.


Don't limit the appraisal to a score-card on the employee's achievements. If appropriate, use it to discuss career planning, cross-training, or job enrichment. Solicit ideas from the employee. It can all help turn a judgmental meeting into a constructive exchange of ideas.

Monday, November 18, 2013

A cash reserve adds to your financial security

Many of us are living close to our financial limit these days. We pay our bills on time, but there's not a lot left over. But that's a dangerous situation. If things go wrong, your financial situation can change very quickly from adequate to critical. Without a cash reserve, you could find yourself in serious trouble.

Imagine this situation. You're driving home from work when a motorist runs a red light and smashes into your car. You're rushed to the hospital with a broken leg that must remain in traction for several weeks. You quickly use up any sick leave from your job and your paycheck dries up. Luckily you have basic health and car insurance, but the deductibles and co-pays quickly add up to thousands of dollars. Meanwhile the mortgage and credit card payments are coming due, and you find yourself slipping into arrears.

It sounds grim, but it can easily happen. Natural disasters or a downsizing by your employer can have similar results. And when things go wrong, often several things go wrong at the same time. That's why it's a good idea to build a cash reserve of at least three months' living expenses.

Invest your reserve in a safe, liquid account. Consider investments such as a bank CD, a money market fund, or a very short-term bond fund. Make sure you have easy access to the funds without losing too much interest. And once you've built your fund, avoid temptations to raid it for nonessentials.


It may not be easy to build a reserve, especially if you're barely paying your bills now. But you'll never get there unless you try. Consider setting aside your tax refund or your next bonus, or set yourself a monthly saving goal. Perhaps you give up one espresso a day, eat at home instead of a restaurant one evening a week, or make your own lunch instead of eating out for a month. However you do it, and however long it takes, you might one day be very grateful that you made the effort.

Friday, November 15, 2013

November tax tip

If your other accounts provide enough to support your retirement lifestyle, consider delaying withdrawals from your tax-deferred retirement accounts. Waiting lets your money continue to grow tax-free. Just be sure you don't overlook distribution requirements. They vary depending on type of retirement account and your personal situation.

Wednesday, November 13, 2013

Help prevent identity theft

Criminals are not only filing bogus tax returns using other people's identification, they are also stealing the "look" of the IRS to phish for additional financial information from taxpayers.

The IRS has made numerous announcements in the past to help protect taxpayers from these scams. It repeats the message that it will never use an e-mail, text message, or social media to initiate a contact about your tax information.


If you receive what looks like an official IRS e-mail, you should forward it to phishing@irs.gov. Do not reply to the sender, and do not open any attachments.

Monday, November 11, 2013

"Tip" or "service charge" rule

Restaurant owners and employees will be affected by an IRS rule going into effect this coming January. The "automatic gratuity" that many restaurants add to the bill for larger parties will be treated as a "service charge" rather than as a "tip." Service charges are treated as regular wages subject to withholding by the employer. Tips, on the other hand, are reported as income by the restaurant employees receiving them. The ruling is likely to complicate bookkeeping and reporting for both restaurant employees and employers.

Thursday, November 7, 2013

Upcoming dates following government shutdown

Early in the morning of October 17, President Obama signed a bill into law reopening the federal government and extending U.S. borrowing authority. But the law contains deadlines that could leave the country facing the same issues again. Here are the important dates in the law -

* December 13, 2013 - Report required from Congressional budget negotiators on how to solve long-term budget issues.

* January 15, 2014 - Date after which federal government funding runs out.


* February 7, 2014 - Debt limit extension expires.

Tuesday, November 5, 2013

Delay in 2014 filing season

The Internal Revenue Service has announced a delay of approximately one to two weeks to the start of the 2014 filing season due to the 16-day federal government shutdown.

The government closure came during the peak period for preparing IRS systems for the 2014 filing season. Updating these core systems is a complex, year-round process with the majority of the work beginning in the fall of each year.

There are additional training, programming, and testing demands on the IRS this year as the agency works to prevent refund fraud and identity theft.


The IRS is exploring options to shorten the delay and will announce a final decision on the start of the 2014 filing season in December.

Tuesday, October 29, 2013

Delaying retirement affects benefits and taxes

In today’s economic environment, you may decide you have to work beyond the "normal" retirement age. Here's how extending your work life can affect your taxes and retirement benefits.

"Normal" retirement age is not a fixed number. For social security purposes, the "full" retirement age threshold ranges from 65 to 67, depending on your birth date. However, you can elect to start receiving lower payments as early as age 62, or you can maximize your benefits by forgoing them until you're 70. Once you reach age 70, there's no incentive to postpone your benefits further since you'll already have reached your maximum.

* Earnings limit

If you're working, you probably should forgo the early payment option. Benefits received before full retirement age will be reduced by $1 for every $2 earned over an annual limit (currently $15,120). However, you will receive a compensating increase when you do reach full retirement age, and your payments will not be reduced thereafter no matter how much you earn.

* Taxable benefits

Whether or not you draw benefits, you'll continue to pay social security and Medicare taxes on any income you earn from wages or self-employment. Up to 85% of your benefits may become subject to income tax, depending on the amount of your other income.

