There are two kinds of people in the world – pack rats and everyone else. Pack rats are those people who keep items such as old bills, old bank statements, old mail – you get the gist. So when does old get promoted to “old enough to throw away”?
First, decide if there’s a reason behind such extensive recordkeeping. The two main reasons to keep documents are for tax purposes or for proof of payment. For tax purposes, the IRS requires that individuals be able to produce records proving any income, deductions or credits claimed for the last years from the date of a return. However, this length of time may be extended to six years if individuals fail to report income that is more than 25 percent of their gross income.
For that reason, it’s a good rule of thumb to keep supporting tax documentation for six to seven years. Records that fall into this category could include W-2 forms, 1099 forms, end-of-year bank statements, and any receipts related to deductions (such as family gifts, tuition, or charitable contributions).
Another reason to keep financial records is to verify payment. Unless you need to save bills for tax purposes (for instance, deductions on a schedule C), they should be thrown away once you’ve received the next month’s bill with no balance due. In addition, experts recommend that bank and credit card statements be kept no longer than a year, unless something is incorrect on the statement and needs to be challenged. In that case, keep the statement until the dispute has been resolved.
Documentation for insurance and loans should be kept a longer period than most other items. Original loan documents and loan statements should be kept until the loan in paid off. At that point, the documentation showing the loan was paid off is all you need to keep. In the case of insurance, it’s important to keep the paperwork for as long as you have the policy.
There are a few documents that must be kept indefinitely. These include wills, inheritance, legal filings, bankruptcy filings, and paperwork documenting IRA contributions and withdrawals.
If you recognize the signs of a pack rat in you or someone you love, follow this 3 step guide to recovery:
1) Drive to your nearest grocer
2) Buy Hefty
3) Use hands + Hefty to de-clutter your life!
LeAnn Carlson
Wednesday, March 31, 2010
Tuesday, March 30, 2010
10 Rules That May Affect Your Taxes
Check out my tax partner Dan Musick’s recently published article in the San Antonio Express- News titled “10 Rules That May Affect Your Taxes” . You can view Dan’s article in the business section of today’s San Antonio Express- News or by clicking on the link below:
http://budurl.com/756c
http://budurl.com/756c
Saturday, March 27, 2010
Key Tax Provisions of the New Health Care Bill
In my memory, there has been no bill passed by Congress that has been as politicized as the recently-passed health care reform package. With all of the emotionally-charged discussion and partisan rhetoric, it's been my experience that the actual facts of the bill are often lost. As a CPA, I am interested in the tax-related provisions of any new law. In this case, I am particularly interested because many of the goals of the law are expected to be financed by tax law changes.
Here is a list of some of the most relevant tax-related items in the new law. Please remember that because of the reconciliation process, some of these are still subject to change.
Provisions going into effect in 2010:
Here is a list of some of the most relevant tax-related items in the new law. Please remember that because of the reconciliation process, some of these are still subject to change.
Provisions going into effect in 2010:
- Effective July 1, the law imposes a 10% excise tax on indoor tanning services.
Provisions going into effect in 2011:
- The law will increase the 'penalty'tax on distributions from HSAs and Archer MSAs not used for qualified medical expenses from 10% to 20%.
- Employer W-2 reporting will be required for the value of health benefits.
- An annual fee will be imposed on manufacturers and importers of branded drugs. The fee will be $2.5 billion for 2011, and will increase annually.
- The law makes the definition of "qualified medical expenses" uniform for purposes of MSAs, HSAs, and itemized deductions.
- The law establishes a $500,000 deduction limitation on salaries for officers, employees, directors, and service providers of covered health insurance providers.
- The law limits health flexible spending arrangements in cafeteria plans to $2,500. Currently, there is no limit.
- A 2.3% excise tax will be imposed on manufacturers and importers of certain medical devices.
- The law raises the 7.5% AGI floor on medical expenses deduction to 10%.
- The new law increases payroll taxes on higher-earning taxpayers. It places an additional tax of 0.9% on earned income and 3.8% on investment income for taxpayers with AGI in excess of $200,000 (single) and $250,000 (married).
