Feature Articles

• Are You Enjoying a Hobby – or Running a Business? Why It Matters
• 2011 Changes to Flexible Spending Arrangements
• Saving for College – 529 Plans
• Living Trusts 101

Tax Tips

• Do You Qualify for the Earned Income Tax Credit?
• College Tax Credit – It’s Not Too Late!
• Advantages of Keeping Good Records
• How to Get Copies of Your Tax Information

QuickBooks Tips

• Don’t Get Frustrated – Get Help! Overview of QuickBooks’ Educational Tools

Financial Tips

• Asset Allocation Adjustments
• Health Spending Checkup
• Review Budget vs. Actuals
• Estimate Your 2010 Tax Liability

Are You Enjoying a Hobby – or Running a Business? Why It Matters

Millions of Americans use hobbies to relax and take their mind off work. But hobbies that turn a profit – such as sewing, woodworking, fishing, gardening, stamp and coin collecting – may actually be considered businesses by the IRS.

So, when does a hobby become a business and how does that change the tax implications?

Definition of a Hobby vs a Business

The IRS defines a hobby as an activity that is not pursued for profit. A business, on the other hand, is an activity carried on with the reasonable expectation of earning a profit.

The tax considerations are different for each activity – so taxpayers should determine whether an activity is engaged in for profit as a business, or is engaged in as a hobby.

Of course, you must report and pay tax on income from almost all sources, including hobbies. But when it comes to expenses and losses, the two activities differ in their tax implications.

Note: Internal Revenue Code Section 183 (Activities Not Engaged in for Profit) limits deductions that can be claimed when an activity is not engaged in for profit. IRC 183 is sometimes referred to as the “hobby loss rule.”

Is Your Hobby Actually a Business?

If you’re not sure whether you’re running a business or simply enjoying a hobby, here are some of the factors you should consider:

• Does the time and effort put into the activity indicate an intention to make a profit?

• Do you depend on income from the activity?

• If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?

• Have you changed methods of operation to improve profitability?

• Do you have the knowledge needed to carry on the activity as a successful business?

• Have you made a profit in similar activities in the past?

• Does the activity make a profit in some years?

• Do you expect to make a profit in the future from the appreciation of assets used in the activity?

An activity is presumed to be for profit if it makes a profit in at least three of the last five tax years, including the current year (or at least two of the last seven years for activities that consist primarily of breeding, showing, training, or racing horses).

The IRS says that it looks at all facts when determining whether a hobby is for pleasure or business. The profit test is the primary test. If the activity earned income in three out of the last five years, it is for profit. If the activity does not meet the profit test, the IRS will take an individualized look at the facts of your activity using the list of questions above to determine whether it’s a business or a hobby. (It should be noted that this list is not all-inclusive.)

Business Activity: If the activity is determined to be a business, you can deduct ordinary and necessary expenses for the operation of the business on a Schedule C or C-EZ on your Form 1040 without considerations for percentage limitations. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is appropriate for your business.

Hobby: If an activity is a hobby, not for profit, losses from that activity may not be used to offset other income. You can only deduct expenses up to the amount of income earned from the hobby. These expenses, with other miscellaneous expenses, are itemized on Schedule A and must also meet the 2 percent limitation of your adjusted gross income in order to be deducted.

What Are Allowable Hobby Deductions?

If your activity is not carried on for profit, allowable deductions cannot exceed the gross receipts for the activity.

Deductions for hobby activities are claimed as itemized deductions on Schedule A, Form 1040. These deductions must be taken in the following order and only to the extent stated in each of three categories:

• Deductions that a taxpayer may claim for certain personal expenses, such as home mortgage interest and taxes, may be taken in full.

• Deductions that don’t result in an adjustment to the basis of property, such as advertising, insurance premiums, and wages, may be taken next, to the extent gross income for the activity is more than the deductions from the first category.

• Deductions that reduce the basis of property, such as depreciation and amortization, are taken last, but only to the extent gross income for the activity is more than the deductions taken in the first two categories.

If your hobby is regularly generating income, it could make tax sense for you to consider whether it’s a business or not. You may be able to save on taxes.

If you’re not sure whether your hobby is actually a business, give us a call and we’ll help you figure it out.

2011 Changes to Flexible Spending Arrangements

The Affordable Care Act, enacted in March, established a new uniform standard that, effective January 1, 2011, applies to Flexible Spending Arrangements (FSAs) and health reimbursement arrangements (HRAs).

Under the new standard, the cost of an over-the-counter medicine or drug cannot be reimbursed from the account unless a prescription is obtained. The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays, and deductibles. The new standard applies only to purchases made on or after January 1, 2011, so claims for medicines or drugs purchased without a prescription in 2010 can still be reimbursed in 2011, if allowed by the employer’s plan.

A similar rule goes into effect on January 1, 2011 for Health Savings Accounts (HSAs), and Archer Medical Savings Accounts (Archer MSAs).

Employers and employees should take these changes into account as they make health benefit decisions for 2011.

Q&A’s Related to the Change

Q. How do I prove that I have purchased an over-the-counter medicine or drug with a prescription so that I can get reimbursed from my employer’s health FSA or an HRA?

A. If your employer’s health FSA or HRA reimburses these expenses, you would provide the prescription (or a copy of the prescription or another item showing that a prescription for the item has been issued) and the customer receipt (or similar third-party documentation showing the date of the sale and the amount of the charge). For example, documentation could consist of a customer receipt issued by a pharmacy that reflects the date of sale and the amount of the charge, along with a copy of the prescription; or it could consist of a customer receipt that identifies the name of the purchaser (or the name of the person for whom the prescription applies), the date and amount of the purchase, and an Rx number.

Q. How does this affect over-the-counter medical devices and supplies?

A. The new rule does not apply to items for medical care that are not medicines or drugs. Thus, equipment such as crutches, supplies such as bandages, and diagnostic devices such as blood sugar test kits will still qualify for reimbursement by a health FSA or HRA if purchased after December 31, 2010, and a distribution from an HSA or Archer MSA for the cost of such items will still be tax-free, regardless of whether the items are purchased using a prescription.

Q. Will I need a prescription to use my health FSA, HRA, HSA, or Archer MSA funds for insulin purchases after December 31, 2010?

A. No. You can continue to use your health FSA, HRA, HSA, or Archer MSA funds to purchase insulin without a prescription after December 31, 2010.

Q. I use health FSA funds for my co-pays and deductibles. Will I still be able to reimburse those expenses with health FSA funds after December 31, 2010?

A. Yes. Co-pays and deductibles continue to be reimbursable from a health FSA after December 31, 2010. Similarly, funds from an HRA can continue to be used for these expenses, and a distribution from an HSA or Archer MSA for these purposes will be tax-free.

Q. My company gives me two extra months beyond the end of the year to submit claims for health FSA expenses incurred during the year. What happens if I purchase over-the-counter medicines or drugs without a prescription in 2010 but do not submit the claim for those expenses until January 2011? Will they qualify for reimbursement?

A. Yes. The new restriction on plan reimbursements for the cost of over-the-counter medicines or drugs without a prescription applies only to purchases that are made after 2010.

Q. My company’s health FSA includes a provision for a grace period, so that if I don’t spend all of the money in my health FSA by December 31 in a given year, I can still use the amount left in my health FSA at the end of the year to reimburse expenses I incur during the first 2-1/2 months of the following year. If I buy over-the-counter medicines or drugs without a prescription during the 2-1/2-month grace period of 2011, can I still use the amount left in my health FSA at the end of 2010 to reimburse those expenses?

A. No. The change applies to purchases made on or after January 1, 2011. Thus, even if your employer’s plan includes the 2-1/2-month grace period provision, the cost of over-the-counter medicines and drugs purchased without a prescription during the first 2-1/2 months of 2011 will not be eligible to be reimbursed by a health FSA.

Q. If my plan issues a debit or credit card that I use to pay for over-the-counter medicines or drugs, will I still be able to use the card to purchase over-the-counter medicines or drugs after December 31, 2010?

A. Generally, no. The plan must ensure that the card is reprogrammed no later than January 15, 2011, so that the card can no longer be used to purchase over-the-counter medicines or drugs. If your employer’s plan reimburses expenses for over-the-counter medicines and drugs, you can seek reimbursement for these expenses by presenting the information described above in the answer to the question “How do I prove that I have purchased an over-the-counter medicine or drug with a prescription so that I can get reimbursed from my employer’s health FSA or an HRA?”

Q. If I use HSA or Archer MSA funds to reimburse the cost of over-the-counter medicines or drugs purchased after December 31, 2010 without a prescription, what taxes will I incur?

A. If you have an HSA or Archer MSA, the amount of the distribution for expenses that are not qualifying medical expenses will be includable in your gross income and subject to an additional tax of 20%.

Saving for College – 529 Plans

What is a 529 plan? 529 plans are investment vehicles designed to help families pay for future expenses associated with college or other qualified post-secondary training. Though contributions to a 529 plan are not deductible, these plans offer other tax advantages. All 50 states and the District of Columbia sponsor at least one type of 529 plan.

Computer technology expansion continues in 2010. The American Recovery and Reinvestment Act of 2009 (ARRA) added computer technology to the list of college expenses (tuition, books, etc.) that can be paid for by a 529 plan. For 2009 and 2010, the law expands the definition of qualified higher education expenses to include expenses for computer technology and equipment or Internet access and related services to be used by the designated beneficiary of the 529 plan while enrolled at an eligible educational institution. Software designed for sports, games, or hobbies does not qualify, unless it is predominantly educational in nature.

More on “computer technology or equipment.” This phrase refers to computers and related peripheral equipment. Related peripheral equipment is defined as any auxiliary machine (whether online or offline) that is designed to be placed under the control of the central processing unit of a computer, such as a printer. This does not include equipment of a kind used primarily for amusement or entertainment. “Computer technology” also includes computer software used for educational purposes.

Note: Congress created 529 plans in 1996. They’re named after Section 529 of the Internal Revenue Code. The legal name for 529 plans in the tax code is “qualified tuition programs.”

Why use a 529 plan? There are several advantages of 529 plans and one may be applicable to your family’s needs. Earnings are not subject to federal tax when used for eligible college expenses. Earnings are often not subject to state tax. States may offer other incentives to in-state participants. There are no income restrictions on individual contributors. Contributions are only limited by the qualified education expenses of the beneficiary. You can change the beneficiary of a plan if the new beneficiary is in the same family. You can open a plan benefiting anyone: a relative, a friend, or even yourself. The plan owner or custodian controls the funds until withdrawal, not the beneficiary.

How 529 plans are structured. There are two basic types of 529 plans – prepaid tuition plans and savings plans. A prepaid tuition plan enables a family to pay for future tuition now in current dollars and prices. A savings plan enables a family to accumulate funds in a tax-advantaged way for future tuition costs. A 529 plan can be established and maintained by a state, a state agency, or an eligible educational institution. Each 529 plan is somewhat unique. Some state-sponsored plans offer incentives to in-state participants, such as state-income-tax deductions or credits. Each 529 plan has one custodian and one beneficiary. A student or future student can be the beneficiary of more than one 529 plan.

Contribution limitations. Contributions cannot exceed the amount necessary to provide for the qualified education expenses of the beneficiary. Contributors should be aware of potential gift tax issues if the amount contributed by any one contributor during a year to a given beneficiary, together with other gifts to that beneficiary, is greater than $13,000.

Use with other aid. A family using a 529 plan to pay for some of a child’s college expenses may still be eligible to claim either the American opportunity credit or the lifetime learning credit.

Call us with questions. Give us a call if you have questions about educational savings plans or would like some guidance on setting up the appropriate plan.

Living Trusts 101

A trust, like a corporation, is an entity that exists only on paper but is legally capable of owning property. A flesh and blood person, however, must actually be in charge of the property; that person is called the trustee. You can be the trustee of your own living trust, keeping full control over all property legally owned by the trust.

Note: Property held in trust is actually “owned” by the trustees of the trust, subject to the rights of the beneficiaries. The trust itself doesn’t actually own anything.

There are many kinds of trusts. A living trust (also called an inter vivos trust) is simply a trust you create while you’re alive, rather than one that is created at your death under the terms of your will.

All living trusts are designed to avoid probate. Some also help you save on death taxes, and others let you set up long-term property management.

Do I need a living trust? Property you transfer into a living trust before your death doesn’t go through probate. The successor trustee, the person you appointed to handle the trust after your death, simply transfers ownership to the beneficiaries you named in the trust.

In many cases, the whole process takes only a few weeks and there are no lawyer or court fees to pay. When the property has all been transferred to the beneficiaries, the living trust ceases to exist.

Is it expensive to create a living trust? The expense of a living trust comes upfront. Many lawyers would charge relatively little for drafting your will, in hopes of getting your estate later as a client. But they may charge more for a living trust.

Some people choose to use a book or software program to create a Declaration of Trust (the document that creates a trust). That’s a fine choice, but keep in mind that when doing it on your own, there’s always the danger of problems you don’t see – problems a lawyer could help you avoid if consulted.

Is a trust document ever made public, like a will? A will becomes a matter of public record when it is submitted to a probate court, as do all the other documents associated with probate – inventories of the deceased person’s assets and debts, for example. The terms of a living trust, however, need not be made public.

Does a trust protect property from creditors? Holding assets in a revocable trust does not shelter those assets from creditors. A creditor who wins a lawsuit against you can go after the trust property just as if you still owned it in your own name.

After your death, however, property in a living trust can be quickly and quietly distributed to the beneficiaries (unlike property that must go through probate). That complicates matters for creditors; by the time they find out about your death, your property may already be dispersed, and the creditors have no way of knowing exactly what you owned (except for real estate, which is always a matter of public record). It may not be worth the creditor’s time and effort to try to track down the property and demand that the new owners use it to pay your debts.

On the other hand, probate can offer a kind of protection from creditors. During probate, known creditors must be notified of the death and given a chance to file claims. If they miss the deadline to file, they’re out of luck forever.

Do I need a trust if I’m young and healthy? Probably not. At this stage in your life, your main estate planning goals are probably making sure that in the unlikely event of your early death, your property is distributed how you want it to be and, if you have young children, that they are cared for. You don’t need a trust to accomplish those ends; writing a will, and perhaps buying some life insurance, would be simpler.

Can a living trust save taxes? A simple probate-avoidance living trust has no effect on either income or estate taxes. More complicated living trusts, however, can greatly reduce your federal estate tax bill if you expect your estate to owe estate tax at your death.

Do You Qualify for the Earned Income Tax Credit?

Millions of Americans forfeit critical tax relief each year by failing to claim the Earned Income Tax Credit, a federal tax credit for low-to-moderate-income individuals who work. Taxpayers who qualify and claim the credit could owe less federal tax, owe no tax, or even receive a refund.

This year it’s even easier to determine whether you qualify for the EITC. The EITC Assistant, an interactive tool available on the IRS website, removes the guesswork from eligibility rules. Just answer a few simple questions about yourself, your children, your living situation, and your income to find out if you qualify and estimate the amount of your EITC. You will see the results of your responses right away. Taxpayers, tax professionals, employers, community groups, and public service organizations are encouraged to use the EITC Assistant, which is available in both English and Spanish.

The EITC is based on the amount of your earned income and whether or not there are qualifying children in your household. If you have children, they must meet the relationship, age, and residency requirements. Additionally, you must file a tax return to claim the credit.

General requirements: If you were employed for at least part of 2010 and are at least age 25, but under age 65, you may be eligible for the EITC based on these general requirements:

• You earned less than $13,460 ($18,470 if married filing jointly) and did not have any qualifying children.

• You earned less than $35,535 ($40,545 if married filing jointly) and have one qualifying child.

• You earned less than $40,363 ($45,373 if married filing jointly) with two or more qualifying children.

• You earned less than $43,352 ($48,362 if married filing jointly) with three or more qualifying children.

Tax Year 2010 Maximum Credit

• $5,666 with three or more qualifying children
• $5,036 with two or more qualifying children
• $3,050 with one qualifying child
• $457 with no qualifying children

Note: The American Recovery and Reinvestment Act (ARRA) provides a temporary increase in EITC and expands the credit for workers with three or more qualifying children. These changes are temporary and apply to 2009 and 2010 tax years.

Note: The 2010 maximum Advanced Earned Income Tax Credit (AEITC) the employer is allowed to provide each of their employees is $1,830 per year.

Please call us for more information about the EITC. We want to make sure you get the full tax relief you’re entitled to.

College Tax Credit – It’s Not Too Late!

It’s not too late to take advantage of the American Opportunity Tax Credit, a credit that helps parents and college students offset the cost of college. This tax credit is part of the American Recovery and Reinvestment Act of 2009 and is available through December 31, 2010. It can be claimed by eligible taxpayers for college expenses paid in 2009 and 2010.

Here are six important facts about the American Opportunity Tax Credit:

1. This credit, which expands and renames the existing Hope Credit, can be claimed for qualified tuition and related expenses that you pay for higher education in 2009 and 2010. Qualified tuition and related expenses include tuition, related fees, books, and other required course materials.

2. The credit is equal to 100 percent of the first $2,000 spent per student each year and 25 percent of the next $2,000. Therefore, the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualifying expenses for an eligible student.

3. The full credit is generally available to eligible taxpayers who make less than $80,000, or $160,000 for married couples filing jointly. The credit is gradually reduced, however, for taxpayers with incomes above these levels.

4. Forty percent of the credit is refundable, so even those who owe no tax can get up to $1,000 of the credit for each eligible student as cash back.

5. The credit can be claimed for qualified expenses paid during any of the first four years of post-secondary education.

6. You cannot claim the tuition and fees tax deduction in the same year that you claim the American Opportunity Tax Credit or the Lifetime Learning Credit. You must choose to take either the credit or the deduction.

Let us know if you want more information about the American Opportunity Tax Credit. We’re more than happy to help.

Advantages of Keeping Good Records

You can avoid headaches at tax time by keeping track of your receipts and other records throughout the year. Good record-keeping will help you remember the various transactions you made during the year, which in turn may make filing your return less, well, taxing.

Records help you document the deductions you’ve claimed on your return. You’ll need this documentation should the IRS select your return for examination. Normally, tax records should be kept for three years, but some documents – such as records relating to a home purchase or sale, stock transactions, IRA, and business or rental property – should be kept longer.

In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, however, you should keep any and all documents that may have an impact on your federal tax return:

• Bills
• Credit card and other receipts
• Invoices
• Mileage logs
• Canceled, imaged, or substitute checks or any other proof of payment
• Any other records to support deductions or credits you claim on your return

Good record-keeping throughout the year saves you time and effort at tax time when organizing and completing your return. For more information on what kinds of records to keep, call our office.

