Turbo Tax CEO admits he doesn't trust Turbo Tax

I want to personally thank you for the privilege of preparing your taxes and for your trust by choosing my firm to prepare your income tax return this year.  Trust is a very important thing.

I just read an interview in last Monday’s USA Today (by the way I just posted a link on my blog) with Turbo Tax CEO Brad Smith, admitting that he doesn’t trust Turbo Tax, the on your own income tax software his company sells, to prepare his own tax return. He hires an accountant.  Just like you.  Smart man.

That's our policy

And other things that you should never say to a customer.  From Inc. online.  Tips to avoid a customer service melt down.

Readers Digest posts 13 things an IRS Agent won't tell you

While both failure-to-file and failure-to-pay penalties exist, the first is generally worse than the second.

Don’t panic if you can’t pay what you owe to the IRS. You’ll have to fill out some forms and provide documentation, but you can compromise with the IRS on a lower amount if you meet certain requirements. 


Read more tips by clicking here.

2012 Tax Outlook: "Campaign Heats Up"

From our Tax Coach folks:

The 2012 presidential election already seems like it's been on for years.  President Obama has proposed to raise taxes on those earning above $200,000 ($250,000 for joint filers), including a new surtax on incomes over a million.  Republicans have pledged to cut taxes in hopes of stimulating the economy.  And regardless of who wins in November, the Bush tax cuts are scheduled to automatically expire at the end of this year.

Since taking office, Obama has offered a variety of cuts for lower- and middle-income Americans.  These include new credits for working individuals, expanded breaks for higher education, extended breaks for home buyers, and even a temporary sales-tax deduction for new car purchases.  While these changes have made taxes more complicated, they've done nothing to stall future tax hikes for higher incomes. 

The new healthcare reform law actually makes it harder to deduct healthcare costs, and imposes significant new taxes on investment income.  With the federal budget deficit topping $1 trillion per year, many observers see the new healthcare taxes as the tip of a looming iceberg. 

This report summarizes some of the future tax hikes we can expect and offers suggestions for avoiding them where possible.  We look forward to discussing these threats and helping craft the appropriate response!  Call us at 217-241-4597.

Tax Brackets Stable - For Now!

Washington has extended the Bush tax cuts, effective for two years through 2012, and Congress shows little appetite for raising rates on middle-income earners. This means that tax on ordinary income is currently capped at 33% and 35% for taxpayers in the highest brackets, and taxes on capital gains and qualified corporate dividends remain capped at 15%.  However, budget deficits continue to balloon out of control, and if Congress can't agree to extend cuts, rates will rise automatically in 2013.

If you expect your 2013 income to be significantly more or less than in 2012 (as may be the case if you retire, buy or sell a business, or sell significant investments), consider timing income and deductions for maximum tax advantage.

If you expect your income to go DOWN in 2013, consider delaying income (to subject it to tax at next year's lower rate) and paying deductible expenses this year, to the extent possible.

If you expect your income to go UP in 2013, consider accelerating income from commissions, bonuses, and qualified plan withdrawals (to subject it to tax at this year's lower rate), and delaying deductible expenses until next year.

Itemized Deductions Going Down?

President Obama has proposed limiting the value of itemized deductions to just 28%, even for taxpayers in higher brackets.  This would amount to a "stealth" tax increase and cut the value of deductions for medical expenses, state and local taxes, mortgage interest, and even charitable gifts.

Tax Strategies for Healthcare Costs

Paying for medical care becomes harder every year.  The recent healthcare reform act improves coverage and extends it to more Americans, but actually makes it harder to deduct unreimbursed expenses.  (Under current law, you can deduct medical expenses exceeding 7.5% of your Adjusted Gross Income.  Under the new law, starting in 2013, that floor rises to 10%.)  It also limits contributions to employer-sponsored flexible spending plans to $2,500/year.  

If you're free to select your own coverage, consider choosing a "high-deductible health plan"  and opening a Health Savings Account.  These arrangements bring down premium costs and use pre-tax dollars for out-of-pocket costs, bypassing the floor on AGI.  

If you're self-employed, consider establishing a Medical Expense Reimbursement Plan, or MERP.  These plans let you pay family medical expenses with pre-tax business dollars.  They may even help you avoid self-employment tax.

Audit Odds Still Low

IRS audit odds are increasing, from 1 in 200 returns for 2000 to 1 in 100 for 2009. But your chance of getting audited is still minimal. Don't take low audit rates as an invitation to cheat! But don't let fear of an audit stop you from taking every legitimate deduction you're entitled to.

New Roth IRA Conversion Opportunity

New rules now let you convert your traditional IRA to a Roth IRA, regardless of your current income.  This is actually one of the bright spots of the of the current tax picture. 

Traditional tax planning holds that it makes sense to defer income into retirement accounts now, when you're in your peak earning years (and highest tax bracket) - then withdraw it later during retirement, when your income and tax bracket will presumably be lower.  However, tax rates are currently at historic lows, and it's entirely possible they will be higher when you're retired.  This suggests the smarter strategy may be to pay tax on retirement funds now in order to withdraw them tax-free when rates are higher.

New Tax on Interest Income

The healthcare reform act imposes a new "Unearned Income Medicare Contribution" of 3.8%, beginning on January 1, 2013, on interest income, for taxpayers reporting more than $200,000 ($250,000 for joint filers).  This tax may make municipal bonds and money market funds more attractive relative to fully taxable vehicles.  However, the recession has jeopardized state and local tax revenues, so there may be credit quality issues to consider.  You might also consider deferred annuities and permanent life insurance for fixed-income portions of your portfolio.

