The Time to Get Ready is Now!

5 things to do now for less taxesHere is an idea. Instead of waiting until April 13th, why not get ready for filing your next year’s tax return now. Doing this today and maybe make some changes today could make a significant difference on your ultimate tax bill due next April 15th.

Here are five things to do now:

1. Check your withholdings

If you have a big refund during the 2013 tax season, now is the time to consider lowering your income tax withholdings if your income and deductions will remain similar in 2014. Alternately, if you came owed a substantial sum when you fi led for 2013 taxes, you may want to consider increasing your tax withholdings.

2. Examine your information

Now is a good time to meet with your tax preparer —waiting until February of 2015 could add increased stress when you’re getting ready to file your 1040. Your tax preparer likely has time to meet with you now. Getting an appointment in April is nearly impossible. Get together and look at your tax situation and start planning ahead.

3. Get Your books and financial statements in order

If you’re doing anything beyond working, it’s time to start getting everything in order so that you aren’t rushing at the beginning of 2015. And if you’re a small business or have rental properties be sure to get prepared to issue 1099s or prepare other forms that you’ll need to complete your taxes.

4. Set aside receipts

Don’t wait until the end of the year to start thinking about deductions – be smart and start pulling together the records immediately so that they are close at hand come tax time. It’s amazing how many pieces of paper you will lose and how many thing you will forget between now and next April.

5. Spring Cleaning in the Fall

The Time to Get Ready is Now for Tax SavingsNow’s a great time to clear the clutter as the days fall shorter. Do some fall cleaning by gathering your old clothing and household items and donating it to a charitable organization before the end of the year. Be sure to get a receipt for your donation and when you prepare your taxes you can apply a ‘fair market value’ to that donation. Your generosity may be worth $25 to $35 in tax savings for every $100 of what you donated.

Need Help Doing It Now?

Wallace Associates Group is prepared to walk you through this process. The time to get ready is now. What you do between now and December 31st can have a much more significant impact on the amount you pay April 15th than anything you do January 1st or after.

Are Your “Independent Contractors” Really Employees to the IRS?

Believe it or not, some businesses have gone to great lengths to conduct business without employees, assuming that if you call a worker an “independent contractor” and you have the worker sign an Independent Contractor Agreement, that it’s all OK. It isn’t. As the author of Little Orphant Annie and The Raggedy Man, James Whitcomb Riley, is credited as saying, “When I see a bird that walks like a duck and swims like a duck and quacks like a duck, I call that bird a duck.”

Employee or Independent ContractorIf you tell a worker when and where to work, no matter what you call that worker, unless the situation fits specific exceptions, the Internal Revenue Service will call that worker an employee and it will want the required payroll taxes and withholding. If you happen to be one of those who has in the past called the duck something other than what it is, there is hope.

Voluntary Classification Settlement Program

The Voluntary Classification Settlement Program allows many businesses, tax-exempt organizations, and government entities that currently treat their workers, or a class or group of workers, as non-employees or independent contractors, to prospectively reclassify workers as employees under generous settlement terms. As the title clearly points out, participation in this program is voluntary, but by participating you will escape the fines and penalties that would otherwise be assessed if the Internal Revenue Service finds it on their own and forces you to do it.

Who Can Participate?

In order to participate, the taxpayer must meet the following requirements:

  1. They must have consistently treated the workers in the past as non-employees;
  2. They must have filed all required 1099 forms for the workers for the previous three years;
  3. They must not be currently under audit for employment taxes by IRS; and
  4. They must not be currently under audit by the federal Department of Labor or a state agency with respect to the classification of these workers.

What is Required?

Interested taxpayers apply for participation in the program by filing Form 8952, Application for Voluntary Classification Settlement Program. Taxpayers accepted into the program will pay an amount effectively equaling just over 1% of the wages paid to the reclassified workers for the past year.

Why Not Wait for the IRS to Find It?

Taxpayers who are accepted into the program are basically given what amounts to amnesty for their past deeds. Those accepted will not be audited for prior years on payroll taxes related to the workers they voluntarily reclassify.