* Medicare

Medicare eligibility begins the year you reach age 65. The program encompasses four types of coverage: Medicare A (hospital insurance), Medicare B (general medical insurance), Medicare C (Medicare Advantage), and Medicare D (prescription drug coverage).

It's wise to sign up for Medicare A as soon as you're eligible. There's generally no cost, and the program provides supplemental coverage even if you're already insured at work. Medicare B and D are neither free nor mandatory, but the monthly premiums are reasonable, and either may be used as a stand-alone program or in conjunction with a private plan. If you have "creditable coverage" at work (i.e., coverage that's at least as good as Medicare), you can postpone signing up for Medicare B and/or D until you're no longer employed.

Your employer's plan also may offer Medicare C, which provides for private programs administered under contract with the government. These plans typically merge Medicare A and B benefits with other coverage.


Working beyond retirement age can require several complex decisions. Call us for help with planning the outcome that's best for you.

Thursday, October 24, 2013

Consider providing low-cost benefits to employees

Fringe benefits are important to your employees. Wage levels often don't differ much between companies, so the fringes you offer can be an important factor in hiring and retaining workers.

Major fringe benefits such as health insurance are expensive. But if you're willing to be creative, you can design other attractive benefits at low or no cost. Often these benefits are tax-free to your employees. The exact benefits will depend on the size of your work force and the nature of your business. But here are some ideas to consider.

* Flexible schedules. If the nature of your business allows, offer flexibility in working hours. Canvass senior employees for suggestions on changes. Consider ideas such as closing earlier on summer Fridays to give employees a longer weekend. Make up the time with slightly longer hours on other days.

* Personal leave days. Offer eight hours of paid leave every two months for employees to take care of personal business.

* Transportation benefits. If you're in a metropolitan are
a, help your employees solve their commuting problems. Work with your local transit authority to offer free bus passes. Consider offering subsidized parking or even van pools in major urban areas.

* Company discounts. Give employees discounts on your own products. Negotiate discounts with other businesses - health club memberships, for example.

* Provide employees with a free monthly health newsletter, with updates and tips on health care issues. Many hospitals and charities publish such newsletters as part of their marketing efforts.

* Arrange lunchtime seminars on topics such as basic financial planning or health issues. It's not difficult to find professionals willing to speak for no fee as part of their business development.


Tuesday, October 22, 2013

Want to lower your 2013 tax bill? The time for action is running out, so consider these tax-savers now.

* You can choose to deduct sales taxes instead of local and state income taxes. If you're planning big ticket purchases (like a car or a boat), buy before year-end to beef up your deductible amount of sales tax.

* If you're a teacher, don't overlook the deduction for up to $250 for classroom supplies you purchase in 2013.

* Consider prepaying college tuition you'll owe for the first semester of 2014. This year you can deduct up to $4,000 for higher education expenses. Income limits apply.

* Max out your retirement plan contributions. You can set aside $5,500 in an IRA ($6,500 if you're 50 or older), $12,000 in a SIMPLE ($14,500 if you're 50 or older), or $17,500 in a 401(k) plan ($23,000 if you're 50 or older).

* Establish a pension plan for your small business. You may qualify for a tax credit of up to $500 in each of the plan's first three years.

* Need equipment for your business? Buy and place it in service by year-end to qualify for up to $500,000 of first-year expensing or 50% bonus depreciation.

* Review your investments and make your year-end sell decisions, whether to rebalance your portfolio at the lowest tax cost or to offset gains and losses.

* If you're charity-minded, consider giving appreciated stock that you've owned for over a year. You can generally deduct the fair market value and pay no capital gains tax on the appreciation.

* Another charitable possibility for those over 70½: Make a direct donation of up to $100,000 from your IRA to a charity. The donation counts as part of your required minimum distribution but isn't included in your taxable income.

* Install energy-saving improvements (such as insulation, doors, and windows) in your home, and you might qualify for a tax credit of up to $500.


These possibilities for cutting your taxes are just the starting point. Contact us now for a review of your 2013 tax situation and tax-saving suggestions that will work best in your individual circumstances.

Monday, October 21, 2013

Can you have too much of a good thing?

Employees often have too much of their employer's company stock in their 401(k) or other retirement plan. Employees feel they know their company best, overlooking the risks of having too much of an investment in any one company, including their own.

What are some of the risks of loading up on your employer's stock?

* Tremendous bet in a "safe haven." Overweighting investment holdings in any company minimizes diversification, exposing your portfolio to increased risk. The belief that employer shares are less risky is an illusion.

* Double whammy potential. No company is protected from economic downturns. If your employer's performance weakens, you may lose your job, as well as growth in your retirement portfolio from the company's market value.

* Lock-up periods. Some companies prohibit employees from converting the employer retirement match contributions in company stock into other investments until after a number of years. In this case, use your own contributions to diversify your holdings.

* Tendency to forget. As you move closer to retirement, you may forget the riskiness of your employer's stock to your portfolio. At the same time, contributions of company stock may be growing, based on higher benefit matches - just when portfolio reallocation is becoming more important.


