Delayed IRS Forms Causing Speed Bumps to Filing Your 2012 Tax Return

While we thought we had escaped the turns, twists and bumpy ride of not going over the Fiscal Cliff made possible by last minute tax legislation, another issue has surfaced creating some real speed bumps to filing your 2012 tax return.  If you are one of those people who file your return as soon as you get your W-2 in January and you have your refund by the end of the January, you already know what I am talking about.   The IRS just started accepting returns on January 30^th so the first refunds were not sent until last week.  And that is only if you are one of the lucky ones who can even file yet.

Many people are unable to file due to a delay of availability of key forms that require more programming and testing per the IRS.    For instance, the popular form for parents with children in college—the form 8863 used to claim the two higher education credits is not yet released.   The IRS says it should be available for filing by mid-February.   It is usual that 3 million tax returns are filed by mid-February that include the form 8863.  While this may sound like a lot, it is only a quarter of all the returns that are usually filed by mid-February.   However, if you are one of the parents or students who has to wait, it is probably of little consolation to know that you are one of 3 million who cannot get your refund yet!

Another key form that is still processing and is not expected to be ready until late February or the first of March is the form 4562 used to claim depreciation and amortization deductions.   This form is used by nearly ALL of our business clients delaying them from filing at this time.   Additional forms that are delayed include Form 5695 for residential energy credits and Form 3800 used to claim general business credits.

Now it is possible to file a paper return instead of efiling, if the forms are not considered in “draft” form.  However the paper form will, most likely, just go to the IRS and be stockpiled by them until the form is released.   And then you will have to wait for the IRS to key the return into their system.    All of that will probably take more time than if you just waited and efiled your return when the form was “officially” released.
Also affected by the delayed forms are farmers and fishermen who have a special provision that allows them to not make quarterly estimates without penalty if they file by March 1^st.   Without all of the forms being available, the IRS has extended their due date from March 1^st to April 15^th.     If this applies to you, you must file a form 2210F with your return to be eligible for this extension and waiver of penalty.

If you have questions about what other forms are yet to be released, there is a full list at IRS.gov., or you can contact your tax advisor.  While no one ever promised it would be a smooth ride, anticipating and having knowledge of the delayed forms may make those speed bumps, well … a little less bumpy.

Kathi Koenig, CPA
Partner - McGowen, Hurst, Clark & Smith, P.C.

Tips for Charitable Deductions

Fall is a season when many people are cleaning out garages, basements and closets. If you are not having a garage sale and some items look too good for the dump or if you do have a garage sale, but have some items left over, consider donating them to charity. You can get a tax deduction for whatever the item is worth.

When you contribute non-cash items to charity, be sure to retain your receipts. Also keep a list of items donated and an estimate of their value. Some of the charities, such as Salvation Army, have a listing of clothing items with a range of suggested values you can use to determine the worth of your donated goods.  There are also computer programs available online for little or no cost that will help you value your contributions. The IRS has become stricter on charitable donations including non-cash contributions. Therefore, including more detail or better yet- taking photos of the items contributed is a good idea especially if it is a substantial amount.

If you are considering a large cash contribution, a better option may be a gift of appreciated stock to a charity. You will be able to deduct the fair market value of the securities, without having to recognize the increase in value as a gain on your tax return. If you take the cash you intended to contribute and move those funds to your investment account, you’ll be left with more money in your pocket at the end of the day.

Kathi Koenig, CPA
Partner - McGowen, Hurst, Clark & Smith, P.C.

Solving The Equation – Should Kids Help Pay College Tuition?

College expenses continue to rise, and paying for these expenses presents challenges for most families. For those of us who have been down that road, we know the cost of a college education can be staggering.

Because of these high costs, parents have debated for many years whether children should help pay for their college education. While there may not be a clear right or wrong answer to this question, both options have points to consider.

Kids Helping Pay
The old adage of having “skin in the game” applies here. The general thought is that children who are helping to pay for college will be more aware of the costs involved and more likely to take education seriously. They might be more careful about their chosen major and the classes they take, rather than dabbling in various topics of interest without choosing a clear path.

Helping pay for their tuition can also give students a great feeling of responsibility and maturity. After all, they are on the path to independence. In fact, this point is seen as such a positive that many college graduates include the percentage of college expenses they paid on their resume. It’s a way for them to show potential employers that they are adults and are ready for the challenges of the real world because they have experienced the real world of paying for college.

Another point to consider is whether the parents have the means to fund the college education. Many parents, even those who have diligently saved, have seen their incomes cut and their investments deteriorate. Unfortunately, they may no longer be able to pay for the entire experience. If their child wants a college degree, there may be no other choice but for the student to participate financially.

Many financial advisors advocate that parents be sure to prepare for their retirement first before they use all their excess funds to pay for college – better for the students to have school loans than have to take care of their parents financially after retirement.