Now is a Good Time to Take a Good Look at How You Classify your Workers

IRS examination employee classificationThe Affordable Care Act, common known as “Obama Care”, adds additional provisions on employers starting next year. The Internal Revenue Service will be looking for taxpayers trying to get out of these provisions, so classification of workers as independent contractors will be under the microscope like never before. If you’ve got anything to hide, now is the time to voluntarily give yourself up. It will cost you a lot less than it will if the IRS discovers it on their own.

We Can Help

Wallace Associates Group is here to help you ensure your worker classifications are correct and we can help you fix any past problems you might have.

Much Ado About Nothing

It Must Be Election Time Again

Money and FlagOn Tuesday, Democrats in the United States Congress introduced legislation that would deny government contracts to corporations that move their tax domiciles abroad. Last week, President Obama called into question the loyalty and patriotism of corporations that have or are considering what is known as an “inversion”. Reading the headlines and listening to the sound bites would lead one to believe there is an immediate danger that requires drastic action. As with most election rhetoric, it has much ado about nothing.

What is an Inversion?

Simply put, an inversion is where a new corporation is established somewhere and then an existing corporation merges into or becomes a subsidiary of the new corporation. The new corporation takes on all the business and assets of the existing corporation but with a new, legal domicile. There is nothing illegal about such a transaction and it is commonly done for a variety of legitimate business reasons.

So… What is the Problem?

The United States has one of the world’s most aggressive tax regimes. United States based companies pay income tax on earnings from all over the world, while other countries only tax earning from within their own country. If a company inverts to a foreign domicile it will only pay United States taxes on its United States derived income, not on its world-wide income.

How Big a Problem is it?

Over the past 32 years, 52 United States corporations have completed inversions.

Recommendation

If the Democrats really believe inversions are a problem, they should look at fixing the cause, not the symptom. Making legislation to punish companies for doing something that is completely legal is not the answer. The answer is to overhaul the United States Tax Code, especially when it comes to taxing foreign income of domestic corporations. If the Tax Code didn’t motivate corporations to move out of the United States, they wouldn’t go.

Confused About IRA Options and Rules?

Confused About Your IRA Options?Confused About Your IRA Options and Rules? Maybe This Will Help.

Individual Retirement Accounts (IRAs) and Roth Individual Retirement Accounts (Roth IRAs) provide flexible tax-sheltered retirement options. This flexibility comes with a complex systems of rules. Here is a quick review of some important rules affecting IRAs. Roth IRA rules will be reviewed in a subsequent post.

Deadlines for IRA Contributions

Contributions can be made up till the un-extended due date of your tax return for the year you desire to make the deduction. So, if your tax return is first due (no extensions allowed for calculating the deposit date) on April 15th of 2014 for tax year 2013, you have until April 15, 2014 to make the contribution to your IRA and you will still be able to take the deduction for tax year 2013 (Code Sec. 219(f)(3)).

Tax-Free Rollovers from One IRA to Another

By definition, a “rollover” is when you actually make a withdrawal from your IRA and then place the withdrawn funds into another IRA. You can withdraw all or part of your IRA any time you want, once a year, and even use the money for other purposes in-between, so long as the funds are re-deposited into another IRA no later than 60 days from the date of withdrawal. While not necessarily a sound financial idea, this means that IRA monies can, in essence, be “borrowed” for 60 days without any penalty whatsoever, except any cost charged by the IRA administrator to effect the withdrawal (Code Sec. 408(d)(3)(A)).

The IRS may waive the 60-day rule if an individual suffers a casualty, disaster, or other event beyond his reasonable control, and not waiving the 60-day rule would be against equity or good conscience (Code Sec. 408(d)(3)(I)), but don’t plan on this automatically being granted unless specific conditions are met.

