It's Tax Time! Are You Ready?

If you’re like most taxpayers, you find yourself with an ominous stack of “homework” around TAX TIME! Unfortunately, the job of pulling together the records for your tax appointment is never easy, but the effort usually pays off when it comes to the extra tax you save! When you arrive at your appointment fully prepared, you’ll have more time to:

• Consider every possible legal deduction;
• Better evaluate your options for reporting income and deductions to choose those best suited to your situation;
• Explore current law changes that affect your tax status;
• Talk about possible law changes and discuss tax planning alternatives that could reduce your future tax liability.

Choosing Your Best Alternatives

The tax law allows a variety of methods for handling income and deductions on your return. Choices made at the time you prepare your return often affect not only the current year, but later-year returns as well. When you’re fully prepared for your appointment, you will have more time to explore all avenues available for lowering your tax.

For example, the law allows choices in transactions like:

Sales of property. . . .

If you’re receiving payments on a sales contract over a period of years, you are sometimes able to choose between reporting the whole gain in the year you sell or over a period of time, as you receive payments from the buyer.

Depreciation. . . .

You’re able to deduct the cost of your investment in certain business property using different methods. You can either depreciate the cost over a number of years, or in certain cases, you can deduct them all in one year.

Where to Begin?

Ideally, preparation for your tax appointment should begin in January of the tax year you’re working with. Right after the New Year, set up a safe storage location – a file drawer, a cupboard, a safe, etc. As you receive pertinent records, file them right away, before they’re forgotten or lost. By making the practice a habit, you’ll find your job a lot easier when your actual appointment date rolls around.

Other general suggestions to consider for your appointment preparation include. . .

• Segregate your records according to income and expense categories. For instance, file medical expense receipts in an envelope or folder, interest payments in another, charitable donations in a third, etc. If you receive an organizer or questionnaire to complete before your appointment, make certain you fill out every section that applies to you. (Important: Read all explanations and follow instructions carefully to be sure you don’t miss important data – organizers are designed to remind you of transactions you may miss otherwise.)

• Keep your annual income statements separate from your other documents (e.g., W-2s from employers, 1099s from banks, stockbrokers, etc., and K-1s from partnerships). Be sure to take these documents to your appointment, including the instructions for K-1s!

• Write down questions you may have so you don’t forget to ask them at the appointment. Review last year’s return. Compare your income on that return to the income for the current year. For instance, a dividend from ABC stock on your prior-year return may remind you that you sold ABC this year and need to report the sale.

• Make certain that you have social security numbers for all your dependents. The IRS checks these carefully and can deny deductions for returns filed without them.

• Compare deductions from last year with your records for this year. Did you forget anything?

• Collect any other documents and financial papers that you’re puzzled about. Prepare to bring these to your appointment so you can ask about them.

Accuracy Even for Details

To ensure the greatest accuracy possible in all detail on your return, make sure you review personal data. Check name(s), address, social security number(s), and occupation(s) on last year’s return. Note any changes for this year. Although your telephone number isn’t required on your return, current home and work numbers are always helpful should questions occur during return preparation.

Marital Status Change

If your marital status changed during the year, if you lived apart from your spouse, or if your spouse died during the year, list dates and details. Bring copies of prenuptial, legal separation, divorce, or property settlement agreements, if any, to your appointment.

Dependents

If you have qualifying dependents, you will need to provide the following for each:

• First and last name
• Social security number
• Birth date
• Number of months living in your home
• Their income amount (both taxable and nontaxable)

If you have dependent children over age 18, note how long they were full-time students during the year. To qualify as your dependent, an individual must pass five strict dependency tests. If you think a person qualifies as your dependent (but you aren’t sure), tally the amounts you provided toward his/her support vs. the amounts he/she provided. This will simplify making a final decision about whether you really qualify for the dependency deduction.

