December 31, 2010
A Few Tax Tips To Assist with Your 2010 Tax Filings
(1) Collect Form W-9 from contractors that you use.
(2) Take a quick count of your inventory. Did you purchase items not sold or raw materials not used? Count these items as inventory.
(3) Estimated payments for 4Q 2010 are due January 15, 2011
(4) All Payroll filings are due by January 31, 2011
(5) Issue W-2s to your employees by January 31, 2011
(6) Issue 1099s to all consultants etc by January 31, 2011
(7) Charitable Contributions you make and plan to deduct will require written acknowledgement from the organizations to whom the donations were given. (Rules apply to the amount and type of donation)
(8) Did you start a business in 2010? Start-up costs deduction for 2010 is $10,000. Costs must be qualified cost.
(9) Start organizing your receipts – yes, you may them even though you may have credit card statements. This will save you time and money in the event of an audit.
(10) More tips to follow.
December 3, 2010
What’s Our Obsession With Income? –An Accountant’s Perspective
As promised, I will be writing newsletters twice a month and it is that time again to publish another one. Recently I have been hearing people talking about income and how much money they hope to get back in tax refunds. First I will talk about income then how this affects your taxes and tax refunds.
What is income? Income can be Earned or Unearned. For Earned Income, I would say it is revenues from your business and your earnings such as salary. Unearned income includes other receipts such interest and dividends; the gain you make when you sell stocks for more than you paid for them; and others sources such as social security benefits, unemployment benefits, alimony, some insurance proceeds.
For a business, most people associate income with how much money the business earns. Net income is the positive amount that remains after summing all receipts and deducting all expenses. Income or profit should all be positive; otherwise it is a loss.
How do we generate income? For individuals, the salary we earn from providing our services to our employer is one source of income. The interest we earned from money in the bank is income. The gain we make when we sell our shares is income. The dividend we are paid for shares we hold in a specific company is income. The money we receive from rental property is income. Businesses have various sources of income but the primary source is usually the revenues they generate from selling a product or service. Some businesses only source of income may be royalties or franchise fees.
As Howard Clark from CNN says on his show – from the time he was young, he was obsessed with money. So the next question is, how do we accumulate future income? We can put money in the bank and save it and earn interest on it. Given the cautious financial environment we are experiencing now, interest rates are less than 1%. It will take forever to earn enough interest on our savings to help accumulate income for us in the future. How do we solve this problem? We seek out other ways to generate income. One other way is to set up a 401K plan but this is really an investment not truly savings as the money in the plan is at risk. The same is true for an IRA or Roth IRA.
The next question this situation raise is how can I be sure the money I am attempting to save will be there in the future when I need it? The step to do so is called protecting your income. We can protect our income in several ways. One is put your money in a reputable bank. Now most people would ask, which one is that again? The too big to fail saying does not hold much strength in today’s economic environment. Consumers aren’t left with many other options but to use these large financial institutions. The key point to keep in mind is to put no more than $250,000 into one account which is the maximum amount the FDIC will cover in the event the bank fails. As of December 31, 2010 through December 31, 2012, deposits held in non-interest bearing accounts will be fully insured by financial institutions back by the FDIC and there is no limit to the amount held in these accounts. This is definitely something to think about but again proceed with caution. Another way to protect our income is take out a disability insurance policy to cover us in the event we are unable to work because of a disability or illness. Life insurance or term life insurance is another form of protection but view this as a savings for the future for yourself or family.
In my previous newsletter, I talked about estate planning and distribution of income.
Next, it’s time to talk about taxes on your income. Let’s face it. Most of us have to pay taxes on our income unless we fall into the poverty category or don’t earn enough money to do so. The amount of taxes we pay depend our individual situation. Some of us fall into the minimum tax bracket and others do not.
As I mentioned above, most people I have been talking to recently have this stigma attached to them that they are entitled to get money back from the government. Yes, there are credits available to certain individuals such as the earned income credit for individuals and families. To claim this credit, you must have earned income as defined by the IRS. You will be entitled to a refund as long as you paid through salary deductions, more taxes than the amount calculated as owed when you file your taxes.