Provisions going into effect in 2014:
- The law imposes an annual fee on health insurance providers ($8 billion in 2014 and increasing each year thereafter). The fee for each provider will be based on their market share in 2013.
- There will be a $695 annual excise tax (i.e., penalty) on individuals without "essential health benefits coverage." In other words, if you choose not to carry health insurance, you will have to pay a penalty tax to IRS when you file your tax return.
- The law also provides for an excise tax (i.e., penalty) on employers who employ more than 50 workders and do not provide health insurance coverage to employees. There will be a requirement that employers report health insurance coverage to the IRS to avoid the penalty. The penalty will be $2,000 per employee who has to pay for self-coverage.
Provisions going into effect in 2018:
- The law will impose a 40% excise tax (i.e. penalty) on health coverage in excess of $10,200 for single people and$27,500 for family coverage. Increased thresholds of $1,650/$3,450 will apply for over age 55 retirees or certain high-risk professions. The tax will be levied at the insurer level and will be nondeductible for tax purposes.
There are many facets to this bill, and not all of them involve taxation. However, now you know how your taxes could be impacted by the passage of this law. Hopefully, this information can help you make an educated, informed decision about the bill.
--Dan Musick is the tax services partner for Cook & Associates, PLLC, a full-service public accounting firm with offices in San Marcos and San Antonio, TX.
Tuesday, March 23, 2010
WHAT IS A CPA?
I am compelled to write today’s blog on this topic because every year at this time I become aware that the general public does not know the difference between a certified public accountant (CPA), H&R Block and the corner bookkeeper.
CPA’s are college graduates that have passed a prescribed number of class hours. Most of today’s graduates have received a Master of Accountancy. After receiving the appropriate college education, each man and woman must pass the Uniform CPA Exam. This is a two and one-half day examination covering all facets of accounting and taxation. Upon successful completion of the examination, the individual must then complete a minimum of one year of approved accounting work related experience. Then, and only then, will they receive their designation as a Texas Certified Public Accountant. License’s are granted by and renewed by the Texas State Board of Public Accountancy.
Only those individuals completing this process may hold themselves out to certified public accountant. Only certified public accountants may perform audits. Only CPA’s, licensed attorneys, and licensed enrolled agents may represent you in Tax Court.
CPA’s must display their valid, annually renewing license. Anyone that cannot produce a license is not a CPA and cannot legally hold themselves out to be a CPA. Not H&R Block, Betty’s bookkeeping or any other non-licensed company.
In the last quarterly newsletter from the Texas State Board of Public Accountancy, there were 16 non-CPA firms sited for holding themselves out to be CPA’s. San Antonio is a hotbed for this type of illusion. Frankly, this is just the tip of the iceberg.
Buyers beware……….don’t hesitate to ask for credentials. If someone tells you that they are just as good as a CPA, ask them for their license.
Steve Cook is the managing shareholder for Cook and Associates, PLLC, a full service CPA firm, with offices in San Antonio and San Marcos.
CPA’s are college graduates that have passed a prescribed number of class hours. Most of today’s graduates have received a Master of Accountancy. After receiving the appropriate college education, each man and woman must pass the Uniform CPA Exam. This is a two and one-half day examination covering all facets of accounting and taxation. Upon successful completion of the examination, the individual must then complete a minimum of one year of approved accounting work related experience. Then, and only then, will they receive their designation as a Texas Certified Public Accountant. License’s are granted by and renewed by the Texas State Board of Public Accountancy.
Only those individuals completing this process may hold themselves out to certified public accountant. Only certified public accountants may perform audits. Only CPA’s, licensed attorneys, and licensed enrolled agents may represent you in Tax Court.
CPA’s must display their valid, annually renewing license. Anyone that cannot produce a license is not a CPA and cannot legally hold themselves out to be a CPA. Not H&R Block, Betty’s bookkeeping or any other non-licensed company.
In the last quarterly newsletter from the Texas State Board of Public Accountancy, there were 16 non-CPA firms sited for holding themselves out to be CPA’s. San Antonio is a hotbed for this type of illusion. Frankly, this is just the tip of the iceberg.