Some Transactions Deserve Special Treatment

Certain transactions require special treatment on your tax return. It’s a good idea to invest a little extra preparation effort when you have had the following transactions:

Sales of Stock or Other Property:  All sales of stocks, bonds, securities, real estate, and any other type of property need to be reported on your return, even if you had no profit or loss. List each sale, and have the purchase and sale documents available for each transaction.

Purchase date, sale date, cost, and selling price must all be noted on your return. Make sure this information is contained on the documents you bring to your appointment.

Gifted or Inherited Property: If you sell property that was given to you, you need to determine when and for how much the original owner purchased it. If you sell property you inherited, you need to know the date of the decedent’s death and the property’s value at that time. You may be able to find this information on estate tax returns or in probate documents.

Reinvested Dividends: You may have sold stock or a mutual fund in which you participated in a dividend reinvestment program. If so, you will need to have records of each stock purchase made with the reinvested dividends.

Sale of Home: The tax law provides special breaks for home sale gains, and you may be able to exclude all (or a part) of a gain on a home if you meet certain ownership, occupancy, and holding period requirements. If you file a joint return with your spouse and your gain from the sale of the home exceeds $500,000 ($250,000 for other individuals), record the amounts you spent on improvements to the property. Remember too, possible exclusion of gain applies only to a primary residence, and the amount of improvements made to other homes is required regardless of the gain amount. Be sure to bring a copy of the sale documents (usually the closing escrow statement) with you to the appointment.

Purchase of a Home:  If you purchased a home during 2009 and you are a first-time homebuyer or a long-term homeowner after November 6, 2009, you may qualify for a substantial tax credit.  Be sure to bring a copy of the escrow closing statement if you purchased a home.

Vehicle Purchase: If you purchased a new car (or cars) this year, you can deduct the sales tax.  If the car was a hybrid vehicle or one that qualifies as a lean burn vehicle, you may also qualify for a special credit.  Please bring the purchase statement to the appointment with you.

Standard Deduction: If you usually take the standard deduction, you should be aware that a portion of your property taxes, certain vehicle sales taxes and disaster casualty losses can be deducted as part of your standard deduction this year without itemizing your deductions.  Be sure to bring your property tax statements, car purchase statements and records relating to any losses incurred in a federally declared disaster area.

Home Energy-Related Expenditures: If you made home modifications to conserve energy (such as special windows, roofing, doors, etc.) or installed solar, geothermal, or wind power generating systems, please bring the details of those purchases and the manufacturer’s credit qualification certification to your appointment.  You may qualify for a substantial energy-related tax credit.

Ponzi Scheme or Bank Failure Losses:  If you suffered losses as the result of a Ponzi scheme or as the result of a bank failure, there is special tax treatment for these types of losses.  Please be prepared with the details of the losses and the amounts lost.
 
Car Expenses: Where you have used one or more automobiles for business, list the expenses of each separately. The government requires that you provide your total mileage, business miles, and commuting miles for each car on your return, so be prepared to have them available. If you were reimbursed for mileage through an employer, know the reimbursement amount and whether the reimbursement is included in your W-2.

Charitable Donations: Cash contributions (regardless of amount) must be substantiated with a bank record or written communication from the charity showing the name of the charitable organization, date and amount of the contribution.

Cash donations put into a “Christmas kettle,” church collection plate, etc., are not deductible. For clothing and household contributions, the items donated must generally be in good or better condition, and items such as undergarments and socks are not deductible. A record of each item contributed must be kept, indicating the name and address of the charity, date and location of the contribution, and a reasonable description of the property. Contributions valued less than $250 and dropped off at an unattended location do not require a receipt. For contributions of $500 or more, the record must also include when and how the property was acquired and your cost basis in the property. For contributions valued at $5,000 or more and other types of contributions, please call this office for additional requirements.

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Facts about Dependents and Exemptions

There are a number of misconceptions related to dependents and claiming a dependent’s exemption on a tax return.  If you have a child or someone else that you are claiming as a dependent, you should review these commonly encountered situations.

