10 Year-End Tax Tips

1. Review your portfolio. Consider taking a loss if you have substantial capital gains.

2. Max out your retirement plan contributions. 2011 maximum IRA contribution is $5,000 (plus $1,000 if age 50 or over). 2011 maximum 401(k) contribution is $16,500 (plus $5,500 if age 50 or over).

3. Consider contributing to a 529 Plan if you have children. For example, New York allows a deduction up to $5,000 (or $10,000 for married filing joint filers) for contributions made by an account owner to an account belonging to New York’s 529 College Savings Plan.

4. Use up your flexible spending plan.

5. Save receipts for medical supplies and equipment such as insulin testing supplies, canes, braces, orthotics, eyeglasses, contact lens and hearing aids, etc. Medical expenses that exceed 7.5% of AGI are deductible.

6. If you’re self-employed, stock up on supplies.

7. Prepay your state and/or local taxes.

8. Make charitable donations and be sure to get a receipt. If you are age 70 ½ or over and have an IRA, consider a direct transfer to an eligible charity of up to $100,000 per year. Such a transfer is not taxed and may be used towards your required minimum distribution for the year.

9. Save receipts that include sales tax on big ticket items, such as a car, boat, etc.

10. Save receipts for job search expenses, if you looked for a job in your present occupation. Resume preparation and mailing and travel are examples of deductible expenses. The portion of these expenses that exceed 2% of AGI are deductible.



IRS Circular 230 Disclosure


Pursuant to U.S. Treasury Department Regulations, we are now required to advise you that any federal tax advice contained in this communication, including attachments and enclosures, is not intended by the Sender or Sandra G Johnson, CPA, P.C. to constitute a covered opinion pursuant to regulation section 10.35 or to be used for the purpose of (i) avoiding tax-related penalties under Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any tax-related matters addressed herein.

New York’s Marriage Equality Act

As of July 24, 2011, New York enacted the Marriage Equality Act making the gender of the partners of a marriage irrelevant. This means the state cannot consider gender when deciding on benefits, rights, or responsibilities connected with marriage and no application for marriage can be denied based on the gender of the partners to be married.

To understand the implications of New York’s law, it will be helpful to review the Federal law, The Defense of Marriage Act. DOMA forbids the federal government from recognizing same sex marriage. Same sex spouses are excluded from federal benefits and protections including Social Security Survivor benefits, the right to file jointly, the right to family leave, the right to petition for permanent residence for a foreign spouse. Additionally, employee benefit plans governed by the Employee Retirement Income Security Act (ERISA), a federal law, are subject to DOMA. Most retirement savings plans and pensions are governed by ERISA. DOMA also permits states to disregard the marital status of same sex couples married in other jurisdictions. New York happens to recognize the marital status of same sex couples from other states.

The interaction of the state and federal laws present some challenges. Perhaps the easiest to describe but certainly more complicated and expensive for the same-sex married couple is preparing tax returns.

The new state law requires all married couples, same sex or opposite sex, to file married (filing jointly or filing separately). The federal law does not allow same sex partners in a marriage to file married. They must file single, or if applicable, head of household.

The process for compiling a tax return for the married same sex couple is complicated. Each person must prepare and file a federal return as single (or head of household). Then a combined federal return must be prepared (not filed) as if the marriage was recognized by the federal government. It will be this return that is used to create a New York State married filing jointly return.

A couple married by Dec 31, 2011 is considered married for tax year 2011. The law does not allow for retroactive changes to prior tax years.

The estate tax is also impacted by the interaction of state and federal law. For federal estate tax purposes, the decedent and same sex spouse are considered unmarried and, therefore, the unlimited marital exclusion does not apply. For NYS tax purposes, the federal return must be redone as if the marriage was recognized by the federal government so the appropriate numbers may be transferred to the NYS estate tax return. The estate tax provisions are effective for a decedent with a same sex spouse dying on or after July 24, 2011.