How to Get Copies of Your Tax Information

When it comes time to apply for a loan, you often need to supply your federal tax information. Here’s how to get copies of both your tax return transcripts and your tax account transcripts.

First, a brief explanation of each document…

A tax return transcript shows most line items from the tax return as it was originally filed, including any accompanying forms and schedules. It does not reflect any changes you, our office, or the IRS made after the return was filed. In many cases, a return transcript will meet the requirements of lending institutions through which you’re trying to secure a mortgage or loan.

A tax account transcript shows any later adjustments either you or the IRS made after the tax return was filed. This transcript shows basic data, including marital status, type of return filed, adjusted gross income, and taxable income. The IRS does not charge a fee for transcripts, which are available for the current and three prior calendar years. Allow ten to thirty days for delivery.

You can request either transcript by phone or mail.

• Phone: Call 1-800-829-1040 and follow the prompts in the recorded message
• Mail: Complete IRS Form 4506-T, Request for Transcript of Tax Return

If you need a photocopy of a previously processed tax return and attachments, complete Form 4506, Request for Copy of Tax Form and mail it to the IRS address listed on the form for your area. There is a fee of $57.00 for each tax period requested. Copies are generally available for the current and past six years.

If you are a taxpayer impacted by a federally declared disaster, the IRS will waive the usual fees and expedite requests for copies of tax returns.

Don’t Get Frustrated – Get Help! Overview of QuickBooks’ Educational Tools

When you first cracked your copy of QuickBooks, you likely wanted to dive in and start generating invoices. Fortunately, QuickBooks is so intuitive that you were able to do just that. And its help system is so robust that you were able to get procedural questions answered quickly and easily.

But there’s a lot to be said for backing up a bit and taking advantage of the myriad educational tools that QuickBooks offers. Even if you’ve been using the program for months, you may want to explore them. You’ll not only save time with the help system, but you may find better ways of performing tasks.

Learn by Watching

The QuickBooks Learning Center, one of the first things you saw when you installed the program, is always available by clicking Help | Learning Center Tutorials. It consists of numerous multimedia tutorials and links to additional help. As shown in Figure 1, the tutorials are worth a look before you take on a thorny topic like Payroll.

Figure 1: QuickBooks’ myriad tutorials help you absorb the basics of processes like Payroll.

Though you can use QuickBooks’ functions entirely from the menus, the program’s home page is built to guide you through core accounting processes. If you’re very new to QuickBooks and/or accounting, you can use the Coach function to better understand the flow. Click on Show Coach Tips in the vertical pane to the right of the main screen.

As shown in Figure 2, you’ll see a small “i” next to some icons. Click on one, like the one next to Purchase Orders. Related icons light up, and numbers representing their logical order appear next to them. Mouse over one of the icons to read a brief description of the function. When you’re done, click Hide Coach Tips to make them disappear.

Figure 2: QuickBooks’ Coach tool lays out the workflow for primary accounting processes.

Other Support Options

No matter how much you study and prepare, you may still run into situations where you need an expert’s hand. We can be a real resource here as we have the expertise to walk you through installation and setup, processes that are critical to your effective ongoing relationship with QuickBooks. And we can also pitch in when you’re facing other daunting accounting hurdles.

Another option for expert help is Intuit. The company offers a support plan that may or may not be in your budget, but it’s certainly something to consider if you anticipate having frequent questions. The best value is the Annual Support Plan ($349 for first year; $299 thereafter). You get 24×7 phone support, data backup and recovery services, and learning tools only available with the Support Plan.

Intuit also hosts an in-depth online support presence. Click Help | Support to get to the main page as shown in Figure 3. Installation, troubleshooting (with guides to error messages), company and data file management, general procedures – they’re all covered there. You can search the support database or browse by topic. These and other resources are available within QuickBooks’ embedded browser (you must have Internet access to reach it, as with many other features of the program – click Help | Internet Connection Setup if you’re not already set up).

Figure 3: Intuit’s online support for QuickBooks can help when you’re stumped.

Interactive Help

If you haven’t yet visited QuickBooks’ interactive forum, it’s time to head over! Click on the Live Community tab at the top of the far right vertical pane if it’s not already displayed (that pane toggles between Live Community and Help). As shown in Figure 4, you can enter questions here and get answers from other users and/or Intuit pros.

Figure 4: Community interaction is included in the QuickBooks palette of help tools. Live Community features questions from users and accompanying answers from users and Intuit pros.

For the expanded Intuit community, click on the Visit the Intuit Community link at the bottom of the Live Community pane.

Of course, don’t forget the core of QuickBooks’ help scheme: the Help pane. You can get a lot of your questions answered here. This pane constantly changes to display content relative to the current screen. This content provides explanations of concepts as well as step-by-step instructions.

So don’t throw up your hands in defeat when you’re having trouble. Remember how much help is available from Intuit, QuickBooks itself, and experts like us.

Financial Tips for October 2010

Asset Allocation Adjustments

Review the asset allocation of your portfolio. Increases and decreases in the value of your portfolio can upset the asset allocation you consider optimal. Should you shift some stock investments into or out of bond investments? Should you shift some funds into tax-free investments?

Health Spending Checkup

If your employer has a flexible spending arrangement (FSA), determine the balance left in the plan. Your plan may allow you to carry over a year-end balance for use early in the following year.

If your plan doesn’t allow unspent money to be carried over, then you may want to incur discretionary medical, dental, or optical costs prior to year-end. If you do not participate in such a plan, find out if one is available at your company. Also find out if you are eligible for a Health Savings Account.

Review Budget vs. Actuals

Compare September income and expenditures with your budget. Make adjustments as appropriate to your October expenditures. Make sure you have invested your planned savings amount for September.

Estimate Your 2010 Tax Liability

Total up your taxable income, capital gains, and deductions through this date. Estimate the amounts expected through year-end. Determine where you stand, and what steps, if any, you should take prior to year-end to minimize your tax liability. Please feel free to call us for help.

Tax Due Dates for October 2010

October 12

Employees who work for tips – If you received $20 or more in tips during September, report them to your employer. You can use Form 4070.

October 15

Individuals – If you have an automatic 6-month extension to file your income tax return for 2009, file Form 1040, 1040A, or 1040EZ and pay any tax, interest, and penalties due. Electing Large Partnerships – File a 2009 calendar-year return (Form 1065-B). This due date applies only if you were given an additional 6-month extension. See March 15 for the due date for furnishing the Schedules K-1 to the partners. Employers (nonpayroll withholding) – If the monthly deposit rule applies, deposit the tax for payments in September. Employers (Social Security, Medicare, and withheld income tax) – If the monthly deposit rule applies, deposit the tax for payments in September.

Copyright © 2010  All materials contained in this document are protected by U.S. and international copyright laws. All other trade names, trademarks, registered trademarks and service marks are the property of their respective owners.

Feature Articles

• A SIMPLE Retirement Plan for the Self-Employed
• Should You Invest in Life Insurance?
• Employee Relocation in a Suffering Market
• 10 Things You Should Know About Identity Theft

Tax Tips

• 8 Tips for Taxpayers Who Owe Money to the IRS
• What Income Is Nontaxable?
• Moving Soon? Let the IRS Know
• Gift Taxes
• Tips for Recently Married or Divorced Taxpayers

QuickBooks Tips

• Take Charge This Fall: Use QuickBooks’s Budgeting Tools

Financial Tips

• Create a Living Will
• Update Your Will
• Review Budget vs. Actuals

A SIMPLE Retirement Plan for the Self-Employed

Of all the retirement plans available to small business owners, the SIMPLE plan is the easiest to set up and the least expensive to manage.

These plans are intended to encourage small business employers to offer retirement coverage to their employees. SIMPLE plans work well for small business owners who don’t want to spend time and high administration fees associated with more complex retirement plans.

SIMPLE plans really shine for self-employed business owners. Here’s why…

Self-employed business owners contribute both as employee and employer, with both contributions made from self-employment earnings.

SIMPLEs calculate contributions in two steps:

1. Employee out-of-salary contribution
The limit on this “elective deferral” is $11,500 in 2010, after which it can rise further with the cost of living.

Catch-up. Owner-employees age 50 or over can make a further $2,500 deductible “catch-up” contribution as employee in 2010.

2. Employer “matching” contribution
The employer match equals 3% of employee’s earnings.

Example: A 52-year-old owner-employee with self-employment earnings of $40,000 could contribute and deduct $11,500 as employee plus a further $2,500 employee catch-up contribution, plus $1,200 (3% of $40,000) employer match, or a total of $15,200.

The SIMPLE plan is good for the home-based business and can be ideal for the moonlighter – the full-time employee, or the homemaker, with modest income from a sideline self-employment business.

With living expenses covered by your day job (or your spouse’s job), you could be free to put all your sideline earnings, up to the ceiling, into SIMPLE retirement investments.

A Truly Simple Plan

The SIMPLE plan really is simpler to set up and operate than most other plans. Contributions go into an IRA you set up. Those familiar with IRA rules – in investment options, spousal rights, creditors’ rights – don’t have a lot new to learn.

Requirements for reporting to the IRS and other agencies are negligible. Your plan’s custodian, typically an investment institution, has the reporting duties. And the process for figuring the deductible contribution is a bit simpler than with other plans.

What’s Not So Good About SIMPLEs

Other plans can do better than SIMPLE once self-employment earnings become significant.

Example: If you are under 50 with $50,000 of self-employment earnings in 2010, you could contribute $11,500 as employee to your SIMPLE plus a further 3% of $50,000 as an employer contribution, for a total of $13,000. In contrast, a Keogh 401(k) plan would allow a $25,500 contribution.

With $100,000 of earnings, it would be a total of $14,500 with a SIMPLE and $35,500 with a 401(k).

Because investments are through an IRA, you’re not in direct control. You must work through a financial or other institution acting as trustee or custodian, and you will in practice have fewer investment options than if you were your own trustee, as you would be in a Keogh.

It won’t work to set up the SIMPLE plan after a year ends and still get a deduction that year, as is allowed with Simplified Employee Pension Plans, or SEPs. Generally, to make a SIMPLE plan effective for a year, it must be set up by October 1 of that year. A later date is allowed where the business is started after October 1; here the SIMPLE must be set up as soon thereafter as administratively feasible.

There’s this problem if the SIMPLE is for a sideline business and you’re in a 401(k) in another business or as an employee: the total amount you can put into the SIMPLE and the 401(k) combined can’t be more than $16,500 (2010 amount) – $21,500 if catch-up contributions are made to the 401(k) by someone age 50 or over.

So someone under age 50 who puts $8,000 in her 401(k) can’t put more than $8,500 in her SIMPLE in 2010. The same limit applies if you have a SIMPLE while also contributing as an employee to a 403(b) annuity (typically for government employees and teachers in public and private schools).

How to Get Started in a SIMPLE

You can set up a SIMPLE on your own by using IRS Form 5304-SIMPLE or 5305-SIMPLE – but most people turn to financial institutions.

SIMPLES are offered by the same financial institutions that offer IRAs and Keogh master plans.

You can expect the institution to give you a plan document and an adoption agreement. In the adoption agreement you will choose an “effective date” – the beginning date for payments out of salary or business earnings. That date can’t be later than October 1 of the year you adopt the plan, except for a business formed after October 1.

Another key document is the Salary Reduction Agreement, which briefly describes how money goes into your SIMPLE. You need such an agreement even if you pay yourself business profits rather than salary.

Printed guidance on operating the SIMPLE may also be provided. You will also be establishing a SIMPLE IRA account for yourself as participant.

Keoghs, SEPs, and SIMPLES Compared

Keogh	SEP	SIMPLE
Plan type: Can be defined benefit or defined contribution (profit sharing or money purchase)	Defined contribution only	Defined contribution only
Number you can own: Owner may have two or more plans of different types, including an SEP, currently or in the past	Owner may have SEP and Keoghs	Generally, SIMPLE is the only current plan
Due dates: Plan must be in existence by the end of the year for which contributions are made	Plan can be set up later – if by the due date (with extensions) of the return for the year contributions are made	Plan generally must be in existence by October 1 of the year for which contributions are made
Dollar contribution ceiling (for 2010): $49,000 for defined contribution plan; no specific ceiling for defined benefit plan	$49,000	$22,000
Percentage limit on contributions: 50% of earnings for defined contribution plans (100% of earnings after contribution). Elective deferrals in 401(k) not subject to this limit. No percentage limit for defined benefit plan.	50% of earnings (100% of earnings after contribution). Elective deferrals in SEPs formed before 1997 not subject to this limit.	100% of earnings, up to $11,500 (for 2008) for contributions as employee; 3% of earnings, up to $11,500, for contributions as employer
Deduction ceiling: For defined contribution, lesser of $49,000 or 20% of earnings (25% of earnings after contribution). 401(k) elective deferrals not subject to this limit. For defined benefit, net earnings.	Lesser of $49,000 or 25% of eligible employee’s compensation. Elective deferrals in SEPs formed before 1997 not subject to this limit.	Same as percentage ceiling on SIMPLE contribution
Catch-up contribution age 50 or over: Up to $5,500 in 2010 for 401(k)s	Same for SEPs formed before 1997	Half the limit for Keoghs and SEPs (up to $2,750 in 2010)
Prior years’ service can count in computing contribution	No	No
Investments: Wide investment opportunities. Owner may directly control investments.	Somewhat narrower range of investments. Less direct control of investments.	Same as SEP
Withdrawals: Some limits on withdrawal before retirement age	No withdrawal limits	No withdrawal limits
Permitted withdrawals before age 59 1/2 may still face 10% penalty	Same as Keogh rule	Same as Keogh rule except penalty is 25% in SIMPLE’s first two years
Spouse’s rights: Federal law grants spouse certain rights in owner’s plan	No federal spousal rights	No federal spousal rights
Rollover allowed to another plan (Keogh or corporate), SEP or IRA, but not a SIMPLE.	Same as Keogh rule	Rollover after 2 years to another SIMPLE and to plans allowed under Keogh rule
Some reporting duties are imposed, depending on plan type and amount of plan assets	Few reporting duties	Negligible reporting duties

Please contact us if you are interested in exploring retirement plan options, including SIMPLE plans.

Should You Invest in Life Insurance?

The purpose of life insurance is to provide a source of income, in case of your death, for your children, dependents, or other beneficiaries. (Life insurance can also serve certain estate planning purposes, which we won’t go into here.)

Whether you need to buy life insurance depends on whether anyone is depending on your income. If you have a spouse, child, parent, or some other individual who depends on your income, you probably need life insurance.

Life insurance protects your family in the event of death. Most people do not have the right amount of insurance. It is important to determine the amount that suits your needs.

There are two basic types: term and permanent. Term insurance is simply insurance that covers a specified period. If you die within this time frame, your beneficiary receives the insurance benefit. Term policy premiums usually increase with age.

Permanent insurance, such as universal life, variable life, and whole life, contains a cash value account or an investment element to the insurance.

Rules of Thumb

The younger your children, the more insurance you need. If both spouses earn income, then both spouses should be insured, with insurance amounts proportionate to salary amounts.

Tip: If the family cannot afford to insure both wage earners, the primary wage earner should be insured first, and the secondary wage earner should be insured later on. A less expensive term policy might be used to fill an insurance gap.

If one spouse does not work outside the home, insurance should be purchased to cover the absence of the services being provided by that spouse (child care, housekeeping, bookkeeping, etc.). However, if funds are limited, insurance on the non-wage earner should be secondary to insurance for the wage earner.

If your spouse could live comfortably without your income, then you will still need life insurance, but you will need less than someone who has dependents.

Tip: At a minimum, you will want to provide for burial expenses and paying off your debts.

If your spouse would undergo financial hardship without your income, or if you do not have adequate savings, you may need to purchase more insurance. The amount will depend on your salary level and that of your spouse, on the amount of savings you have, and on the amount of debt you both have.

We can help you determine the proper amount of life insurance. Give us a call and we’ll discuss your situation.

Employee Relocation in a Suffering Market

Many companies are asking what to do about an employee’s home when he or she is moved to a new job location. With the real estate market in a downturn throughout much of the country, this is a tough and costly question.

Typically, the employer wants to protect the employee against financial loss on a “forced” sale of the home. Here are the most common ways to do that, and their consequences to the employee:

The employer reimburses the employee’s financial loss. Here the employer has the home appraised and agrees to pay the employee the difference between that appraised fair market value and any lesser amount the employee gets on the sale. Such reimbursement would cover the employee’s costs of the sale.

Note: The financial loss here is not the same as a tax loss. The financial loss is the home’s value less what the employee collects under “forced sale” conditions. In the current real estate market, the value is not always clearly determined. The relocating employee might think the home is worth more, based on earlier appraisals or comparative sales. A tax loss is the property’s tax basis (cost plus capital investments) less what’s collected on the sale.

If the employee has a gain on the sale (the amount collected on the sale exceeds the basis), gain can be tax-exempt up to $250,000 ($500,000 on certain husband-wife sales). Tax loss on the sale of one’s residence is not deductible.

The employer’s reimbursement of the employee’s financial loss is taxable pay to the employee. Employers who want to shelter the employee from any tax burden on what is usually an employer-instigated relocation may “gross-up” the reimbursement to cover the tax. But gross-up can be costly. For example, a grossed-up income tax reimbursement for a $10,000 loss would be $14,575 for an employee in the 35% bracket – more where Social Security taxes or state taxes are also grossed-up.

Employer buys the home. Few employers directly buy and sell employees’ homes. But many do this indirectly, effectively becoming the homes’ owners, through use of relocation firms acting as the employers’ agents. An IRS ruling shows how to do this with no tax on the employee:

Option 1. The relocation firm as employer’s agent buys the home for its appraised fair market value, and later resells it. The firm collects a fee from the employer, which will cover sales costs and any financial loss to the firm on resale. The IRS now says that this fee is not taxable to the employee. Also, the employee’s gain on the sale to the relocation firm qualifies for the tax exemption under the limits described above ($250,000 or $500,000).

Option 2. The relocation firm offers to buy the home for its appraised value, but the employee can choose to pursue a higher price through a broker he or she chooses from a list provided by the relocation firm. If a higher offer is made, the relocation firm pays that price to the employee (whether or not the home is then sold to that bidder). Here again, the employee is not taxed on the firm’s fee and the gain is tax exempt under the above limits.

Tip: Either option works for the employee, letting him or her realize full value on the sale of the home (with possibly greater value through Option 2), without an element of taxable pay.

Caution: If the deal is structured so that the relocation firm facilitates a sale from the employee to a third-party buyer (rather than to the relocation firm), the employer’s payment of the relocation firm’s fee is taxable to the employee.

The Employer’s Side

Reimbursing the employee’s loss. This is fully deductible as a business expense, as would be any additional amount paid as a gross-up.