• Dependents may be required to file their own tax return. Just because you claim someone as a dependent on your return, it does not mean that they are not required to file their own tax return.  Whether or not a return must be filed depends on several factors, including: the amount of the dependent’s unearned, earned or gross income, his or her marital status, any special taxes he or she owes, and any advance Earned Income Credit payments that was received.

• Exemptions reduce your taxable income. There are two types of exemptions: personal exemptions and exemptions for dependents.  For each exemption, you can deduct $3,650 on your 2009 tax return.  Exemption amounts are reduced for taxpayers whose adjusted gross income is above certain levels, which is determined by your filing status.

• Dependents may not claim an exemption. If you claim someone as a dependent, such as your child, that dependent may not claim a personal exemption on their own tax return.

• Your spouse is never considered your dependent. On a joint return, you may claim one exemption for yourself and one for your spouse.  If you are filing a separate return, you may claim the exemption for your spouse only if they had no gross income, are not filing a joint return, and were not the dependent of another taxpayer.

• Some people cannot be claimed as your dependent. Generally, you may not claim a married person as a dependent if they file a joint return with their spouse. Also, to claim someone as a dependent, that person must be a U.S. citizen, U.S. resident alien, U.S. national or resident of Canada or Mexico for some part of the year. There is an exception to this rule for certain adopted children.

If you have questions related to these issues, please give this office a call for additional information.

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2010 Standard Mileage Rates Announced

The Internal Revenue Service has issued the 2010 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2010, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 50 cents per mile for business miles driven (includes a 23 cent per mile allocation for depreciation);

• 16.5 cents per mile driven for medical or moving purposes; and

• 14 cents per mile driven in service of charitable organizations.

The new rates for business, medical and moving purposes are slightly lower than last year’s. The mileage rates for 2010 reflect generally lower transportation costs compared to a year ago.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for any vehicle used for hire or for more than four vehicles used simultaneously.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

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Are You Required to File 1099s?

If you use independent contractors to perform services for your business or rental and you pay them $600 or more for the year, you are required to issue them a Form 1099 after the end of the year to avoid facing the loss of the deduction for their labor and expenses.  The 1099s for 2009 must be provided to the independent contractor no later than February 1st of 2010.  Generally, this due date is January 31, but when the due date falls on a Saturday, Sunday or holiday, it is not due until the next business day.

It is not uncommon to have a repairman out early in the year, pay him less than $600, then use his services again later and have the total for the year be $600 or more.  As a result, you overlook getting the information needed to file the 1099s for the year.  Therefore, it is good practice to always have individuals who are not incorporated complete and sign the IRS Form W-9 the first time you use their services.  Having a properly completed and signed Form W-9 for all independent contractors and service providers eliminates any oversights and protects you against IRS penalties and conflicts.

IRS Form (W-9, Request for Taxpayer Identification Number and Certification) is provided by the government as a means for you to obtain the data required to file the 1099s from your vendors. It also provides you with verification that you complied with the law should the vendor provide you with incorrect information. We highly recommend that you have a potential vendor complete the Form W-9 prior to engaging in business with them. The form can either be printed out or filled onscreen and then printed out. The W-9 is for your use only and is not submitted to the IRS.

In order to avoid a penalty, copies of the 1099s need to be sent to the IRS by the last day of February. However, the due date is extended to March 1, 2010 since the last day of February 2010 falls on a Sunday.  This must be submitted on magnetic media or on optically scannable forms (OCR forms). This firm prepares 1099s in OCR format for submission to the IRS with the 1096 submittal form.  This service provides recipient and file copies for your records.  Use the worksheet to provide us with the information we need to prepare your 1099s. 

Please attempt to have the information to this office by January 20, so that the 1099s can be provided to the service providers by the January 31st due date.

If you have questions, please call this office. 

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Recordkeeping for Business Barter Transactions

In today’s economy, small business owners sometimes look to the oldest form of commerce — the exchange of goods and services, or bartering.  Small business owners are reminded that bartering transactions are considered taxable transactions and generally have the same associated tax reporting, accounting and recordkeeping responsibilities as normal business sales and business expenses.

