Estimated Tax Payments – Q&A

April 9th, 2013

Question: How do I know if I have to file quarterly individual estimated tax payments?

Answer: If you owed additional tax for the prior tax year, you may have to make estimated tax payments for the current tax year.

If you are filing as a sole proprietor, partner, S corporation shareholder, and/or a self-employed individual, you generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return.

If you are filing as a corporation you generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return.

If you had a tax liability for the prior year, you may have to pay estimated tax for the current year; however, if you receive salaries and wages, you can avoid having to pay estimated tax by asking your employer to withhold more tax from your earnings.

There are special rules for farmers, fishermen, certain household employers, and certain higher taxpayers.

Contact us if you are unsure whether you need to make an estimated tax payment. The first estimated payment for 2012 is due April 15, 2013.

 

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Late-Penalty Relief for Extended Filers

April 9th, 2013

Due to delays at the start of the tax season, the IRS is providing late-payment penalty relief to individuals and businesses requesting a tax-filing extension because they are attaching forms to their returns that couldn't be filed until after January.

The relief applies to the late-payment penalty, normally 0.5 percent per month, charged on tax payments made after the regular filing deadline. This relief applies to any of the forms delayed until February or March, primarily due to the January enactment of the American Taxpayer Relief Act.

Taxpayers using forms claiming such tax benefits as depreciation deductions and a variety of business credits, including the Work Opportunity Credit qualify for this relief, as well as the following:

  • Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits)
  • Form 8908, Energy Efficient Home Credit
  • Form 8839, Qualified Adoption Expenses
  • Form 5695, Residential Energy Credits

Please call us for a complete list of delayed forms.

Individuals and businesses qualify for this relief if they properly request an extension to file their 2012 returns. Eligible taxpayers need not make any special notation on their extension request, but as usual, they must properly estimate their expected tax liability and pay the estimated amount by the original due date of the return.

The return must be filed and payment for any additional amount due must be made by the extended due date. Interest still applies to any tax payment made after the original deadline.

Give us a call if you're planning on filing a tax extension this year. We'll make sure you get the late-penalty relief you are entitled to.

 

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Claiming the Small Business Health Care Tax Credit

April 2nd, 2013

If you're a small business owner with fewer than 25 full-time equivalent employees you may be eligible for the small business health care credit.

What is the Small Business Health Care Credit?

The small business health care tax credit, part of the Patient Protection and Affordable Care Act enacted in 2010, is specifically targeted to help small businesses and tax-exempt organizations provide health insurance for their employees. Small employers that pay at least half of the premiums for employee health insurance coverage under a qualifying arrangement may be eligible for this credit. Household employers not engaged in a trade or business also qualify.

How Does the Credit Save Me Money?

For tax years 2010 through 2013, the maximum credit is 35 percent for small business employers and 25 percent for small tax-exempt employers such as charities. An enhanced version of the credit will be effective beginning Jan. 1, 2014 and the rate will increase to 50 percent and 35 percent, respectively.

 

Note: The sequester, which took effect on March 1, 2013 includes a reduction to the refundable portion of the Small Business Health Care Tax Credit for certain small tax-exempt employers. As such, the refundable portion of the claim will be reduced by 8.7 percent. Without congressional intervention, this rate remains in effect until the end of fiscal year 2013 (September 30).

The amount of the credit you receive works on a sliding scale, so the smaller the business or charity, the bigger the credit. Simply put, if you have more than 10 FTEs or if the average wage is more than $25,000, the amount of the credit you receive will be less.

If you pay $50,000 a year toward workers' health care premiums–and you qualify for a 15 percent credit–you'll save $7,500. If you save $7,500 a year from tax year 2010 through 2013, that's a total savings of $30,000. And, if in 2014 you qualify for a slightly larger credit, say 20 percent, your savings go from $7,500 a year to $12,000 a year.

Is My Business Eligible for the Credit?