Note: It’s fully deductible, but it may be more costly, before and after taxes, than buying the home for resale through the relocation firm.

Note: Paying the relocation fee only, without buying the home, as in the “Caution” above, is also fully deductible, as would be any gross-up amount on that fee.

Buying the home. The change in the IRS rule was good news for employees, but it gave nothing to employers, whose tax treatment wasn’t covered. The official IRS position is that employer costs (other than carrying costs such as mortgage interest, maintenance, and fees to a relocation management company) are deductible only as capital losses, which, for corporate employers, are deductible only against capital gains. Taxpayer advocates tend to argue that employer costs here are fully deductible ordinary costs of doing business.

Questions?

Are you an employee being relocated this fall? Are you wondering about the sale of your home and the tax implications for you? We can answer your questions. Just give us a call.

10 Things You Should Know About Identity Theft

Criminals use many methods to steal personal information from taxpayers. They can use your information to steal your identity and file a tax return in order to receive a refund. Here are ten things the IRS wants you to know about identity theft so you can avoid becoming the victim of a scam artist.

1. Identity thieves get your personal information by many different means, including stealing a wallet or purse or accessing information you provide to an unsecured Internet site. They even look for personal information in your trash. They also pose as someone who needs information through a phone call or e-mail.

2. The IRS does not initiate contact with a taxpayer by e-mail.

3. If you receive an e-mail scam, forward it to the IRS at phishing@irs.gov.

4. If you receive a letter from the IRS leading you to believe your identity has been stolen, respond immediately to the name, address, or phone number on the IRS notice.

5. Your identity may be stolen if a letter from the IRS indicates more than one tax return was filed for you or the letter states you received wages from an employer you don’t know.

6. If your Social Security number is stolen, it may be used by another individual to get a job. That person’s employer would report income earned to the IRS using your Social Security number, making it appear that you did not report all of your income on your tax return.

7. If your tax records are not currently affected by identity theft, but you believe you may be at risk due to a lost wallet, questionable credit card activity, or changes to your credit report, you need to provide the IRS with proof of your identity. You should submit a copy of your valid government-issued identification – such as a Social Security card, driver’s license, or passport – along with a copy of a police report and/or a completed Form 14039, IRS Identity Theft Affidavit.

8. Show your Social Security card to your employer when you start a job or to your financial institution for tax-reporting purposes. Do not routinely carry your card or other documents that display your SSN.

9. If you have previously been in contact with the IRS and have not achieved a resolution, please contact the IRS Identity Protection Specialized Unit, 1-800-908-4490.

10. For more information about identity theft – including information about how to report identity theft, phishing, and related fraudulent activity – visit the IRS Identity Theft Resource Page, which you can find by typing “identity theft” in the search box on the IRS.gov home page.

8 Tips for Taxpayers Who Owe Money to the IRS

The vast majority of Americans get a tax refund from the IRS each spring. But what if you’re not one of them? What if you owe money to the IRS?

Here are eight tips for individuals who need to pay taxes.

1. If you get a bill for late taxes, you are expected to promptly pay the tax owed including any additional penalties and interest. If you are unable to pay the amount due, it is often in your best interest to get a loan to pay the bill in full rather than to make installment payments to the IRS.

2. You can also pay the bill with your credit card. To pay by credit card contact either Official Payments Corporation at 800-2PAYTAX (also www.officialpayments.com) or Link2Gov at 888-PAY-1040 (also www.pay1040.com).

3. The interest rate on a credit card or bank loan may be lower than the combination of interest and penalties imposed by the Internal Revenue Code.

4. You can pay the balance owed by electronic funds transfer, check, money order, cashier’s check, or cash. To pay using electronic funds transfer you can take advantage of the Electronic Federal Tax Payment System by calling 800-555-4477 or 800-945-8400 or online at www.eftps.gov.

5. You may request an installment agreement if you cannot pay the liability in full. This is an agreement between you and the IRS for the collection of the amount due in monthly installment payments. To be eligible for an installment agreement, you must first file all returns that are required and be current with estimated tax payments.

6. If you owe $25,000 or less in combined tax, penalties, and interest, you can request an installment agreement using the web-based application called Online Payment Agreement found at IRS.gov.

7. You can also complete and mail an IRS Form 9465, Installment Agreement Request, along with your bill in the envelope that you have received from the IRS. The IRS will inform you usually within 30 days whether your request is approved or denied or if additional information is needed. If the amount you owe is $25,000 or less, provide the monthly amount you wish to pay with your request. At a minimum, the monthly amount you will be allowed to pay without completing a Collection Information Statement, Form 433, is an amount that will fully pay the total balance owed within 60 months.

   You may still qualify for an installment agreement if you owe more than $25,000, but a Form 433F, Collection Information Statement, is required to be completed before an installment agreement can be considered. If your balance is over $25,000, consider your financial situation and propose the highest amount possible, as that is how the IRS will arrive at your payment amount based on your financial information.

8. If an installment agreement is approved, a one-time user fee will be charged. The user fee for a new agreement is $105 or $52 for agreements where payments are deducted directly from your bank account. For eligible individuals with incomes at or below certain levels, a reduced fee of $43 will be charged. This is automatically figured and is based on your income.

For more information about installment agreements and other payment options, give our office a call.

What Income Is Nontaxable?

Generally, you are taxed on income that is available to you regardless of whether it is actually in your possession.

But there are some situations when certain types of income are partially taxed or not taxed at all.

Here are some examples of items that are NOT included in your income:

• Adoption expense reimbursements for qualifying expenses
• Funding of your Health Savings Account with a one-time direct transfer from your individual retirement plan, health reimbursement account, or health flexible spending account
• Child support payments
• Gifts, bequests, and inheritances
• Workers’ compensation benefits
• Meals and lodging for the convenience of your employer
• Compensatory damages awarded for physical injury or physical sickness
• Welfare benefits
• Cash rebates from a dealer or manufacturer

Here are examples of items that may or may not be included in your income:

• Life Insurance. If you surrender a life insurance policy for cash, you must include in income any proceeds that are more than the cost of the life insurance policy. Life insurance proceeds paid to you because of the death of the insured person are not taxable unless the policy was turned over to you for a price.

• Scholarship or Fellowship Grant. If you are a candidate for a degree, you can exclude amounts you receive as a qualified scholarship or fellowship. Amounts used for room and board do not qualify.

Please contact us if you’d like more information about what income is nontaxable.

Moving Soon? Let the IRS Know

If you changed your home or business address, notify the IRS to ensure that you receive any refunds or correspondence. Although the IRS uses the postal service’s change of address files to update taxpayer addresses, notifying the IRS directly is still a good idea.

There are several ways to do this.

• On your tax return. You may correct the address legibly on the mailing label that comes with your tax package or write the new address in the appropriate boxes on your tax return when you file.

• Form 8822. You may use Form 8822, Change of Address, to submit an address or name change at any time during the year.

• Verbal Notification. If an IRS employee contacts you about your account, you may verbally provide a change of address.

• Written Notification. To give written notification, write to the IRS center where you file your return and provide your new address. The addresses for the IRS centers are listed in the tax instructions. In order to process an address change, the IRS will need your full name, old and new addresses, your Social Security number or employer identification number, and signatures. If you filed a joint return, you should provide the same information for both spouses. If you filed a joint return and have since established separate residences, you each should notify the IRS of your new addresses.

It’s a good idea to notify your employer of your new address so that you can get your W-2 forms on time.

If you change your address after filing your return, don’t forget to notify the post office at your old address so your mail can be forwarded.

You should also notify the IRS if you make estimated tax payments and you change your address during the year. You should mail a completed Form 8822, Change of Address, or write the IRS center where you file your return. You can continue to use your old pre-printed payment vouchers until the IRS sends you new ones. However, do not correct the address on the old voucher.

Gift Taxes

If you gave any one person gifts in 2010 that were valued at more than $13,000, you must report the total gifts to the Internal Revenue Service. You may have to pay tax on the gifts.

The person who receives your gift does not have to report the gift to the IRS or pay gift or income tax on its value.

Gifts include money and property, including the use of property without expecting to receive something of equal value in return. If you sell something at less than its value or make an interest-free or reduced-interest loan, you may be making a gift.

There are some exceptions to the tax rules on gifts. The following gifts do not count against the annual limit:

• Tuition or medical expenses that you pay directly to an educational or medical institution for someone’s benefit

• Gifts to your spouse

• Gifts to a political organization

• Gifts to charities

If you are married, both you and your spouse can give separate gifts of up to the annual limit to the same person without making a taxable gift.

For more information, contact our office.

Tips for Recently Married or Divorced Taxpayers

Newlyweds and the recently divorced should ensure the name on their tax return matches the name registered with the Social Security Administration. A mismatch could unexpectedly increase a tax bill or reduce the size of any refund.

• For recently married taxpayers, the tax scenario begins when the bride says “I do.” If she takes her husband’s last name, but doesn’t tell the SSA about the name change, a complication may result. If the couple files a joint tax return with her new name, the IRS computers will not be able to match the new name with the Social Security number.

• After a divorce, a woman who had taken her husband’s name and made that change known to the SSA should contact the SSA if she goes back to her previous name.

It’s easy to inform the SSA of a name change by filing Form SS-5 at a local SSA office. It usually takes two weeks to have the change verified. The form is available on the agency’s website, www.ssa.gov, by calling 1-800-772-1213, and at local offices. The SSA Web site provides the addresses of local offices.

If you have any questions related to your requirements to the IRS after getting married or divorced, or you’d like help changing your name with the SSA, give us a call. We’re happy to help.

Take Charge This Fall: Use QuickBooks’s Budgeting Tools

If you took a break from budgeting this summer and are now ready to get back on track, QuickBooks can help. The software’s budgeting tools are easy to use and very powerful when improving your financial profile.

Using a budget, you
can determine how your real income and expenses compare to what you
anticipated. It can also be a jumping-off point for discussions about
long-term planning.

A Good Benchmark

Budgets. Many
people make them, but few stay on top of them. QuickBooks
simplifies this process, making it easy to track your progress.

Note: Before you take on this task, consult
your accounting professional. This greatly increases the odds of
creating a successful financial blueprint.

To get started,
click on the Company menu.
Select Planning &
Budgeting, and then Set
Up Budgets. If you’ve
already set up a budget, that one will appear. You’ll be able
to edit it or create a new one. If you haven’t created a
budget, the window shown in Figure
1 opens.

Figure 1: You’ll
start working on your budget by selecting its year and content.

Select Profit
and Loss to include all of
the previous year’s activity and click Next.

On the next screen,
you’ll also be able to include the criteria Customer:Job
or Class so you can budget for
individual customers/jobs or classes instead of by account only.
Leave this box unchecked for now. Click Next.

Determining the
Content

Next, you’ll
indicate whether you want to start from scratch with your own figures
or let QuickBooks pre-populate your budget with last year’s
numbers. Select Create
budget from scratch. Click
Finish. A
window similar to the one shown in Figure
2 opens.

Figure 2:
Budgets in QuickBooks are account-based, so yours will be set up that
way.

As an example – click on Rent
Expense and enter 3,500 in
the January column. Hit Tab.
You’ll notice that the Annual
Total column changes to
reflect that entry. If you expect that number to fluctuate
over the year, continue to enter those figures in the month columns.
If it will remain the same, click Copy
Across in the lower left
corner. Every column (except for Annual Total) now displays 3,500.

When you’re
satisfied with your budget, click Save.
You can easily access and edit it anytime from the Company
menu.

More Budgeting
Tools

QuickBooks’s
budget flexibility doesn’t end there. Let’s say that your
major office supply vendor has just lowered its bulk prices by 5%,
halfway through the year. It’s easy to make this change to your
existing budget. Click the Office
Supplies row, and then
click on Adjust Row Amounts
at the bottom of the
screen. The window shown in Figure
3 opens.

Figure 3: Need
to make a global dollar amount or percentage change to a row?
QuickBooks makes this easy.

At the top of the
window, you can choose to have the change begin at the first month of
your budget or at the currently selected month. Check one of the two
buttons below that to indicate whether you want an increase or
decrease, and then enter the numerical value in the box.

Tip: Want to start
over? Click on the Clear
button in the lower right
corner. This deletes all of the data in the current page of the
budget.

To switch back and
forth among budgets, click the arrow under Budget
in the upper left corner of
the window. A list of your budgets drops down. To build a new one,
click on the Create New
Budget button in the upper
right corner.

Seeing the
Fruits of Your Labor

Keep in mind that
you can only create one budget per fiscal year for each combination of accounts,
customers and jobs, and classes, as shown in Figure
4. This still gives you a
lot of budgeting power. You can create budgets for individual
customers, for example, and use some of the same accounts found in
your overall company budget.

Figure 4: You
can create one budget per fiscal year for each unique combination of
accounts, customers and jobs, and classes.

Of course, the real
power of QuickBooks budgets lies in its budget reports. Using these,
you can get an instant, insightful look at how your income and
expenses are performing. Go to Reports
| Budgets and Forecasts to
find them. They include Budget
Overview, Budget vs. Actual, and
Profit & Loss Budget
Performance.

These reports tell you precisely what you may be doing wrong – and right.

If you’re doing more of the former than the latter, share a copy of
your budgets and corresponding reports with us. We’ll evaluate your history and offer advice for strengthening your financial health.

Financial Tips for September 2010

Create a Living Will

Discuss with your spouse your wishes concerning health care and funeral arrangements. This is not pleasant, but it is important that others know your preferences should you be incapacitated. Create a Living Will to document your decisions.

Update Your Will

Update your will and the will of your spouse, if you are married.

Review Budget vs. Actuals

Compare August income and expenditures with your budget. Make adjustments as appropriate to your September expenditures. Make sure you have invested your planned savings amount for August.

Tax Due Dates for September 2010

September 10

Employees Who Work for Tips – If you received $20 or more in tips during August, report them to your employer. You can use Form 4070.

September 15

Individuals – Make a payment of your 2010 estimated tax if you are not paying your income tax for the year through withholding (or will not pay in enough tax that way). Use Form 1040-ES. This is the third installment date for estimated tax in 2010. Corporations – File a 2009 calendar year income tax return (Form 1120 or 1120-A) and pay any tax due. This due date applies only if you made a timely request for an automatic 6-month extension. S corporations – File a 2009 calendar year income tax return (Form 1120S) and pay any tax due. This due date applies only if you made a timely request for an automatic 6-month extension. Provide each shareholder with a copy of Schedule K-1 (Form 1120S) or a substitute Schedule K-1. Corporations – Deposit the third installment of estimated income tax for 2010. A worksheet, Form 1120-W, is available to help you make an estimate of your tax for the year. Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in August. Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in August.

Copyright © 2010  All materials contained in this document are protected by U.S. and international copyright laws. All other trade names, trademarks, registered trademarks and service marks are the property of their respective owners.

Feature Articles

• Cash Flow – The Pulse of Your Business
• Planning Retirement Withdrawals
• Credit Reports: What You Should Know
• Paying Off Debt the Smart Way
• Homebuyer Credit Closing Deadline Extended

Tax Tips

• Tax Benefits for Job Seekers
• What to Do If You Haven’t Filed Your 2009 Return
• Basic Hints to Help New Small Businesses
• Seven Tax Tips for Students with a Summer Job

QuickBooks Tips

• Banish Security Fears: Use QuickBooks’s Protection Tools

Financial Tips

• Prepare a Post-Mortem Letter
• Get Your Social Security Statement of Benefits
• Review Your Budget vs Actuals for July
• Estimate Your Tax Liability

Previous Issues of Our Newsletter

Cash Flow – The Pulse of Your Business

Unfortunately, many small business owners do not fully understand their cash flow statement. This is shocking, given that all businesses essentially run on cash, and cash flow is the lifeblood of your business.

Some business experts even say that a healthy cash flow is more important than your business’s ability to deliver its goods and services! That’s hard to swallow, but consider this: if you fail to satisfy a customer and lose that customer’s business, you can always work harder to please the next customer. But if you fail to have enough cash to pay your suppliers, creditors, or employees, you’re out of business!

What Is Cash Flow?

Cash flow, simply defined, is the movement of money in and out of your business; these movements are called inflow and outflow. Inflows for your business primarily come from the sale of goods or services to your customers. The inflow only occurs when you make a cash sale or collect on receivables, however. Remember, it is the cash that counts! Other examples of cash inflows are borrowed funds, income derived from sales of assets, and investment income from interest.

Outflows for your business are generally the result of paying expenses. Examples of cash outflows include paying employee wages, purchasing inventory or raw materials, purchasing fixed assets, operating costs,
paying back loans, and paying taxes.

Note: An accountant is the best person to help you learn how your cash flow statement works. Please contact us and we can prepare your cash flow statement and explain where the numbers come from.

Cash Flow Versus Profit

Profit and cash flow are two entirely different concepts, each with entirely different results. The concept of profit is somewhat broad and only looks at income and expenses over a certain period, say a fiscal quarter. Profit is a useful figure for calculating your taxes and reporting to the IRS.

Cash flow, on the other hand, is a more dynamic tool focusing on the day-to-day operations of a business owner. It is concerned with the movement of money in and out of a business. But more important, it is
concerned with the times at which the movement of the money takes place.

Theoretically, even profitable companies can go bankrupt. It would take a lot of negligence and total disregard for cash flow, but it is possible. Consider how the difference between profit and cash flow relate to your business.

Example: If your retail business bought a $1,000 item and turned around to sell it for $2,000, then you have made a $1,000 profit. But what if the buyer of the item is slow to pay his or her bill, and six months pass before you collect on the account? Your retail business may still show a profit, but what about the bills it has to pay during that six-month period? You may not have the cash to pay the bills despite the profits you earned on the sale. Furthermore, this cash flow gap may cause you to miss other profit opportunities, damage your credit rating, and force you to take out loans and create debt. If this mistake is
repeated enough times, you may go bankrupt.

Analyzing Your Cash Flow

The sooner you learn how to manage your cash flow, the better your chances for survival. Furthermore, you will be able to protect your company’s short-term reputation as well as position it for long-term success.

The first step toward taking control of your company’s cash flow is to analyze the components that affect the timing of your cash inflows and outflows. A thorough analysis of these components will reveal problem areas that lead to cash flow gaps in your business. Narrowing, or even closing, these
gaps is the key to cash flow management.

Some of the more important components to examine are:

• Accounts receivable. Accounts receivable represent sales that have not yet been collected in the form of cash. An accounts receivable is created when you sell something to a customer in return for his or her promise to pay at a later date. The longer it takes for your customers to pay on their accounts, the more negative the effect on your cash flow.