Bartering is the trading of one product or service for another.  Usually there is no swap of cash.  A barter exchange may take place on an informal direct one-on-one basis between businesses and individuals, suppliers, customers, distributors, partners, contract labor, and employees, or it can take place on a third-party basis through a modern Internet barter exchange.

Bartering is an exchange of one taxpayer's property or services for another taxpayer's property or services. The fair market value of property or services received through a barter exchange is taxable income.

Recordkeeping Tip

Once you have agreed to barter transactions with a vendor or customer, you must enter the transaction accurately in your accounting and tax records.  Whether you maintain your books and records manually or use one of the many accounting and tax software packages on the market today, you need to keep and record some basic information about your barter transactions.

Clearly mark or file all barter income and expense documents as “bartering,” and retain all original source documents pertaining to your barter transactions:
• Sales receipts and invoices
• Barter exchange statements and Forms 1099-B, Proceeds From Broker and Barter Exchange Transactions

Bartering Products or Services

The most important barter tax accounting concept is that the IRS treats bartering as income received, whether you use accrual-basis or cash-basis accounting.

Direct Barter Transactions

If you engage in the direct barter of products or services with an individual or a business, you will generally not receive a Form 1099-B, but the transaction must be accounted for in your books and records just the same. Think of a barter transaction as just another sales transaction of your business goods or services you must include in your income at the time received. Accurate accounting and recordkeeping can help you manage barter transactions.

For example, if a doctor agrees to give an accountant a personal medical exam in exchange for personal tax return preparation, the fair market value of the medical exam is taxable to the accountant, and the fair market value of the tax return preparation is taxable to the doctor.

For simplicity’s sake, let’s assume the fair market value of both services is equal to $200. Note that all pieces of the transaction should be clearly marked as a bartering transaction in the books and records of both the doctor and the accountant.  With the fair market value of both services being equal, both the doctor and the accountant must include $200 in their income as a result of the bartering transaction.

Recordkeeping Tip

You may need to configure your accounting software to accept bartering transactions.

Barter Exchange Transactions

Exchanges occurring through a barter exchange are reported to the IRS on Form 1099-B and show the value of cash, property, services, credits or scrip added to your account by the barter exchange.

Recordkeeping and accounting for barter exchange transactions is basically the same as for direct barter transactions, except that you are taxed on the value of the credit units added to your account, even though you may not actually receive goods or services from other exchange members until a later year.  You will have additional help in determining the taxable bartering amount by information reporting from the barter exchange.

Barter exchanges record all transactions and report them to the IRS on Forms 1099-B.  The value of trade dollars received for your products or services must be included in gross income for the tax year in which they are credited to your account.  If your business is a corporation, you will receive one aggregate Form 1099-B annually.

If you are a partnership, individual or a sole proprietor, you will receive a Form 1099-B from the exchange for each barter transaction with a value of $1 or more.

Bartering as Compensation

Bartering can be used as compensation, too.  A business can pay bartered goods or services as a bonus or as part of a compensation package to employees, partners and contractors. For example, a business may use barter bonus or sales incentive programs, with compensation including such items as vehicles, restaurant certificates or resort trips.

Recordkeeping Tip

Just as cash business expenses associated with bartering are deductible, a barter used as compensation is deductible and subject to employment taxes and information reporting. A barter used as a bonus or compensation for an independent contractor must be included on the contractor’s Form 1099-MISC, Miscellaneous Income, as non-employee compensation, and all barter compensation for employees must be taken into account on their Forms W-2. Barter compensation is subject to FICA, FUTA, and federal income tax withholding.

Other Examples of Bartering Transactions

Small businesses and self-employed taxpayers greatly benefit by accurately recording and reporting all income.  Insufficient recordkeeping could cause income to be over-reported and too much tax paid or too little income reported and too little tax paid.  You need good records to prepare your tax returns.  These records must support the income and expenses that are reported.