Automatic Waiver of 60-Day Rule

The IRS will automatic wave the 60-Day rule if the failure to re-deposit the funds is caused by financial institution error. The requirements for automatic waiver are:

• The financial institution received the funds on behalf of the taxpayer before the 60-day rollover period expires;

• The taxpayer followed all of the financial institution’s procedures for depositing the funds into an eligible retirement plan within the 60-day period (including giving instructions to deposit the funds into an eligible retirement plan);

• Solely due to the financial institution’s error, the funds are not deposited into an eligible retirement plan within the 60-day rollover period;

• There would have been a valid rollover, if the financial institution had deposited the funds as instructed; and

• The funds are actually deposited into an eligible retirement plan within one year from the beginning of the 60-day rollover period (Rev Proc 2003-16, 2003-4 CB 359, Sec. 3.03).

Trustee-to-Trustee Transfers of IRA Funds

By definition, direct, trustee-to-trustee transfers aren’t rollovers because the transferred funds are not within the direct control and use of the taxpayer (Rev Rul 78-406, 1978-2 CB 157). As a result, direct, trustee-to-trustee transfers aren’t subject to income tax, aren’t reported on your return, and aren’t subject to the once-a-year limit that applies to IRA rollovers.

Transfers from Qualified Plans to an IRA

You can make a tax-free rollover of an eligible rollover distribution from a qualified plan your IRA (Remember a “rollover” means you withdraw and take control of the funds and then within 60-days you deposit the funds in an IRA) (Code Sec. 402(c)(1), Code Sec. 408(d)(3)).

One thing to be aware of when taking funds from a Qualified Plan to place in your IRA is that if you do a “rollover” (i.e. take possession of the funds) the plan administrators are required by law to withhold 20%, which you can get back when you file your tax return so long as you make the deposit within the required 60 days (Code Sec. 3405(c). Note a big difference here. Trustee-to-trustee transfers from your qualified plan to your IRA are not subject to mandatory 20% withholding (Code Sec. 408(d)(3)(A)(ii)). Therefore, unless you have a real good reason to be using the money during the 60 days, it would be in your best interest to transfer trustee-to-trustee from your Qualified Plan instead of rollover, since your transfer will be made without the 20% mandatory withholding.

Special Rules for Basis IRAs

Special rules apply if you deposit more than you can deduct during the tax year into your IRA account. For example, the standard limit for tax year 2013 is $5,500 per taxpayer. Let’s assume you want to put in extra money so you’ll be better prepared for retirement, so you put $10,000 into your IRA. You can deduct $5,500 on your tax form. The difference of $4,500 gets added to your basis for the year. So, if you only make the deduction amount every year, you will never have a basis. But, each year you add more than the deduction, you add, and it accumulates, basis to your IRS. This comes into play when you withdraw funds.

Why is this important? Non-basis IRA funds accumulate tax free. Basis IRA funds do not. The standard rule for tax purposes is if you withdraw for use funds from your IRA and your IRA has basis, each withdrawal is considered to have both a basis and a non-basis components. If you are retired, the non-basis component is tax free, but the basis component is subject to income tax at whatever rate you are paying when you are retired.

Since a rollover is by definition a withdrawal, a rollover from an IRA with a basis, even if re-deposited in another IRA within 60-days, would be subject to tax on the basis portion. However, under a special rule, if you leave in your IRA an amount equal to at least your basis, the rolled over amount can be made tax free (Code Sec. 402(c)(2), IRS Publication 590, 2013, pg. 23).

Still Confused About Your IRA Options?

Still confused about your Individual Retirement Account options? Wallace Associates Group can help. Give us a call.

Home Office Deduction Made Easier

Calculating Taxes is Hard Work Wallace Associates GroupThe Internal Revenue Service for tax year 2013 has made taking a deduction for your home office easier. You can still use the old way (which may yield a higher deduction depending on your actual expenses and square feet used for your business) or you can use the new way, which is quite a simple calculation. But first, you need to make sure you qualify.

Can I Take a Deduction for Business Use of my Home?

If you use part of your home for business, you may be able to deduct expenses for the business use of your home. The home office deduction is available for homeowners and renters, and applies to all types of homes, so long as the following is true:

1.    You regularly and exclusively use part of your home for conducting business.

2.    Your home is your principle place of business.

 As long as both 1 and 2 are met, it does not matter whether you own your own business or whether you are an employee of someone else’s business.

What is the Simplified Option?