Buyers beware……….don’t hesitate to ask for credentials. If someone tells you that they are just as good as a CPA, ask them for their license.
Steve Cook is the managing shareholder for Cook and Associates, PLLC, a full service CPA firm, with offices in San Antonio and San Marcos.
Thursday, March 18, 2010
THE TRUTH ABOUT THE IRS ‘WHISTLEBLOWER’ PROGRAM
At first glance, turning in a tax cheat seems to be a no-brainer decision. After all, people who cheat on their taxes drive up the balance due for the rest of us. A 2005 study by the IRS estimates that the “tax gap” – the difference between what taxpayers should pay and what is actually paid – is about $290 billion per year. This represents money that some taxpayers are underpaying to the government, and money that the rest of us have to make up with our taxes.
In 2006, IRS established a whistleblower program that offers a reward of up to 30 percent of the amount collected to anyone who turns over information leading to the collection of underpaid tax liabilities. IRS estimates that it paid $27.3 million in rewards from 2001 to 2005, with the average reward being $24,000 per case. So it is doubly puzzling to us that more people don’t take advantage of this program.
IRS estimates that only 5 percent of unpaid tax bills are collected via tips from third parties. Why such a small percentage? We believe it is because many people don’t understand the basics behind the IRS whistleblower program and as a result, don’t use it.
Here are some facts that we think might help people understand more about this program:
1. Many people think that only exposing blatant fraud will earn a reward. The truth is that any underpayment of tax, whether intentional (fraud) or unintentional (error), can be turned in to the IRS and be eligible for reward.
2. Any kind of tax is eligible for the whistleblower reward. An informant can turn in someone who is underpaying income tax, payroll taxes, excise taxes, or any other kind of tax.
3. In the corporate world, employees are often silent because they fear that their boss will fire them if they turn them in to the IRS. In fact, many states have laws prohibiting an employer for firing a whistleblower. Also, the IRS keeps the identity of a whistleblower confidential.
4. Anyone can claim a whistleblower reward for turning in a taxpayer who is underpaying their taxes. Many believe that only US citizens can earn the reward. In fact, foreign nationals are often in the best position to be able to turn in a taxpayer because so many of these types of workers are often paid “under the table” without payroll taxes being properly withheld.
5. Many people believe that IRS will “blow them off” if they bring a whistleblower claim. The truth is, IRS welcomes any help it can get when attempting to collect tax liabilities and they will take any claim seriously. This is especially true if the whistleblower takes the time to prepare evidence and hire an attorney to represent their claim.
There are standards that must be met to establish a proper claim for reward, so specific information is a must when building a case. A potential informant should have specific examples and detailed records. An informant will not earn a reward by simply saying “my boss just bought a new truck”. However, if an informant can provide copies of correspondence showing that the boss was writing off a personal vehicle as a company asset, the IRS could use that information.
Throughout the years, IRS has paid millions of dollars in rewards to informants. There are millions more to be paid, and IRS has strengthened its support and protection of whistleblowers to encourage more participation. Will you be the next one to earn a reward?
--Dan Musick is the Tax Services Partner for Cook & Associates, a full-service public accounting firm with offices in San Marcos and San Antonio, TX.
In 2006, IRS established a whistleblower program that offers a reward of up to 30 percent of the amount collected to anyone who turns over information leading to the collection of underpaid tax liabilities. IRS estimates that it paid $27.3 million in rewards from 2001 to 2005, with the average reward being $24,000 per case. So it is doubly puzzling to us that more people don’t take advantage of this program.
IRS estimates that only 5 percent of unpaid tax bills are collected via tips from third parties. Why such a small percentage? We believe it is because many people don’t understand the basics behind the IRS whistleblower program and as a result, don’t use it.
Here are some facts that we think might help people understand more about this program:
1. Many people think that only exposing blatant fraud will earn a reward. The truth is that any underpayment of tax, whether intentional (fraud) or unintentional (error), can be turned in to the IRS and be eligible for reward.
2. Any kind of tax is eligible for the whistleblower reward. An informant can turn in someone who is underpaying income tax, payroll taxes, excise taxes, or any other kind of tax.