• Example 1: You are a self-employed financial planner who performs services for a client, a small business corporation.  The corporation gives you shares of its stock as payment for your services.  You must include the fair market value of the shares of stock in your business income schedule on your tax return.  The expenses you pay in the performance of the financial planning services are also deductible.

• Example 2: You own a small apartment building.  An artist trades you a painting in return for six months’ rent-free use of an apartment.  You must report the fair market value of the artwork as rental income on your tax return.  Generally, this would be the fair rental value of the apartment for six months.  You can claim your normal rental expenses associated with the barter of the apartment.  The artist must report the fair rental value of the apartment in income on the business income schedule of his tax return, as the artist would for any other sale of a painting.  The artist can claim the normal cash business expenses associated with the bartered work of art, such as canvas, paint, brushes, supplies and materials.

• Example 3: You are a self-employed house painter.  In return for painting his personal residence, your attorney agrees to perform personal legal services.  If you would normally paint such a residence for $3,000, you would report the $3,000 in your gross receipts and deduct the ordinary and necessary business expenses associated with painting the residence (such as paint, brushes and equipment rentals) on the business income and expense schedule of your tax return.  The attorney must also report the fair market value of the services in gross income on the business income and expense schedule of his tax return, and deduct his ordinary and necessary business expenses associated with the legal services.

• Example 4: You are a self-employed owner of an online retail web site that sells bowling shirts, shoes, balls and supplies.  In return for fully equipping a self-employed owner of an online retail fishing shop with bowling equipment with a fair market value of $1,000, you receive fishing rods and clothing also valued at $1,000. You must include the fair market value of the equipment you receive in your income on the business income schedule of your tax return.  You will also increase your cost of goods sold by decreasing your inventory for the cost or other basis of the bowling equipment given up.  The fishing shop owner will handle recordkeeping the same way if both maintain inventories.  Both you and the fishing shop owner will report the income of $1,000.

Recordkeeping Tip

Be sure to use a reasonable fair market value for the property or services received in a barter transaction to include in your income.  The transaction is not a “wash” if you report the fair market value of the property received that is greater than your cost or basis in the property given up.  In Example 4, if the bowling equipment given up has a cost or other basis of $500 to you, there is a $500 gross profit on the transaction since the fair market value of the fishing equipment received is $1,000.  Simply put, you should identify the transaction in your records and report the income and any related business deductions and cost of goods sold on the business income and expense schedule of your tax return.

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IRS Extends Food Industry Tip Reporting Program

The Internal Revenue Service has extended, for an additional two years, its program that simplifies the recordkeeping burden for reporting tip income in the food and beverage industry.

The Attributed Tip Income Program (ATIP) was first announced in 2006. The program, which was originally set to expire Dec. 31, 2009, has been extended to Dec. 31, 2011.

Employers who participate in ATIP report the tip income of employees based on a formula that uses a percentage of gross receipts, which are generally allocated among employees based on the practices of the restaurant.

Both employees and employers benefit from participation in the ATIP program. The IRS will not initiate a tip examination during the period the employer and employee participate in ATIP. Participating employees do not have to keep a daily tip log or other tip records.

Enrollment is simple. Employers elect participation in ATIP by checking the designated box on Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips. Employees who work for a participating employer can easily elect to participate in ATIP by signing an agreement with their employer to have their tip income computed under the program and reported as wages.

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2010 Required Minimum IRA Distributions

For 2009, the requirement for minimum distributions from IRAs was suspended, giving the accounts of those who could afford to go without a distribution in 2009 a chance to recover from the economic downturn.  Now that the New Year is here, you can take your required minimum distribution (RMD) for 2010, which is not suspended and must be taken at some time during 2010.  The following is an overview of the rules regarding these mandated distributions for older taxpayers.

The IRS does not allow IRA owners to keep funds in a Traditional IRA indefinitely. Eventually, assets must be distributed and taxes paid. If there are no distributions, or if the distributions are not large enough, the IRA owner may have to pay a 50% penalty on the amount not distributed as required. Generally, required distribution begins in the year the IRA owner attains the age of 70½.