Your goal should be to create a well-balanced portfolio that suits your age (investment horizon) and your risk tolerance. Call us for assistance in reviewing your retirement situation.

Friday, October 18, 2013

Obsolete inventory can be costly for your business

Walk through most commercial warehouses and you'll find products that have been collecting dust for months, even years. Tires that no one wants to buy, raw materials that are no longer used, tubes of caulking that are good for nothing but the dumpster - all may be considered obsolete inventory.

What makes inventory obsolete?

For one thing, alternative products may arrive in the marketplace at lower costs to the consumer. You might sell refrigerators that, several years ago, were a great value because they offered a "frost-free" feature. Now, however, similar models with digital enhancements are available - at the same or lower prices. This change in product features will often adversely affect the value of your existing inventory.

Many firms have learned that technological advances are a double-edged sword. (Ask any computer retailer.) Perhaps your company makes custom-designed widgets. If demand for such products dries up, you may need to retool and modify your existing product line. Your need for certain expensive raw materials - stuff that's sitting on your warehouse shelves - may dwindle.
 
Carrying obsolete products in your warehouse or retail store tends to increase operating costs without generating profit. Besides the cost of storing and insuring such items, you may be forced to incur labor expense to move the products to new locations and account for them. In addition, your financial reports may overstate business assets, especially if inventory is a major item on your balance sheet. Even your tax bill may be affected. Failing to recognize the expense of obsolete inventory may overstate net income.

How can you reduce the cost of excess inventory?

Define "obsolescence" for your major product lines; then be proactive. For example, if an item hasn't sold in a certain number of months or is being phased out by suppliers, start moving that item by offering sales discounts.

Be willing to write off products or raw materials that are unlikely to generate profit. Don't wait until escalating storage costs or an auditor's findings shine a spotlight on obsolete inventory.

Establish a regular schedule for reviewing inventory. Many firms count their goods at the end of the year. That's great. But knowing where you stand with inventory should be a year-round process.

For help with this or other business problems, give us a call.


Wednesday, October 16, 2013

Business or Hobby? What's the tax difference?

For federal tax purposes, the determination of "business" or "hobby" is a matter of deduction. If your new venture is considered a business, you can deduct losses against other income.

However, when the activity is classified as a hobby, the "hobby loss" rules limit the amount you can write off. Expenses you incur might be deductible only if you itemize - or they might even be nondeductible.

The distinction affects the amount of tax you owe. So how can you prove you're trying to run a money-making business despite several years of losses?

One test you're probably familiar with is the general rule of earning a profit in three of the past five years. If your business has more income than deductions in three of five consecutive taxable years, the IRS generally accepts that you have a profit motive. (The time frame is two years in seven for certain horse-related activities.)

Unable to meet that test? Additional factors play a role as well. For instance, the Tax Court agreed that a volleyball consulting service with multiple loss years qualified as a business, in part because of a businesslike manner of operation. Among other items, the Court mentioned the maintenance of a separate bank account and accurate records as support for a profit motive.

Positive indicators of your profit-making intentions also include your expertise in the activity, the time and effort you put into your new business, and your success in other ventures.

If you'd like a complete list of the IRS "business vs. hobby" criteria, please contact us. We'll be happy to review the guidelines with you.


Monday, October 14, 2013

Avoid penalties for underpayment

Check the total taxes you've already paid in for 2013 through withholding and/or quarterly estimated payments. If you've underpaid, consider adjusting your withholding for the final months of 2013 or increasing your remaining quarterly estimate. If you employ household workers, be sure your calculations include the payroll taxes you'll owe for them.

Friday, October 11, 2013

It's year-end tax planning time

Take some time to review your tax situation for 2013 while there are still a few months to make tax-cutting adjustments. Higher-income taxpayers face tax increases this year, which means that an investment in a year-end tax review could make a significant difference in your final tax bill.

Wednesday, October 9, 2013

IRS issues "state of celebration" rule for same-sex marriages

The IRS recently issued a ruling that will treat same-sex married couples the same as opposite-sex couples for federal tax purposes as long as the marriage occurred in a jurisdiction that recognizes same-sex marriages as legal. This ruling, known as the "state of celebration" rule means same-sex couples can live anywhere they like, and they'll be considered married for tax purposes as long as the marriage itself occurred where it was legal.

Monday, October 7, 2013

Employer health insurance requirement postponed

The health care reform law passed in 2010 included a provision that would require employers of 50 or more full-time employees to provide affordable health insurance to their workers or face steep penalties. That provision was scheduled to take effect January 1, 2014.

The Treasury Department has announced that the effective date of this provision will be postponed for one year. The mandatory employer and insurer reporting requirements and any penalties connected with them will be delayed in order to allow more time for companies to adapt to meet the requirements.


Friday, October 4, 2013

Business Alert: No penalty if you missed October 1 deadline

October 1 was the original deadline for employers to provide their workers with a notice about the state health insurance exchanges created by the Affordable Care Act. Failure to comply could have resulted in fines of up to $100 per day.


The U.S. Department of Labor recently announced that, while companies are required to provide the notice, there will be no fine or penalty under the law for failure to do so.