For taxable years starting on, or after, January 1, 2013 (filed beginning in 2014), you now have a simpler option for computing the business use of your home. For those who don’t like to keep track of their actual expenses, or who just didn’t keep track, the simplified method is like using the standard mileage rate for use of your car. All you need is number of square feet used.

The formula is very simple. You take the number of square feet of your home used for business and you times it by $5. For example, if you have a 10 foot by 10 foot office, you take 100 square feet (10 times 10) time $5 and you get $500. No fuss. No records.

There is one nasty catch, however. The maximum you can claim using this method is $1,500. That is equal to a 300 square foot office, which if square would measure 17.5 feet by 17.5 feet.

There is one big benefit, however, in addition to not having to keep records. You get to deduct all your schedule A items such as interest, property tax, etc., without adjustment.

The Actual Expenses Option

This option uses the actual expenses you incur to make the calculation. Here you add up your rent or mortgage interest, renters’ or homeowners’ insurance, real estate taxes and utilities, and multiply that times the percentage of your house allocable to your home office. For example, if all your allowed expenses add up to $35,000 and your home has 1,500 square feet and you use 100 square feet for your business, the calculation would be $35,000 divided by 1,500 times 100, (dollar amount of expenses times the percentage portion of your office), or $2,333. Your schedule A itemized expenses would then be reduced by any portion included in the $2,333 (the IRS won’t let you deduct it twice).

As a General Rule

As a general rule you can see that the larger your proportional use and/or the larger your total expenses, the Actual Expenses Option would give you a higher deduction, while the lower your proportional use and/or the lower your total expenses, the Simplified Method would give you a higher deduction. The only way to know for sure, however, is to keep your records and do the calculations both ways. Or, you can just bag it, and like standard mileage rates, just take what you can easily get.

Wallace Associates Group Tax Preparation

If you want the most deductions possible, the most money back, the least amount of hassle, and you want it all legitimate and in compliance with all the tax laws, your very best bet may be to hire a professional. A professional who is worth their salt, will always be worth the money spent. Wallace Associates Group is always there to answer your questions and help you determine which route is best for you.

SEC Considers Regulationing High-Frequency Traders

High Frequency Traders - Wallace Associates Group - AttorneysAdvocates for the small investor may be getting their wish. New rules are being considered by the SEC that would require high frequency traders to register as broker-dealers, which would make them subject to additional supervision from Securities and Exchange Commission.

Who are these High-Frequency Traders?

High-Frequency traders use complex computer programs that takes massive amounts of information from press releases, web postings, news reports, etc., to produce computer issued buy and sell orders on every kind of imaginable position. Since the only real human element involved is the extensive computer programming required to produce such a system, buy and sell orders can be issued within seconds of the time information is released.

Why would High-Frequency Traders be a Problem?

Wallace Associates Group High Frequency TradersSome investors believe these systems increase market volatility since they react so quickly and have the potential of, if the computer deems it warranted, taking large and even controlling positions in a market within seconds. Other investors believe these same elements increase the risk a market may crash. Still others believe that should these programs become too effective the small investor will never be able to make money in the markets because by the time they get and analyze the same information the high-frequency traders have taken the profitable positions already.

Other investors feel these concerns are not valid. They point out that every high-frequency trading program is set with a different set algorithms. They point out that two high-frequency traders will often end up on different sides of a position. Others point out that since these are private individuals or entities and they only buy and sell with their own money that it is nobody else’s business what they do as long as it is legal.

What Happens if High-Frequency Traders are Required to Register?

If High-Frequency Traders are forced to register as Broker Dealers, they would become subject to the Security and Exchange Commission’s regulations designed for those who trade other people’s moneys. Full disclosure and reporting would be only one of the things they would be required to do. In addition, they would become subject to the Financial Industry Regulatory Authority’s examination program, which would force them to make their books and records available to both the Securities and Exchange Commission and the Financial Industry Regulatory Authority.

Obviously, High-Frequency Traders would object to this. They guard their algorithms like the government guards the gold in Fort Knox. They are always tweaking their formulas to become better than every other High-Frequency Trader and any disclosure of what they buy and sell could help others to discover their secrets.

