IRS releases new tax rules concerning pensions

With the American Recovery and Reinvestment Act underway, many tax payers can expect a lot of changes.  Such is the case with the IRS' recent updates concerning pensions.

At Cook CPAs, we're staying on top of these changes to help our customers understand the changes in their tax liabilities.  If you have questions, please feel free to call us anytime.  Below is a recent IRS news release on the changes in pensions.

-- Steve Cook

WASHINGTON - As part of a wider outreach effort to educate taxpayers about the benefits they will receive under the American Recovery and Reinvestment Act (ARRA), the Internal Revenue Service released new withholding adjustment procedures for pension plans.

Previously, the IRS issued revised withholding tables incorporating the Making Work Pay Tax Credit, one of the key provisions of the American Recovery and Reinvestment Act.

That change resulted in more take-home pay for about 120 million American households and provided an immediate economic stimulus.

The new procedure for pensions will make withholding more accurate for pension recipients.

Those who should pay particular attention to their withholding include married couples with two incomes, individuals with multiple jobs, dependents, some Social Security recipients who work and workers who do not have valid Social Security Numbers.

Making sure you don’t owe the IRS

While the newly announced procedures apply only to pension payments, the IRS also is gearing up for a wider outreach campaign to educate pensioners and other taxpayers about the withholding tables and Recovery payments.

The IRS will work with partner groups to provide taxpayers information to make sure they have the appropriate withholding for their situation.

The IRS will also work on developing a variety of brochures, video and audio materials to help educate taxpayers.

The change announced today will help some pensioners avoid a smaller refund next spring, or in some situations a balance due.

A wide variety of factors, such as outside jobs and other earned income, can affect how much, if any, withholding should be done by people receiving a pension in order to satisfy their annual tax liability.

Pension adjustment is optional

The optional adjustment procedure that may be used by those paying pensions is available in Notice 1036-P, Additional Withholding for Pensions for 2009.

The on-line version of Publication 15-T, New Wage Withholding and Advance Earned Income Credit Payment Tables, is also expected to be available now.

Pension payors are not required to use this new procedure and may continue to use only the February 2009 withholding tables.

For plans that adopt the new procedure, withholding on pension payments will be automatically adjusted with no action needed by pensioners.

The IRS encourages pension payors who choose to implement the new withholding adjustment procedures to contact retirees who previously submitted a Form W-4P, Withholding Certificate for Pension or Annuity Payments, requesting additional withholding after the February withholding tables were issued.

People who believe their current withholding may not be enough for their personal situation can perform a quick check by using the IRS withholding calculator on http://www.IRS.gov.

Any necessary adjustments can be made by filing a revised Form W-4, Employee’s Withholding Allowance Certificate, with their employer.

More information is available at http://www.IRS.gov.

Taxpayers and payors can download forms and publications from this Website or request a free copy by calling toll free 1-800-TAX-FORM (1-800-829-3676).

The indepedent audit: verification of a non-profit's financial acumen

For non-profits, fund raising is the lifeline of any successful one. As a professional accountant who works with them, I want to share this great web site on how to find funding resources.



However, it's important to note that many of these funding resources also require an outside firm to either audit the books or prepare a financial statement for them. While many companies turn to board members who understand how to prepare this process, it's a better tactic to hire an outside accounting firm to verify the information.



By having an independent audit completed every year, a non-profit can show a potential grant-funding resource that their organization has gone through the extra step to verify to them that their organization has checks and balances on its funding resources. A professional audit gives each foundation a clear indication that the non-profit is willing to demonstraten its financial responsibility for the money granted to them.



While a non-profit should get a professional accountant to serve on their board of directors, it's better to have an independent agency perform that independent audit. While some non-profit executives may at first question the cost for these audits, they will find that it similar to what banks expect of their commercial customers. Just like a business that wants to get funding from a venture capitalist or a bank, an independent audit provides verified data to those providing a grant.