Beginning Date Requirement - IRA owners must take at least a minimum amount from their IRA each year, starting with the year they reach age 70½.

A taxpayer who fails to take a distribution in the year age 70½ is reached can avoid a penalty by taking that distribution no later than April 1st of the following year.  However, that means the IRA owner must take two distributions in the following year, one for the year in which age 70½ is attained and one for the current year.

If an IRA owner dies after reaching age 70½, but before April 1st of the next year, no minimum distribution is required because death occurred before the required beginning date.

Multiple IRA Accounts - For purposes of determining the minimum distribution, all Traditional IRA accounts, including SEP-IRAs, owned by an individual are treated as one, but the actual minimum distribution can be taken from any combination of the accounts.  If the owner chooses not to take the minimum distribution from each account, it is not uncommon for IRA trustees to require written certification that the owner took the minimum distribution from other accounts.

Determining the Distribution - The minimum amount that must be withdrawn in a particular year is the total value of all IRA accounts divided by the number of years the IRA owner is expected to live.

     

                 Total Value
              _____________       =    RMD

             Distribution Period

• Determining Total Value: The total value is based on the sum of the value of all the owner’s Traditional IRA accounts at the end of the business day on December 31st of the PRIOR year.  Generally, IRA account trustees will provide this information on the year-end statements or on IRS Form 5498.

• Determining the Distribution Period: The IRS provides two tables for use in determining the IRA owner’s life expectancy (referred to as “distribution period” by the IRS).  Generally, IRA owners will use the “Uniform Lifetime Table” to determine their “distribution period.” If the IRA owner’s spouse is the sole beneficiary (on all the IRA accounts), the Joint and Last Survivor Table may be used.  However, the Uniform Lifetime Table will always produce the smallest minimum distribution, unless the spouse is more than 10 years younger than the IRA account owner.   Example: The IRA owner is 75 and from the “Uniform Lifetime Table,” the owner’s life expectancy is 22.9 years.

• Determining Age:  Use the owner’s oldest attained age for the year of the distribution.  Example: Suppose an IRA owner takes a distribution in February, when the owner’s age is 74, but later in November, turns 75.  For purposes of determining the owner’s life expectancy, the oldest attained age for the year, 75, would be used in computing the minimum distribution.  The same rule is used for the spouse beneficiary, if applicable.

Example:  The IRA account owner is age 75 and the owner’s spouse, who is the sole beneficiary of the accounts, is age 72.  Since the spouse is less than 10 years younger than the IRA account owner, the Uniform Lifetime Table will produce the smallest required distribution.  From the table, we determine the owner’s life expectancy to be 22.9.  The owner has three IRA accounts with a combined value of $87,000 at the end of the prior year. The minimum distribution is $3,799 ($87,000 / 22.9).

Uniform Lifetime Table – The following table is the one that is generally used to determine the Required Minimum Distribution from Traditional IRA accounts.   Not illustrated, because of their size, are the Joint and Survivor Life Table used to determine RMDs when the sole beneficiary spouse is more than 10 years younger than the IRA owner and the Single Life Table used for certain beneficiary RMD determinations.  For table values not illustrated, please call this office.

Timing of the Distribution - The minimum distribution computation determines the amount that must be withdrawn during the calendar year. The distributions can be taken all at once, sporadically or in a series of installments (monthly, quarterly, etc.), as long as the total distributions for the year are at least the minimum required amount.  Amounts that must be distributed (required distributions) during a particular year are not eligible for rollover treatment.

Maximum Distribution - There is no maximum limit on distributions from a Traditional IRA and as much can be withdrawn as the owner wishes. However, if more than the required distribution is taken in a particular year, the excess cannot be applied toward the minimum required amounts for future years.

Under-Distribution Penalty - Distributions that are less than the required minimum distribution for the year are subject to a 50% excise tax (excess accumulation penalty) for that year on the amount not distributed as required.