Monday, September 30, 2013

Don't get soaked by a wash sale

If you're planning to adjust your investment portfolio by selling some losing stocks at year-end, take a minute to review the wash sale rules.

A wash sale occurs when you sell a stock, bond, or mutual fund and buy the same or a substantially identical security within 30 days before or after the sale. When this happens, you're barred from deducting a tax loss on the sale. Instead, your cost basis of the new security is increased by the loss. 

Example: Say you sell 100 shares of XYZ mutual fund at a loss of $3 per share. A week later, you regret your decision and buy another 100 shares of XYZ fund. Your original loss of $300 will be disallowed, and you'll add the $300 to your cost basis in the new shares.

The rules apply to losses generated by transactions involving "substantially identical" stocks and securities, including mutual funds and stock or option grants you receive as part of your compensation. Whether one security is considered substantially identical to another depends on several factors. Generally stocks or bonds in different companies - even those in the same industry - are not substantially identical.

Be aware of a possible trap if you use an automatic purchase plan or dividend reinvestment plan. If these plans cause you to acquire more shares of a stock or fund within 30 days of a sale, the wash sale rules will apply to your sale.

Wash sales can also occur when you repurchase the security in your IRA, or when your spouse or a company you control does the buying.

How can you avoid a wash sale? You can avoid a wash sale if you make your purchase more than 30 days before or after the sale date. Also, you can buy shares in a different but similar stock or mutual fund without triggering a wash sale.

If you have questions about the wash sale rules, please call us.

Thursday, September 26, 2013

Business tax reminder

As year-end approaches, don't overlook this option to reduce your business taxes for 2013: accelerated write-offs for business asset purchases. For example, the Section 179 immediate expensing deduction lets you write off the cost of assets you purchase and place in service this year, including vehicles, equipment, and software. For 2013, the maximum Section 179 deduction is $500,000. Another example is the "bonus" depreciation deduction, which allows you to expense up to 50% of the cost of new assets, including those that might not qualify for Section 179.

Tuesday, September 24, 2013

Got cash? Tips for financing a new business

All small businesses start with something in common: they devour cash. They need cash for inventory, office space, insurance, legal fees, business licenses, remodeling costs, and the list goes on. Because very few start-ups can secure equity financing from venture capitalists, most business owners must get needed cash from a combination of personal assets and debt. If you're thinking about starting a small business, here's a short list of financing sources to consider: 

* Personal assets. The advantages of tapping your own bank account are obvious. You don't have to pay the money back, you don't incur interest, and you don't have to grovel at a loan officer's feet. The disadvantages may not be as clear. Other priorities - college savings, retirement plans - can get shoved aside. So if you're going to use your own assets, set limits. Decide how much risk you're willing to incur, and don't deviate. 

* Friends and relatives. Convince your brother and golf partner that your idea is the greatest thing since sliced bread, and they may provide seed money for your new enterprise. If they lend you cash, be sure to set up a formal agreement spelling out the loan details (interest rate, loan term, payment schedule). And remember, many a family relationship and golf partnership have been ruined when a business fails and loans can't be repaid. 

* Home equity loans and lines of credit. Another possible source of financing, the equity in your house can often be tapped either through a fixed rate loan or a variable rate line of credit. These sources of financing tend to have much lower interest rates than credit cards or personal loans. The disadvantage, of course, is that your house is on the line. Fail to make the payments and you could face foreclosure. 

* Banks and credit unions. Financial institutions are often reluctant to lend money to businesses without a proven track record, especially in today's credit-challenged market. But that doesn't mean you shouldn't try. To increase your likelihood of success, take time to lay out a detailed business plan (a good idea whether or not you ever visit a bank), and be able to justify your business needs in writing. 

Other sources of start-up financing include retirement plans, grants, even credit cards. Remember to think through the amount needed and have a realistic plan for repayment. If you need help with these and other options, give us a call.

Friday, September 20, 2013

Know the tax consequences of borrowing from your 401(k) plan

When you borrow from your 401(k), you become both a borrower and a lender. Whether that's a good idea depends on your personal financial situation - and in the process of making the decision about lending money to yourself, you may have questions regarding the tax consequences.

For instance, though you probably know the initial borrowing has no federal income tax effect, you might be wondering whether the interest you pay will be deductible. In general, the answer is no. That's true even when you use 401(k) loan proceeds for your home.

Ordinary loan repayments are not taxable events either. That is, you don't have to pick up the interest you repay into your account as taxable income. And, though you're increasing your 401(k) account with the principal portion of each payment, that amount is not considered a contribution. You can still make pre-tax contributions up to the annual limit ($17,500 for a traditional 401(k) during 2013, plus an additional $5,500 when you're age 50 or older).

What if you default on the 401(k) loan? The balance of your loan is considered a distribution to you, and you'll have to report it as ordinary income on your federal tax return. In addition, when you're under age 59�, a 10% early-withdrawal penalty typically applies.

Being both a 401(k) borrower and a lender can lead to tax surprises. Give us a call to make sure you have the whole story before you arrange a 401(k) loan.