• Credit terms. Credit terms are the time limits you set for your customers’ promise to pay for their purchases. Credit terms affect the timing of your cash inflows. A simple way to improve cash flow is to get customers to pay their bills more quickly.

• Credit policy. A credit policy is the blueprint you use when deciding to extend credit to a customer. The correct credit policy – neither too strict nor too generous – is crucial for a healthy cash flow.

• Inventory. Inventory describes the extra merchandise or supplies your business keeps on hand to meet the demands of customers. An excessive amount of inventory hurts your cash flow by using up money that could be used for other cash outflows. Too many business owners buy inventory based on hopes and dreams instead of what they can realistically sell. Keep your inventory as low as possible.

• Accounts payable and cash flow. Accounts payable are amounts you owe to your suppliers that are payable some time in the near future – “near” meaning 30 to 90 days. Without payables and trade credit, you’d have to pay for all goods and services at the time you purchase them. For optimum cash flow management, examine your payables schedule.

Some cash flow gaps are created intentionally. For example, a business may purchase extra inventory to take advantage of quantity discounts, accelerate cash outflows to take advantage of significant trade discounts, or spend extra cash to expand its line of business.

For other businesses, cash flow gaps are unavoidable. Take, for example, a company that experiences seasonal fluctuations in its line of business. This business may normally have cash flow gaps during its slow season and then later fill the gaps with cash surpluses from the peak part of its season. Cash flow gaps are often filled by external financing sources. Revolving lines of credit, bank loans, and trade credit are just a few of the external financing options available that you may want to discuss with us.

Monitoring and managing your cash flow is important for the vitality of your business. The first signs of financial woe appear in your cash flow statement, giving you time to recognize a forthcoming problem and plan a strategy to deal with it. Furthermore, with periodic cash flow
analysis, you can head off those unpleasant financial glitches by recognizing which aspects of your business have the potential to cause cash flow gaps.

Please call us to discuss cash flow management and analysis. We’re happy to help you handle your cash surplus effectively and maintain adequate funds to cover day-to-day expenses.

Planning Retirement Withdrawals

Are you thinking of retiring soon, or changing jobs? You may face a major financial decision: what to do about the funds in your retirement plan. This article will discuss partial withdrawals and full withdrawals.

Note: As you will see, the rules on retirement withdrawals are quite complex. They are offered here only for your general understanding. Please call us before taking withdrawals or making other major changes in your retirement plan.

Take a Partial Withdrawal

Partial withdrawals are withdrawals that aren’t rollovers, annuities, or lump sums. Because they are partial, the amount not withdrawn continues its tax shelter (see below).

A partial withdrawal will usually leave open the option for other types of withdrawal (annuity, lump sum, rollover) of the balance left in the plan.

Note: Before retirement, partial withdrawals are fairly common with profit-sharing plans, 401(k)s, and stock bonus plans. After retirement, they are fairly common in all types of plans (though least common with defined-benefit pension plans).

Tax Planning. A partial withdrawal is taxable (and can be subject to the penalty tax on withdrawals before age 59-1/2) except to the extent it consists of after-tax contributions, such as nondeductible IRA contributions.

Example: Your retirement account totals $100,000, which includes an after-tax investment of $10,000. You withdraw $5,000. $500 of the withdrawal is tax-free ($10,000 / $100,000 x $5,000).

Note: The tax-free portion is computed differently for plan participants who have been in the plan since 5/5/86. Contact us for details.

Preserving the Tax Shelter. Your funds grow sheltered from tax while they are in the retirement plan. This means that the longer you can prolong the distribution – or the smaller the amount you must withdraw – the more your assets grow. Some people choose to defer withdrawals for as long as the law allows to maximize assets and shelter them for the next generation.

Note: The law has specific rules about how fast the money must be taken out of the plan after your death. These rules limit the ability to prolong a tax shelter.

Withdrawal Before You Reach Age 70-1/2

Until you reach 70-1/2, you do not need to take money out of your retirement account – unless your employer’s plan requires it. In fact, there will usually be a 10% early-withdrawal penalty if you make withdrawals before age 59 1/2. This is on top of the regular income tax you owe – at any age – on amounts you withdraw (though there’s no tax on after-tax contributions you made, as we discussed above).

Once You Reach Age 70-1/2

Once you hit 70-1/2, withdrawals must begin. Technically they can be postponed until April 1 of the year following the year you reach 70-1/2 – say April 1, 2011 if you reach 70-1/2 in 2010. But waiting until April 1 means you must withdraw for two years – 2010 and 2011 – in 2011. To avoid this income bunching and a possible higher marginal tax rate, we may suggest withdrawing in the year you reach 70-1/2. Call us to evaluate your situation.

The rules allow you to spread your withdrawals over a period substantially longer than your life expectancy. Under these rules, the taxpayer (say, an IRA owner) first determines how much he’s saved as of the end of the preceding year. Then he consults a (unisex) IRS table to find the number for his age. The number corresponds to how long he may spread out the withdrawals. The owner then divides that number into the retirement asset total. The result is the minimum amount he must withdraw for the year.

Example: Joe reaches age 70-1/2 in October of this year. Retirement plan assets in his IRA totaled $600,000 at the end of last year. The IRS number for age 70 is 27.4. Joe must withdraw $21,898 ($600,000/27.4) this year.

Example: Two years from now, Joe is 72 and his IRA was $602,000 at the end of the preceding year (when Joe reached age 71). The IRS number for age 72 is 25.6. Joe must withdraw $23,516 ($602,000/25.6) when he’s 72.

The number in the IRS table assumes distribution over a period based on your life expectancy, plus that of a beneficiary 10 years younger than you. If your designated beneficiary is a spouse more than 10 years younger than you, his or her actual life expectancy is used to figure the withdrawal period during your lifetime.

Caution: You can always take out money faster than required – and pay tax on these withdrawals. However, the tax code is strict about minimum withdrawals. If you fail to take out what’s required, a tax penalty will take 50% of what should have been withdrawn but wasn’t.

The IRS requires that you withdraw at least a minimum amount – known as a Required Minimum Distribution – from your retirement accounts annually, starting the year you turn age 70-1/2. Determining how much you are required to withdraw is an important issue in retirement planning.

Please be in touch if you’d like assistance figuring out proper withdrawal amounts. Getting those numbers right can make a big difference in the quality of your retirement.

Credit Reports: What You Should Know

How do lenders determine who is approved for a credit card, mortgage, or car loan? Why are some individuals flooded with credit card offers while others get turned down routinely? Because creditors keep their evaluation standards secret, it is difficult to know just how to improve your credit rating. It is important, however, to understand the factors and to review your credit report periodically for any irregularities, omissions, or errors. Reviewing your credit report annually can help you protect your credit rating from fraud and ensure its accuracy.

Credit Evaluation Factors

Many factors determine your credit. Here are some of the major factors considered:

• Age
• Residence
• “Authorized user” payment history
• Checking and savings accounts
• Bankruptcy
• Charge-offs (Forgiven debt)
• Child support
• Closed accounts and inactive accounts
• Jobs
• Payment history
• Recent loans
• Collection accounts and charge-offs
• Cosigning an account
• Credit limits
• Credit reports
• Debt/income ratios
• Department store accounts
• Payment history/late payments
• Finance company credit cards
• Income/income per dependent
• Mortgages
• Revolving credit
• Name/alias
• Number of credit accounts
• Fraud
• Inquiries

These factors may be used, and weighted, in determining credit decisions. Credit reports contain much of this information.

Obtaining Your Credit Reports

Credit reports are records of consumers’ bill-paying habits. They are collected, stored, and sold by credit bureaus.

Credit reports are also called credit records, credit files, and credit histories. Under federal law, you are allowed access to free credit reports. There are three major credit bureaus and thousands of smaller ones where you can obtain a credit report.

These credit bureaus offer free credit reports, as well as monthly credit reports and services for a fee.

• Experian Credit Bureau: 888-397-3742 (cost: free or $14.95 monthly)
• Equifax Credit Bureau: 800-685-1111
• Trans Union: 877-322-8228 (cost: $11.95 monthly)

If you have been denied credit, you can request that the credit bureau involved provide you with a free copy of your credit report – but you must request it promptly. Otherwise each of the bureaus will provide you a copy of the report for a fee. You can request a copy from their websites (see links above) or toll-free numbers (also listed above).

Disputing Errors in Your Credit File

The Fair Credit Reporting Act (FCRA) protects consumers in the case of inaccurate or incomplete information in credit files. The FCRA requires credit bureaus to investigate and correct any errors in your file.

Tip: If you find any incorrect or incomplete information in your file, write to the credit bureau and ask
them to investigate the information. Under the FCRA, they have about thirty days to contact the creditor and find out whether the information is correct. If not, it will be deleted.

Be aware that credit bureaus are not obligated to include all of your credit accounts in your report. If, for example, the credit union that holds your credit card account is not a paying subscriber of the credit bureau, the bureau is not obligated to add that reference to your file. Some may do so, however, for a small fee.

Fair Credit Reporting Act (FCRA)

This federal law was passed in 1970 to give consumers easier access to, and more information about, their credit files. The FCRA gives you the right to find out the information in your credit file, to dispute information you believe inaccurate or incomplete, and to find out who has seen your credit report in the past six months.

Understanding Your Credit Report

Credit reports contain symbols and codes that are abstract to the average consumer. Every credit bureau report also includes a key that explains each code. Some of these keys decipher the information, but others just cause more confusion.

Read your report carefully, making a note of anything you do not understand. The credit bureau is required by law to provide trained personnel to explain it to you. If accounts are identified by code number, or if there is a creditor listed on the report that you do not recognize, ask the credit bureau to supply you with the name and location of the creditor so you can ascertain if you do indeed hold an account with that creditor.

If the report includes accounts that you do not believe are yours, it is extremely important to find out why they are listed on your report. It is possible they are the accounts of a relative or someone with a name similar to yours. Less likely, but more importantly, someone may have used your credit information to apply for credit in your name. This type of fraud can cause a great deal of damage to your credit report, so investigate the unknown account as thoroughly as possible.

We recommend an annual review of your credit report. It is vital that you understand every piece of information on your credit report so that you can identify possible errors or omissions.

If you have any questions about how to obtain your credit report or how to interpret what’s in your report, give us a call.

Paying Off Debt the Smart Way

Being in debt isn’t necessarily a terrible thing. Between mortgages, car loans, credit cards, and student loans – most people are in debt.
Being debt-free is a great goal, but you should focus on the management of debt, not just getting rid of it. It’s likely to be there for most of your life – and, handled wisely, it won’t be an albatross around your neck.

You don’t need to shell out your hard-earned money for
exorbitant interest rates, or always feel like you’re on the verge of bankruptcy. You can pay off debt the smart
way, while at the same time saving money to pay it off faster.

Know
Where You Are

First,
assess the depth of your debt. Write it down, using pencil and paper,
a spreadsheet like Microsoft Excel, or a bookkeeping program like Quicken. Include every
financial situation where a company has given you something in
advance of payment, including your mortgage, car payment(s), credit
cards, tax liens, student loans, and payments on electronics or other
household items through a store.

Record
the day the debt began and when it will end (if possible), the interest
rate you’re paying, and what your payments typically are. Add it all
up, painful as that might be. Try not to be discouraged! Remember, you’re going
to break this down into manageable chunks while finding extra money
to help pay it down.

Identify
High-Cost Debt

Yes,
some debts are more expensive than others. Unless you’re getting
payday loans (which you shouldn’t be), the worst offenders are
probably your credit cards. Here’s how to deal with them.

• Don’t
  use them. Don’t cut them up, but put them in a drawer and only
  access them in an emergency.

• Identify
  the card with the highest interest and pay off as much as you can every month. Pay minimums on the others. When that one’s
  paid off, work on the card with the next highest rate.

• Don’t
  close existing cards or open any new ones. It won’t help your
  credit rating.

• Pay
  on time, absolutely every time. One late payment these days can
  lower your FICO score.

• Go
  over your credit-card statements with a fine-tooth comb. Are you
  still being charged for that travel club you’ve never used?
  Look for line items you don’t need.

• Call
  your credit card companies and ask them nicely if they would lower
  your interest rates. It does work sometimes!

Save,
Save, Save

Do
whatever you can to retire debt. Consider taking a second job and using that income only for higher payments on your financial
obligations. Substitute free family activities for high-cost ones.
Sell high-value items that you can live without.

Do Away with
Unnecessary Items to Reduce Debt Load

Do
you really need the 800-channel cable option or that dish on your
roof? You’ll be surprised at what you don’t miss. How about magazine
subscriptions? They’re not terribly expensive, but every penny
counts. It’s nice to have a library of books, but consider visiting
the public library or half-price bookstores until your debt is under
control.

Never, Ever Miss a Payment

Not only are you retiring debt, but you’re also building a stellar credit
rating. If you ever move or buy another car, you’ll want to
get the lowest rate possible. A blemish-free payment record will help
with that. Besides, credit card companies can be quick to raise
interest rates because of one late payment. A completely missed one
is even more serious.

Do
Not Increase Debt Load

If
you don’t have the cash for it, you probably don’t need it. You’ll
feel better about what you do have if you know it’s owned free and
clear.

Shop
Wisely, and Use the Savings to Pay Down Your Debt

If
your family is large enough to warrant it, invest $30 or $40 and join
a store like Sam’s or Costco. And use it. Shop there first, then at
the grocery store. Change brands if you have to and swallow your
pride. Use coupons religiously. Calculate the money you’re saving and
slap it on your debt.

Each
of these steps, taken alone, probably doesn’t seem like much. But if you adopt as many as you can, you’ll watch
your debt decrease every month.

Homebuyer Credit Closing Deadline Extended

Good news! Eligible taxpayers who contracted to buy a home, qualifying for the first-time homebuyer credit, before the end of April now have until Sept. 30, 2010 to close the deal.

The Homebuyer Assistance and Improvement Act of 2010, signed by the President in July, extended the closing deadline from June 30 to Sept. 30 for any eligible homebuyer who entered into a binding purchase contract on or before April 30 to close on the purchase of the home on or before June 30, 2010. The new law addresses concerns that many homebuyers might be unable to meet the original June 30 closing deadline.

Taxpayers need to know that special filing and documentation requirements apply to anyone claiming the homebuyer credit. To avoid refund delays, those who entered into a purchase contract on or before April 30, but closed after that date, should attach to their return a copy of the pages from the signed contract showing all parties’ names and signatures (if required by local law), the property address, the purchase price, and the date of the contract.

Besides filling out Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, all eligible homebuyers must also include with their return one of the following documents:

• A copy of the settlement statement showing all parties’ names and signatures if required by local law, property address, sales price, and date of purchase. Normally, this is the properly executed Form HUD-1, Settlement Statement.

• For mobile home purchasers who are unable to get a settlement statement, a copy of the executed retail sales contract showing all parties’ names and signatures, property address, purchase price, and date of purchase.

• For a newly constructed home where a settlement statement is not available, a copy of the certificate of occupancy showing the owner’s name, property address, and date of the certificate.

Besides providing a tax benefit to first-time homebuyers and purchasers who haven’t owned homes in recent years, the law allows a long-time resident of the same main home to claim the credit if they purchase a new principal residence. To qualify, eligible taxpayers must show that they lived in their old homes for five consecutive years during the eight-year period ending on the purchase date of the new home.

Homebuyers claiming this credit can avoid refund delays by attaching documentation covering the five-consecutive-year period:

• Form 1098, Mortgage Interest Statement, or substitute mortgage interest statements,

• property tax records, or

• homeowner’s insurance records.

There are three options for claiming the credit on a qualifying 2010 purchase:

• If a 2009 return has not yet been filed, claim it on Form 1040 for tax year 2009. Though these returns cannot be filed electronically, taxpayers can still use IRS Free File to prepare their return. The returns must be printed out and sent to the IRS, along with all required documentation. The IRS urges taxpayers claiming refunds to choose direct deposit.

• If a 2009 return has already been filed, claim it on an amended return using Form 1040X.

• Whether or not a 2009 return has been filed, wait until next year and claim it on a 2010 Form 1040.

The Homebuyer Credit can be complicated – but we’re happy to help. For more details on claiming the credit, give us a call or send us an email.

Tax Benefits for Job Seekers

Some folks – especially these days – are polishing their resumes and attending career fairs in search of employment. If you are searching for a job this summer, you may be able to deduct some of those expenses on your tax return.

Here are six things you need to know about deducting costs related to your job search.

1. To deduct job search costs, the expenses must be spent on a job search in your current occupation. You may not deduct expenses related to looking for a job in a new occupation.
2. You can deduct employment and outplacement agency fees you pay while looking for a job in your present occupation. If your employer pays you back in a later year for employment agency fees, you must include the amount you receive in your gross income up to the amount of your tax benefit in the earlier year.
3. You can deduct amounts you spend for preparing and mailing copies of a resume to prospective employers as long as you are looking for a new job in your present occupation.
4. If you travel to an area to look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area. You can only deduct the travel expenses if the trip is primarily to look for a new job. The amount of time you spend on personal activity compared to the time spent looking for work is important in determining whether the trip is primarily personal or is related to your job search. (If you have questions about how to figure this, call us.)
5. You cannot deduct job search expenses if there was a substantial break between the end of your last job and the time you begin looking for a new one.
6. You cannot deduct job search expenses if you are looking for a job for the first time.

If you’d like more information about deducting expenses related to your job search, let us know. We’ll guide you through the process.

What to Do If You Haven’t Filed Your 2009 Return

The failure to file a federal tax return can be costly – whether you end up owing more or missing out on a refund.

There are several reasons taxpayers don’t file their taxes. Perhaps they didn’t know they were required to file. Maybe they just kept putting it off and simply forgot.

Whatever the reason, it’s best to file the return as soon as possible. If you need help, even with a late return, we are ready to assist you.

Here are some things to consider:

• Failure to File Penalty. If you owe taxes, a delay in filing may result in a “failure to file” penalty, also known as the “late filing” penalty, and interest charges. The longer you delay, the more these charges grow.

• Losing Your Refund. There is no penalty for failure to file if you are due a refund. However, you cannot obtain a refund without filing a tax return. If you wait too long to file, you may risk losing the refund altogether. The deadline for claiming refunds is three years after the original due date.

• Earned Income Tax Credit. Individuals who are entitled to the Earned Income Tax Credit must file their return to claim the credit even if they are not otherwise required to file.

Whether you must file a tax return depends on a number of factors, including your filing status, age, and gross income.

Please call us for more information on how to file a tax return for a prior year.

Basic Hints to Help New Small Businesses

Folks starting a small business are often challenged by their new tax filing requirements. It can be overwhelming to learn about federal tax responsibilities.