3. In the corporate world, employees are often silent because they fear that their boss will fire them if they turn them in to the IRS. In fact, many states have laws prohibiting an employer for firing a whistleblower. Also, the IRS keeps the identity of a whistleblower confidential.
4. Anyone can claim a whistleblower reward for turning in a taxpayer who is underpaying their taxes. Many believe that only US citizens can earn the reward. In fact, foreign nationals are often in the best position to be able to turn in a taxpayer because so many of these types of workers are often paid “under the table” without payroll taxes being properly withheld.
5. Many people believe that IRS will “blow them off” if they bring a whistleblower claim. The truth is, IRS welcomes any help it can get when attempting to collect tax liabilities and they will take any claim seriously. This is especially true if the whistleblower takes the time to prepare evidence and hire an attorney to represent their claim.
There are standards that must be met to establish a proper claim for reward, so specific information is a must when building a case. A potential informant should have specific examples and detailed records. An informant will not earn a reward by simply saying “my boss just bought a new truck”. However, if an informant can provide copies of correspondence showing that the boss was writing off a personal vehicle as a company asset, the IRS could use that information.
Throughout the years, IRS has paid millions of dollars in rewards to informants. There are millions more to be paid, and IRS has strengthened its support and protection of whistleblowers to encourage more participation. Will you be the next one to earn a reward?
--Dan Musick is the Tax Services Partner for Cook & Associates, a full-service public accounting firm with offices in San Marcos and San Antonio, TX.
Thursday, March 11, 2010
REDUCE YOUR AUDIT RISK
Tax season is in full throttle and many of you may be in the process of compiling the information needed to file your return. As much as you may want to speed through this process, it’s important to slow down and make sure you’re not raising any red flags with the IRS. Here are some tips to get you through tax season and reduce your chance of being audited.
-Don’t use round numbers for deductions. This indicates that you are estimating rather than keeping accurate records.
-Record your income accurately. If you are paid $2,150 from a client and you round that down to $2,000 while the client reports the correct amount, you will likely catch the attention of the IRS.
-Pay estimated taxes on time and keep them current.
-Pay attention to notices from the IRS. If you wait a while to respond, the IRS may already be knocking on your door.
-Do not borrow from the taxes your employees have been paying. This money is withheld for a reason. Send the payroll taxes in a timely manner.
-Be wary of classifying expenses as “miscellaneous”. If you do use this category, make sure you have good documentation.
-Avoid the twelve notorious tax scams, otherwise known as the “Dirty Dozen”. These include:
Phishing
Hiding income offshore
Filing false or misleading forms
Abuse of charitable organizations and deductions
Return preparer fraud
Frivolous arguments
False claims for refund and requests for abatement
Abusive retirement plans
Disguised corporate ownership
Zero wages
Misuse of trusts
Fuel tax credit scams
--LeAnn Carlson is the Audit Manager for Cook & Associates, a full service public accounting firm operating from offices in San Marcos and San Antonio, TX.
-Don’t use round numbers for deductions. This indicates that you are estimating rather than keeping accurate records.
-Record your income accurately. If you are paid $2,150 from a client and you round that down to $2,000 while the client reports the correct amount, you will likely catch the attention of the IRS.
-Pay estimated taxes on time and keep them current.
-Pay attention to notices from the IRS. If you wait a while to respond, the IRS may already be knocking on your door.
-Do not borrow from the taxes your employees have been paying. This money is withheld for a reason. Send the payroll taxes in a timely manner.
-Be wary of classifying expenses as “miscellaneous”. If you do use this category, make sure you have good documentation.
-Avoid the twelve notorious tax scams, otherwise known as the “Dirty Dozen”. These include:
Phishing
Hiding income offshore
Filing false or misleading forms
Abuse of charitable organizations and deductions
Return preparer fraud
Frivolous arguments
False claims for refund and requests for abatement
Abusive retirement plans
Disguised corporate ownership
Zero wages
Misuse of trusts
Fuel tax credit scams
--LeAnn Carlson is the Audit Manager for Cook & Associates, a full service public accounting firm operating from offices in San Marcos and San Antonio, TX.