Wednesday, September 18, 2013

Guide your children to financial maturity

Teaching your children about money and finances is easiest when you start early. Here's a quick review of what you should teach your children at each age if you want them to become financially competent adults.

Preschool - Skills to Teach
* Identify coins and bills; learn what each is worth.
* Understand that you can't buy everything; choices are necessary.
* Save money in a piggy bank.

Grade School - Skills to Teach
* Read price tags; learn comparison shopping.
* Do money arithmetic; make change.
* Manage an allowance; use it to pay for some of child's own purchases.
* Open a savings account and learn about interest.
* Participate in family financial discussions about major purchases, vacation choices, etc.

Teens - Skills to Teach
* Work to earn money.
* Budget for larger purchases.
* Learn to use a checking account.
* Learn about investing - stocks, mutual funds, CDs, IRAs, etc.
* Share in financial planning (and saving) for college.

College/Young Adult - Skills to Teach
* Learn about borrowing money (interest, default, etc.).
* Use credit card judiciously.
* Participate in family estate planning discussions.

Knowing about money - how to earn it, use it, invest it, and share it - is a critical life skill. It's never too early to start teaching your children about financial matters.

Monday, September 16, 2013

Have you changed your mind about a Roth conversion?

It turns out you can go back after all - at least when it comes to last year's decision to convert your traditional IRA to a Roth. The question is, do you want to?

You might, if your circumstances have changed. For example, say the value of the assets in your new Roth account is currently less than when you made the conversion. Changing your mind could save tax dollars.

Recharacterizing your Roth conversion lets you go back in time, as if the conversion never happened. You'll have to act soon, though, because the window for undoing a 2012 Roth conversion closes October 15, 2013.

Before that date, you have the opportunity to undo all or part of last year's conversion. After October 15, you can change your mind once more and put the money back in a Roth. That might be a good choice when you're recharacterizing because of a reduction in the value of the account. Just remember you'll have to wait at least 30 days to convert again.

Give us a call for information on Roth recharacterization rules. We'll help you figure out if going back is a good idea.

Friday, September 13, 2013

Back to school calls for an education review

As schools get back in session, it's a good time to check the education tax breaks for which you might qualify. First, there's the "American Opportunity Tax Credit" for a percentage of qualified expenses paid during the first four years of higher education. Second, the "Lifetime Learning Credit" allows a deduction for a percentage of qualified expenses paid for any year the American Opportunity Credit isn't claimed, and it even applies to job-related classes. Third, you may quality for a deduction for interest paid on student loans. Fourth, education savings accounts allow annual nondeductible contributions for children under 18, with tax-free withdrawals for qualifying education expenses.

Tuesday, September 10, 2013

IRS issues tips for individuals selling their home

In a "2013 Summertime Tax Tip," the IRS reminded taxpayers about the current rules on home sales. Here's a quick review of those rules.

Tax Free Home Sale
The tax law allows the majority of taxpayers who sell their homes to enjoy 100% tax-free profit from the sale.

If you have owned and used your home as your principal residence for at least two of the five years preceding the sale, you may exclude from income tax up to $250,000 of profit if you're single or up to $500,000 if you're married filing jointly. Generally, the exclusion may be used only once every two years.

The law provides that married individuals may exclude up to $500,000 of profits if:
* either spouse owned the home for at least two of the five years before the sale,
* both spouses used the home as a principal residence for at least two of the five years before the sale, and
* neither spouse is ineligible for the exclusion because of the once-every-two-year limit. If one spouse cannot use the exclusion because of the once-every-two-year rule, the other spouse may still claim the exclusion if he or she qualifies. However, the exclusion then cannot exceed $250,000.

Meet the Requirements
The law does contain some relief for those taxpayers who cannot meet the ownership and use rules or who have already excluded gain on a home sale within the two-year limit. If the failure to meet either rule is due to a job change, health problems, or certain other unforeseen circumstances, a partial exclusion may be available. The partial exclusion is calculated based on the fraction of the two years that the requirements were met.

The IRS reminds homeowners that if all the gain in their home sale is excludable under the rules above, they probably don't need to report the sale on their tax return. Only one home sale per two-year period can be excluded, and only a taxpayer's main home qualifies for an exclusion. If a taxpayer has two homes and lives in both of them, the main home is usually the one lived in most of the time.

If you have questions about the tax consequences of your home sale, contact our office.

Monday, September 9, 2013

Factor new limits on deductions into your tax planning

As you begin your year-end tax planning review, keep in mind the return of the limitation on itemized deductions and personal exemptions for higher-income taxpayers. When you're married filing jointly and your adjusted gross income is more than $300,000, the amount you can claim for these two items is reduced. The threshold is $250,000 if you file as a single.

Thursday, September 5, 2013

Consider making a charitable gift from your IRA

The tax law signed last January extended the tax break that allows contributions of up to $100,000 from a traditional IRA to a qualified charity. Taxpayers aged 70 or older can make a distribution directly from an IRA to a charity. The amount donated is not included in the taxpayer's gross income and is considered part of the required minimum distribution for the year.

