What Counts Blog

Diane Brewer, CPA, was recently a member of a skilled panel that met for an event coordinated by the ”Successful Women in Business Program.”  The topic of the event was “Taking Care of Elderly Relatives, or What You Need to Consider for Your Own Retirement Needs.”   The panel addressed the resources available to those about to experience the journey through these processes.  The event was held at the Severna Park Community Center in Severna Park, Md.

The “Successful Women in Business Group” is focused on providing support, knowledge and inspiration to women in business. It is a group within the Greater Severna Park Chamber of Commerce.

Ms. Brewer is a Certified Public Accountant who specializes in Estates and Trusts and often presents to the public on these topics. She is presently a manager with HeimLantz, PC in Annapolis, MD.

HeimLantz is supporting the Small and Emerging Contractors Advisory Forum (SECAF) as a Silver Sponsor at the SECAF 4th Annual Government Contractor Awards. The Small and Emerging Contractors Advisory Forum (SECAF), is the premier organization for the small and emerging government contractor. The SECAF Awards Gala is the premier commemorative event honoring small and emerging government contractors and the players in the industry that rely on small business. The winners will be announced at the gala on Thursday, May 3, 2012 at the Hilton McLean Tysons Corner. Their website can be found at secaf.org

“SECAF represents government contractors who collect less than $25 million in annual revenue, and so we believe this niche market is well-deserving and in need of recognition of jobs well done,” said Kwesi Rogers, chairman of SECAF and president of Federal National Payables. “SECAF is honored to present these awards to those contractors and partners in our community that consistently put forth great work and produce business results that benefit the Washington, D.C. area.”

Tax Alert: Plan now for changes coming in 2013

What’s the summertime forecast? From a tax perspective, the outlook calls for planning now to prepare for changes gathering on the horizon – specifically, provisions currently expected to take effect in January 2013. Here are four new rules to think about during your mid-year tax review.

1. A decrease in tax-free contributions to your flexible spending account. Starting in January 2013, the maximum you can contribute to your FSA will be $2,500. In addition, the “use it or lose it” feature of FSAs means you won’t be able to carry any 2012 excess remaining in your account into 2013 (unless your plan provides a 2½ month grace period for using prior-year funds).

Planning move:

Schedule elective medical procedures during the last half of 2012.

2. An increase in the threshold for claiming the itemized medical expenses deduction. Do you itemize? For 2012, you can claim a deduction on your federal income tax return for qualified medical expenses that exceed 7.5% of your adjusted gross income (AGI).

Beginning in 2013, if you’re under age 65, your medical expenses will have to exceed 10% of your AGI to be deductible. This is the same percentage applied to qualified medical expenses when calculating the alternative minimum tax.

Planning move:

Review your itemized deductions for 2012 to determine whether accelerating or delaying deductions makes the most sense for you. What to keep in mind: phase-outs and other limitations to itemized deductions that were in effect in prior years, as these may return in 2013.

3. An increase in Medicare tax on certain wages. The amount of Medicare tax you pay on wages and self-employment income is scheduled to go up next year. When you’re single and your wages are greater than $200,000, your employer will withhold an additional 0.9% of Medicare tax from your paycheck. Are you self-employed? The tax applies when net self-employment income exceeds the threshold. The income threshold is $250,000 for married couples.

Planning move:

If you’re self-employed, review the way your business is organized. While you always want to pay yourself a reasonable amount of compensation, some entity types can allow for flexibility in the timing of wages or salary.

4. A new Medicare tax on unearned income. You probably associate Medicare tax with earned income – that is, the 1.45% tax your employer deducts from your pay. But a provision in the 2010 health care laws extends the Medicare tax to certain unearned income, beginning in 2013.

The new surtax is a flat rate of 3.8%, and will apply to interest, dividends, capital gains, annuities, royalties, and rents. It kicks in when your AGI exceeds $250,000 (for married filing jointly). When you file as single, the AGI threshold is $200,000.

Planning move:

Consider adding tax-exempt bonds to your portfolio. The interest is not subject to the new tax. Roth conversions and selling assets with capital gains may also be a wise move in 2012.