To be eligible for the credit, you must cover at least 50 percent of the cost of single (not family) health care coverage for each of your employees. You must also have fewer than 25 full-time equivalent employees (FTEs) and those employees must have average wages of less than $50,000 a year.

Let's take a closer look at what this means. A full-time equivalent employee is defined as either one full-time employee or two half-time employees. In other words, two half-time workers count as one full-timer or one full-time equivalent. Here is another example: 20 half-time employees are equivalent to 10 full-time workers. That makes the number of FTEs 10 not 20.

Now let's talk about average wages. Say you pay total wages of $200,000 and have 10 FTEs. To figure average wages you divide $200,000 by 10–the number of FTEs–and the result is your average wage. In this example, the average wage would be $20,000.

Can Tax-Exempt Employers Claim the Credit?

Yes. The credit is refundable for small tax-exempt employers too, so even if you have no taxable income, you may be eligible to receive the credit as a refund as long as it does not exceed your income tax withholding and Medicare tax liability.

Can I Still Claim the Credit Even If I Don't Owe Any Tax This Year?

If you are a small business employer who did not owe tax during the year, you can carry the credit back or forward to other tax years. Also, since the amount of the health insurance premium payments are more than the total credit, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit. That's both a credit and a deduction for employee premium payments.

Can I File an Amended Return and Claim the Credit for Previous Tax Years?

If you can benefit from the credit this year but forgot to claim it on your tax return there's still time to file an amended return.

Businesses that have already filed and later find that they qualified in 2010 or 2011 can still claim the credit by filing an amended return for one or both years.

Give us a call if you have any questions about the small business health care credit. And, if you need more time to determine eligibility this year we'll help you file an automatic tax-filing extension.

 

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Client Spotlight: HealthWorks – WNY

March 22nd, 2013

 

 

 

West Seneca Location

Wellness & Compliance for Businesses

The combination of family medicine insight with occupational health requirements launched HealthWorks – WNY in January 2002. Mark Costanza, MD and Stuart Dorfman, MD had been employees of the Catholic Health system working as Medical Review Officers.  When the opportunity to purchase HealthWorks from CHS came available, they used the depth of their combined experience in occupational medicine to become owner physicians. The family practice background of both doctors provides the foundation for building relationships with businesses, schools, municipalities and their ancillary divisions such as highway, fire and engineering.  Drs. Costanza and Dorfman work at all three HealthWorks – WNY locations and make themselves available to clients on a 24/7 basis. Such access and the ability to call or email a doctor directly sets HealthWorks – WNY apart from other occupational health providers.

Michelle Jurczak, Dr. Mark Costanza, Jill Jolley

HealthWorks – WNY specializes only  in occupational medicine, including: Medical Review Officer services, employment physicals, drug and alcohol tests, audiology,  EKG’s, respirator exams, workplace injury care, pulmonary function testing, student and sports physicals, wellness programs and cost containment strategies  for their client companies. They also provide access to orthopedic and rehab physicians and their medical specialty services right at their clinics.

Making sure employees are physically able to perform their jobs not only assures safety for the workplace, but also helps a company protect their bottom line. Drug and alcohol abuse can be a destructive element in any company. Drs. Costanza and Dorfman are certified Medical Review Officers who are a recognized resource for answering questions and concerns related to drugs and alcohol use in the workplace. Together with the HealthWorks – WNY staff, they provide clients with an accurate, reliable and fair drug-testing process.

Recognizing employers’ concern about disruption in the workplace for health-related appointments and resulting time away from the office led HealthWorks – WNY to create a mobile services division. Clients may request HealthWorks – WNY custom-designed vehicle to come onsite for various shifts and times to perform a wide variety of medical services. Companies in Buffalo, Western New York and adjacent areas enjoy the convenience of keeping workers onsite, which adds to productivity.

Amanda Liebig, Laurie DiPirro,
Ann Marie Rappold, Jamie Wegner

The mobile services division is an example of HealthWorks – WNY commitment to quality customer-oriented service and medical care. Customer service representatives form relationships with employers, offering flexibility and accessibility to meet the client’s needs. The medical staff provides first-rate medical care and expertise. For instance, they work with companies to achieve insurance incentives for having a zero tolerance policy regarding drug and alcohol use in the workplace.