New Tax on Dividend Income

Tax on "qualified corporate dividends" is currently capped at 15%, even for taxpayers in the highest brackets.  However, beginning in 2013, the healthcare reform act imposes a new "unearned income Medicare contribution" of 3.8% on dividend income for individuals earning over $200,000 ($250,000 for joint filers).  Consider favoring stocks that pay little or no dividend in taxable accounts and holding stocks paying higher dividends in tax-deferred accounts.

Permanent Life Insurance for Tax-Free Income

As mentioned earlier, the healthcare reform act imposes a new "Unearned Income Medicare Contribution" of 3.8%, beginning on January 1, 2013, on "investment income" (broadly defined to include interest, dividends, capital gains, rents, royalties, and annuity distributions) for individuals making over $200,000 ($250,000 for joint filers).  Permanent life insurance offers a variety of investment options for accumulating cash values, along with tax-free withdrawals and loans so long as you keep the policy in force.

New Tax on Real Estate Income

The healthcare reform act imposes an "unearned income Medicare contribution" of 3.8%, effective starting in 2013, on income from real estate investments and taxable gains from the sale of your primary residence, for individuals making over $200,000 ($250,000 for joint filers).  There are several strategies you can use to minimize taxable real estate income, including favoring tax-deductible "repairs" over depreciable "improvements" and cost segregation strategies to maximize depreciation deductions.

Higher Tax on Capital Gains

Tax on long-term capital gains (from property you hold more than 12 months) is currently capped at 15%, even if your regular tax rate is higher.  However, the recent healthcare reform act also imposes a new "unearned income medicare contribution", beginning in 2013, of 3.8% on capital gains for individuals earning over $200,000 ($250,000 for joint filers).  If you have appreciated assets such as securities, real estate, or a business you'd like to sell, consider doing so before new rates become effective.  Check with us first, to discuss if you can use tax-free exchanges, installment sales, charitable trusts, or similar strategies to minimize or even eliminate tax on those sales.

Uncertainty on Estate Tax

The estate tax actually "died" for 2010.  Washington brought it back to life, with a 35% tax applying on estates over $5.12 million per person.  However, the new system applies only for 2011-2012.  If Washington doesn't act to extend it, the tax reverts to 55% on estates over $1.0 million, beginning January 1, 2013.  This means that smart, flexible estate planning will still be part of most affluent families' plans.

Next Steps

We're sure you appreciate this brief outline of upcoming tax threats.  While smart intelligence is crucial, intelligence alone is useless without the right action.  If the threats we've discussed so far have you worried about your financial future, you owe it to yourself to take a more comprehensive look at your taxes and finances, so that we can determine exactly which concepts and strategies will work from here. 

March 5, 2012 Client Newsletter

The one thing I learned many years ago living in our imaginary tax world is that nothing is black or white only gray. Deductions can happen or can’t.  Credits are available and sometimes not.  Income is taxable and then it isn’t.

Most of my small business clients file their taxes as either a small business corporation or sole proprietor.  In both cases the draw that you take from your business is not taxable.  In both cases you are taxed on the net income of your business.  You have what we call basis in that money you draw out of your business.   In other words you are going to pay taxes on that money already,  so you are entitled to take it out of your business.

Small business corporations have a little more complicated rules.  Essentially you are allowed to take money out of your corporation up to your investment, adding your income, subtracting your losses, subtracting your draws (we call them distributions other than dividends) and adding a Heinz 57 list of additions before paying any tax on the money you draw from your business. The bottom line is that with a few exceptions....the gray...you do not have to pay taxes on the money you draw out of your business.   Glad we could clear that up.

The due date for your 2011 corporate tax return is March 15, 2012.  If you have already prepared your corporate return we have already filed it and we are moving on to another year.  We will file an automatic six month extension for you if you haven’t filed by the March 15th deadline.  You don’t have to do a thing.  We will take care of it for you.

As time ticks closer to April 17th tax filing deadline we encourage to you to get your information to us sooner rather than later.  Filing earlier allows us to do a better job for you.  Filing earlier means you will get your refund sooner.  And if you owe money, filing earlier means you can prepare how to pay your tax liability.

Today we received notice that there is going to be a “slight increase” in the fees’ charged for our Paycycle online payroll service.  I haven’t had a chance to review the new fees, nor make a decision as whether we will absorb them at our end or pass them on to our clients.  More than likely we will take a look at it after the filing season.

CFTC Needs To Obey The Law

Oil speculators must be stopped and the CFTC “Needs to Obey the Law” says Vermont Senator Bernie Sanders

From Yahoo Finance

The recent rise in gasoline prices has prompted Congressional hearings and a call to federal regulators to curb what many see as the cause for the spike: oil speculators.

A House subcommittee held a hearing on "The American Energy Initiative" Wednesday morning that focused solely on rising pump prices. Seventy members of Congress signed a letter this week to regulators at the Commodity Futures Trading Commission (CFTC), urging immediate action on oil speculation by enacting "strong position limits" and to "utilize all authorities available to…make sure that the price of oil and gasoline reflects the fundamentals of supply and demand."

The CFTC was given authority in the Dodd-Frank Wall Street Reform and Consumer Protection Act to impose position caps on oil traders beginning in January 2011. These limits have not yet been implemented by the CFTC. In an interview Wednesday with The Daily Ticker, Sen. Bernie Sanders (I-VT) says the CFTC doesn't "have the will" to enact these limits and "needs to obey the law."


Read more by clicking the above link.