Example: The owner’s required minimum distribution for the calendar year was $10,000, but the owner only withdrew $4,000.  The excess accumulation penalty is $3,000, computed as follows: 50% of ($10,000 - $4,000).

If the failure to withdraw the minimum amount or part of the minimum amount was due to reasonable error, and the owner has taken, or is taking, steps to remedy the insufficient distribution, the owner can request that the penalty be excused by completing applicable sections of Form 5329 and attaching an explanation. IRS will then determine if the penalty will be waived. (Because Congress modified the law so that 2009 RMDs were not required, the under-distribution penalty does not apply for 2009 and waiver requests to the IRS are not needed.)

Not Required to File - Even though the IRA owner may not be required to file a tax return, they are still subject to the minimum required distribution rules and could be liable for the under-distribution penalty even if no income tax would have been due on the under-distribution.

Death of the IRA Owner - If the IRA owner dies on or after the required distribution beginning date, a distribution must be made in the year of death, as if the IRA owner had lived the entire year.  If the distribution is after the owner’s death, the minimum amount must be distributed to a beneficiary.

Use the RMD worksheet to compute your RMD for 2010.   If you are the beneficiary of an IRA, or if you need assistance determining your RMD for 2010, please give this office a call.

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Winterize Your Homes, Save Energy and Qualify for a Tax Credit

People can now weatherize their homes and be rewarded for their efforts by making energy-saving improvements this fall.  They can cut their winter heating bills and lower their 2010 tax bill as well. There are two credits available:

Home Energy-Savings Improvement Credit - This credit equals 30% of what a homeowner spends on eligible energy-saving improvements, up to a maximum tax credit of $1,500 for the combined 2009 and 2010 tax years. The cost of certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass all qualify, along with labor costs for installing these items.  In addition, the cost of energy-efficient windows and skylights, energy-efficient doors, qualifying insulation and certain roofs also qualify for the credit, though the cost of installing these items does not count.

By spending as little as $5,000 before the end of the year on eligible energy-saving improvements, a homeowner can save as much as $1,500 on his or her 2009 federal income tax return.  Due to limits based on tax liability, other credits claimed by a particular taxpayer and other factors, actual tax savings will vary.

Residential Energy-Efficient Property Credit - Homeowners going green should also check out a second tax credit designed to spur investment in alternative energy equipment. The residential energy-efficient property credit equals 30% of what a homeowner spends on qualifying property, such as solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines and fuel cell property.  Generally, labor costs are included when calculating this credit.  Also, no cap exists on the amount of credit available except in the case of fuel cell property.

Not all energy-efficient improvements qualify for these tax credits.  For that reason, homeowners should check the manufacturer’s tax credit certification statement before purchasing or installing any of these improvements.  The certification statement can usually be found on the manufacturer’s website or with the product packaging.  Normally, a homeowner can rely on this certification.  The IRS cautions that the manufacturer’s certification is different from the Department of Energy’s Energy Star label, and not all Energy Star labeled products qualify for the tax credits.

Eligible homeowners can claim both of these credits when they file their 2010 federal income tax return.  Because these are credits, not deductions, they increase a taxpayer’s refund or reduce the tax he or she owes.  An eligible taxpayer can claim these credits, regardless of whether he or she itemizes deductions.

For more information regarding these credits, please call this office.

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Save Time and Reduce Mistakes by Synchronizing Your Data

The New Year’s here, the Christmas bills are rolling in, and income taxes loom. Maybe you can’t save money just now, but how about an easy way to save time and keystrokes? If you use Microsoft Outlook 2002, 2003, or 2007 for contact management and QuickBooks Pro, Premier, or Enterprise 2005 and up for financial management, you can synchronize data to avoid entering the same contact information twice.

It’s easy, but you need to take care to follow instructions precisely anytime you’re integrating multiple databases. You can’t unring that bell. Start by backing up your data in each program, as shown in Figure 1. For Outlook, check your help files; the data file format changed in 2003. QuickBooks users should use the program’s standard built-in tools by clicking File|Save Copy or Backup. You can either save your QuickBooks file locally (to a CD or USB flash drive) or use QuickBooks Online Backup (30-day free trial; starts at $4.95/month for 5 GB).

