Elect S corporation status by March 16

Elect S corporation status by March 16

If you own a small business, you have until March 16, 2015, to choose S corporation status for this year. In order to become an S corporation, you'll need the unanimous approval of all shareholders.

The principal advantage of an S corporation is that you avoid paying double taxes. In a traditional C corporation, profits are taxed at the corporate level, and they're taxed again when paid to individual shareholders as dividends. In an S corporation, there are no taxes on earnings at the corporate level. Instead, profits or losses flow directly through to the shareholders. They pay taxes only once, when they report their share of earnings on their individual tax returns.

Another advantage: Doing business as an S corporation can be attractive in the early, unprofitable years of a start-up business. That's because operating losses flow through your personal tax return, perhaps offsetting other taxable income. Losses are available to the extent of your basis in your stock plus loans directly from you to your corporation.

There are some trade-offs for these tax benefits, though. If you're an owner-employee and own more than two percent of the company, you'll receive less favorable tax treatment of some fringe benefits. There are also ownership limitations. The company can have only one class of stock, there can't be more than 100 shareholders, and all of the shareholders must be U.S. citizens or residents.

Despite these drawbacks, doing business as an S corporation can still offer some tax planning advantages. If you can meet the ownership requirements, it might be well worth considering an S corporation election. Contact our office for an in-depth analysis of the pros and cons for your company.

Going into business with a franchise

Going into business with a franchise

Have you ever wanted to be your own boss, but didn't want to start a business from scratch? If so, buying a franchise might be the right choice for you.

When you purchase a successful franchise, you're buying the right to sell a product or service using a system developed by the franchise. You usually receive the right to use a trademarked name, training in profitably operating the business, advertising support, and other needed assistance. In exchange for these benefits, you'll generally need to pay an initial fee and a royalty based on a percentage of sales.

After researching which franchises might be a good fit for you, ask each franchiser to send you its Uniform Franchise Offering Circular. This federally required document contains a wealth of important information, such as a sample franchise agreement, start-up costs, annual fees, and other key elements of your franchise investment. Take this information to your accountant and attorney for their review. Also plan on talking to other franchisees to see what their experiences have been. Ask them if they're profitable. How long did it take to become profitable? Are they satisfied with the support they receive from the franchiser?

Once you've selected the best franchise for you, you'll probably need to obtain financing. The bank will typically ask for a forecasted set of financial statements detailing your expected income, expenses, and cash flow for the first few years of business. These statements not only will help you qualify for the loan, but also they'll give you a good feel for how profitable your new venture might be.

If you're considering buying a franchise, please call us. We can review the financial concerns with you.

Sticking to budgets and diets

Sticking to budgets and diets

Budgets, like diets, are short lived for most of us. You do a proper job of planning by looking over the past and determining where you need to make changes to meet your goals. And, you live by your plan for a few days, maybe even a few weeks. But, then all the detail of keeping track of what comes and goes gets to be more than you are willing to put up with.

If you can plan a budget and live with it, more power to you. This should put you with the 5% of people who can retire without financial assistance from family or the government.

For those of us who can't live with the detail of tracking budget numbers, here is a simple way to make sure you don't retire totally broke. Take a fixed percentage of every dollar that comes into the household and set it aside for retirement investing. Say, for example, that you decide to save 10% of your $100,000 income. Here are some rough numbers for those aged 35 who would like to retire in 30 years. $10,000 invested each year will accumulate to $697,000 in 30 years at a 5% annual return. The earlier you start, the greater the retirement benefits. If you started at age 25, the accumulated value at age 65 would be over $1,268,000.

You may think it is impossible to save 10% of your current income. Let's assume that you lose your current job. The next job you find pays 10% less than your current job. The chances are that you will figure out where to cut the spending to make it work. So, why not discipline yourself and your family in order to make your current income provide both a current living and an investment in your retirement.

Some questions and answers about reverse mortgages

Some questions and answers about reverse mortgages

A reverse mortgage is a loan against your property. But, instead of you making payments to the lender as you do on a regular mortgage, the lender is paying you. The repayment of this mortgage takes place after you no longer live in your home. Here are some answers to common questions about reverse mortgages.

1.      How can a reverse mortgage benefit me?

The proceeds from this type of loan can be used for any purpose you want. You can use it to pay monthly bills, travel, improve your home or anything else you care to. And since it is a loan, it is not subject to income tax.

1.       

2.      Do I qualify for a reverse mortgage?

To qualify, you must be 62 years of age or older. You must own your home and use it as your primary residence. If you owe money on a current mortgage, back taxes, or insurance, you must clear these off the property by closing time of your new mortgage.

3.      What is the process for getting a reverse mortgage?

First, you will meet with a free reverse mortgage consultant.

Second, you will be counseled by a HUD-approved counselor to make sure you understand how this loan works.

Third, submit your application to the lender.

Fourth, have your home appraised.

Fifth, once all the documents are in order, the lender will issue final approval.

Sixth, funds will be available to you after all documents are signed and the closing is complete.

4.      How much money will I receive?

The amount of your loan proceeds will depend on you and your spouse's ages and the value of the equity in your home.