The effects on benefits provided by employers are also complicated. Since many plans are governed by federal laws, the contributions by the same sex spouse for those plans can not be pre-tax for federal tax reporting. However, with the NY law, those contributions are pre-tax for state tax purposes. Some same sex couples have taken advantage of employers’ domestic partner benefits where the same sex spouse has been taxed on the value of the benefit. For NY state tax purposes, these benefits are no longer taxable.

An interesting consequence of the state law is that some employers are deciding not to offer domestic partner benefits requiring New York couples to marry to receive benefits. This impacts non-married heterosexual couples as well.

The decision to marry is rarely based on tax implications alone. However, tax treatment can be quite different when filing married or single. Remembering that the taxpayers only have this choice for state taxes, some areas of consideration are:
• The income of each partner. When there is a disparity of income, one high, one low, it is usually beneficial to file jointly (married)
• The deductions of each partner. Higher income could limit taking some deductions when filing jointly (medical)
• Capital gains/losses. If one partner has loss, the other a gain, joining forces could be financially beneficial.
• Domestic partner health coverage is currently taxable as income. It would not be taxable if married.

The Marriage Equality Act has consequences beyond taxation. And certainly recognition from New York State does not provide the equality same sex couples are seeking. Same sex couples, even after marriage, must be aware of the nuances of the laws and continue to protect their interests through all legal avenues available. 

IRS Circular 230 Disclosure


Pursuant to U.S. Treasury Department Regulations, we are now required to advise you that any federal tax advice contained in this communication, including attachments and enclosures, is not intended by the Sender or Sandra G Johnson, CPA, P.C. to constitute a covered opinion pursuant to regulation section 10.35 or to be used for the purpose of (i) avoiding tax-related penalties under Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any tax-related matters addressed herein.


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School Days or School Daze

You’ve just sent your young ones off to school in the latest fashion trends with new supplies, and hopefully, with enthusiastic attitudes. You probably have a sense of relief that you got everything purchased, organized, ready. It’s a good time to think whether you will be prepared for the biggest education investment you have looming – college.

One of the best ways to save for college is a 529 College Savings plan (Description follows). These may be set up by parents, grandparents, or any person willing and able to put funds away for future education expenses. A beneficiary, the future college student, is named. The account owner receives some tax benefits.

These accounts may be started with a minimum of funds. New York’s plan allows an initial investment of only $25. Regular contributions, even small amounts, will grow and earnings will compound over time. You can set up an automatic contribution schedule (monthly or quarterly). Some employers will take the deduction from your pay or it can be deducted directly from a bank account. You can adjust the savings as your own financial situation changes. Also, remember, 529 plans are the perfect depository for gifts to the beneficiary.

We have all heard that we should treat savings, especially college and retirement savings, as a monthly expense, like our mortgage or rent payment. Starting, even if starting small, is the first step to securing your child’s future.

What’s a 529 Plan?

A 529 plan is a tax-advantaged savings plan designed to encourage families to save for future college costs. The plans are offered by states, state agencies, and educational institutions. They were authorized under Section 529 of the IRS code (thus the name) in 1996.

There are two types of plans: pre-paid tuition plans and college savings plans. All states have at least one savings plan and some educational institutions offer pre-paid tuition plans. Information about New York State’s plan may be accessed at https://uii.nysaves.s.upromise.com/. It is important to note that your choice of college is not affected by the state which governs your 529 plan. If you have a New York state plan, it may be used for an out of state college.

Contributions to a 529 plan are not deductible on your federal taxes. However, New York taxpayers, who are account owners, may deduct up to $5,000 of contributions ($10,000 for married filing jointly) on their NY state tax return for each year.

Contributions are limited, currently to $375,000 per beneficiary. If there is more than one account per beneficiary, the aggregate of the account balances must not exceed the limit.

Contributions grow tax deferred from both federal and NY state income taxes.

Withdrawals, when used for qualified higher education costs for the beneficiary, are tax free from both federal and NY state income tax.