 

Figure 1: It’s very important that you back up your Outlook and QuickBooks files before you synchronize.

Get in Sync

QuickBooks lets you synchronize three kinds of contact information with Outlook:

1. Customer contact information contained in your Customer & Jobs list

2. Vendor contact information from your Vendor list

3. Contact information on your Other Names list

Note: You can’t synchronize employee contact information.

To get started, click File|Utilities|Synchronize Contacts. QuickBooks Contact Sync must be installed on your PC before you do your first sync. When the window shown in Figure 2 opens, click OK and follow the instructions for downloading and installing.

 

Figure 2: QuickBooks provides a wizard that walks you through the process of downloading and installing QuickBooks Contact Sync.

QuickBooks will prompt you to shut down Outlook before you start, if you haven’t already done so. When the installation is finished, you’ll see the window shown in Figure 3. And you’ll notice that the installation has added a new toolbar to your copy of Outlook.

 

Figure 3: QuickBooks tells you when your QuickBooks Contact Sync has installed properly.

Click Finish and restart Outlook. You’ll see a window titled QuickBooks Contact Sync for Outlook (this can be disabled once you’ve gone through the initial import by unchecking the box in the lower left corner). Make sure you’re logged into QuickBooks as the Administrator and that the company file you want to synchronize is open.

Click Get Started. A box that says Connecting to QuickBooks will open, and there’ll be a short delay. After the connection is made, the Begin Setup window opens. Click the Setup button to launch the wizard. If you have more than one Outlook contact file (for example, if you use Outlook with Business Contact Manager), you’ll have to select the file you want to sync.

Click Next. The next screen asks you to specify which contact types you want to sync (customers, customer jobs, and/or vendors). If any of your contacts are personal, you can choose to exclude those. Click Next after each of those screens.

QuickBooks Contact Sync includes a mapping tool, which helps ensure that the correct fields in each program are matched. For example, Company in one program should “map” to Company in the other as shown in Figure 4.

 

Figure 4: QuickBooks Contact Sync helps you make sure that fields in each program “map” accurately to each other.

The final step in the setup process is critical if you don’t want to lose important data, so choose the next option carefully. You need to tell QuickBooks Contact Sync what to do if the same contact exists in both programs but their properties are not exactly the same. Your options:

• Let the Outlook data win

• Let the QuickBooks data win

• Decide in each individual case

Once you’ve made your selection, click Save. If you want to go back over any of these settings, click Setup. Otherwise, click Cancel or Sync Now.

After you’ve completed the first synchronization, you’ll need to perform a manual sync each time you want to make the databases match. To do so, click the QuickBooks ContactSync menu in Outlook. This menu provides a number of options, including Preferences.

Sync Now and Save Time Later

Saving time these days is saving money. You can use those extra minutes (or hours) to build your business instead of always having to worry about running it. QuickBooks Contact Sync can give you some of those extra minutes, help you avoid frustration, and aid in keeping your databases clean and up to date.

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Should You Tap Into Your 401(k) Plan?

The 401(k) plan is for your retirement, so you need to consider a withdrawal’s impact on your future retirement.  Also, since withdrawals are taxable, you probably won’t be able to keep the entire amount that is withdrawn.  If you are under 59-½ years of age, the withdrawal will also be subject to a 10% penalty and, if your state has an income tax, you will need to also consider the state’s tax and penalties on withdrawals. 

If the cash need is short, you might inquire about a loan from the 401(k) plan.  This will allow you to pay it back, and the interest paid goes towards your retirement.  One word of caution about loans; if you lose or change your job, the loan is accelerated and must either be paid back in full or treated as a distribution at that time.  If your 401(k) account includes elective deferrals (contributions that you have already paid taxes on), you may qualify for a hardship withdrawal of your post-tax contributions.

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