The following is a list of basic tips to avoid potential problems:

• Classify workers properly as employees or independent contractors as determined by law, not the choice of the worker or business owner.

• Deposit federal employment taxes, called trust fund taxes, according to the appropriate schedule.

• Start making estimated quarterly payments to cover your own income tax and Social Security self-employment tax liability.

• Keep good records to protect your personal and financial investment and to make tax filing easier.

• Consider a tax professional to help you with Schedule C.

• File and pay your taxes electronically. It’s fast, easy, and secure.

• Protect financial and tax records to ensure business continuity in the event of a disaster.

As always, we’re here to help sort out your tax responsibilities. Give us a call today if you’re starting a new business.

Seven Tax Tips for Students with a Summer Job

Are you a student with a summer job? Here are seven things you should know about the income you earn during the summer months.

1. All taxpayers fill out a W-4 when starting a new job. This form is used by employers to determine the amount of tax that will be withheld from your paycheck. Taxpayers with multiple summer jobs will want to make sure all their employers are withholding an adequate amount of taxes to cover their total income tax liability. To make sure your withholding is correct, call our office.
2. Whether you are working as a waiter or a camp counselor, you may receive tips as part of your summer income. All tip income you receive is taxable and is therefore subject to federal income tax.
3. Many students do odd jobs over the summer to make extra cash. If this is your situation, keep in mind that earnings you receive from self-employment are subject to income tax. This includes income from odd jobs like baby-sitting and lawn mowing.
4. If you have net earnings of $400 or more from self-employment, you also have to pay self-employment tax. (Church employee income of $108.28 or more must also pay.) This tax pays for your benefits under the Social Security system. Social Security and Medicare benefits are available to individuals who are self-employed just as they are to wage earners who have Social Security tax and Medicare tax withheld from their wages. The self-employment tax is figured on Form 1040, Schedule SE.
5. Subsistence allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay – such as pay received during summer advanced camp – is taxable.
6. Special rules apply to services you perform as a newspaper carrier or distributor. You are a direct seller and treated as self-employed for federal tax purposes if you meet the following conditions:
• You are in the business of delivering newspapers.
• All your pay for these services directly relates to sales rather than to the number of hours worked.
• You perform the delivery services under a written contract which states that you will not be treated as an employee for federal tax purposes.
7. Generally, newspaper carriers or distributors under age 18 are not subject to self-employment tax.

A summer work schedule is sometimes a patchwork of odd jobs – which makes for confusion come tax time. Contact us if you have any questions at all about income earned this summer season.

Banish Security Fears: Use QuickBooks’s Protection Tools

If there’s one application that you don’t want compromised by a security
breach, it’s the one that contains all of your financial
information. Recognizing that, Intuit has built a number of security
features into QuickBooks that are designed to safeguard your debits and
credits.

Tip: QuickBooks integrates with Microsoft Internet Explorer for some of its work.
We’ll discuss some of its safety tools, but you may want to
check with us to see if your larger system
is well-protected against malware, viruses, etc.

Set-Up Preferences

Fortunately, QuickBooks is open for integration with many outside applications
that complement QuickBooks’s native capabilities and extend its
usefulness. But you should make sure that your system is set up to
accommodate the features you want to use.

To do this, click Edit | Preferences | Integrated Applications.
Then click on the tab labeled Company Preferences. Here you’ll
be able to indicate that:

• no applications should be allowed access, and

• you should be notified if an application’s certificate has expired.

This window also displays a list of applications that are currently integrated with
QuickBooks. Highlight one, then click Remove
if you want to break the link. Click Properties,
and you’ll see the window shown in Figure 1.

Figure 1: QuickBooks lets you specify who gets in, and what they can do.

Check the top box if this outside application should be allowed in, and make decisions
about the other options here. If you have any questions, give us a
call and we’ll make sure your choices suit your business.

Broaden Your Horizons

QuickBooks relies
on the Internet for many of its functions, which makes the program
much more versatile. You can use this Web connection to update your
copy of QuickBooks, receive payroll updates, download financial
institution transactions, and access myriad business resources.

If your copy of
QuickBooks is not yet integrated with Internet Explorer, click on the
Help menu, then Internet Connection
Setup. Work through the wizard to specify the correct connection to use, as shown in Figure
2.

Figure 2: To make sure your QuickBooks/Internet Explorer integration is working
securely, specify the correct Internet connection.

Click on Edit | Preferences again, then click Service Connection.
Under the My Preferences tab, you’ll be asked to decide whether:

• data downloaded from your financial institution – or information
  previously downloaded – should be processed immediately or saved to a file, or

• Internet Explorer should remain open after you’ve completed a Web-based
  task (only applicable if QuickBooks has opened IE).

Check or uncheck the appropriate boxes.

Click the Company Preferences tab. Here,
you’ll tell QuickBooks whether it should automatically connect
to Web services (other than Payroll
or Online Banking; these have their
own passwords) or if a password will be required. You’ll also specify whether
service updates from Intuit should be automatically downloaded, as
shown in Figure 3.

Figure 3: In the window, you can specify your preferences for password requirements
and background downloading of service updates.

To ensure that you’ll be able to see all QuickBooks-related content on the
Web, open Internet Explorer. Click the Tools menu, then Internet
Options. Click the Security
tab, and make sure the level is set to Medium,
as suggested by Intuit.

Internal Security

Of course, QuickBooks offers internal tools to prevent unauthorized employees
from reaching sensitive information. To access these, click Company
| Set Up Users and Passwords | Set Up Users.
You must be the Administrator to enter this are.

The window that opens gives you several options. You can add, edit, delete, or view a
user. Click the Add User button, and assign a user
name and password on the next screen. Click Next,
and in the next window, choose whether to give the individual access
to all areas of QuickBooks, or just a subset (the External
Accountant option lets your accounting professional enter most areas of the program).

Choose Selective Access
and
click Next

in the window shown in Figure
4.

Figure 4:
QuickBooks lets you specify which areas and functions individual
users can access.

On each page in
this wizard, you can assign no, full, or selective access to tasks
for each employee. Other functional areas include Payroll
and Employees, Time
Tracking, and Sensitive
Accounting Activities. When
you’re done, click Finish.

Keep It Safe

Remember, too, that
Intuit employs high-level encryption that secures your sensitive
financial information. And it of course recommends that you back up
frequently to further protect your data.

If this all seems like too
much poking around in QuickBooks, give us a call and we’ll help
you make the right security choices.

Financial Tips for August 2010

Prepare a Post-Mortem Letter

Review or prepare a post-mortem letter to your spouse spelling out the location of your assets and property (assets of a deceased are often lost because a spouse may not be aware of them or know their location), the names of all your advisors, and any other information your spouse should know to minimize his or her burden in the stressful period after your death.

Get Your Social Security Statement of Benefits

Request a Personal Earnings and Benefit Estimate Statement from the Social Security Administration. This statement summarizes your Social Security earnings history and provides an estimate of the benefits to which you are entitled. It is important to verify that you have been credited for all of your earnings. You can also use this statement in your retirement planning. We can help you with this statement; just give us a call.

Review Your Budget vs Actuals for July

Compare July income and expenditures with your budget. Make adjustments as appropriate to your August expenditures. Make sure you invest your planned savings amount for July.

Estimate Your Tax Liability

Total up your taxable income, capital gains, and deductions through this date. This information can be used to plan your estimated tax payments, and perhaps avoid or minimize any underpayment penalties.

Tax Due Dates for August 2010

August 2	Employers – Social Security, Medicare, and withheld income tax. File Form 941 for the second quarter of 2010. Deposit any undeposited tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until August 10 to file the return. Employers – Federal unemployment tax. Deposit the tax owed through June if more than $500. Employers – If you maintain an employee benefit plan, such as a pension, profit sharing, or stock bonus plan, file Form 5500 or 5500-EZ for calendar year 2009. If you use a fiscal year as your plan year, file the form by the last day of the seventh month after the plan year ends. Certain Small Employers – Deposit any undeposited tax if your tax liability is $2,500 or more for 2010 but less than $2,500 for the second quarter.
August 10	Employers – Social Security, Medicare, and withheld income tax. File Form 941 for the second quarter of 2010. This due date applies only if you deposited the tax for the quarter in full and on time. Employees Who Work for Tips – If you received $20 or more in tips during July, report them to your employer. You can use Form 4070.
August 16	Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in July. Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in July.

Copyright © 2010  All materials contained in this document are protected by U.S. and international copyright laws. All other trade names, trademarks, registered trademarks and service marks are the property of their respective owners.

Feature Articles

• Saving for College with 529 Plans
• Hurricane Season: Safeguard Your Tax Records
• Affordable Care Act Tax Provisions
• Tax Credits for Home Improvements

Tax Tips

• Do You Need to Pay Estimated Taxes?
• Getting Married? Filing Status Considerations
• Coverdell Education Savings Accounts
• Deducting Your Home Office
• Don’t Panic! Eight Things to Know If You Receive an IRS Notice

QuickBooks Tips

• Hiring Summer Employees? QuickBooks Can Track Their Time

Financial Tips

• Estate Plan Checkup
• Examine Property Tax Bills
• Budget vs. Actuals
• Investment Review

Previous Issues of Our Newsletter

Saving for College with 529 Plans

As another school year ends, college tuition payments are a year closer. Parents often wonder when they should start saving and how much.

College tuition and fees are costly and on the rise. But even with 4-year private schools running on average $36,000 per year, the cost is well worth it. According to the US Census Bureau, individuals with a bachelor’s degree earn more than double those with just a high school diploma.

How much to save depends on how much you think your child’s education will cost. The best way is to start saving before they are born. The sooner you begin, the less money you will have to put away each year.

Example: Suppose you have one child, age six months, and you estimate that you’ll need $120,000 to finance his college education 18 years from now. If you start putting away money immediately, you’ll need to save $3,500 per year for 18 years (assuming an after-tax return of 7%). On the other hand, if you put off saving until the child is six years old, you’ll have to save almost double that amount every year for twelve years.

Another advantage of starting early is that you’ll have more flexibility when it comes to the type of investment you can use. You’ll be able to put at least part of your money in equities, which, although riskier in the short run, are better able to outpace inflation than other investments in the long run.

How Much Will a College Education Cost?

Based on the survey completed for the 2009 Trends in College Pricing, the average cost for tuition, fees, and room and board for 2009-2010 was:

$15,200 per year for 4-year public (in state) colleges and universities.
This is an increase of 6.3% from 2008-2009 findings.

$35,600 per year for 4-year private colleges and universities.
This is an increase of 4.4% from 2008-2009 findings.

It should be noted that on average, full-time students receive $14,400 of financial aid per year in the form of grants and tax benefits for private 4-year institutions, $5,400/yr for public 4-year institutions, and $3,000/yr for public 2-year institutions.

Section 529 Qualified Tuition Plans

Many parents are looking at ways to save for college. Section 529 plans, also known as Qualified Tuition Programs (QTP), are a popular college savings vehicle for parents.

Every state now has a program allowing persons to prepay for future higher education, with tax relief. There are two basic plan types, with many variations:

1. The Prepaid Education Arrangement. You essentially buy future education at today’s costs, by buying education credits or certificates. This is the older type of program, and it tends to limit the student’s choice of schools within the state.

2. Education Savings Accounts. You contribute to an account earmarked for future higher education.

Tip: When approaching state programs, one must distinguish between what the federal tax law allows and what an individual state’s program may impose.

You may open a Section 529 plan in any state. But when buying prepaid tuition credits (less popular than savings accounts), you often need to apply the credits to a specific college or group of colleges.

Unlike certain other tax-favored higher education programs, such as the Hope and lifetime learning tax credits, federal tax law doesn’t limit the benefit only to tuition. Room, board, lab fees, books, and supplies can be purchased with funds from your 529 Savings Account. (Individual state programs could be narrower.)

The key parties to the program are the Designated Beneficiary, the student-to-be, and the Account Owner, who is entitled to choose and change the beneficiary and who is normally the principal contributor to the program.

There are no income limits on who may be an account owner. There’s only one designated beneficiary per account. Thus, a parent with three college-bound children might set up three accounts. (Some state programs don’t allow the same person to be both beneficiary and account owner.)

Contributions must be in cash, and they must not total more than reasonably needed for higher education (as determined initially by the state). Neither account owner nor beneficiary may direct investments, but the state may allow the owner to select a type of investment fund (e.g., fixed income securities), and to change the investment annually, and when the beneficiary is changed. The account owner decides who gets the funds (can pick and change the beneficiary) and is legally allowed to withdraw funds at any time, subject to tax and penalties (discussed later).

Funds in the account not yet distributed at the account owner’s death pass as part of the probate estate under state law – though this is not the result for federal estate tax purposes (see below).

What’s New?

529 plan distributions are tax-free as long as they are used to pay qualified higher education expenses for a designated beneficiary. Qualified expenses include tuition, required fees, books, supplies, equipment, and special needs services. For someone who is at least a half-time student, room and board also qualify. For 2009 and 2010, the American Recovery and Reinvestment Act (ARRA) added expenses for computer technology and equipment or Internet access and related services to be used by the student while enrolled at an eligible educational institution. Software designed for sports, games, or hobbies does not qualify, unless it is predominantly educational in nature. In general, expenses for computer technology are not qualified expenses for the American opportunity credit, Hope credit, lifetime learning credit, or tuition and fees deduction.

Federal Tax Rules Relating to 529 College Savings Plans

Income Tax. Contributions made by the account owner or other contributor are not deductible for federal income tax purposes. Earnings on contributions grow tax-free while in the program.

Distributions from the fund are tax-free to the extent used for qualified higher education expenses. Distributions used otherwise are taxable to the extent of the portion that represents earnings.

A Section 529 distribution can be tax-free even though the student is claiming a Hope or lifetime learning credit, or tax-free treatment for a Section 530 Coverdell distribution, if the programs aren’t covering the same specific expenses.

Distribution for a purpose other than qualified education is taxed to the one receiving the distribution. In addition, a 10% penalty must be imposed on the taxable portion of the distribution, comparable to the 10% penalty in Section 530 Coverdell plans.

The account owner may change beneficiary designation from one to another in the same family. Funds in the account roll over tax-free for the benefit of the new beneficiary.

Gift Tax. For gift tax purposes, contributions are treated as completed gifts even though the account owner has the right to withdraw them – thus they qualify for the up-to-$13,000 annual gift tax exclusion. One contributing more than $13,000 may elect to treat the gift as made in equal installments over that year and the following 4 years, so that up to $65,000 can be given tax-free in the first year.

A rollover from one beneficiary to another in a younger generation is treated as a gift from the first beneficiary, an odd result for an act the “giver” may have had nothing to do with.

Estate Tax. Funds in the account at the designated beneficiary’s death are included in the beneficiary’s estate – another odd result, since those funds may not be available to pay the tax. Funds in the account at the account owner’s death are not included in the owner’s estate, except for a portion thereof where the gift tax exclusion installment election is made for gifts over $13,000. For example, if the account owner made the election for a gift of $65,000 in 2010, a part of that gift is included in the estate if he or she dies within 5 years.

Tip: A Section 529 program can be an especially attractive estate-planning move for grandparents. There are no income limits, and the account owner giving up to $65,000 avoids gift tax and estate tax by living 5 years after the gift, yet has the power to change the beneficiary.

State Tax. State tax rules are all over the map. Some reflect the federal rules, some quite different rules. For specifics of each state’s program, see http://www.collegesavings.org.

Professional Guidance

Considering the wide differences among state plans, the federal and state tax issues, and the dollar amounts at stake, please call us before getting started with a 529 plan.

Hurricane Season: Safeguard Your Tax Records

With the 2010 hurricane season now under way, individuals and businesses should safeguard their tax records by taking a few simple steps.

Create a Backup Set of Records Electronically. Taxpayers should keep a set of backup records in a safe place. The backup should be stored away from the original set.

Keeping a backup set of records – including, for example, bank statements, tax returns, insurance policies, etc. – is easier now that many financial institutions provide statements and documents electronically, and much financial information is available on the Internet. Even if the original records are provided only on paper, they can be scanned, which converts them to a digital format. Once documents are in electronic form, taxpayers can download them to a backup storage device, like an external hard drive, or burn them onto a CD or DVD.

Taxpayers should consider online backup, which is the only way to ensure data is fully protected. With online backup, files are stored in another region of the country – so if a hurricane or other natural disaster occurs, documents remain safe.

Document Valuables. Another step a taxpayer can take to prepare for disaster is to photograph or videotape the contents of his or her home, especially items of higher value. Call us for more help compiling a room-by-room list of belongings.

A photographic record can help prove the market value of items for insurance and casualty loss claims. Photos should be stored with a friend or family member who lives outside the area.

Update Emergency Plans. Emergency plans should be reviewed annually. Personal and business situations change over time, as do preparedness needs. When employers hire new employees or when a company or organization changes functions, plans should be updated accordingly and employees should be informed of the changes.

Check on Fiduciary Bonds. Employers who use payroll service providers should ask the provider if it has a fiduciary bond in place. The bond could protect the employer in the event of default by the payroll service provider.

We’re Here to Help. If disaster strikes, call us right away. We can help you get back copies of tax returns and all attachments, including Forms W-2.

Affordable Care Act Tax Provisions

The Affordable Care Act was enacted on March 23, 2010. It contains some tax provisions that take effect this year and more that will be implemented during the next several years. The following is a list of provisions now in effect; more provisions are expected.

Health Coverage for Older Children

Health coverage for an employee’s children under 27 years of age is now generally tax-free to the employee. This expanded health care tax benefit applies to various workplace and retiree health plans. These changes immediately allow employers with cafeteria plans (plans that allow employees to choose from a menu of tax-free benefit options and cash or taxable benefits) to permit employees to make pre-tax contributions to pay for this expanded benefit. This also applies to self-employed individuals who qualify for the self-employed health insurance deduction on their federal income tax return.

Small Business Health Care Tax Credit

This new credit helps small businesses and small tax-exempt organizations afford the cost of covering their employees and is specifically targeted for those with low- and moderate-income workers. The credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees.

Contact us for more information on the small business health care tax credit.

Medicare Part D Coverage Gap “donut hole” Rebate

The Affordable Care Act provides a one-time $250 rebate in 2010 to assist Medicare Part D recipients who have reached their Medicare drug plan’s coverage gap. This payment is not taxable, and it is not made by the IRS. Call us for more information.

Therapeutic Discovery Project Program

This program is designed to provide tax credits and grants to small firms that show significant potential to produce new and cost-saving therapies, support jobs, and increase U.S. competitiveness. IRS guidance describes the process by which firms can apply to have their research projects certified as eligible for the credit or grant. Companies could submit applications for certification beginning on June 21, 2010, and they have until July 21, 2010 to apply (postmark date). Give us a call if you have questions about eligibility or how to apply.