Many other tax law changes are expected in 2013. Timely planning is essential for preserving tax- saving opportunities. Please give us a call to discuss strategies to put in place now to maximize your benefits.

To avoid identity theft, think before you click

The e-mail from your bank gets your attention right away. It says you need to log into your account in the next 48 hours to continue your online privileges. Something about a system upgrade. You wonder, is it legitimate? How can you know for sure?

Bogus e-mails designed to steal your identity, also known as phishing, are becoming a bigger problem these days. While they can take many different forms, most scams are designed to trick you into revealing personal information such as your social security number or online account password. Through clever use of logos and familiar-looking web addresses, these e-mails often appear to be an urgent message from your bank, mortgage lender, or e-mail provider.

You may not realize it, but thieves are especially eager to gain access to your web e-mail account. Why? Once a scammer has access to your e-mails, he or she can often figure out where you bank and detect clues to passwords you might use.

So what can you do to protect yourself? Take a moment and think before you click. Never respond to an e-mail asking for your social security number or birth date. You can almost bet that it is a scam. If an e-mail contains a website link that you are not familiar with, do not click on it. Instead, either go directly to the company’s trusted website, or contact them by phone.

Also remember that e-mail scams become more prevalent following a significant public event, such as a natural disaster or sudden stock market drop. Thieves will prey on your sympathies or fears during these times, so be extra careful when responding to appeals for charity or notices to update your financial records. Be further leery of e-mails with demanding language or incorrect grammar – both are potential signs of a counterfeit e-mail. Don’t respond to e-mail appeals for charity.

For preventive measures, try to use a different password for every online account, and change your passwords regularly. Make your passwords stronger by using combinations of letters, symbols, and numbers. Also, keep your computer anti-virus software up to date.

Finally, do your part to thwart these crimes by reporting any suspected scam e-mails to reportphishing@antiphishing.org. If you receive a bogus tax-related e-mail, forward it to the IRS at phishing@irs.gov. And of course, feel free to contact our firm if you need a second set of eyes on any suspicious-looking e-mail.

Filing reminder for tax-exempts

Tax-exempt organizations are required to file annual reports with the IRS. Those with gross receipts below $50,000 can file an E-postcard rather than a longer version of Form 990.

The deadline for nonprofit filings is the 15th day of the fifth month after their year-end. For calendar-year organizations, the filing deadline for 2011 reports is May 15, 2012.

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This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

April 17 is a red letter day in the tax world

Tuesday, April 17, is the deadline for filing certain returns and taking certain tax-related actions. Here are the major deadlines.

• Filing 2011 income tax returns for individuals. If you cannot file your return by this deadline, be sure to file an extension request by April 17. The automatic extension (you don’t need to explain to the IRS why you need more time) gives you until October 15, 2012, to file your return. An extension does not, generally, give you more time to pay taxes you still owe. To avoid penalty and interest charges, taxes must be paid by April 17. (See article below for penalty relief available to qualifying taxpayers.)
• Filing 2011 partnership returns for calendar-year partnerships.
• Filing 2011 income tax returns for calendar-year trusts and estates.
• Filing 2011 annual gift tax returns. 
• Making 2011 IRA contributions. 
• Paying the first quarterly estimate of 2012 individual estimated tax. 
• Amending 2008 individual tax returns (unless the 2008 return had a filing extension). 
• Original filing of 2008 individual income tax return to claim a refund of taxes. Some taxpayers have tax refunds due them for prior years, and unless a return is filed to claim the refund by the three-year statute of limitations, the refund is lost forever.　

IRS expands “Fresh Start” program for those who owe taxes　

Taxpayers who are struggling to pay their taxes may get some relief from the IRS’s expansion of its “Fresh Start” initiative, a program started back in 2008. The new Fresh Start provisions provide penalty relief to the unemployed and make installment agreements on taxes owed available to more people. 

Normally, a failure-to-pay penalty of one-half of one percent per month, up to a 25% maximum, is charged for overdue taxes. The “Fresh Start Penalty Relief” initiative gives eligible taxpayers a six-month extension to fully pay 2011 taxes – that is, until October 15, 2012, before the penalty begins to apply. Interest of 3% will still be assessed starting from April 17, 2012. 