HealthWorks – WNY is able to show employers how spending money on occupational health services can save them money in the long run. Cost savings occur when employers ensure that a candidate is physically fit for a particular job,or ensure that an employee is physically fit to return to work following an injury;  or suggesting lite duty tasks after an injury. With skyrocketing health insurance premiums, HealthWorks – WNY is a proactive resource that helps companies hire and keep the most capable and healthy employees.

HeathWorks – WNY three physical locations are Northtowns (2075 Sheridan Drive), Southtowns (1900 Ridge Road), and a central office (6199 Transit Road). The mobile services division brings quality care to Western New York as well as Batavia, Rochester, and Jamestown.

 

For more information, visit www.healthworkswny.com

 

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Avoiding Estate Taxes on Your Life Insurance

March 18th, 2013

How do you make sure the life insurance benefits your family will receive after your death avoid the federal estate tax?

Under the state tax rules, insurance on your life will be included in your taxable estate if either:

  1. Your estate is the beneficiary of the insurance proceeds, or
  2. You possessed a certain economic ownership rights (Incidents of ownership”) in the policy at your death (or within three years of your death).

Avoiding the first situation is easy:  just make sure your estate is not designated as beneficiary of the policy.

The second rule is more complex.  Clearly, if you are the owner of the policy, the proceeds are included in your estate regardless of who the beneficiary is.  However, simply having someone else possess legal title to the policy will not prevent this result if you keep so-called “incidents of ownership” in the policy.  Rights that, if held by you, will cause the proceeds to be taxed in your estate include:

  • the right to change beneficiaries,
  • the right to assign the policy (or revoke an assignment),
  • the right to pledge the policy as security for a loan,
  • the right to borrow against the policy’s cash surrender value, and
  • the right to surrender or cancel the policy.

Keep in mind that merely having any of the above powers will cause the proceeds to be taxed in your estate even if you never excise the power.

Life insurance trusts.  A life insurance trust is an effective vehicle that can be set up to keep life insurance proceeds from being taxed in the insured’s estate.  Typically, the policy is transferred to the trust along with assets that can be used to pay future premiums.  Alternatively, the trust buys the insurance itself with funds gifted by the insured.  As long as the trust agreement gives the insured none of the ownership rights described above, the proceeds will not be included in his or her estate.

The three-year rule.  If you are considering setting up a life insurance trust with a policy you own currently or simply assigning away your ownership rights in such a policy, please be aware that unless you live for at least three years after these steps are taken, the proceeds will be taxed in your estate.  For policies in which you never held incidents of ownership, the three-year rule doesn’t apply.

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Use QuckBooks’ Tools to Prevent Financial Fraud

March 18th, 2013

Chris Blach, QuickBooks ProAdvisor

Whether your accounting tasks are done on a single PC or you have multiple users working on different screens, it's critical that you make use of all that QuickBooks offers in terms of internal controls.

First Stop: Audit Trail

An audit trail is a very large report that displays every addition, deletion and modification of every transaction. In older versions of QuickBooks you could turn it on and off, but it's permanently on now.

Because of its size, you'll probably have to use QuickBooks' filtering tools to zero in on the user and/or date(s) you're looking for. Go to Reports | Accountant & Taxes | Audit Trail. Click Customize Report | Filters to set up your search.

Your audit trail won't alert you when someone tries to enter a prohibited area, and it won't detect changes to lists. Setting up permissions will help (Company | Set Up Users and Passwords | Set Up Users), but you need more than that.


Figure 1: Be especially careful when granting user access to areas that contain customer, vendor and employee information.
 