Definition is a Huge Issue

One of the biggest issues will come as a result of the fact that there is no accepted definition for high-frequency trading. One way would be to focus on the total number of trades in a year. Another would be to focus on the total number of securities a trader owns. No matter what method is chosen, people that don’t even use the computerized trading systems may be forced to open up their records as well.

Just the Hint of Possible Regulations has Already had an Impact

Even without an industry accepted definition of who is a high-frequency trader, some companies, fearing possible complications from even being associated with someone who might be one, have taken steps to distance themselves. For example, Berkshire Hathaway’s Business Wire has said it will no longer make its direct feeds of press releases available to high-frequency traders.

IRS Aid for Do-It-Yourself Tax Preparers

Did you make $58,000 or less last year? Do you want the thrill of doing your own taxes? In addition, do you want to file electronically and have your refund deposited directly into your checking account? Then the Internal Revenue Service has a deal for you!

File For Free Tax Software

The IRS has entered into an agreement with 14 commercial software companies, including well-known companies such as TurboTax, H&R Block, Tax Slayer and TaxACT, to help taxpayers making $58,000 per year or less prepare their own taxes and file them for free. IRS data shows that 70% of United States Taxpayers qualify to use this free, do-it-yourself service.

How Does the Free Tax Software Work?

The process is fairly simple. Go to www.irs.gov/freefile and you’ll find a link that looks like this:

IRS Free File Button

Once you click the button, you will be brought to a screen that lists the 14 participating software products. You can click on your favorite software provider, such as TurboTax, or you can press the “Help Me Find Free File Software” link and by answering the questions the IRS will help you chose a provider.

Here is a video the IRS prepared to help you:

From There, You Are On Your Own

From there, you are on your own. After all, that is what do-it-yourself means. You’ll enter all your tax information in the appropriate places. You’ll enter your banking information. You’ll then submit your tax return and you’ll be done.

Don’t Forget Your State Tax Returns

As you are obviously well aware, the IRS only covers Federal Tax Returns. Once you submit your tax return using the IRS’s Free File system, you’ll still have to deal with your state return. The 14 participating vendors are well aware of this and each will offer you some type of deal to prepare and file your State Tax Return.

Don’t want to do it alone?
We are here to take the hassles and burdens
of your tax preparation off your shoulders!

Click Here for our 2013 Tax Year Tax Preparation Pricing

American Bar Association’s List of Top Law Novels

Here is the list of the American Bar Association’s list of the top law novels of all time. Do you agree?

1 To Kill a Mockingbird by Harper Lee (1960)

2 Crime and Punishment by Fyodor Dostoevsky (1866)

3 Bleak House by Charles Dickens (1852)

4 The Trial by Franz Kafka (1925)

5 Les Miserables by Victor Hugo (1862)

6 Billy Budd by Herman Melville (1924)

7 Presumed Innocent by Scott Turow (1987)

8 The Scarlet Letter by Nathaniel Hawthorn (1850)

9 The Bonfire of the Vanities by Tom Wolfe (1987)

10 An American Tragedy by Theodore Dreiser (1925)

11 The Paper Chase by John Jay Osborn Jr. (1971)

12 Bartleby the Scrivener: A Story of Wall Street by Herman Melville (1853)

13 Native Son by Richard Write (1940)

14 The Stranger by Albert Camus (1942)

15 A Tale of Two Cities by Charles Dickens (1859)

16 A Time to Kill by John Grisham (1989)

17 The Caine Mutiny by Herman Wouk (1951)

18 Their Eyes Were Watching God by Zora Neale Hurston (1937)

19 QB VII by Leon Uris (1970)

20 The Firm by John Grisham (1991)

21 The Count of Monte Cristo by Alexandre Dumas (1844)

22 The Handmaid’s Tale by Margaret Atwood (1985)

23 Anatomy of a Murder by Robert Traver (1958)

24 The Fountainhead by Ayn Rand (1943)

25 (tie) The Ox-Bow Incident by Walter Van Tilburg Clark (1940)

25 (tie) Old Filth by Jane Gardam (2004)