Tax Credits for Home Improvements

Summer is a great time to tackle those home improvements on your list. And under the American Recovery and Reinvestment Act (ARRA) of 2009, the energy tax credit is increased. The new law raises the credit rate to 30% of the cost of all qualifying improvements and raises the maximum credit limit to $1,500 for improvements placed in service in 2009 and 2010.

The credit applies to energy-related improvements, such as adding insulation, energy-efficient exterior windows, and energy-efficient heating and air-conditioning systems.

Note: A similar credit was available for 2007, but it was not available in 2008. Homeowners should be aware that the standards in the new law are higher than the standards for the credit that was available in 2007 for products that qualify as “energy efficient.” The IRS has issued guidance that allows manufacturers to certify that their products meet these new standards.

Homeowners may continue to rely on manufacturers’ certifications that were provided under the old guidance. For exterior windows and skylights, homeowners may continue to rely on Energy Star labels in determining whether items qualify for the credit.

Further, the Residential Energy Efficient Property Credit is a nonrefundable energy tax credit that helps individual taxpayers pay for qualified residential alternative energy equipment, such as solar hot water heaters, geothermal heat pumps, and wind turbines. The new law removes some of the previously imposed maximum amounts and allows for a credit equal to 30% of the cost of qualified property.

We’re happy to help you sort out the tax credits available for your home improvements this summer. Just give us a call or send us an email.

Do You Need to Pay Estimated Taxes?

What Is Estimated Tax? Estimated tax is the method used to pay tax on income that is not subject to withholding, such as self-employment income, interest, dividends, rents, alimony, etc. In addition, if you do not elect voluntary withholding, you should make estimated payments on other taxable income, such as unemployment income and the taxable portion of Social Security benefits.

Who Needs to Pay Estimated Tax? In most cases, you must make estimated payments if you expect to owe at least $1,000 in tax in 2010 and you expect your withholding and credits to be less than the smaller of:

1. 90% of the tax shown on your 2010 tax return, or
2. 100% of the tax shown on your 2009 tax return. Note that exceptions apply for higher income taxpayers. Further, if you did not file a 2009 tax return or if your 2009 return did not cover the full 12 months, the 100% rule does not apply.

Special Rules

Higher Income Taxpayers. If your adjusted gross income for 2009 was more than $150,000 ($75,000 if your filing status for 2009 is married filing separately), substitute 110% for 100% in Rule 2. This rule does not apply to farmers or fishermen.

Farmers and Fishermen. If at least two-thirds of your gross income for 2009 or 2010 is from farming or fishing, your required annual payment is the smaller of:

• 66% (.6667) of your total tax for 2010, or
• 100% of the total tax shown on your 2009 return. (Your 2009 tax return must cover all 12 months.)

Questions?

Don’t hesitate to contact us if you’re not sure whether you need to pay estimated tax. We’ll evaluate your situation and let you know.

Getting Married? Filing Status Considerations

Summer is wedding season. If you are getting married this summer, remember to give some attention to your 2010 tax filing status.

You have two filing status options: married filing jointly, or married filing separately.

Married Filing Jointly

You can choose married filing jointly as your filing status if you are married and both you and your spouse agree to file a joint return. On a joint return, you report your combined income and deduct your combined allowable expenses. You can file a joint return even if one of you had no income or deductions.

According to the IRS, if you and your spouse decide to file a joint return, your tax may be lower than your combined tax for the other filing statuses. Also, your standard deduction (if you do not itemize deductions) may be higher, and you may qualify for tax benefits that do not apply to other filing statuses.

We recommend that if you and your spouse each have income, you figure your tax both on a joint return and on separate returns (using the filing status of married filing separately). You can choose the method that gives you the lower combined tax.

Joint Responsibility. Both of you may be held responsible, jointly and individually, for the tax and any interest or penalty due on your joint return. One spouse may be held responsible for all the tax due even if all the income was earned by the other spouse.

Married Filing Separately

You can choose married filing separately as your filing status if you are married. This filing status may benefit you if you want to be responsible only for your own tax or if it results in less tax than filing a joint return.

We Can Help

Give us a call if you’re unsure of which status to file under.

Coverdell Education Savings Accounts

A Coverdell Education Savings Account is an account created as an incentive to help parents and students save for education expenses.

The total contributions for the beneficiary of this account cannot be more than $2,000 in any year, no matter how many accounts have been established. A beneficiary is someone who is under age 18 or is a special needs beneficiary.

The beneficiary will not owe tax on the distributions if they are less than a beneficiary’s qualified education expenses at an eligible institution. This benefit applies to higher education expenses as well as to elementary and secondary education expenses.

Here are some things to remember about distributions from Coverdell accounts:

• Distributions are tax-free as long as they are used for qualified education expenses, such as tuition, books, and fees.

• There is no tax on distributions if they are for an eligible educational institution. This includes any public, private, or religious school that provides elementary or secondary education as determined under state law.

• The Hope and lifetime learning credits can be claimed in the same year the beneficiary takes a tax-free distribution from a Coverdell ESA, as long as the same expenses are not used for both benefits.

• If the distribution exceeds education expenses, a portion will be taxable to the beneficiary and will be subject to an additional 10% tax. Exceptions to the additional 10% tax include the death or disability of the beneficiary or if the beneficiary receives a qualified scholarship.

There are contribution limits for taxpayers based on the taxpayer’s Modified Adjusted Gross Income. Contributions to a Coverdell ESA may be made until the due date of the contributor’s tax return, without extensions.

If there is a balance in the Coverdell ESA when the beneficiary reaches age 30, it must be distributed within 30 days. A portion representing earnings on the account will be taxable and subject to the additional 10% tax. The beneficiary may avoid these taxes by rolling over the full balance to another Coverdell ESA for another family member.

If you have any questions on Coverdell Education Savings Accounts or other college savings plans, don’t hesitate to contact us. We can advise you in how best to save for your child’s education.

Deducting Your Home Office

If you use a portion of your home for business purposes, you may be able to take a home office deduction whether you are self-employed or an employee. Expenses that you may be able to deduct include the business portion of real estate taxes, mortgage interest, rent, utilities, insurance, depreciation, painting, and repairs.

You can claim this deduction for the business use of a part of your home only if you use that part of your home regularly and exclusively

• as your principal place of business for any trade or business, or

• as a place to meet or deal with your patients, clients, or customers in the normal course of your trade or business.

Generally, the amount you can deduct depends on the percentage of your home that you use for business. Your deduction will be limited if your gross income from your business is less than your total business expenses.

If you use a separate structure not attached to your home for an exclusive and regular part of your business, you can deduct expenses related to it.

The rules vary depending on whether you’re self-employed, a qualified daycare provider, or storing business inventory or product samples. If you are an employee, you have additional requirements to meet. The regular and exclusive business use must be for the convenience of your employer.

Call us if you want to explore deducting for the business use of your home.

Don’t Panic! Eight Things to Know If You Receive an IRS Notice

The Internal Revenue Service sends millions of letters and notices to taxpayers every year. Here are eight things taxpayers should know about IRS notices – just in case one shows up in your mailbox.

1. Don’t panic. Many of these letters can be dealt with simply and painlessly.

2. The IRS might send you a notice for a number of reasons. They may request payment of taxes, notify you of changes to your
   account, or request additional information. The notice you receive normally covers a very specific issue about your account or tax return.

3. Each letter and notice offers specific instructions on how to satisfy the inquiry.

4. If you receive a correction notice, you should review the correspondence and compare it with the information on your return.

5. If you agree with the correction to your account, then usually no reply is necessary unless a payment is due or the notice directs
   otherwise.

6. If you do not agree with the correction the IRS made, it is important that you respond as requested. You should send a written explanation of why you disagree and include any documents and information you want the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the upper-left-hand corner of the notice. Allow at least 30 days for a response.

7. Most correspondence can be handled without calling or visiting an IRS office. However, if you have questions, call the telephone number in the upper-right-hand corner of the notice. Have a copy of your tax return and the correspondence available when you call.

8. It’s important that you keep copies of any correspondence with your records.

If you get an IRS notice, don’t panic! And, as always, if you’d like some guidance, just give us a call. We’ll help you with next steps.

Hiring Summer Employees? QuickBooks Can Track Their Time

QuickBooks offers capable tools for tracking the items you sell, but it’s
also quite a competent time-tracker. If you pay employees based on
the hours they work, QuickBooks can ease your bookkeeping burden.
Tracked time can flow to both invoices and payroll, helping you pay
employees and collect on services provided to customers.

Before you start tracking time, you’ll need to turn on the related tools. Click Edit | Preferences,
and then Time & Expenses. Click on the tab titled Company
Preferences. You’ll see the window shown in Figure 1.

Figure 1: Before you can start tracking and billing for time, you’ll
need to fill out some of the fields in this Company Preferences
window.

In this window, be sure you’ve checked Yes,
and then select the first day of the work week from the drop-down
list.

If you are going to want billable time to flow directly to invoices,
check the first box under Invoicing Options. The
other options in this window relate to expense and item tracking;
check with us to see if your business needs to use them.

Tip:
If you want to use payroll to pay employees for time worked, be sure
to check the box labeled “Use time data to create paychecks”
when you’re building employee records, as shown in Figure
2.

Figure 2: To facilitate the flow from time to paychecks, be sure to check the box for “Use time data to create paychecks.”

If you’re planning to use QuickBooks’s job tracking, click on
Sales & Customers in the left pane, then on the My
Preferences tab (see Figure 1). Here, you can choose how you want QuickBooks to handle available time
and costs when you’re preparing an invoice.

Single Activities or Time Sheets?

QuickBooks offers two ways to enter time. You can record hours on individual
tickets or fill out weekly timesheets. No matter which you choose,
the information is always available in the other form. You can switch
methods at any time, and your work will be preserved.

Let’s start with the individual time tickets. Open the Employee
Center in the toolbar, or click on the Employees

menu. Click Enter Time, then Time/Enter
Single Activity. The window shown in Figure 3 opens:

Figure 3: It’s easy to record hours on this single-activity ticket by
simply filling in the blanks.

QuickBooks pulls in data from other parts of the program, records you’ve
already created. First, enter the activity’s date or select it
from the calendar. Click the arrow next to Name and
choose the appropriate employee from the list.

Second, if the hours are going to be billed to a customer or job, click the next
arrow and select the correct one (ignore this if you’re just
recording company time, like regular compensation or sick time).
Finally, pick the service that the employee performed, if applicable.
Be sure to check the Billable box when it’s appropriate.

Tip: You can create a new record on the fly here if, for example, you haven’t
set up the service you need to record. Click < Add New >
in the drop-down list.

Linking to Payroll

You can also use QuickBooks’s timer if you’re going to bill
for a timed activity such as a phone call. And you can add notes that
will be saved to the ticket.

QuickBooks provides other ways to describe hours spent so that they’re
recorded properly. If you have payroll turned on and have associated
a payroll item with the selected service item, the Payroll
Item field (which indicates how much the employee should be paid) will
automatically be filled in. You can easily change this field if
necessary.

If you haven’t created a payroll item, select Add
New. A wizard will walk you through the process. This relationship can be a
bit confusing so talk to us if you have any questions. When you’re done, click Save
& Close or Save & New.

Week at a Time

Weekly timesheets can save you a lot of time. To get there, open the
Employee Center in the toolbar, or click on the Employees
menu. Click Use Weekly Timesheet. You’ll
see a window similar to the one shown in Figure 4:

Figure 4: Rather than entering each activity individually, you can document
an entire week at a time using the Weekly Timesheet.

You can speed through weekly timesheets, using the drop-down lists to
select the appropriate data and entering the number of hours worked.
Click Copy Last Sheet if you want to duplicate the configuration from the last pay period.

QuickBooks Time Tracker offers
another way to save time and avoid errors. Employees can send their
timesheets from any computer that has an Internet connection. Your staff who handles payroll can then download and incorporate them into the
company’s payroll. Prices start at $10/month for one user.

Whether you’re bringing employees in for seasonal help or your
regular payroll incorporates time worked as well as items sold,
QuickBooks contains the tools you need to both invoice
customers accurately and dispatch proper paychecks.

If you need help with this feature, or you have any questions on
QuickBooks’s reporting, don’t hesitate to give us a call.

Financial Tips for July 2010

Estate Plan Checkup

Give some thought to your estate plan. How do you want your assets to be distributed at your death? Federal estate tax may be a factor. Please call us for guidance on how to minimize estate taxes and probate costs, so that the maximum amount goes to your desired beneficiaries.

Examine Property Tax Bills

Examine your property tax bills and explore the possibility of challenging the valuation.

Budget vs. Actuals

Compare June income and expenditures with your budget. Make adjustments, as appropriate, to your July expenditures. Make sure you have invested your planned savings amount for June.

Investment Review

Review your investment performance for the first half of the year. Consider reallocating under-performing or low-yielding assets.

Tax Due Dates for July 2010

July 12	Employees Who Work for Tips – If you received $20 or more in tips during June, report them to your employer. You can use Form 4070.
July 15	Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in June. Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in June.
August 2	Employers – Social Security, Medicare, and withheld income tax. File Form 941 for the second quarter of 2010. Deposit any undeposited tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until August 10 to file the return. Employers – Federal unemployment tax. Deposit the tax owed through June if more than $500. Employers – If you maintain an employee benefit plan, such as a pension, profit sharing, or stock bonus plan, file Form 5500 or 5500-EZ for calendar year 2009. If you use a fiscal year as your plan year, file the form by the last day of the seventh month after the plan year ends. Certain Small Employers – Deposit any undeposited tax if your tax liability is $2,500 or more for 2010 but less than $2,500 for the second quarter.

Copyright © 2010  All materials contained in this document are protected by U.S. and international copyright laws. All other trade names, trademarks, registered trademarks and service marks are the property of their respective owners.

Feature Articles

• Summer Travel Tax Deductions
• Cut Taxes on the Sale of Your Home
• Timing Mistakes That Cost Thousands of Dollars

Tax Tips

• Are Your Social Security Benefits Taxable?
• Getting the Right Amount of Tax Withheld
• Tips on Tips

QuickBooks Tips

• Generating Professional Reports with QuickBooks

Financial Tips

• Review Your Insurance Policies
• Lower Your Utility Costs
• Analyze Budget vs Actuals

Previous Issues of Our Newsletter

Summer Travel Tax Deductions

The summer travel season is almost upon us. Keep in mind that if your summertime travel is primarily for business or career-related education, then a portion of the trip may be tax-deductible. As long as most of your travel days are for business purposes, you can deduct the cost of travel (airfare, trains, car), hotel, parking, taxi service, meals, and so on.

As defined by the IRS, travel expenses are the Ordinary and Necessary expenses of traveling away from home for your business, profession, or job. An Ordinary expense is one that is common and accepted in your field of trade, business, or profession. A Necessary expense is one that is helpful and appropriate for your business. An expense does not have to be required to be considered necessary.

The key factor is that your trip must be primarily for business. Days of leisure can be added to a trip and still be considered primarily for business. The more days and time per day spent on business will help substantiate the trip. There are no set rules on how many days and how much time per day need to be spent on business for your trip to be considered business related.

Keep all the documentation for business-related travel, including confirmations of appointments, emails, phone records, registration to conferences, etc. The days spent traveling to and from a business trip are considered part of the trip. This includes the weekend if it is impractical to come home between weekday business meetings. Planning ahead can make this happen.

Traveling with Your Spouse

If a spouse goes with you on a business trip or to a business convention, his or her travel expenses can only be deducted if your spouse

1. is your employee,
2. has a bona fide business purpose for the travel, and
3. would otherwise be allowed to deduct the travel expenses.

To be an employee, your spouse must be on the payroll and payroll taxes must be paid. If your spouse is not an employee and travels with you on vacation, you can still deduct the cost of your room at the single-occupancy-per-day rate, rather than half the rate. Meals could also be deductible. If you are paying for lunch or dinner for a customer or business associate and that person’s spouse, the full cost of the meals might qualify under the 50% meal deduction. Let us know if you’re unclear on this deduction; we can give you the details.

Example: Bill drives to Boston on business and takes his wife, Joan, with him. Joan is not Bill’s employee. Joan occasionally types notes, performs similar services, and accompanies Bill to luncheons and dinners. The performance of these services does not establish that her presence on the trip is necessary for Bill’s business. Her expenses are not deductible.

Bill pays $199 a day for a double room. A single room costs $149 a day. He can deduct the total cost of driving his car to and from Boston, but only $149 a day for his hotel room. If he uses public transportation, he can deduct only his fare. Further, if Bill has dinner with a customer and spouse, the meal may be deducted under the 50% meal deduction.

With travel outside of the United States, the transportation for business trips of one week or less may be deducted. However, only a portion of transportation costs for longer trips are deductible.

Example: You live in New York. On May 4 you flew to Paris to attend a business conference that began on May 5. The conference ended at noon on May 14. That evening you flew to Dublin where you visited with friends until the afternoon of May 21, when you flew directly home to New York. The primary purpose for the trip was to attend the conference.

If you had not stopped in Dublin, you would have arrived home the evening of May 14. You did not meet any of the exceptions that would allow you to consider your travel entirely for business. May 4 through May 14 (11 days) are business days and May 15 through May 21 (7 days) are non-business days.

You can deduct the cost of your meals (subject to the 50% limit), lodging, and other business-related travel expenses while in Paris.

You cannot deduct your expenses while in Dublin. You also cannot deduct 7/18 of what it would have cost you to travel round-trip between New York and Dublin.

You paid $450 to fly from New York to Paris, $200 to fly from Paris to Dublin, and $500 to fly from Dublin back to New York. Round-trip airfare from New York to Dublin would have been $850.

You figure the deductible part of your air travel expenses by subtracting 7/18 of the round-trip fare and other expenses you would have had in traveling directly between New York and Dublin ($850 – 7/18 = $331) from your total expenses in traveling from New York to Paris to Dublin and back to New York ($450 + $200 + $500 = $1,150).
Your deductible air travel expense is $819 ($1,150 – $331).

What Expenses Are Deductible?

Here’s what you can deduct when you travel away from home for business.

Transportation Expenses
You can deduct Transportation Expenses when you travel by airplane, train, bus, or car between your home and your business destination. If you were provided with a ticket or you are riding free as a result of a frequent traveler or similar program, your cost is zero. If you travel by ship, additional rules and limits apply.

Taxi, Commuter Bus, Subway, and Airport Limousine Fares
You can deduct the fares for these and other types of transportation that take you between

• the airport or station and your hotel, and
• the hotel and the work location of your customers or clients, your
  business meeting place, or your temporary work location.