Parents Footing the Bill
Many people say parents should pay the entire bill for college so that students can focus on studies and do their best with their academic endeavors. Carrying a full load of college classes is, in some ways, a full-time job in itself. For every hour of classroom time, students may need to spend one to two hours outside of class. So a 15-hour class schedule could easily translate into 40 hours of class and study time.

Others believe that a student’s stress level is greatly increased when they have to worry about their finances in addition to classes. They may also miss out on college activities, which some say is a major part of the college experience.

Another consideration is the parent’s income and asset levels. Many financial aid applications require this information. Students may not be able to receive substantial aid because the parents are deemed to be in a position to contribute a large percentage of the costs.

Finally, students who pay for their own college experience will likely enter adulthood with a large amount of debt. They will have to pay back thousands of dollars over 15 to 20 years, possibly delaying their ability to purchase or rent a home. This may result in their moving back in with their parents after college so that they have the funds necessary to repay their school loans.

Rising Cost of Tuition
At our firm, we have many young couples beginning their families.  My advice to them is to start saving for college early and often, possibly by starting 529 plans such as College Savings Iowa.  According to the US Department of Education, since 1978 the cost of attending a public or private college has tripled, with tuition increases rising at an average of double the general inflation rate.  So, who should pay for what? Well, whether the parents pay the entire bill or have the kids pay a portion of the tuition will, most likely, remain an unsolved equation due to many variables.  However, the important part is to start discussions early with your student, so everyone knows the plan and expectations. Let the savings begin!


Kathi Koenig, CPA
Partner - McGowen, Hurst, Clark & Smith, P.C.

Five Tips for Healthy Business Growth

Believe it or not - how you grow your business can sometimes be just as important as whether your business grows.

Business growth carries with it a certain amount of risk.  To avoid potential pitfalls, consider the following tips for successful growth.

1. Find your key focus.  It is important to select and stick to a key focus, particularly in times of an uncertain or slow economy.  Do what your company is good at.  Produce the products that can be delivered consistently and successfully.  It’s harder to add new services or venture too far outside your scope during a recession.
   
2. Don’t become overconfident.  Like a favored team that lets down its guard and loses to an underdog, an attitude of overconfidence can bring about business loss.  Owners who have had success in the past must guard against gaining a sense of omnipotence.  Overconfidence is unrealistic and can spell disaster.
   
3. Don’t define your business by your products or services.  Virtually any product or service can become obsolete over time.  Don’t define your business  by your product, but rather from your customer’s needs that you are able to satisfy.
   
4. Make your marketing message consistent.  If you want to grow your company, marketing is essential.  How you market is important.  A key way to grow your business is to have a consistent marketing message.  In today’s complex world, marketing messages have to be very simple, direct and constant.
   
5. Practice what you promise.  Customers will be the most intolerant of mistakes when money and time are tight.  For example, if your marketing campaign promises a certain turnaround time, you need to live up to that promise.  Otherwise, you risk reducing your customers’ satisfaction or possibly losing customers altogether.   

Practicing these few steps and being proactive can help you achieve a healthy business growth.


Kathi Koenig, CPA
Partner - McGowen, Hurst, Clark & Smith, P.C.

Some Relatives Are Easier To Deal With Than Others

If you are like most people, one of the last things that is probably on your mind during the month of June is taxes. After all, tax season ended two months ago, and well, we don’t have to deal with that “less than favorite” relative, Uncle Sam until next year – right?  Well not so fast.  With the Bush-Era Tax Rates scheduled to expire December 31, 2012, a little tax planning for you and your business now, could save you money and be well worth the effort later.  Following are changes that will occur should the current tax rates expire, along with a few tips to help you minimize your tax liability.

Changes as the Bush-Era Tax Cuts Expire:

• Tax Rates: Tax rates for individuals will remain at 10%, 15%, 25%, 28%, 33% and 35% for the duration of 2012, but will revert back to 15%, 28%, 31%, 36% and 39.6% in 2013.
• Capital Gains Maximum Tax Rate: This tax rate is currently at 15%.  However, similar to marginal tax rates, the capital gains rate will increase to 20% in 2013.
• Qualified Dividend Income: Dividend Income is taxed at the same rates as capital gains (maximum rate of 15%). However after December 31, 2012, dividends could be taxed at a rate as high as 39.6%.
• Itemized Deductions: Throughout 2012, itemized deductions will remain the same.  However in 2013, a phase-out of total itemized deductions is scheduled to be implemented.  If this had been in effect for 2012, it would have been applicable to taxpayers with an adjusted gross income greater than $173,650.  (This amount adjusts for inflation.)