Tuesday, September 3, 2013

Autumn tax tip

Review your tax deductions for 2013 while there's still time to manage them for a lower tax bill this year. The standard deduction for 2013 is $12,200 for married couples filing a joint return and $6,100 for single taxpayers. If your deductions are close to the threshold, consider accelerating deductible expenses. For example, you can add sales tax paid on a new vehicle to the IRS standard amount when claiming the itemized deduction for state and local sales tax.

Saturday, August 31, 2013

Eggs, baskets, and investments

A well-diversified portfolio spreads out your investment risk. However, you can easily end up with more eggs in one basket than you intended. Here are some investment tips.

Look at the big picture.
The assets inside and outside your retirement plans should be considered together when you are designing an investment strategy and balancing your portfolio. Selecting the same investments for your personal accounts and your retirement accounts may decrease your diversification and increase your risk.

Make sure your mutual funds are diversified.
One of the main benefits of owning a mutual fund is diversification. However, your mutual fund might not be as diversified as you think. Consider these areas:

* Watch out for top-heavy funds. For example, your fund's manager favors a few stocks and invests a big chunk of the fund's assets in those stocks. You shouldn't necessarily steer clear of concentrated mutual funds, but owning a single concentrated fund may expose you to more investment risk than you bargained for.

* Watch out for overlap. It's possible to own different funds that own the same stocks or that own similar stocks in the same industries. For example, you might own a technology fund that invests 10% of its assets in Microsoft. You might also own a growth fund that invests 10% of its assets in Microsoft.

* Watch the turnover. Although funds generally list their largest holdings in their prospectus and their annual report, that information represents a snapshot in time. If you own a fund that engages in active trading (a high turnover ratio), its holdings can change considerably from one day to the next. You should review your fund's holdings from time to time to ensure you still have the diversity you desire. Many mutual funds periodically update their holdings on their websites.


If you have questions about your investments and how they fit into your overall financial picture, give us a call.

Friday, August 30, 2013

Savings bonds are tax-smart for college savings

Amid the evolving assortment of education tax breaks is a benefit that has survived with few changes over the years: the education savings bond program. When you qualify for this federal income tax exclusion, the interest you receive from bonds redeemed to pay for certain college expenses may be tax-free.

Are bonds you bought years ago eligible? It depends on when you bought them and how they're titled. Eligible bonds include Series EE or Series I savings bonds you purchased after 1989, as long as you were at least 24 years old when they were issued. The age restriction rules out bonds you put in the names of your kids or grandkids, though the children can be named as beneficiaries.

Once you're sure your bonds qualify for the exclusion, the next step is to find out if you meet the income limitation. In 2013, you can exclude all the interest income you receive from eligible savings bonds when you file a joint return and your modified adjusted gross income is less than $112,050 ($74,700 for singles). A partial exclusion is available until your income reaches $142,050 ($89,700 for singles), at which point the exclusion is no longer available.

Finally, the bonds must be redeemed in the same year you pay qualifying educational expenses for yourself, your spouse, or your dependent child. What expenses qualify? The definition includes tuition and fees that you pay out-of-pocket and for which you claim no other deduction or credit. You can also claim the exclusion when you use the bond proceeds to fund a 529 college savings plan or a Coverdell education savings account.

Savings bonds offer additional, less restrictive opportunities for education and tax planning. For instance, it may make sense to put the bonds in your child's name and report the interest on an annual basis. Depending on your child's income, the interest could remain tax-free. Alternatively, you may choose to defer recognizing interest on bonds issued in your child's name until the bonds are redeemed.


Please call us to discuss these strategies and others that can help ease the burden of college costs.

Wednesday, August 28, 2013

Get your business off to a good start

Many small start-up businesses are off-and-running before any record system has been set up. There is money deposited into the new business checking account, some from invested funds and some from sales. There has been money paid out for equipment, supplies, etc., some by check and some by cash out of pocket or from sales receipts.
This informal method of cash receipts and disbursements needs to be formalized. The bookkeeping system does not need to be complicated. In most cases, you can continue to operate much as you have. You just need to do it in a way that leaves a few more tracks.

For example, make all purchases by check. The small miscellaneous cash paid-outs from your pocket (or the petty cash box) are reimbursed by a check with a listing of the expense codes. All your cash receipts are deposited into the bank. No more taking cash from the till for lunches, supplies, etc.

If all the money received by the business is deposited into the bank and all expenses are paid by a company check, the proper journal entries are easy to create from the bank statement.


If you are starting a new business, don't wait until the end of the year and surprise your accountant with a box of miscellaneous receipts. That is the most expensive and least effective use of your accounting information. In addition to setting up the proper record system, your accountant will provide you with guidance on other business, financial, and tax due dates and obligations.

Monday, August 26, 2013

RMDs require careful planning

After all the advice you've received about saving for retirement, taking money out of your traditional IRAs and other qualified retirement plans may feel strange. Yet once you reach age 70½, the required minimum distribution (RMD) rules say you have to do just that.

Under these rules, you must withdraw at least a minimum amount from your retirement plans each year. Since the withdrawals are considered ordinary income, planning in advance can help you prepare for the impact on your tax return.

Here are two suggestions.