The account owner designates a beneficiary. The owner has complete control of the account, deciding what withdrawals are made and for what purpose. The beneficiary doesn’t age into control as with UTMA accounts (Uniform Transfers to Minors Act). The owner can reclaim the funds at any time. However, the earnings portion will be subject to tax and an additional 10 percent penalty. An exception to the penalty may be claimed if the account is closed because the beneficiary has died or become disabled or if you withdraw funds because the student has received a scholarship and no longer needs money for school. If there are excess funds in the account, you may change the beneficiary to avoid a penalty.

Funds in a 529 plan do affect financial aid. If the accounts are held by a parent, the account is considered an asset of the parent. Only 5.64 percent of the parent’s assets are assumed available for the dependent’s education. Beginning in 2009, if the student is the owner of a 529 account and is claimed as a dependent, the account is treated as a parental asset (at the 5.64 percent rate), much lower than the student owned asset rate of 20 percent.

IRS Circular 230 Disclosure


Pursuant to U.S. Treasury Department Regulations, we are now required to advise you that any federal tax advice contained in this communication, including attachments and enclosures, is not intended by the Sender or Sandra G Johnson, CPA, P.C. to constitute a covered opinion pursuant to regulation section 10.35 or to be used for the purpose of (i) avoiding tax-related penalties under Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any tax-related matters addressed herein.


DISCLAIMER

Privileged/Confidential information may be contained in this message and any related attachments. If you are not the addressee indicated in this message (or responsible for delivery of the message to such person), you may not copy, review, distribute or forward the contents of this message to anyone. In such case, you should notify the sender by reply e-mail and delete this message from your computer.

Summer Road Trips

Sandra Johnson, president of Sandra G. Johnson, CPA, P.C., has used the quieter summer months to keep active in CPA associations and to share her knowledge and success with other accountants.

Sandy recently participated in the National Conference of CPA Practitioners Summer Conference which was held in Philadelphia. The conference included educational programs on accounting and tax issues. Sandy was a featured speaker, giving a presentation on marketing and growing a CPA practice. Sandy took her audience through the steps of setting goals, identifying markets and competition, and tracking performance. Sandy gave particular emphasis to use of the internet and social network sites. Although the audience in this case were accountants, the presentation topic is relevant to any small business.

Sandy will again be taking the podium to give her presentation at the New York City Chapter of the National Conference of CPA Practitioners on August 18th in New York City.

Sandy’s participation in these conferences reflects her commitment to her profession as well as her enthusiasm for small businesses.


IRS Circular 230 Disclosure


Pursuant to U.S. Treasury Department Regulations, we are now required to advise you that any federal tax advice contained in this communication, including attachments and enclosures, is not intended by the Sender or Sandra G Johnson, CPA, P.C. to constitute a covered opinion pursuant to regulation section 10.35 or to be used for the purpose of (i) avoiding tax-related penalties under Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any tax-related matters addressed herein.

DISCLAIMER

Privileged/Confidential information may be contained in this message and any related attachments. If you are not the addressee indicated in this message (or responsible for delivery of the message to such person), you may not copy, review, distribute or forward the contents of this message to anyone. In such case, you should notify the sender by reply e-mail and delete this message from your computer.

Preparing a Marketing Plan

A marketing plan is part of an overall business plan and can have a significant impact on the profitability and success of your business. The size and level of detail in the plan depends on your company. Every business is different. But no business should be without a marketing plan. The thought processes needed to develop the plan will focus your efforts on those tasks needed to lead you to success.
• Describe your product/service in detail. What are its most significant features? What is unique about the product? Does the product require copyright, patent or other legal protection? Is the product still in development, or is it ready to roll?
• Identify your target market. Who will this product/service appeal to most? Where is your market? Is the market growing? Include all market research, including historical figures for sales of your type of product.
• Size up the competition. Who are your major competitors? How does your product compare to theirs? How strong a foothold do they have in the market? Look at the methods they use to market their products.
• State your objectives in measurable terms. What will be your sales over the next 4 quarters? What will be your sales growth period over period?
• Detail your marketing strategy. How will you advertise and market your product? Which features of the product will you focus on? What will be the product's price and why? What will you budget for marketing?
• Describe your operations. Include your plan for customer service, proposed credit and sales terms, and the physical location of your business.
• Prepare financial statements based on projections of sales, operating costs and expenses. Include cash flow projections, profit and loss reports and income statements. Prepare a breakeven analysis.