Accounting firms like ours can provide an estimate of the costs and the services provided in an audit. As non-profits prepare their annual budgets, it's best to program the costs of an outside audit as a tool to help increase the viability of grants and corporate donations.

-- LeAnn Carlson

How a CPA can help companies save money with the right tax structure in place

As businesses grow or expand their operations, a major concern is how to structure the new enterprise. Do you put the new business in with your existing business or do you set up a new entity? As a CPA, I am working with companies where the first choice was best and others for whom the second choice made the most sense.

Before I go further on this topic, it's important that I make this disclaimer. As a CPA, I can advise my clients on tax issues. On legal and liability issues, it's a good practice to call upon an attorney for their advice and guidance. These decisions should not be made without consulting all your professional advisors.

With that out of the way, let me say that there are valid reasons for either scenario. For example, one of my clients had a retail sales business that had accumulated nearly $500,000 in operating losses. When he came to me about starting a fast food franchise operation, I was able to advise him to place the new operation under his existing corporation. This allowed him to recoup the losses, which would have otherwise gone unclaimed. By planning his enterprise properly, he saved tax on $500,000 in income.

Another client came to me because he had decided to open a new restaurant business in addition to his existing construction company. In this case, the new business had a partner that wasn't affiliated with the first business. Here, our only choice was to start a new corporation since the client didn’t want the partner to have ownership in his existing enterprise. The client was also concerned that liability from the construction company’s operations could affect the assets of the restaurant. By properly planning his business structure, these are no longer concerns for this client.

Working with an attorney who understands corporate structure and liability issues and a CPA firm who understands the tax implications of his or her decisions is the best way for a business owner to make a proper decision about how to structure a new business enterprise.

-- Dan Musick

CPAs and professional accounting solutions can help businesses cut down on their costs of products sold

Talk to most business owners, and few can truly understand the costs of products sold. Most have a basic understanding of what it takes to create products in their business.

Yet, without a professional CPA's help, most are missing out on key issues that can help them lower their costs and make their business more viable.

Let's take a sandwich shop owner as an example. As a good business person, he may know what the actual costs are for his product, but he may not understand his labor costs or his spoilage charges.

With a professional accountant and software in place, a business owner can learn to spot trends. For example, an accounting system can track the number of customers for specified periods each week. When a business owner can learn when his business needs more staff, it can cut down on his labor costs.    

Another example for this hypothetical restaurant is spoilage.   With the help of their accounting software, the owner can monitor these expenses.   By knowing that his business is throwing out too much of one or two raw products, the owner can modify his weekly order with his suppliers.

With the help of his or her professional CPA, a business owner can lower their expenses, saving money and increasing their revenues.

-- Steve Cook

With more businesses using credit cards for purchases, it's best to monitor their use for tax writeoff purposes

With tighter credit standards by local banks, many small businesses are turning to their credit cards to help them keep their business afloat.   However, small businesses need to make sure to fully monitor the use of their credit cards for business purposes.

Let's imagine a small plumbing company that has a credit card for business purchases.   The company used this form of credit to purchase some plumbing equipment for a commercial property that took 90 days.    Because of the wait for payment and the high cost of the materials, the owner of the firm repaid his credit card three months after the purchase.   As a small business owner, he can claim the interest from this purchase on his income tax.

However, let's also imagine that the plumber decided to also use his or her credit card for personal uses.  Just like he or she did with the equipment, there was a wait of 90 days with interest.  In this case, the interest from this purchase would not qualify for income tax credit.

Furthermore, if the overall interest for both purchases was $2000, the owner would have to determine the percentage of each interest charge.   If the interest from the equipment purchase demonstrated given from this story was only 60-percent, the plumber could only claim $1200 on his business taxes.

As we help small businesses with their taxes, we recommend that they use their business credit card for business-related expenses.     This helps their tax prep work for their accounting firm, and it helps them keep track of all of their expenses related to their firm.