* Make a list of your accounts. The rules require an RMD calculation for each plan. With traditional IRAs, including SEP and SIMPLE plans, you can take the total distribution from one or more accounts, in any amount you choose. You can also take more than the minimum.

However, withdrawals from different types of retirement plans can't be combined. Say for instance, you have one 401(k) and one IRA. You have to figure the RMD for each and take separate distributions.

Why is that important? Failing to take distributions, or taking less than is required, could result in a penalty of 50% of the shortfall.

* Plan your required beginning date. In general, you're required to withdraw RMDs by December 31, starting in the year you turn 70½. The rules provide one exception: You have the option of postponing your first withdrawal until April 1 of the following year.

Delaying income can be a sound tax move. But because you'll still have to take your second distribution by December 31, you'll receive two distributions in the same year, which can increase your taxes.

To discuss these and other RMD rules, give us a call. We can help you create a sound distribution plan.

Friday, August 23, 2013

"Basis" is important to an S corporation

Losses can be hard to take - so if you think your S corporation will show a loss for 2013, now's the time to plan to make sure you'll get the full tax benefit.

The Problem. The amount of the business loss you can deduct on your individual income tax return is limited to your basis in your S corporation stock and certain corporate debt. This is true even though the loss reported to you on Schedule K-1 is greater than your basis.

Here's how it works. Typically, stock basis in an S corporation begins with the capital contribution you make to get the company started. (When you receive stock as a gift, an inheritance, or in place of compensation, your initial basis is calculated differently.)

At the end of each taxable year, your stock basis is adjusted to reflect the business's operating results. Taxable income increases your basis, while losses reduce it.

Basis is also increased by capital you put into your company and reduced by amounts you withdraw, such as distributions.

After your stock basis reaches zero, you may be able to deduct additional losses, up to the extent of your debt basis. That's the basis you have in loans you make to your company.

Once your stock and debt basis are both reduced to zero, losses incurred are suspended, which means you get no current tax benefit. However, you can generally take suspended losses in future years, when you again have basis.

The Solution. You can increase your basis - and your ability to take losses - by adding capital or making loans to your business.


Please call to discuss how basis affects your individual income tax return. We can guide you through the rules to optimize available breaks.

Wednesday, August 21, 2013

Is all "income" taxable?

You only have to examine your paycheck to realize that certain income is tax-free. For example, health insurance premiums paid by your employer are generally not includible in your income.

Do you know the tax status of other types of income? Here's a quiz to test your knowledge.

1. You tell your son he'll be the sole beneficiary of your estate, and that you've decided to give him an advance on his inheritance. You hand him a check for $10,000. He wants to know how much he'll have to pay in taxes. What do you tell him?

Answer: Gifts, bequests, devises, and inheritances are generally not taxable to the beneficiary. Income produced from those sources is taxable to the beneficiary.

2. You withdraw $20,000 of the contributions you made to your Roth IRA over the past five years, but you're not of retirement age. Do you have a taxable event?

Answer: Unlike traditional IRAs, distributions from Roths are first allocated to amounts you contributed to the account. To the extent the distribution is a return of your contributions, it's not included in your income and you can withdraw it penalty- and tax-free.

3. You purchase a piano at an auction and take it home. While cleaning it, you discover $5,000 inside. Is this money taxable to you?


Answer: Yes. Once it becomes yours, "treasure trove" property is taxable to you at fair market value.

Monday, August 19, 2013

Notify the IRS when you move

If you're one of the millions of taxpayers who've moved recently, don't forget to notify the IRS of your address change. Use "Form 8822, Change of Address," or send written notification to the IRS center where you file your return. Include your full name, old and new addresses, social security number, and signature. If you filed a joint return, include this information for both taxpayers. Keeping the IRS informed of your current address will ensure that you receive notices and refunds without delay.

Friday, August 16, 2013

Retirement tax rules

Three important birthdays affect your retirement plan:

* At age 50, you can make extra "catch-up" contributions to your IRA and 401(k) savings. For 2013, these are $1,000 and $5,500, respectively.

* After age 59½, you're eligible to make penalty-free withdrawals from your IRAs.
   
* Beginning no later than the year after you reach age 70½, you're required to take minimum distributions from your traditional IRAs each year.


Need more details? Contact our office.

Thursday, August 15, 2013

Summertime business tip

Check the tax savings of combining business and pleasure on the same trip this summer. Within the U.S., if the primary purpose of the trip is business and you add on a side trip or an extra few days for pleasure, you can deduct all the travel costs to and from your business destination and all other business-related costs. You can't deduct costs related to the pleasure portion.

Wednesday, August 14, 2013

Give to cut taxes

If you are in a position to give, making annual gifts can be an excellent strategy for reducing both your estate and income tax liability. Doing your gift-giving at midyear rather than late in the year is especially smart if you are giving income-producing property. You will then remove more income from your 2013 tax return.


Tuesday, August 13, 2013

Summertime tax tip

If you lost the benefit of a tax credit or other tax break on your 2012 tax return, start now to review how your 2013 income could affect tax credits this year. If your adjusted gross income (AGI) is too high to use certain tax breaks, consider switching investments to reduce your AGI. Consider replacing accounts earning taxable interest with tax-free investments. Invest in tax-efficient mutual funds instead of funds that usually distribute large capital gains.