As long as you qualify for refundable credits or you paid more taxes than you owe, you will get a refund. But if you resort to creating fictitious transactions and collude with your accountant to prepare your tax return based on these transactions, guess what? You both may end up in jail. Yes, jail. That is where Wesley Snipes is headed on December 9, 2010 for under reporting income meaning tax evasion.
November 19, 2010
Caring for Elderly Parents or other Relatives - An Accountant’s Perspective
This is my first newsletter and the goal is to write these twice a month. The topic for this newsletter is Caring for Elderly Parents and other Relatives. For the baby boomers, this is something that you are already experiencing or maybe preparing to experience. I fall into the prior category.
The definition of what makes up family has changed over the years. Now it is a father, mother, children, grandparents and grandchildren too. Yes, pets are included as well. A family also includes same sex couples.
Many of us may have grown up with our grandparents living in the same home with us but some of us have not. I vaguely recall my grandmother living with us for a while before she moved in with my other relatives. I don’t recall taking care of her being a challenge to anyone until she became ill and eventually passed away.
Now thirty years later, together with my sisters and brothers, we are caring for our parents. What does it mean to care for someone? Depending on who you ask, the answers may vary according to that person’s perspective. Below is a list of things to consider with respect to caring for family or relatives.
(1) Physical and Emotional Support
(2) Financial Support
(3) Estate Planning
(4) Other Family Concerns
Physical and Emotional support is a challenge for everyone. How do we designate who should be the primary caregiver? In my family, we all share the responsibility for the well being of our parents. If a child is involved, a guardian may have to be designated.
Financial advisors may have estate planning as the first area of concern for their clients. For the family unit, it may be financial support which is a concern for us as well. Where does the financial support come from? For some families it is:
(1) Their own savings
(2) Their children’s money
(3) Alimony / Palimony
(5) A Trust fund
(6) Social Security
(7) 401K Plan / IRA Savings
(9) Insurance policies
(10) Government subsidies
(12) Proceeds from lawsuits
(13) Lottery winnings – a few people may fall into this category
Estate Planning. We hear these words a lot but what is it all about? The definition according to Wiki is
“the process of anticipating and arranging for the disposal of an estate. Estate planning typically attempts to eliminate uncertainties over the administration of a probate and maximize the value of the estate by reducing taxes and other expenses. Guardians are often designated for minor children and beneficiaries in incapacity.”
Is Estate Planning necessary? Absolutely. According to the definition, “it is an attempt to eliminate uncertainties…” . This is why a plan is important.
How do you start the process? Here is my suggestion for the steps you can follow:
(1) Make a list of everything you own – cash, investments, stocks, insurance policies, property, jewelry, personal possessions, etc and a separate list of all your debt.
(2) Decide the lifestyle you want to live. Why? If you are planning to live a simple life and won’t require all your cash to support you, then you may want to think about setting aside some of it for investment.
(3) Think about how you want to dispose of the remainder of what you have.
(4) Get a good grip on what you want to do
(5) Find an attorney and draft a Will.
(6) Speak to an Accountant who will address the estate tax issues with you.
(7) Get a Financial Advisor for guidance on investment tools to utilize that will meet your needs.
Some people may say the Financial Advisor should be first, but I say last. Why? It is your estate and you should know exactly how you want to handle the disposal of your assets and settlement of your debts. Remember I said “draft a Will”? When you meet with your Financial Advisor, you would be better prepared and open to suggestions based on his/her guidance. As you begin to see what your financial picture will look like, you can then work on finalizing your Will.
Most of the financial advisors I have met with, including my own brother, recommend Insurance whether it is whole life or term insurance. This is a great investment tool for people who have a family and want to make sure their family is provided for.
What are some of the other family concerns? Preferential treatment of a child or sibling and special needs for family members are definite concerns. Keep in mind that care involves making sure your family members enjoy a quality life style.
Start planning today for the care of your loved ones and seek expert advice for guidance.
“Financials or Taxes – Let’s Prepare Yours Together”™