The penalty relief is available to workers who have been unemployed at least 30 consecutive days during 2011 or 2012 and to self-employed individuals who experienced a 25% or larger reduction in business income in 2011 due to the economy. Income limits apply: the relief is not available to singles with adjusted gross income over $100,000 or to couples with income over $200,000. Also, taxes due cannot exceed $50,000. 

The Fresh Start program also changes the eligibility threshold for streamlined installment agreements from $25,000 to $50,000 and increases the maximum term from five to six years. 

For details or assistance, contact our office.　

Consider better ways to use your tax refund　

What are you going to do with your federal income tax refund this year? Instead of spending the money on things you don’t really need – like a bigger flat screen TV or the latest smart phone – you might put a sizeable refund to better use. Here are a few suggestions. 

Pay down debt. Improve your overall financial situation by reducing the amount of any outstanding debts beginning with high-interest rate credit card balances. 

Contribute to an IRA. For 2012, you can contribute up to $5,000 ($6,000 if you’re age 50 or over) to any combination of traditional and Roth IRAs. Contributions to a traditional IRA may be wholly or partially tax-deductible, while Roth IRAs can provide tax-free payouts in the future. 

Save for your children’s education. Investigate the options, such as tax-favored Section 529 plans. 

Build an emergency fund. Set aside some money that will be available in case of emergencies.　

Take steps to build a better business　

Business owners focus a lot of attention on building better products. When their products are hot, the company does well, despite other shortcomings. Certainly, new and better products are essential, but focusing on building a better business – one that readily adapts to change and quickly responds to crisis may be even more important. How can you build a better business? Consider the following strategies. 

Manage capital needs. Growing businesses have an appetite for capital. Two ideas for managing capital are outsourcing some processes and managing existing capacity more effectively. 

Identify the right product and customer mix. Having the products customers want at the time they want them and in the number, color, location, and quantity they need, is a challenge. Get continuous feedback from customers to help you get your mix just right. 

Actively develop and maintain a network that keeps you in the mind of suppliers, present customers, and future customers. 

Every business has an opportunity to distinguish itself by doing something better than its competitors. Providing the best service, shortest cycle time, most variety, or best quality requires procedures that can deliver every day to every customer. Improving your processes to deliver what no competitor is delivering to customers is a key strategy in building a better company. 

Use your employees wisely. Encourage sharing of knowledge and skills. Continuously develop and train people. Measure individual performance and reward achievement and good ideas.

Building a better business requires more than a good product. Take the steps necessary to make sure your business will thrive in an ever-changing world.　

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This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

HeimLantz team members kept their suits hanging in the closet for one day. They each donated cash for the opportunity to “dress down” for a day.  The team members entered their business card into a drawing and the winner selected decided what charity the donated cash would go to. Kathi Lynch was the winner of the drawing of more than one hundred dollars. She is going to donate the funds to a local family that could use some help. 

Major tax deadlines for March

• March 1 – Farmers and fishermen who did not make 2011 estimated tax payments must file 2011 tax returns and pay taxes in full.
• March 15 – 2011 calendar-year corporation income tax returns are due.
• March 15 – Deadline for calendar-year corporations to elect S status for 2012.

Payroll tax cut extended through 2012

Congress passed an extension of the 2% payroll tax cut that had been scheduled to expire at the end of February. The extension means 160 million working Americans will continue to pay social security tax on their wages at a 4.2% rate for the rest of 2012, rather than at a 6.2% rate.

Because Republicans and Democrats were unable to agree on how to pay for the extended tax cut, the law included no spending cuts to offset the estimated $93 billion cost of this provision.

The law also provides for long-term federal unemployment benefits, setting the maximum at 73 weeks in states with the worst unemployment and 63 weeks for other states.

Another provision in the law includes the so-called “doc fix” that prevents a scheduled 27% reduction in Medicare payments to doctors.

The unemployment benefits and doctor payments will be paid for by government sales of broadband spectrum, requiring federal workers hired after this year to contribute more to their pensions, and cuts in certain health programs.