Monday, March 8, 2010
SO YOU WANT TO BE AN ENTREPRENEUR
The entrepreneurial experience is a very challenging and rewarding adventure for those that lean in that direction. On the other hand, it is a trip that is fraught with blind alleys and false starts. So my advice is simply, “Buyer Beware”.
If you are inclined toward entrepreneurship, you may find my notes on the comments by Paul Nichols of Trinity Orthopedics, LLC delivered at the Innotech, San Antonio Business and Technology Conference. First, let’s define entrepreneur. If you simply want to be the boss and you do not have any other ambitions, then stay as an employee. You will make more money, have fewer headaches and generally enjoy a higher quality of life. If your goal is to make something special that has sellable value, then go for it!
Setup your company, from the very beginning, to maximize your investment when it time to cash out. Cashing out may take several forms. It may be selling you company for the highest price or may be providing you with a comfortable retirement. Either of these requires creating a company that maximizes its value.
Mr. Nichols suggests four ways to maximize your investment:
1. The value of the organization will be determined by the level of inherent risk and the company’s ability to be innovative.
2. Identify your consumer’s need from within the competitive landscape.
3. You must determine the proper entry points along the product timeline so that you will maximize your return on investment.
4. Create a stepping stone approach to addressing problems.
5. Look bigger than you really are. Make you footprint and presence such that the public believes that you have more horsepower than you have.
If you are looking to build a company that is sellable for maximum value, potential investors are looking for companies with strong internal financial and production controls. Until you have the production issues resolved and the people in place, your company is not ready to sell. The same may be said for financial controls. Investors are also looking for companies that serve target markets that are not currently being served. Finally, investors are attracted to brands. Establish your brand using proper marketing techniques. Stay focused on your product line and do not allow yourself to be diverted.
Remember that the goal of entrepreneurship is to build a company that has determinable value. Entrepreneurs reap the benefits of their efforts at the end of the journey. If your concern is today, then steer clear of this path. Owning your own company is very exciting; but, it is also very difficult and demanding. Good luck on your adventure.
Steve Cook is the managing shareholder of Cook and Associates, PLLC, certified public accountants. The firm has offices in San Antonio and San Marcos, Texas.
If you are inclined toward entrepreneurship, you may find my notes on the comments by Paul Nichols of Trinity Orthopedics, LLC delivered at the Innotech, San Antonio Business and Technology Conference. First, let’s define entrepreneur. If you simply want to be the boss and you do not have any other ambitions, then stay as an employee. You will make more money, have fewer headaches and generally enjoy a higher quality of life. If your goal is to make something special that has sellable value, then go for it!
Setup your company, from the very beginning, to maximize your investment when it time to cash out. Cashing out may take several forms. It may be selling you company for the highest price or may be providing you with a comfortable retirement. Either of these requires creating a company that maximizes its value.
Mr. Nichols suggests four ways to maximize your investment:
1. The value of the organization will be determined by the level of inherent risk and the company’s ability to be innovative.
2. Identify your consumer’s need from within the competitive landscape.
3. You must determine the proper entry points along the product timeline so that you will maximize your return on investment.
4. Create a stepping stone approach to addressing problems.
5. Look bigger than you really are. Make you footprint and presence such that the public believes that you have more horsepower than you have.
If you are looking to build a company that is sellable for maximum value, potential investors are looking for companies with strong internal financial and production controls. Until you have the production issues resolved and the people in place, your company is not ready to sell. The same may be said for financial controls. Investors are also looking for companies that serve target markets that are not currently being served. Finally, investors are attracted to brands. Establish your brand using proper marketing techniques. Stay focused on your product line and do not allow yourself to be diverted.
Remember that the goal of entrepreneurship is to build a company that has determinable value. Entrepreneurs reap the benefits of their efforts at the end of the journey. If your concern is today, then steer clear of this path. Owning your own company is very exciting; but, it is also very difficult and demanding. Good luck on your adventure.
Steve Cook is the managing shareholder of Cook and Associates, PLLC, certified public accountants. The firm has offices in San Antonio and San Marcos, Texas.
Subscribe to:
Posts (Atom)