Tax Planning Tips

• Get Organized: You need to keep close track of your deductible expenses through the year.  If a pile is starting to accumulate, take the time to sort through your receipts and file accordingly.  A little organization now, will save you hours at tax time, and allow you to accurately estimate your expenses for a tax projection and planning.
• Manage Your Adjusted Gross Income: Many tax breaks are based on your adjusted gross income (AGI). Several breaks are available to you dependent on your AGI, such as the child tax credit, rental real estate loss allowance, education credits and deductions, and other tax breaks.
• Set Up and Contribute to a Retirement Plan: If you own a business, you can save for retirement through a tax-advantaged plan.  For instance, you may establish a Savings Incentive Match Plan for Employees (SIMPLE) or a Simplified Employee Pension (SEP) with relative ease.  This will allow you to plan for your future and reduce your tax liability.
• Hire Your Child: If you are self-employed, you can hire your child which shifts income from your tax bracket to their tax bracket.  You will also have payroll tax savings if your child is under the age of 18 and the child will be eligible to contribute to an IRA.
• S-corporation Losses: An S-corporation’s losses are deductible by the corporation’s shareholders up to the amount of the shareholder’s basis in his or her corporate stock.  If it looks like your S-corporation will show a loss for the year, make sure that you have sufficient basis in your S-corporation stock to take advantage of the loss deduction.
• Capital Gains: As stated above, the anticipated capital gains tax rate is set to be at least 20% in 2013, so if you are considering selling highly appreciated stock it might be wise to do it before year-end at a lower tax rate of 15%.

These are just a few items to assess during a mid-year business review.  There are more.  But taking the time to meet with your CPA and discuss the items listed above will ensure you have a good understanding of your company’s financial situation and the information needed to minimize your tax liability….and make your interactions with Uncle Sam go “relatively” well.

Kathi Koenig, CPA
Partner - McGowen, Hurst, Clark & Smith, P.C.

Identity Theft Is On The Rise For Women

According to a study of more than 800 households by Affinity Security Center, 28% of women interviewed said they had been the victim of some level of identity theft fraud compared to 21% of men.

Why is it that women fall victim to identity theft more often than men?  Is it because we are more trusting by nature or perhaps more careless with our personal information?  Not necessarily either. 

While many factors contribute to the disparity between men and women, according to the study, one of the biggest factors is on-line shopping.  Surprisingly, this digital commerce (purchasing on-line) with built-in technology safeguards, actually makes identity theft more difficult to pursue.  Because men engage in more on-line shopping over real world retail, they are actually less prone to identity theft and fraud.

Women, on the other hand, tend to have more in-person transactions with restaurants, salon, grocery and store purchases.  The report found that most fraud attacks against women occur through in-person purchases, where there is less consumer-control.   The report also showed that women are less likely to discover and report the fraud in a timely manner, which unfortunately results in taking longer to restore their identity.

In a separate study by the Identify Theft Assistance Center, about one fourth of all cases of identity theft are committed by a friend, family member, acquaintance or in-house employee.  Lost or stolen wallets, checkbooks or credit cards account for about 15 percent of fraud, with mail/trash fraud trailing close behind at 11 percent.

For more information on what to do should you become a victim or to help prevent you from becoming a victim, you can visit the Federal Trade Commission site at www.ftd.gov.   No one is immune - which isn't to say, that we're powerless.  There's a lot we can do to deter, detect, and defend ourselves against identify theft. 




Kathi Koenig, CPA
Partner - McGowen, Hurst, Clark & Smith, P.C.

What's Your Dream?

Have you ever dreamed about owning a business? Many people have. Maybe you have dreamed about starting a catering business or owning a quilt shop or a coaching/ consultant business. According to the Small Business Administration, there are more than 27 million small businesses in the US. It is no wonder small businesses are often thought of as the backbone of America and why many financial analysts say they are the vehicle which is driving us out of an economic downturn.

Well before you hang your shingle above the door of your new shop….here are six tips that will help you get started on the right foot.

1. Create a business plan. While it may seem daunting at first, a business plan will help you gain a better understanding of your industry structure, competitive landscape, capital requirements and more.
2. Decide what business entity is right for you. The most common types of business are the sole proprietorship, partnership, LLC, corporation and S corporation. Each of these entities has different tax requirements, so determining the right entity for you is of key importance.
3. Obtain an Employer Identification Number (EIN) which is used to identify a business entity. Most businesses need an EIN, although some do not.  Visit www.IRS.gov for more information. If needed, you can apply for an EIN online. Also be sure to register with the state you are doing business in.
4. Determine what taxes you must pay and how you will pay them. The four general types of business taxes are income tax, self-employment tax, employment tax and sales tax.
5. Keep good records. This will help ensure a successful operation of your new business.  You may choose any record-keeping system suited to your business that clearly shows your income and expenses. Except in a few cases, the law does not require any special kind of records. However, the business you are in affects the type of records you need for federal tax purposes.
6. Adopt a consistent accounting method. Each taxpayer should use a consistent accounting method which is a set of rules for determining when to report income and expenses. The most commonly used accounting methods are the cash method and accrual method.

Owning your business can bring you countless rewards and help you live your dream. For more information on how to get your business started, it is best to consult with your CPA. She will be able to help you avoid many of the mistakes first time business owners make, and help you achieve success with your new business.


Kathi Koenig, CPA
Partner - McGowen, Hurst, Clark & Smith, P.C.