New foreign investment reporting requirement

If you own foreign investments, you may have an additional federal tax filing requirement this year. Form 8938, Statement of Specified Foreign Financial Assets, is due April 17, 2012, and is filed as part of your individual tax return. You’ll use Form 8938 to disclose interests in certain foreign financial accounts when your ownership exceeds the reporting requirements.

What are the reporting requirements? They vary depending on where you live and your filing status. For example, say you’re married and live in the United States, and you’ll file a joint tax return for 2011. You’ll include Form 8938 with your tax return when the total value of your reportable assets on the last day of 2011 was more than $100,000, or if the value exceeded $150,000 at any time during the year ($50,000 and $75,000 for singles).

Tip: In some cases, you may also need to file Form 8938 for tax year 2010.

Reportable assets include investment accounts you own that are held in foreign financial institutions, interests in foreign entities, and stocks or securities issued by foreign individuals or companies.

You’ve probably noticed the reporting requirements are similar to the Report of Foreign Bank and Financial Accounts (FBAR), a separate return you may already be filing. Be aware the new Form 8938 does not replace the FBAR, which you’ll still need to complete by June 30.

Penalties for failure to file Form 8938 start at $10,000. We urge you to contact us so we can help you evaluate your filing requirements for foreign investments.

IRS reopens disclosure program

To encourage taxpayers with offshore accounts to get current with their tax obligations, the IRS has reopened its “offshore voluntary disclosure program (OVDP).” Similar programs in 2009 and 2011 resulted in the collection of more than $4.4 billion of taxes owed.

The 2012 program will be similar to the 2011 program; however, one difference is that there is currently no deadline by which taxpayers must apply.

Is your small business overlooking this tax credit?

Health care legislation passed in 2010 included a tax credit for small businesses that provide health care coverage for their employees. Recent surveys have shown that the majority of small companies that might qualify for the credit have failed to take it. The reasons given for ignoring the credit ranged from being unaware of it to finding the credit too complicated to compute.

Take another look. If your business or nonprofit organization might be eligible, perhaps you should take another look at the requirements and be sure you’re taking advantage of this tax break.

If you qualify, you can use this tax credit to offset your federal income tax liability by up to 35% of the cost of health insurance premiums you pay for employees. Since this is a tax credit, not a deduction, it will reduce your tax bill dollar-for-dollar.

The basic requirements:

• In general, the credit is available to employers that have fewer than 25 full-time equivalent (FTE) employees paying average annual wages of less than $50,000 per employee. Eligibility is based partially on FTEs, not the number of employees; therefore, an employer with fewer than 50 half-time workers could qualify for the credit.
• The maximum credit goes to those employers with ten or fewer employees who pay annual average wages of $25,000 or less.
• When you’re self-employed, either as a partner or a sole proprietor, or if you own more than 2% of an S corporation, you’re not considered an employee for purposes of the credit.
• Tax-exempt organizations can use the credit to offset payroll tax liability (up to 25% of qualified premiums paid).

For assistance in determining eligibility for this tax credit and in doing the calculations to obtain the credit, contact our office.

This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.

HeimLantz team members celebrated Fat Tuesday by having a pancake breakfast.

Fat Tuesday Pancake Breakfast at HeimLantz

Tax Deadlines

February 15 – Deadline for providing 2011 Forms 1099-B and 1099-S to recipients.

February 28 – Payers must file 2011 information returns (such as 1099s) with the IRS. (Electronic filers have until April 2 to file.)

February 29 – Employers must send 2011 W-2 copies to the Social Security Administration. (Electronic filers have until April 2 to file.)

March 1 – Farmers and fishermen who did not make 2011 estimated tax payments must file 2011 tax returns and pay taxes in full.

March 15 – 2011 calendar-year corporation income tax returns are due.

Use adjusted tax numbers for your 2012 tax planning

Each year the IRS adjusts certain tax numbers for inflation and tax law changes. Here are some of the adjusted numbers you’ll need for your 2012 tax planning.