The rules for IRS tax writeoffs are somewhat complex, so it's best to consult your CPA to make sure your company understands what are business-related expenses and what are items that should be paid with a personal credit card.

-- Leann Carlson

CPA firms can help their clients manage data with computer tools

Go back in time just fifteen years and you will find an accountant who sits at a desk clicking away on a ten-key, sharpening a pencil, and pulling out a yellow note pad.  Today, these tasks are seldom necessary as technology has overcome the need for paper records of columns and numbers.

 

      Electronic spreadsheets provided by the likes of Lotus and Microsoft Excel have revolutionized the way 

we do accounting.  No longer are accountants required to manually calculate a row of numbers.  Off with th

e green hat and the archaic stereotype!  It is now possible to get sums, counts, averages, and other (much more complicated) calculations with the simple click of a button. 

 

      Does this mean that technology has replaced the need for accountants?  Absolutely not!  There is still a need for a professional  accountant to review data and to provide recommendations on business strategy. 

 

                Any person who owns an accounting software like QuickBooks can open their software, write a check or post a payment.  However, an accountant can help her customers realize the most effective ways to streamline their business operations.

 

                Businesses can learn how to perform simple accounting processes through a professional QuickBooks training program.   Our firm, like others, provides this service to our customers.  Depending on their comfort level with the software, we help them manage their important accounting processes like payroll and accounts receivable.   

LeAnn Carlson

Outsourced finance departments can save money for small businesses

If you are a small business owner looking to carve out some personal time and cut your operating costs, you may want to consider an outsourced finance department (OFD. )

The OFD charges a service fee to take responsibility for many of the non-revenue generating areas of the business. OFDs typically manage marketing, human resources, tax and accounting functions at very reasonable fees. The OFD concept allows the owner the opportunity to do the things that provide the greatest benefit to the company by allowing to focus on revenue generating activities.


For a company’s marketing efforts, these can include internet media and group team building. Human resources include compliance with all laws, insurance programs and payroll services. Accounting and finance services include bill payment, current financial statements, cash analysis and management level conferences. While some owners may have the skill set to perform these non-revenue functions, most simply don’t have the time because they are either on the production line or out selling.

For those business executives who find themselves assuming too many duties, our firm’s OFD program can provide much needed relief after they begin this cost effective transition.

Steve Cook

American Recovery and Reinvestment Act of 2009 provides new incentives for first-time home buyers

One of the more well-publicized provisions in the American Recovery and Reinvestment Act of 2009 is an expansion and liberalization of the First-Time Homebuyer Credit.

The new tax credit should provide real assistance for qualifying homebuyers in reaching their goal of home ownership. It also provides an adrenaline shot for the central and south Texas real estate market.

Under prior law, qualifying first-time homebuyers received an IRS tax credit upon the purchase of a new home, essentially getting an interest-free loan.

Now for the tricky part.

After three years, that credit had to be repaid, with no interest and over a 15-year period.

Helpful? Possibly.

Confusing? You bet – especially when you factor in scenarios where the home is sold before the 15-year payback period.

The new version of the credit, though, is much more taxpayer-friendly. Under the new law, a first-time homebuyer qualifies for a tax credit equal to 10 percent of the purchase price on the home, up to a maximum credit of $8,000. Also, there is no repayment of the credit – ever!

If a first-time homebuyer buys a house for $75,000, the credit is $7,500. On a house worth $90,000, the credit can only reach the $8,000 ceiling.

Anyone who has not owned a home in the past three years qualifies as a first-time homebuyer. The IRS says the deadline to qualify for this credit is December 1, 2009.

For first time buyers, the IRS also allows an amendment on their 2008 returns to claim the credit. Even though the house was purchased in 2009, the home owner can immediately get the credit.

Our firm helps customers amend their taxes and complete all forms needed to obtain this credit.

--Dan Musick