Baggage and Shipping Expenses

You can deduct the cost of sending baggage and sample or display material between your regular and temporary work locations.

Car Expenses
You can deduct the cost of operating and maintaining your car when traveling away from home on business. You can deduct actual expenses or the standard mileage rate, as well as business-related tolls and parking. If you rent a car while away from home on business, you can deduct only the business-use portion of the expenses.

Lodging and Meals
You can deduct your lodging and meals if your business trip is overnight or long enough that you need to stop for sleep or rest to properly perform your duties. Meals include amounts spent for food, beverages, taxes, and related tips. Additional rules and limits may apply.

Cleaning Clothes
You can deduct the dry cleaning and laundry expenses you incur while away on business.

Telephone
All business calls while on your business trip are deductible. This includes business communication by fax machine or other communication devices.

Tips
You may deduct the tips you pay for any expense listed above.

Other Expenses
You can deduct other similar ordinary and necessary expenses related to your business travel. These expenses might include transportation to or from a business meal, public stenographer’s fees, computer rental fees, or Internet access fees.

Ask Us

If you have any questions about business travel this summer, just give us a call or send us an email.

Cut Taxes on the Sale of Your Home

Despite the slumping real estate market, houses are still being sold and there is money to be made. Sellers need to take a close look at the exclusion rules and cost basis of their home to reduce taxable gain on their house.

First, The IRS home sale exclusion rule now allows an exclusion of a gain up to $250,000 for a single taxpayer or $500,000 for a married couple filing jointly. This exclusion can be used over and over during your lifetime, unlike the previous one-time exemption, as long as you meet the following Ownership and Use tests.

During the 5-year period ending on the date of the sale, you must have:

• Owned the house for at least two years – Ownership Test
• Lived in the house as your main home for at least two years – Use Test

Tip: The Ownership and Use periods need not be concurrent. Two years may consist of a full 24 months or 730 days within a 5-year period. Short absences, such as for a summer vacation, count in the period of use. Longer breaks, such as a 1-year sabbatical, do not.

If you own more than one home, you can exclude the gain only on your main home. The IRS uses several factors to determine which home is a principal residence: place of employment, location of family members’ main home, mailing address on bills, correspondence, tax returns, driver’s license, car registration, voter registration, location of banks you use, and location of recreational clubs and religious organizations you belong to.

Tip: The exclusion can be used over and over during your lifetime, every time you reestablish your primary residence. When you do change homes, let us know your new address so we can ensure the IRS has your current address on file.

Note: Only taxable gain on the sale of your home needs to be reported on your taxes. Further, loss on the sale of your main home cannot be deducted. Ask us for details.

Improvements Increase the Cost Basis

Additionally, when selling your home, consider all improvements made to the home over the years. Improvements will increase the cost basis of the home and thereby reduce the capital gain.

Additions and other improvements that have a useful life of more than one year can be added to the cost basis of your home.

Examples of Improvements
Examples of improvements include: building an addition; finishing a basement; putting in a new fence or swimming pool; paving the driveway; landscaping; or installing new wiring, new plumbing, central air, flooring, insulation, or security system.

Example: The Kellys purchased their primary residence in 1999 for $200,000. They paved the unpaved driveway and added a swimming pool, among other things, for $75,000. The adjusted cost basis of the house is $275,000. The house is then sold in 2008 for $550,000. It costs the Kellys $40,000 in commissions, advertising, and legal fees to sell the house.

These selling expenses are subtracted from the sales price to determine the amount realized. The amount realized in this example is $510,000. That amount is then reduced by the adjusted basis (cost plus improvements) to determine the gain. The gain in this case is $235,000. After considering the exclusion, there is no taxable gain on the sale of this primary residence and, therefore, no reporting of the sale on the Kelly’s 2008 personal tax return.

Tip: Home Energy Credit. Homeowners will benefit from extended energy saving credits when making their homes more energy efficient in 2009 and 2010. Projects include energy-efficient windows, doors, heating, and air-conditioning systems. The existing 10% tax credit for energy saving home improvements has been increased to 30% of a cost up to $1,500 and extends through 2010.

Partial Use of the Exclusion Rules

If you do not meet the
Ownership and Use tests, you may be allowed to exclude a portion of the gain realized on the sale of your home if you sold your home because of health reasons, a change in place of employment, or certain unforeseen circumstances. Unforeseen circumstances include, for example, divorce or legal separation, natural or man-made disasters resulting in a casualty to your home, or an involuntary conversion of your home.

Example: If you get divorced after living in your home for approximately 1 1/2 years or 438 days and have a gain of $120,000 on the sale of your home, you can take 60% of the capital gain exclusion, as you lived in the house for 60% of the 2-year exclusion period (438 days divided by 730 days or 60%). Therefore, you would be allowed to deduct $150,000 of the capital gain (60% of $250,000 exclusion). No gain would be reported on this sale.

Recordkeeping

Good recordkeeping is essential for determining the adjusted cost basis of your home. Ordinarily, you must keep records for 3 years after the filing due date. However, keep records proving your home’s cost basis for as long as you own your house.

The records you should keep include:

• Proof of the home’s purchase price and purchase expenses
• Receipts and other records for all improvements, additions, and other items that affect the home’s adjusted cost basis
• Any worksheets or forms you filed to postpone the gain from the sale of a previous home before May 7, 1997

Questions?

Tax considerations can be confusing. If you have any questions on taxes related to the sale of your home, give us a call.

Timing Mistakes That Cost Thousands of Dollars

Sometimes we need to talk here about costly taxpayer mistakes that could have been avoided with professional consultation. Take the recent case of a securities firm owner doing business as an S corporation. An S corporation’s income is directly taxable to its owners, and its losses pass through to owners for deduction on their tax returns. S corporations are like partnerships in this respect, and the problem we’ll describe arises with partnerships, too.

In the recent case, the S corporation had heavy losses during the year. Its owner filed for bankruptcy on December 3, 29 days too soon.

What do we mean “too soon”? When someone files a bankruptcy petition, their assets, with a few exemptions and exclusions, pass immediately to the bankruptcy “estate,” to be used to pay creditors who are, for the most part, unsecured. In this case, the owner’s S corporation stock was such an asset passing to the estate. With it went an asset (the law calls it a “tax attribute”) of great value: the year’s tax-deductible loss.

In the owner’s hands, the loss would have been enough to eliminate current tax and generate a big net operating loss. Such a loss can be carried to other years, eliminating or reducing tax in those years.

But the owner didn’t own the loss. An S corporation’s loss for a year is determined when the year ends. At this year’s end, the S corporation stock was owned by the bankruptcy estate. By filing for bankruptcy before the end of the year, the owner gave the bankruptcy estate the loss.

The estate acquired the right to carry the year’s loss to other years, including back to a prior year when the owner had profits. With this right, the estate could obtain a refund for the taxes the owner had paid in a previous year, even if the owner had made no claim – and didn’t know such a claim existed. Alternatively, the estate can carry the loss to future years to offset income arising during bankruptcy from the owner’s assets now held by the estate.

The owner argued that since he had held the stock 11/12ths of the year, he should be entitled to 11/12ths of the year’s loss. This is not a bad argument, since the law prorates an S corporation stockholder’s share of the corporation’s loss on a daily basis throughout the year. But the tax rules for bankruptcy trump those for prorating the loss. When the estate took ownership of the stock on December 3, it received all the rights attached to that stock, including the right to claim all the loss determined at year-end.

Note: The court acknowledged that the owner had made an honest mistake, so no penalties were imposed. That must have been some relief. Still, the mistake squandered tens of thousands of tax dollars.

Tip: Here are two ways the owner could have salvaged the loss and its tax value:

1. Wait until the new year, say January 2, to file for bankruptcy.
2. Sell the S corporation stock, if possible, before the bankruptcy filing. This way the owner could get his share of the year’s loss (once determined), prorated for the period he owned the stock – here, about 11/12ths of the year’s loss.

Note: The transfer of a debtor’s assets to a bankruptcy estate is tax-free and not a sale.

The same fate will befall a partner who files for bankruptcy during a partnership’s loss year. His or her partnership interest, and that interest’s share of partnership loss, will go to the bankruptcy estate. The estate can carry the loss to other years.

Tip for Partners: As with the S corporation stockholder, waiting until year-end before filing will give the partner his or her share of the partnership’s loss for the year. Rules for determining share of loss are trickier than with S corporations, where a partner sells his or her interest before the bankruptcy filing – too tricky to summarize here.

If you’re at all unclear on how filing a bankruptcy petition could impact your taxes, let us know. We can advise you on the best course of action.

Are Your Social Security Benefits Taxable?

How much, if any, of your Social Security benefits are taxable? It depends on your total income and marital status. Generally, if Social Security benefits were your only income, your benefits are not taxable and you probably do not need to file a federal income tax return.

If you received income from other sources, your benefits will not be taxed unless your modified adjusted gross income is more than the base amount for your filing status. (See below for more on base amounts.)

This quick computation will help you determine whether some of your benefits may be taxable:

• First, add one-half of the total Social Security you received to all your other income, including any tax-exempt interest and other exclusions from income.

• Then, compare this total to the base amount for your filing status.

The 2010 base amounts are:

• $32,000 for married couples filing jointly
• $25,000 for single, head of household, qualifying widow/widower with a dependent child or married individuals filing separately who did not live with their spouses at any time during the year
• $0 for married persons filing separately who lived together during the year

According to the Social Security Administration, less than one-third of all current beneficiaries pay taxes on their benefits.

Call us for additional information on the taxability of Social Security benefits.

Getting the Right Amount of Tax Withheld

In most situations, the tax withheld from your pay will be close to the tax you figure on your return – if you follow these two rules.

• You accurately complete all the Form W-4 worksheets that apply to you.

• You give your employer a new Form W-4 when changes occur.

But because the worksheets and withholding methods do not account for all possible situations, you may not be getting the right amount withheld. This is most likely to happen in the following situations:

• You are married and both you and your spouse work.

• You have more than one job at a time.

• You have nonwage income, such as interest, dividends, alimony, unemployment compensation, or self-employment income.

• You will owe additional amounts with your return, such as self-employment tax.

• Your withholding is based on obsolete Form W-4 information for a substantial part of the year.

• Your earnings are more than $130,000 if you are single or $180,000 if you are married.

• You work only part of the year.

• You change the number of your withholding allowances during the year.

If you need help downloading Form W-4 or have questions on how to fill it out properly, give us a call. We’re happy to help.

Tips on Tips

Do you work at a hair salon, barber shop, casino, golf course, hotel, or restaurant, or do you drive a taxicab? The tip income you receive as an employee from those services is taxable income.

Here are some tips about tips:

• Tips are taxable. Tips are subject to federal income and Social Security and Medicare taxes, and they may be subject to state income tax as well. The value of noncash tips, such as tickets, passes, or other items of value, is also income and subject to federal income tax.

• Include tips on your tax return. In your gross income, you must include all cash tips you receive directly from customers, tips added to credit cards, and your share of any tips you receive under a tip-splitting arrangement with fellow employees.

• Report tips to your employer. If you receive $20 or more in tips in any one month, you should report all your tips to your employer. Your employer is required to withhold federal income, Social Security, and Medicare taxes.

• Keep a running daily log of your tip income. Be sure to keep track of your tip income throughout the year. If you’d like a copy of the IRS form that helps you record it, let us know.

Tips can be tricky. Don’t hesitate to contact us if you have questions.

Generating Professional Reports with QuickBooks

You probably already run reports in QuickBooks – but are you making full use of the program’s reporting tools?

Let’s take a look. Reporting changed a lot between QuickBooks 2009 and 2010 in terms of interface, navigation, and access to reports. We’ll look at version 2010 since the core reporting mechanisms are similar, and wrap up with a brief
summary of the new features in 2010.

Extensive Customization

Open the Reports menu. You can go directly to the Report Center, but since the interfaces are different (and very self-explanatory), we’ll work from the menu.

Drop down to Sales, and in the pop-out menu, click Sales by Customer Detail. You’ll see a window similar to Figure 1.

Figure 1: You may just be changing the date range when you run reports in QuickBooks. If so, you’re missing out on a lot of customization and other features.

Don’t like displaying the date/time/basis for each report? Click Hide Header and then Show Header if you want to bring it back.

Is the text in some of your columns – usually Name, Item, and Memo – being truncated (such as “Gutter clean…” in the example above)? Grab the diamond to the right of the column name and drag it to the right with your mouse. It may take some adjusting to make every column header display properly.

Are you exporting a lot of reports to Excel workbooks but never clicking on the Advanced tab in the dialog box? If your reports always look different in Excel and you don’t like them, it may be because you’re skipping this step. Click the Export button, and the dialog box shown in Figure 2 appears. Click Advanced to see this view.

Figure 2: Before you export a report to an Excel worksheet, click the Advanced tab in the Export Report dialog box. You’ll be able to select options that will preserve or ignore the original QuickBooks formatting.

Sophisticated Modifications

To get to the real meat of your modifications, click the Modify Report button. You’ll be able to tinker with a number of report elements here, including (and shown in Figure 3):

• Display. What dates should the report cover? Which columns should display? (You’ll have plenty to choose from.) Cash or accrual? How do you want to total and sort data? Click Advanced to show all accounts or those in use during the report period, and to display a customer’s current balance or the balance as of the report’s ending date.
• Filters. QuickBooks builds in powerful filtering capabilities, allowing you to corral a subset of data that contains exactly what you want, down to the words included in the Memo field. Take some time here and read the accompanying help files. A box on the right displays the current filters; you can easily remove any of them or revert to the original configuration.
• Header/footer. Easy stuff. How should the report look? QuickBooks gives you a lot of control over that. You’ll simply check or uncheck boxes, and enter information.
• Fonts & Numbers. Easy here, too. You can make choices about the fonts and colors you want your report to contain, and how you want numbers to be displayed.

Figure 3: QuickBooks gives you an enormous amount of control over the format and content of your reports.

Memorization and More

Once you’ve gone through all the trouble of formatting a report, you’ll probably want to save it so you can use it again (the settings are memorized, not the data). QuickBooks makes this easy. With the report open, click Memorize. In the window that opens, type a name for your report (if you want to specify a new one), and check the box next to Save in Memorized Report Group if you want it categorized. To access a memorized report, open the Reports menu and put your mouse on Memorized Reports. From the pop-out menu, select the report you want. You’ll still be able to modify it.

The new Report Center in QuickBooks 2010, shown in Figure 4, makes it easier to locate the desired reports quickly. It features a scrolling 3D representation of sample reports in each financial category (list and grid views are also available); you can click on icons in a toolbar to see your own version of the report, change the dates, learn more about it, and tag it as a favorite. Other links let you toggle the view among standard, memorized, favorite, and recently accessed reports.

Figure 4: This “carousel” view of sample reports in QuickBooks 2010 especially helps beginners find the correct report. Grid and list views are also available, as are other tools for locating the right screen.

When you’re just running reports for your own edification, you may not do more than select a report and change the date range. But there will likely be many occasions when you’re presenting reports to an audience, like bankers or potential customers. QuickBooks’s report tools can help you slice and dice your data in myriad ways and make your financials look polished and professional. The ability to export to Excel opens up even more possibilities.

If you need help with this feature, or you have any questions about QuickBooks, don’t hesitate to give us a call.

Financial Tips for June 2010

Review Your Insurance Policies

You reviewed your “asset” policies in April. This month, review your life, health, and disability insurance policies. Check with your employee benefits office as to what programs are available. Make certain you have adequate coverage. Call us to determine the appropriate amounts for your age and income.

Lower Your Utility Costs

Review your utility costs for the year. Make certain you are getting the best possible deal where multiple providers are available. For example, obtain competitive quotes for long-distance phone service. For other utilities, review your usage to see if any savings are available. Consider the use of annual “budget” plans with the utilities to even out annual payments.

Analyze Budget vs Actuals

Compare May income and expenditures with your budget. Make adjustments as appropriate to your June expenditures. Make sure you have invested your planned savings amount for May.

Tax Due Dates for June 2010

June 10

Employees – who work for tips. If you received $20 or more in tips during May, report them to your employer. You can use Form 4070.

June 15

Indivduals – If you are a U.S. citizen or resident alien living and working (or on military duty) outside the United States and Puerto Rico, file Form 1040 and pay any tax, interest, and penalties due. Otherwise, see April 15. If you want additional time to file your return, file Form 4868 to obtain 4 additional months to file. Then file Form 1040 by October 15. However, if you are a participant in a combat zone, you may be able to further extend the filing deadline. Individuals – Make a payment of your 2010 estimated tax if you are not paying your income tax for the year through withholding (or will not pay enough tax that way). Use Form 1040-ES. This is the second installment date for estimated tax in 2010. Corporations – Deposit the second installment of estimated income tax for 2010. A worksheet, Form 1120-W, is available to help you estimate your tax for the year. Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in May. Employers – Social security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in May.

Copyright © 2010  All materials contained in this document are protected by U.S. and international copyright laws. All other trade names, trademarks, registered trademarks and service marks are the property of their respective owners.

Feature Articles

• Household Employees and Withholding Taxes
• Haven’t Filed an Income Tax Return? What to Do
• Hiring New Employees? New HIRE Tax Benefits
• Small Businesses and Health Care

Tax Tips

• Looking for Status of Refund?
• IRS Impersonation Schemes Flourish

QuickBooks Tips

• The Post-Tax Blues: How to Accelerate Receivables

Financial Tips

• When to Review Your Life Insurance Coverage
• A Slip of the Lip May Bring on a Tax Audit
• Check Your Credit Report
• Review Budget vs. Actuals
• Make Withholding Adjustments

Previous Issues of Our Newsletter

Household Employees and Withholding Taxes

If you employ someone to work for you around your house, it is important to consider the tax implications of this arrangement. While many people disregard the need to pay taxes on household employees, they do so at the risk of stiff tax penalties.

As you will see, these rules are quite complex, even for such a relatively minor employee, and a mistake can bring on tax headaches.

Who Is a Household Employee?

The “nanny tax” rules apply to you only if (1) you pay someone for household work and (2) that worker is your employee.

1. Household work is work done in or around your home by baby sitters, nannies, health aides, private nurses, maids, caretakers, yard workers, and similar domestic workers.

2. A household worker is your employee if you can control not only what work is done, but how it is done. If the worker is your employee, it does not matter whether the work is full-time or part-time, or that you hired the worker through an agency or from a list provided by an agency or association.

   It also does not matter whether you pay the worker on an hourly, daily, or weekly basis, or by the job. On the other hand, if only the worker can control how the work is done, the worker is not your employee, but is self-employed. A self-employed worker usually provides his or her own tools and offers services to the general public in an independent business.

   If an agency provides the worker and controls what work is done and how it is done, the worker is not your employee.