• Standard mileage rate for business driving remains at 55.5 cents a mile. Rate for medical and moving mileage decreases to 23 cents a mile. Rate for charitable driving remains at 14 cents a mile.
• Section 179  maximum first-year expensing deduction decreases to $139,000 with a phase-out threshold of $560,000.
• Transportation frindge benefit limit decreases to $125 for vehicle/transit passes and increases to $240 for qualified parking.
• Social security taxable wage limit increases to $110,00. Retirees under full retirement age can earn up to $14,640 without losing benefits.
• Kiddie tax threshold remains at $1,900 and applies up to age 19 (up to age 24 for full-time students).
• Nanny tax threshold increases to $1,800.
• Health savings account (HSA) contribution limit increases to $3,100 for individuals and to $6,250 for families. An additional $1,000 may be contributed by those 55 or older.
• 401(k) maximum salary deferral increases to $17,000 ($22,500 for 50 and older).
• SIMPLE maximum salary deferral remains at $11,500 ($14,000 for 50 and older).
• IRA contribution limit remains at $5,000 ($6,000 for 50 and older).
• Estate tax top rate remains at 35%, and the examption amount increases to $5,120,000.
• The annual gift tax exclusion remains at $13,000.
• Adoption tax credit decreases to $12,650 for adoption of an eligible child.    

Resolve to put your tax and financial house in order this year

The only way to achieve financial security is to monitor your tax and financial affairs throughout the year. And what better way to kick off the new year than to tidy up your financial and tax house. Here are some tips to get you started.

• Take control of your credit cards. Over-reliance on credit cards hurts you in several ways. With interest rates typically in double digits, it’s the most expensive way to borrow money. Think of those monthly interest payments as draining off dollars that you could be investing in a home or saving for your retirement. And too much debt can hurt your credit score and make other borrowing more difficult. It takes time and discipline to reduce credit card debt, but it’s well worth the effort.
• Rid yourself of “stuff” you don’t use. Are you paying for a cell phone you rarely use? A magazine you never read? A mail-order video service you forgot about? An extra cable box for that basement TV you never watch? A membership to a gym you rarely attend? If so, now is the time to dump those wasted services and pocket the cash. 
• Build a cash reserve for emergencies. Your financial situation can quickly spin out of control if you can’t come up with cash when you need it. If you lose your job, you might have to live on reduced income for several months. Or there could be unplanned medical bills, car repairs, or home repair costs. Even if you have insurance reimbursements can take time and there are deductibles to meet. Work hard to put aside at least three months’ living expenses. Invest it in a safe, liquid account and resist the tempation to raid it for non-emergencies.
• Save regularly and save smartly. Develop the habit of saving something every month, no matter how small the amount. The earlier you start, the longer your savings will have to compound for retirement. Save as intelligently as possible. If you have a 401(k) plan that your employer matches, that’s probably the best investment you’ll find. Other tax-advantaged plans usually make sense, especially for younger investors. But developing a regular savings habit is the key.      
• Diversify your investments. You’ll reduce your risk by spreading investments among stocks, bonds, and real estate. Within each category, diversify among different industries and companies. The worst thing you can do is to have everything tied up in stock of the company you work for.
• Identify your tax opportunities for 2012. There are many credits and deductions available to you in such areas as retirement, education, home ownership, and child care. Identify those that will reduce your taxes, and make adjustments as needed to qualify for those tax breaks.
• Get that new filing system started now. Purge your old files. Destroy documents that you don’t need. Create new files for 2012 documents. Keep a tax and financial calendar that shows all deadlines for making payments and filing returns. And if you don’t have a filing system, create one in order to organize and locate your tax and financial records.
• Educate yourself about financial matters. You don’t have to get a degree in finance, but read financial articles on topics that concern your affairs. Consider taking a seminar in basic investing.  Ask questions of your advisors. The more you know about finance, the more you can take control of your own financial health.

This newsletter provides business, financial and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us. 

It’s tax time again! 

It’s time to file various tax returns once again. If any of the following tax deadlines will apply to you, circle the dates on your 2012 calendar.