Wednesday, July 31, 2013

Can friendship survive in a business partnership?

Planning to start a business partnership with a friend? Prudence demands looking at the pitfalls - as well as the potential strengths - of such relationships. Here are a few questions to consider.

* What will my friend contribute to the business? Does he or she have strengths that will clearly enhance the business - abilities, knowledge, or resources that you don't possess or aren't willing to acquire by other means? Say, for example, you're a crackerjack salesman, but not too good with numbers. If your friend loves details and is clever with records, the partnership may make sense. If, on the other hand, your pal really can't offer something that would round out the business or make it more profitable, you might want to consider partnering with someone else. Or you might consider just hiring the talent you need.

* Are you willing to lose the friendship? This is a tough question, but one that's critical to consider. After all, you and your friend will be working together, day in and day out, to make the business succeed. Such relationships can bring out the best - and worst - in people. If maintaining your friendship is one of your highest priorities, partnering with someone else may be a better choice.

* What's expected from each partner? Developing a profitable business is hard and often unrewarding work. You and any potential business partner should honestly discuss expected work hours, contributions, and responsibilities. Resentment can creep into any business relationship when partners feel that workloads and rewards aren't fairly distributed.

* Can you communicate effectively? Like a good marriage, a long-term business partnership takes honest communication to succeed. Ask yourself, for example, whether you can handle constructive criticism from your friend/business partner. Even the closest business partners don't always see eye to eye, so it's important to take an honest look at how you both handle disagreements. Will you work through difficulties for the firm's sake, or bury your head in the sand and hope for the best? Answering this question is crucial to the success of your partnership.

Friends can be great business partners, but it's wise to proceed with caution. If you'd like help assessing potential business partnerships, give us a call.

Monday, July 29, 2013

Good debt or bad debt: What do you have?

You’ve got debt! The question is, do you have good debt or bad debt? Even more important, how do you tell the difference before you take on any more? Here are two questions to ask before incurring any debt.

1. What are the benefits of taking on this debt? Avoiding all debt seems like good advice. But good debt can enhance your financial situation. For instance, loans that fund a college or graduate degree may result in a higher salary. That’s debt with a lasting, tangible benefit.

Likewise, a mortgage for a home or rental property can increase your wealth by providing the opportunity for growth of capital and income.

Good debt can also have secondary advantages, such as the potential for tax deductibility of interest on student loans a
nd home mortgages.

Bad debt, on the other hand, generally strains your cash flow without providing an offsetting advantage.

2. Does the cost exceed the benefit? As a general rule, good debt provides a return that’s greater than the total amount you’ll end up paying. Caution: Remember that your total outlay will be the stated price plus finance charges.

For example, suppose you need to buy a car. A moderately priced vehicle financed with a short-term loan can still have value when the payments end. That falls within the definition of good debt. But with today’s longer terms of five to eight years, your loan might outlast the car. High interest rates and the longer payback period on "stretch" loans can bump your total outlay into bad debt territory.

Credit card debt poses the same peril. Charges you intend to pay back in full at the end of the month may not be a problem. But a restaurant meal, a vacation, or a Christmas splurge can get very expensive once you include the interest charged when you carry a balance on your credit card.

Good debt or bad? Recognizing the difference can lead to better money management – something you need if you want to improve your financial situation.

Friday, July 26, 2013

Customer Service Tip: How to keep your customers coming back

Every successful business relies on a core group of customers who keep coming back on a regular basis. Sure, you're always trying to find new customers and expand your market. But chances are that it's the "regulars" who provide the bulk of your revenues. It's important not to forget this group.

Three fundamental principles hold true whether your business is retail, manufacturing, or services. Customers want to be recognized, they want to receive good service, and they want their loyalty to be appreciated. Most companies strive to provide good service. Unfortunately, it's easy to overlook the other two principles.

One other factor is important - you'll need to train your employees in these areas. Although some employees are naturals when dealing with customers, others will need guidance and reminders. So you should make customer treatment a major focus for all employees who interact with customers.

Here are some tips for providing customer recognition and appreciation. You can customize these to fit the circumstances of your particular business.

Recognition

* Encourage your employees to greet customers by name whenever possible.

* Set standards for how incoming telephone calls are handled. Train the staff at your reception desk to be warm and friendly with visitors.

* Encourage retail sales staff to read the names on customers' credit cards and use them during the transaction.

* If appropriate, maintain a database on regular customers and their preferences.

* Attempt to make all customers feel that they're known and liked by your employees.

Appreciation

* Make sure you specifically thank customers for their business at the time of the order or sale. This applies whether it's a retail sale or a salesperson taking a telephone order.

* Track your regular customers, and send them a note or make a call just to thank them for their business. This is also a great opportunity to ask for feedback on service or other issues.

* Consider throwing a customer appreciation event for your regular customers. This could be an informal social event or a special sale, depending on your business.

Brainstorm with your salespeople on how to apply these ideas to your company. Remember that a customer who feels recognized and appreciated will keep coming back.