Example: You pay Betty to baby sit your child and do light housework four days a week in your home. Betty follows your specific instructions about household and child care duties. You provide the household equipment and supplies that Betty needs to do her work. Betty is your household employee.

Example: You pay John to care for your lawn. John also offers lawn care services to other homeowners in your neighborhood. He provides his own tools and supplies, and he hires and pays any helpers he needs. Neither John nor his helpers are your household employees.

Can Your Employee Legally Work in the United States?

It is unlawful for you to knowingly hire or continue to employ an alien who cannot legally work in the United States.

When you hire a household employee to work for you on a regular basis, he or she must complete the employee part of the Immigration and Naturalization Service (INS) Form I-9, Employment Eligibility Verification. You must verify that the employee is either a U.S. citizen or an alien who can legally work and then complete the employer part of the form. Keep the completed form for your records.

Tip: Two copies of Form I-9 are contained in the INS Handbook for Employers. Call the INS at 1-800-755-0777 to order the handbook or additional copies of the form or to get more information.

Do You Need to Pay Employment Taxes?

If you have a household employee, you may need to withhold and pay Social Security and Medicare taxes, or you may need to pay federal unemployment tax, or you may need to do both. To find out, read the table below.

If you:	Then you need to:
Pay cash wages of $1,700 or more in 2010 and 2009 to any one household employee. Do not count wages you pay to: Your spouse, Your child under age 21, Your parent, or Any employee under age 18 during 2010.	Withhold and pay Social Security and Medicare taxes. The combined taxes are generally 15.3% of cash wages. Your employee’s share is 7.65%. (You can choose to pay the employee’s share yourself and not withhold it.) Your share is a matching 7.65%.
Pay total cash wages of $1,000 or more in any calendar quarter of 2009 or 2010 to household employees. Do not count wages you pay to: Your spouse, Your child under age 21, or Your parent.	Pay federal unemployment tax. The tax is usually 6.2% of cash wages, less a credit for state unemployment tax. Credit is normally 5.4%, so federal tax is normally .8%. Wages over $7, 000 a year per employee are not taxed.

Note: If neither of the two contingencies applies, you do not need to pay any federal unemployment taxes. But you may still need to pay state unemployment taxes.

You do not need to withhold federal income tax from your household employee’s wages. But if your employee asks you to withhold it, you can choose to do so.

Tip: If your household employee cares for your dependent who is under age 13 or your spouse or dependent who is not capable of self-care, so that you can work, you may be able to take an income tax credit of up to 30% of your expenses. If you can take the credit, you can include your share of the federal and state employment taxes you pay, as well as the employee’s wages, in your qualifying expenses.

State Unemployment Taxes

You should contact your state unemployment tax agency to find out whether you need to pay state unemployment tax for your household employee. You should also find out whether you need to pay or collect other state employment taxes or carry workers’ compensation insurance.

Note: If you do not need to pay Social Security, Medicare, or federal unemployment tax and do not choose to withhold federal income tax, the rest of this publication does not apply to you.

Social Security and Medicare Taxes

Both you and your household employee may owe Social Security and Medicare taxes. The taxes for each of you are 7.65% (6.2% for Social Security tax and 1.45% for Medicare tax) of the employee’s Social Security and Medicare wages.
You are responsible for payment of your employee’s share of the taxes as well as your own. You can either withhold your employee’s share from the employee’s wages or pay it from your own funds. Note the limits on the table above.

Wages Not Counted

Do not count wages you pay to any of the following individuals as Social Security and Medicare wages:

1. Your spouse.

2. Your child who is under age 21.

3. Your parent.

Note: However, you should count wages to your parent if both of the following apply: (a) your child lives with you and is either under age 18 or has a physical or mental condition that requires the personal care of an adult for at least 4 continuous weeks in a calendar quarter, and (b) you are divorced and have not remarried, or you are a widow or widower, or you are married to and living with a person whose physical or mental condition prevents him or her from caring for your child for at least 4 continuous weeks in a calendar quarter.

4. An employee who is under age 18 at any time during the year.

Note: However, you should count these wages to an employee under 18 if providing household services as the employee’s principal occupation. If the employee is a student, providing household services is not considered to be his or her principal occupation.

Also, if your employee’s Social Security and Medicare wages reach $106,800 in 2010 or 2009, do not count any wages you pay that employee during the rest of the year as Social Security wages to figure Social Security tax. (But continue to count the employee’s cash wages as Medicare wages to figure Medicare tax.)
You figure federal income tax withholding on both cash and non-cash wages (based on their value). However, do not count as wages any of the following items:

• Meals provided at your home for your convenience.

• Lodging provided at your home for your convenience and as a condition of employment.

• Up to $230 a month in 2010 for bus or train tokens (passes) that you give your employee or, in some cases, for cash reimbursement you make for the amount your employee pays to commute to your home by public transit.

• Up to $230 a month in 2010 to reimburse your employee for the cost of parking at or near your home or at or near a location from which your employee commutes to your home.

As you can see, the tax considerations for household employees are complex. Therefore, professional tax guidance is highly recommended. Please contact us for further information.

Haven’t Filed an Income Tax Return? What to Do

Filing a past due return may not be as difficult as you think. Taxpayers should file all tax returns that are due, regardless of whether or not full payment can be made with the return. Depending on an individual’s circumstances, a taxpayer filing late may qualify for a payment plan. All payment plans require continued compliance with all filing and payment responsibilities after the plan is approved. It is important, however, to know that full payment of taxes saves you money.

Here’s What to Do

Gather Past Due Return Information

In order for the IRS to assist with preparing a tax return, taxpayers should bring any and all information related to income and deductions for the tax years for which a return is required to be filed.

Prepare and File Forms

You’ll need to get the proper forms and publications. Then sign and date your tax return and send to the correct address.

Getting Free Help

The IRS offers free assistance by computer, telephone, and facsimile, and in person. The IRS can assist taxpayers with obtaining forms, publications, and answers to a wide range of tax questions.

Payment Options – Ways to Make a Payment

There are several different ways to make a payment on your taxes. Payments can be made by credit card, electronic funds transfer, check, money order, cashier’s check, or cash.

Payment Options – For Those Who Can’t Pay in Full

Taxpayers unable to pay all taxes due on the bill are encouraged to pay as much as possible. By paying as much as possible now, the amount of interest and penalties owed will be lessened. Based on the circumstances, a taxpayer could qualify for an extension of time to pay, an Installment Agreement, temporary delay, or Offer in Compromise.

Taxpayers who need more time to pay can find out in just a few minutes whether they qualify for a payment agreement with the IRS. Just click on the Online Payment Agreement link and follow the prompts. By entering some basic information about their tax situation, eligible taxpayers can set up in a matter of minutes either a short-term payment extension or a monthly payment plan.

• A short-term extension gives a taxpayer up to 120 days to pay. No fee is charged, but the late-payment penalty plus interest will apply.
• A monthly payment plan or installment agreement gives a taxpayer more time to pay. Penalties and interest will continue to be charged on the unpaid portion of the debt throughout the duration of the installment agreement/payment plan. It is important to review all options as the interest rate on a loan or credit card may be lower than the combination of penalties and interest imposed by the Internal Revenue Code. It is best that you pay as much as possible before entering into an installment agreement.
• A user fee will also be charged if the installment agreement is approved. The fee, normally $105, is reduced to $52 if taxpayers agree to make their monthly payments electronically through electronic funds withdrawal. The fee is $43 for eligible low-and-moderate-income taxpayers.
• Alternatively, taxpayers can apply for a payment agreement by filling out Form 9465, Installment Agreement Request. This form can be filed along with either an electronically filed return or a paper return. If filing on paper, be sure to attach it to the front of the return.

What Will Happen If You Don’t File Your Past Due Return or Contact the IRS

It’s important to understand the ramifications of not filing a past due return and the steps that the IRS will take. Taxpayers who continue to not file a required return and fail to respond to IRS requests for a return may be considered for a variety of enforcement actions.

Please contact us for further information and support on your late returns.

Hiring New Employees? New HIRE Tax Benefits

Two new tax benefits are now available to employers hiring workers who were previously unemployed or only working part-time. These provisions are part of the Hiring Incentives to Restore Employment (HIRE) Act enacted into law by President Obama on March 18, 2010.

Employers who hire unemployed workers this year (after Feb. 3, 2010 and before Jan. 1, 2011) may qualify for a 6.2-percent payroll tax incentive, in effect exempting them from their share of Social Security taxes on wages paid to these workers after March 18, 2010.

This reduced tax withholding will have no effect on the employee’s future Social Security benefits, and employers would still need to withhold the employee’s 6.2-percent share of Social Security taxes, as well as income taxes. The employer and employee’s shares of Medicare taxes would also still apply to these wages.

In addition, for each worker retained for at least a year, businesses may claim an additional general business tax credit, up to $1,000 per worker, when they file their 2011 income tax returns.

The two tax benefits are especially helpful to employers who are adding positions to their payrolls. New hires filling existing positions also qualify but only if the workers they are replacing left voluntarily or for cause. Family members and other relatives do not qualify.

In addition, the new law requires that the employer get a statement from each eligible new hire certifying that he or she was unemployed during the 60 days before beginning work or, alternatively, worked fewer than a total of 40 hours for someone else during the 60-day period. The IRS is currently developing a form employees can use to make the required statement.

Businesses, agricultural employers, tax-exempt organizations, and public colleges and universities all qualify to claim the payroll tax benefit for eligible newly hired employees. Household employers cannot claim this new tax benefit.

Employers claim the payroll tax benefit on the federal employment tax return they file, usually quarterly, with the IRS. Eligible employers will be able to claim the new tax incentive on their revised employment tax form for the second quarter of 2010.

Revised forms and further details on these two new tax provisions will be posted on IRS.gov during the next few weeks.

Small Businesses and Health Care

Many small businesses and tax-exempt organizations that provide health insurance coverage to their employees now qualify for a special tax credit.

Included in the health care reform legislation – the Patient Protection and Affordable Care Act – which was approved by Congress and signed by President Obama on March 23, the credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.

In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees.

The maximum credit is 35 percent of premiums paid in 2010 by eligible small business employers and 25 percent of premiums paid by eligible employers that are tax-exempt organizations. In 2014, this maximum credit increases to 50 percent of premiums paid by eligible small business employers and 35 percent of premiums paid by eligible employers that are tax-exempt organizations.

The credit is specifically targeted to help small businesses and tax-exempt organizations that primarily employ low- and moderate-income workers. It is generally available to employers that have fewer than 25 full-time equivalent (FTE) employees paying wages averaging less than $50,000 per employee per year. Because the eligibility formula is based in part on the number of FTEs, not the number of employees, many businesses will qualify even if they employ more than 25 individual workers.

The maximum credit goes to smaller employers – those with 10 or fewer FTEs – paying annual average wages of $25,000 or less.

Eligible small businesses can claim the credit as part of the general business credit starting with the 2010 income tax return they file in 2011. For tax-exempt employers, the IRS will provide further information on how to claim the credit.

The IRS will use postcards to reach out to millions of small businesses that may qualify for the credit. The postcards will encourage small business owners to take advantage of the credit if they qualify.

For more information about the credit, please call us or visit the IRS Web site, IRS.gov.

Looking for Status of Refund?

You can go online to check the status of your 2009 refund 72 hours after the IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after you mail a paper return. Be sure to have a copy of your 2009 tax return available because you will need to know your filing status, the first Social Security number shown on the return, and the exact whole-dollar amount of the refund. You have three options for checking on your refund:

• Go to IRS.gov, and click on “Where’s My Refund”

• Call 1-800-829-4477 24 hours a day, seven days a week for automated refund information

• Call 1-800-829-1954 during the hours shown in your tax form instructions

IRS Impersonation Schemes Flourish

The IRS does not send taxpayers unsolicited e-mails about their tax accounts, tax situations, or personal tax issues. If you receive such an e-mail, most likely it’s a scam.

IRS impersonation schemes flourish during filing season. These schemes may take place via phone, fax, Internet sites, social networking sites, and particularly e-mail.

Many impersonations are identity theft scams that try to trick victims into revealing personal and financial information that can be used to access their financial accounts. Some e-mail scams contain attachments or links that, when clicked, download malicious code (a virus) that infects your computer or directs you to a bogus form or site posing as an IRS form or Web site.

Some impersonations may be commercial Internet sites that consumers unknowingly visit, thinking they’re accessing the genuine IRS Web site, IRS.gov. However, such sites have no connection to the IRS.

The Post-Tax Blues: How to Accelerate Receivables

Well, the taxes are paid (hopefully) for the 2009 tax year, and you’re almost a third of the way into 2010. How’s your cash flow doing this year?

If tax payments caught you short, you may be scrambling to build a cash reserve that protects your bottom line. There are many ways to do that, some less desirable – and possible – than others. Raise your prices. Apply for a loan. Freeze employee raises and minimize benefits (or, in the extreme, lay off a worker). Put off investments in new technology.

But there’s another option: Accelerate your receivables. It’s likely that in this economy at least some of your customers are slow to pay off invoices. Here are some suggestions to help improve your bottom line starting today.

Evaluate your Current Invoicing Methods

Are you sending invoices immediately, while the purchase is still fresh in the customer’s mind? Old invoices feel stale, and your timeliness in dispatching them says something to the customer about your need for the funds and your business efficiency.

Enter a strong message on your invoices, creating a new one if the boilerplate examples provided aren’t emphatic enough. To change the message, open an invoice by going to the Customer Center and clicking New Transactions | Invoices.

The Customer Message box is in the lower left. Click on the arrow there, and then Add New, and the window shown in Figure 1 opens.

Figure 1: To help encourage your customers to pay promptly, customize the Customer Message on your invoices.

Enter your new message and click OK. It will now be available as an option whenever you send an invoice.

Consider Finance Charges

In your message(s), remind your customers of any applicable finance charges. If you haven’t yet incorporated finance charges because you think you’re too small or you think it’s too hard, reconsider that stance. To explore this feature, click Edit | Preferences | Finance Charge | Company Preferences, as shown in Figure 2.

Figure 2: If you have customers who are chronically late paying invoices, you may want to consider applying finance charges to tardy payments. Consult your accountant for help on this.

As you can see, you have several decisions to make that are best made with the help of your accountant.

When it comes time to bill finance charges, click Customers | Assess Finance Charges. The window in Figure 3 opens, displaying customers in arrears and the extra amount they owe.

Figure 3: You can select and unselect customers who should be assessed finance charges by clicking the check marks next to their names.

The income you receive from finance charges may not be significant, but their psychological impact on customers may bring in invoices closer to the due date. Customers like knowing they’re saving some money, and no one wants to be a deadbeat.

Make It Easier for Customers to Pay You

This is a no-brainer. The simpler it is for customers to pay and for you to receive payments, the faster you’re likely to turn around receivables.

If you don’t yet have a merchant account, which lets you receive credit and debit card payments, you should. Intuit can help. QuickBooks already contains all the tools you need for the Intuit Merchant Service ($59.95 one-time setup fee; $19.95/monthly plus some minor additional fees).

Using the service, you can accept payments online or by phone, fax, or email. It also accommodates recurring charges, as shown in Figure 4.

Figure 4: Intuit Merchant Service integrates seamlessly into your QuickBooks operations. It lets you receive payments by phone, fax, or email (fees apply).

Tip: If you deal with a lot of checks, consider Intuit Check Solution for QuickBooks, which lets you scan checks and deposit them without a trip to the bank. Subscription and scanner required.

Ask the Expert

There are other small steps you can take to accelerate the speed of your receivables. These include:

• Use QuickBooks’ built-in tools to create engaging invoices and other forms. Professional-looking documents contribute to your customers’ overall impression of you, and may prompt them to act quicker. Open a form and click the arrow next to Customize.

• Stay on top of outstanding receivables. Check reports frequently and/or make use of QuickBooks’ Company Snapshot, which displays the most critical company financial information on one page, including Customers Who Owe Money (not available in Simple Start).

• Track receivables in multiple currencies (not available in Simple Start).

• Use discounts as an incentive for early payments. Use QuickBooks’ help files to learn about this easy process.

Finally, remember that we run a business, too, and must battle our own receivables. If slow receivables have really become a problem, give us a call to see how we can help.

Financial Tips for May 2010

When to Review Your Life Insurance Coverage

It makes good financial sense to periodically examine your life insurance coverage to make sure the coverage is still sufficient. After all, life insurance is often a family’s most important financial and estate planning tool.

With today’s frequent changes in financial circumstances and goals, it’s a good idea to re-examine your life insurance coverage on the occurrence of any of the following:

• Marriage or divorce;
• Birth or adoption, or acquiring a financial dependent such as a parent;
• Children leaving for college;
• Children “leaving the nest”;
• Purchase or sale of a home;
• Serious illness;
• Substantial growth or depletion of assets;
• Retirement; and
• Start-up of a business.

Tip: In addition to the amount of coverage, you may need to make a change relating to beneficiaries, policy ownership, or type of coverage. You may need to consult with a professional.

A Slip of the Lip May Bring on a Tax Audit

Many taxpayers have learned, to their dismay, that it generally isn’t wise to talk carelessly about their taxes – especially about sensitive areas. Why? Because the wrong person overheard their careless talk and “turned informer,” either for revenge or in the hope of an “informer’s reward.”

An informer’s “tip” to the IRS will often trigger a tax audit. Even though the taxpayer has done nothing improper, he or she may have to suffer through the audit. Not only is this time-consuming, but it can also result in additional taxes due to the discovery of an innocent error on the return or the disallowance of a marginal deduction.

Tip: Most informers are disgruntled employees and former spouses or lovers.

Check Your Credit Report

Order a copy of your credit report from one of the major credit reporting agencies. Read the report carefully and report any discrepancies to the appropriate agencies. This not only ensures that the records are accurate, but also helps prevent others from obtaining credit in your name.

Review Budget vs. Actuals

Compare April income and expenditures with your budget. Make adjustments as appropriate to your May expenditures. Make sure you have invested your planned savings amount for April.

Make Withholding Adjustments

Based on the results of your prior year’s tax return, make any necessary adjustments to your tax withholding by completing Form W-4 and giving it to your employer.

Tax Due Dates for May 2010

May 10	Employers – Social Security, Medicare, and withheld income tax. File Form 941 for the first quarter of 2010. This due date applies only if you deposited the tax for the quarter in full and on time. Employees – who work for tips. If you received $20 or more in tips during April, report them to your employer. You can use Form 4070.
May 17	Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in April. Employers – Social security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in April.

Copyright © 2010  All materials contained in this document are protected by U.S. and international copyright laws. All other trade names, trademarks, registered trademarks and service marks are the property of their respective owners.