Run the Right Reports

Other QuickBooks features help prevent fraud as well. Review these reports regularly:

  • Closing Date Exception. Why were those changes necessary?
  • Voided/Deleted Transactions. Is there supporting documentation? Should you be reviewing these daily?
  • Expenses by Vendor Detail. Look for irregularities, especially multiple payments made to a vendor in a short period of time.
  • Check registers. Use the Balance Sheet for this. Go to Reports | Company & Financial | Balance Sheet Standard and customize the report for the correct period and, if necessary, for specific customers, vendors and/or jobs.

Adhere to Best Practices

You undoubtedly implement financial best practices in your personal life. You reconcile your accounts. You don't give your online banking password to anyone. And you glance through your recently-posted transactions on your financial institutions' websites.

If your company is large enough that you have multiple accounting employees, you probably can't be as hands-on as you are at home. But you can still set up internal control procedures.


Figure 2: Debit? Credit? Reverse the transaction? No one should be making General Journal entries but you. It's easy to err here; talk to us before using this feature.
 

For example, if your company has grown to the point where you're removed from the daily workflow, you may still want to have approval rights for some procedures, like bank balance adjustments, refunds and credits, printed checks (you should still be signing them), timesheets and expense reports.

It goes without saying that you should password-protect your QuickBooks company file and change the password regularly, even–and especially–if you are the entire accounting department. It's important to protect yourself from external fraud too. We can do a review of your security procedures and make suggestions.

Reinforce the Rules


Figure 3: Anyone in your company who has access to accounting data should have a background check.
 

Know who your employees are (consider running background checks) and, if you can, rotate the duties assigned to accounting staff. If you have only one person managing all of your bookkeeping work, conduct an even more thorough background search: credit, references, and criminal activity.

Finally, make sure that all employees understand the definition and consequences of fraud. Let them know about the steps being taken to prevent it, but do some unannounced auditing on your own. Include a session on fraud in orientation and get current staff up to speed. Explain that this is necessary for their protection, too. Make it easy to report fraud anonymously, with no fear of repercussions.

This may seem like a lot of extra tasks in your workday, but imagine the time you'll lose tracking down fraudulent activity if it occurs.

If you have questions on this subject, or anything else, don't hesitate to email or give us a call. We're here to be your partner.

If you need help with these features, or you have any questions on QuickBooks's, don't hesitate to to call or email Chris Blach at 716-204-9000.

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The Facts: Medical & Dental Expenses and Your Taxes

March 15th, 2013

If you, your spouse or dependents had significant medical or dental costs in 2012, you may be able to deduct those expenses when you file your tax return. Here are eight things you should know about medical and dental expenses and other benefits.

1. You must itemize. You deduct qualifying medical and dental expenses if you itemize on Schedule A on Form 1040.

2. Deduction is limited. You can deduct total medical care expenses that exceed 7.5 percent of your adjusted gross income for the year.

3. Expenses must have been paid in 2012. You can include medical and dental expenses you paid during the year, regardless of when the services were provided. Be sure to save your receipts and keep good records to substantiate your expenses.

4. You can't deduct reimbursed expenses. Your total medical expenses for the year must be reduced by any reimbursement. Normally, it makes no difference if you receive the reimbursement or if it is paid directly to the doctor or hospital.

5. Whose expenses qualify. You may include qualified medical expenses you pay for yourself, your spouse and your dependents. Some exceptions and special rules apply to divorced or separated parents, taxpayers with a multiple support agreement, or those with a qualifying relative who is not your child.

6. Types of expenses that qualify. You can deduct expenses primarily paid for the diagnosis, cure, mitigation, treatment or prevention of disease, or treatment affecting any structure or function of the body. For drugs, you can only deduct prescription medication and insulin. You can also include premiums for medical, dental and some long-term care insurance in your expenses. Starting in 2011, you can also include lactation supplies.

7. Transportation costs may qualify. You may deduct transportation costs primarily for and essential to medical care that qualifies as a medical expense, including fares for a taxi, bus, train, plane or ambulance as well as tolls and parking fees. If you use your car for medical transportation, you can deduct actual out-of-pocket expenses such as gas and oil, or you can deduct the standard mileage rate for medical expenses, which is 23 cents per mile for 2012.(This rate increases to 24 cents in 2013.)