• January 17 – Due date for the fourth quarterly installment of 2011 estimated taxes for individuals unless you file your tax return and pay any taxes due by January 31.
• January 31 – Employers must furnish 2011 W-2 statements to employees. Payers must furnish payees with Form 1099s for various payments made. The deadline for providing Form 1099-B and consolidated statements to customers is February 15.
• January 31 – Employers must generally file annual federal unemployment tax returns.
• February 28 – Payers must file information returns, such as Form 1099s, with the IRS. This deadline is extended to April 2 for electronic filing.
• February 29 – Employers must send Form W-2 copies to the Social Security Administration. This deadline is extended to April 2 for electronic filing.
• March 1 – Farmers and fishermen who did not make 2011 estimated tax payments must file 2011 tax returns and pay taxes in full.
• April 17 – Individual income tax returns for 2011 are due.

Last-minute 2011 deal reached on payroll tax cut

On December 23, 2011, Congress finally approved a two-month extension of the payroll tax cut for American workers. The agreement was reached after weeks of partisan bickering. Though both Democrats and Republicans wanted a one-year extension of the tax cut, they could not agree on how to pay for a year-long extension and settled on a paid-for two-month extension.

The new law extends the 4.2% social security tax on wages through February 29, 2012. Without this extension, the tax rate would have gone to 6.2% on the first $110,100 of wages earned in 2012.

The law also extends benefits for the long-term unemployed for two months and prevents a scheduled cut in fees paid to Medicare providers from taking effect January 1, 2012.

These extensions will be paid for by an increase in fees charged by government-backed mortgage companies (Fannie Mae and Freddie Mac) for new home loans.

Included in the agreement is a requirement that President Obama make a decision within 60 days on the construction of the 1,700 mile Keystone oil pipeline.

Finally, the agreement calls for a House-Senate conference committee to negotiate an agreement that would extend the payroll tax cut through the end of 2012, extend unemployment benefits, and prevent cuts in payments to Medicare doctors.

IRS expands innocent spouse relief

If you file a joint income tax return with your spouse, you are considered “jointly and severally” liable for the payment of all taxes owed. The IRS can come after either you or your spouse for the entire amount of tax due, plus any penalties and interest due.

The law has “innocent spouse” rules that may limit an individual’s responsibility for unpaid taxes resulting from filing a joint return. If the “innocent spouse” can establish that he or she did not know, or have reason to know, that there was an understatement of tax when signing the joint return, relief can be requested. Under previous rules, this relief had to be requested within two years after collection proceedings were initiated by the IRS.

In a new 2011 ruling, the IRS has decided to eliminate the two-year time limit for requesting innocent spouse status under the “equitable relief” provision in the law.

Watch out for scams when selling your business

You’ve spent years developing your business, building its value, enhancing its reputation. Now you’re ready to move on. You place a “Business for Sale” advertisement in the Internet classifieds, and the next day an eager – overly eager – buyer approaches you with a deal that seems too good to be true. The buyer offers full price and wants to structure the deal as a stock sale. A stock sale means the buyer will get the entire business, including all its assets (cash, checking accounts, receivables, inventory and so on) at closing. The buyer doesn’t ask tough questions about the firm and seems in a hurry to close the sale. He or she offers a 10% down payment and says the full balance will be paid off within a year.

Seller beware!

Business owners and regulators have found that scam artists use these types of transactions to strip value from companies, pulling out cash, and leaving the seller with a fistful of worthless stock. Within days of closing the sale, the buyer factors (sells) the receivables for cash, runs up company credit cards, sells off inventory, and empties cash accounts. The firm’s creditors don’t get paid. Your formerly prosperous business becomes an empty shell.

How can you avoid these types of scams when selling your business? Here are a few suggestions.

Perform an extensive background check on any potential buyer, including a review of the person’s credit reports, litigation history, tax liens, and so forth. A skilled attorney can often help with this research.

Beware of sales that go too smoothly. Legitimate buyers will perform due diligence, asking tough questions, inspecting financial records, and calling customers and vendors. If the buyer wants to close the sale in a hurry and doesn’t seem interested in the firm’s ongoing prospects, beware!

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This newsletter provides business, financial, and tax information to clients and friends of our firm. This general information should not be acted upon without first determining its application to your specific situation. For further details on any article, please contact us.