IRS Circular 230 Disclosure


Pursuant to U.S. Treasury Department Regulations, we are now required to advise you that any federal tax advice contained in this communication, including attachments and enclosures, is not intended by the Sender or Sandra G Johnson, CPA, P.C. to constitute a covered opinion pursuant to regulation section 10.35 or to be used for the purpose of (i) avoiding tax-related penalties under Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any tax-related matters addressed herein.

DISCLAIMER

Privileged/Confidential information may be contained in this message and any related attachments. If you are not the addressee indicated in this message (or responsible for delivery of the message to such person), you may not copy, review, distribute or forward the contents of this message to anyone. In such case, you should notify the sender by reply e-mail and delete this message from your computer.

Personal Record Keeping

A common New Year’s resolution is to “declutter”, go through those boxes and drawers and clean out the piles of excess paper. Old paper documents can be a source for identity theft. Piles of paper may provide no useful information while actually posing a financial threat. At least once a year you should go through your files and shred anything you no longer need. But what should be kept and how long should you keep it?
Tax Returns. The general rule is that tax returns with supporting documentation should be kept for seven years. Those who are especially cautious keep the return permanently but dispose of the supporting documents after seven years.
Bank Statements. Keep these for a year. Since check images are returned rather than cancelled checks, you may want to keep the images for tax payments and large purchases longer. The bank can provide copies of cancelled checks when required.
ATM Receipts, Deposit Receipts. Keep until you balance your bank statement.
Credit Card Statements. Keep these for a year.
Investment Documents from 401k’s, IRA’s or Brokerage Accounts. When you buy and sell stock, you receive trade confirmations. These need to be kept until the transaction appears on the investment statement. The investment and year-end statements should be kept permanently. The myriad of other paper related to investments (prospectus, proxy notices, etc.) only need to be kept if you are going to act on it.
Pay Stubs. Most pay stubs contain current and year-to-date information. If this is the case you need only save the most current. At most, save until you receive and verify your W-2.
Medical Bills and Insurance. These should be kept with the tax returns.
Home Insurance. Keep policies from current and prior insurers for at least five years. If you think you might have issues in the future, keep ten years.
Home Repairs and Renovations. Depending on the extent of the work, receipts for repairs should be kept up to 10 years. Home renovations impact the cost basis of your home and should be kept until you sell your home. The documentation must be kept for as long as the tax return on which the sale was reported is kept.
Mortgage Documents. Keep for the duration of the mortgage. On payoff, you should receive a loan satisfaction letter. Keep this until you sell the home.
Utility Bills. Only need to be kept if you are writing off the expense on your taxes.
Receipts. Keep credit card receipts until you verify the purchase on your credit card statement. Keep receipts for any purchase you may return if you are not satisfied with the product, usually a minimum of 30 days. Receipts for products with a longer warranty should be kept with the warranty until the product is discarded.
The above are general guidelines to record retention for personal papers. The first effort to organize may seem difficult. But once accomplished, an annual sift, file, shred task will go more quickly then you would think.


IRS Circular 230 Disclosure


Pursuant to U.S. Treasury Department Regulations, we are now required to advise you that any federal tax advice contained in this communication, including attachments and enclosures, is not intended by the Sender or Sandra G Johnson, CPA, P.C. to constitute a covered opinion pursuant to regulation section 10.35 or to be used for the purpose of (i) avoiding tax-related penalties under Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any tax-related matters addressed herein.

DISCLAIMER

Privileged/Confidential information may be contained in this message and any related attachments. If you are not the addressee indicated in this message (or responsible for delivery of the message to such person), you may not copy, review, distribute or forward the contents of this message to anyone. In such case, you should notify the sender by reply e-mail and delete this message from your computer.