8. Tax-favored saving for medical expenses. Distributions from Health Savings Accounts and withdrawals from Flexible Spending Arrangements may be tax free if used to pay qualified medical expenses including prescription medication and insulin.

Please give us a call if you need help figuring out what qualifies as a medical expense.

 

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It’s Not Too Late to Make a 2012 IRA Contribution

March 14th, 2013

If you haven't contributed funds to an Individual Retirement Arrangement for tax year 2012, or if you've put in less than the maximum allowed, you still have time to do so. You can contribute to either a traditional or Roth IRA until the April 15 due date for filing your tax return for 2012, not including extensions.

Be sure to tell the IRA trustee that the contribution is for 2012. Otherwise, the trustee may report the contribution as being for 2013 when they get your funds.

Generally, you can contribute up to $5,000 of your earnings for 2012 or up to $6,000 if you are age 50 or older in 2012. You can fund a traditional IRA, a Roth IRA (if you qualify), or both, but your total contributions cannot be more than these amounts.

Note: IRA contribution limits increase in 2013 to $5,500 ($6,500 if age 50 or older).

Traditional IRA: You may be able to take a tax deduction for the contributions to a traditional IRA, depending on your income and whether you or your spouse, if filing jointly, are covered by an employer's pension plan.

Roth IRA: You cannot deduct Roth IRA contributions, but the earnings on a Roth IRA may be tax-free if you meet the conditions for a qualified distribution.

Each year, the IRS announces the cost of living adjustments and limitation for retirement savings plans.

Saving for retirement should be part of everyone's financial plan and it's important to review your retirement goals every year in order to maximize savings. If you need help with your retirement plans, give us a call. We're happy to help.

 

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Report 2010 Roth Conversions on 2012 Returns

March 14th, 2013

Taxpayers who converted amounts to a Roth IRA or designated Roth account in 2010 must report half of the resulting taxable income on their 2012 returns.

Normally, Roth conversions are taxable in the year the conversion occurs. For example, the taxable amount from a 2012 conversion must be included in full on a 2012 return. But under a special rule that applied only to 2010 conversions, taxpayers generally include half the taxable amount in their income for 2011 and half for 2012, unless they chose to include all of it in income on their 2010 return (filed in 2011).

Roth conversions in 2010 from traditional IRAs must be reported on either Form 1040 or Form 1040A. Conversions from workplace retirement plans, including in-plan rollovers to designated Roth accounts, should also be reported on either Form 1040 or Form 1040A.

Taxpayers who also received Roth distributions in either 2010 or 2011 may be able to report a smaller taxable amount for 2012.

Taxpayers who made Roth conversions in 2012, or are planning to do so in 2013 or later years must file Form 8606 to report the conversion. As in 2010 and 2011, income limits no longer apply to Roth IRA conversions.

If you need assistance reporting Roth rollovers and conversions that you've made in previous tax years, don't hesitate to call us. We're here to help!

 

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Losses on Worthless Stock

March 5th, 2013

The following summarizes the rules that apply when a stock you own is at a loss or becomes completely worthless.

In some cases, the stock you own may have become completely worthless during the year.  If so, you can claim a loss equal to your basis in the stock, generally what you paid for it.  The stock is treated as though it had been sold on the last day of the tax year.  This date is important because it affects whether your capital loss is long-term or short-term.

Shares of stock become worthless when they have no liquidation value (because the corporation’s liabilities exceed its assets) and no potential value (because the corporation’s business has no reasonable hope of becoming profitable).  A stock can be worthless even though corporation hasn’t declared bankruptcy.  On the other hand, a corporation’s stock may continue to have value even after a bankruptcy filing if the corporation continues to operate and the stock continues to trade.

You may not discover that a stock you own has become worthless until after you have filed your tax return for the year of worthlessness.  In that case, your return for that year must be amended to claim a credit or refund due to the loss.

 

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