5.      How much cash do I need to come up with?

The only expense you need to pay for is the property appraisal. All other fees can be paid for out of the loan proceeds. You should never pay anyone a fee to apply for a reverse mortgage, not beforehand and not at closing.

6.      What payments do I need to make during the life of this loan?

You are not required to make loan payments. However, as per your agreement, you must keep the real estate taxes and home insurance current. You must also pay for home repairs.

7.      How is this loan different from a regular mortgage?

On this loan, there are no monthly principal and interest payments. There are no credit scores or income requirements to secure this loan. And at the end of the loan, you are not liable for any loan amount over the value of the home.

8.      How long does it take before my funds will be available?

There is no fixed time table. In part, it will depend on the appraisal, the title report, and on other paperwork considerations. A typical loan should be done in less than two months.

9.      When do I need to pay this loan back?

As long as you meet the contract terms, nothing is due until you no longer live in the home. The home can then be sold and any money in excess of what the lender has coming is refunded to you or your estate. If the sales proceeds do not pay the lender in full, you are not required to pay the difference.

10.  How do I know if a reverse mortgage is a good idea?

Reverse mortgages are not for everyone. Your counselor will inform you of all the pluses and minuses. You should have enough information at that time to make a knowledgeable decision. You should compare all aspects of the reverse mortgage against a conventional home equity loan.

Warning: Watch out for aggressive phone scams again this tax season

Warning: Watch out for aggressive phone scams again this tax season

The Treasury Inspector General for Taxpayer Administration (TIGTA) is warning taxpayers about one particular category of tax scams that has proven to be very widespread, very aggressive, and very relentless. Callers claim to be IRS employees, and they tell their intended victims that they owe taxes that must be paid immediately using a prepaid debit card or wire transfer. The fake IRS agents threaten those who refuse to pay with arrest, deportation, or loss of a business or driver's license. The scammers have been operating in every state in the country.

Here are some practices used by the scammers that taxpayers should watch out for:

* Use of automated robocall machine.

* Caller gives fake IRS badge numbers.

* Caller knows last four digits of victim's social security number.

* Caller ID is changed to appear as if the IRS is the caller.

* A fake IRS e-mail is sent supporting the scammer's claims.

* Follow-up calls are made claiming to be from the police department or motor vehicle licensing office, with caller ID again supporting the claim.

If you receive one of these fake calls, complete the "IRS Impersonation Scam Form" on TIGTA's website, or call TIGTA at 800-366-4484.

Check qualification for health insurance exemption

Check qualification for health insurance exemption

If you didn't have health insurance in 2014 or the insurance you had did not meet minimum requirements, you may have to pay a penalty on your 2014 federal income tax return - unless you qualify for an exemption. Exemptions include unaffordable coverage when premiums would have exceeded 8% of your household income, a coverage gap of three months or less, and general hardship. You can claim some exemptions directly on your tax return. However, for certain others be aware you may need to complete an application on the government insurance marketplace website.

Bonus depreciation available for 2014

Bonus depreciation available for 2014

The Tax Increase Prevention Act of 2014 revived 50% bonus depreciation for 2014 federal income tax returns. Bonus depreciation is available in addition to Section 179 expensing, and gives you the option of writing off up to 50% of the cost of certain new business assets. Unlike Section 179, you can claim bonus depreciation no matter the amount of your annual equipment purchases, as well as when your business reports a loss.

Recent law increased Section 179 deduction

Recent law increased Section 179 deduction

Did you purchase and begin using new or second-hand business equipment during 2014? Thanks to a year-end tax law extension, you can deduct up to $500,000 of your costs on your 2014 federal income tax return. The $2,000,000 overall limit was also reinstated, meaning your deduction is reduced when your annual equipment purchases exceed that amount.

IRS service will be affected by ACA and budget cuts

IRS service will be affected by ACA and budget cuts

IRS Commissioner John Koskinen has informed taxpayers that the Agency's level of service to taxpayers is likely to decline, thanks to increased workloads resulting from the Affordable Care Act and cuts to the IRS's 2015 budget. Taxpayers can expect longer waits in IRS responses to both written inquiries and phone calls. Refunds may also be delayed this year. The IRS will also have fewer resources to conduct audits, which may lead to lower revenue collection

Electronic refunds limited to three per account

Electronic refunds limited to three per account

The IRS announces that, as part of its efforts to curb fraud and identity theft, it will no longer directly deposit more than three electronic refunds to a single financial account or prepaid debit card. Taxpayers who exceed the limit will receive an IRS notice and a paper refund.

The IRS also warns that direct deposit must be made only to accounts bearing the taxpayer's name.

New ABLE accounts are now available

New ABLE accounts are now available

The Tax Increase Prevention Act of 2014 that was signed last December mainly affected the year 2014 as it extended for that year only some 50 tax breaks that had expired earlier. One provision, however, became effective in 2015. Starting this year, the law authorizes tax-favored ABLE accounts for disabled individuals. These "Achieving a Better Life Experience" accounts are exempt from income tax when the funds are used to pay for qualified expenses such as transportation, housing, education, and medical costs. Nonqualified distributions are subject to income tax, plus a 10% penalty. If you would like details about ABLE accounts, contact our office.