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This “TAX TIPS NEWSLINE” is compiled by the founder of the Tax & Advisory firms, Frank L. Zerjav, CPA and team of Professional Tax Associates, and then it is sent by email each month because you need tax and compliance knowledge. It’s a big part of your life and the entities that you operate.
The CPA firm engages in Strategic Tax Planning for business and real estate owners, professionals, investors and individuals. Our clients minimize their tax burden by appropriate
proven strategies, which help them to keep more of what they earn. Advisory Group’s Tax Resolution Experts also engage in resolving tax problems with either Federal or State tax agencies for clients who need these specialized, proven solutions and options. Our dedicated team of Professional Tax Advisors and Professional Tax Resolution Experts do care; their primary objective is the well-being of clients, their family and their survivors, as well as their satisfaction with the work we do, while our goal is to be the best, not the biggest firm.
Contact Us - There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following:
• Pension or IRA distributions. • Sale or purchase of a residence or • Self-employment.
• Significant change in income or deductions. other real estate. • Charitable contributions of
• Job change • Retirement. property in excess of $5,000.
• Marriage. • Notice from IRS or other revenue • Gifts (over $14,000 to an
• Attainment of age 59½ or 70½. department. individual).
• Sale or purchase of a business. • Divorce or separation.
Inside this Month’s Issue
Report of Foreign Bank & Financial Accounts (FBAR)- DUE 6/30/2016
Maintain A Sane Approach To Taxes
Anxiety-Free Taxes For Business Owners
Launch a “Solo” Individual 401(k) Plan
ROTH IRA Conversion Strategy to Avoid Taxes
2016 Tax Law Changes to Know About
The American (USA) Free Enterprise System
Wide Range of Services Offered
REPORT OF FOREIGN BANK & FINANCIAL ACCOUNTS (FBAR)
This information report (FBAR) filing deadline is June 30, 2016.
IRS had issued, during 2014, its “Reference Guide on the Report of Foreign Bank and Financial Accounts (FBAR),” which summarizes and augments previously published information on that report that must be filed by U.S. persons who have financial interests in or signature authority over financial accounts maintained with financial institutions located outside of the U.S.
The FBAR is not filed with a federal tax return. A filing extension, granted by IRS to file an income tax return, does not extend the time to file an FBAR. There is no provision to request an extension of time to file an FBAR. The Financial Crimes and Enforcement Network (FinCEN) has delegated enforcement authority regarding the FBAR to the IRS.
• Recordkeeping. The Reference Guide provides that, generally, records of accounts required to be reported on the FBAR should be kept for five years from the due date of the report, which is June 30 of the year following the calendar year being reported. The records should contain the following: a) name maintained on each account; b) number or other designation of the account; c) name and address of the foreign bank or other person with whom the account is maintained; d) type of account; and e) maximum value of each account during the reporting period. Retaining a copy of the filed FBAR can help to satisfy the recordkeeping requirements. An officer or employee who files an FBAR to report signature authority over an employer’s foreign financial account is not required to personally retain records regarding these foreign financial accounts.
• If a filer does not have all the available information to file the return by the June 30 filing due date, the Reference Guide provides that the filer should file as complete a return as possible by June 30 and amend the report when additional or new information becomes available.
TIP: FBAR and FinCen Reports must be e-filed.
MAINTAIN A SANE APPROACH TO TAXES
Taxes are the kind of thing that tends to drive a business owner up a wall. With complex laws, strict enforcement agents, and constant changes, the tax code can easily trip up someone who spends most of their time focusing on creating a viable business. It’s important for you to maintain a sane approach to taxes, and our goal here is to help you do that.
Income taxes stem from the 16th Amendment, passed in 1913. Direct taxes on individuals had been forbidden previously, and over the past century the tax laws have steadily grown, along with the Internal Revenue Service designed to implement taxation policy. There are five major sources of tax law and interpretation in the United States:
Internal Revenue Code, tax laws passed by Congress;
Regulations, interpretations made by the Treasury Department;
Revenue Rulings, which are specific interpretations made by the IRS;
Revenue Procedures, which are specific policy statements the IRS makes; and
Case Law, rulings made by federal courts about taxation issues.
It all works together to create a tangled web that applies to both individuals and corporations, enforced by the IRS and its agents. The web is constantly changing, with new developments in each of the five areas listed above. The complex code has created an industry for tax professionals, who must spend countless hours every year keeping current on the various tax laws, using that expertise to handle the process for the average citizen, who can’t possibly keep up.
Taxation is serious business, because the IRS and its agents are tasked with making sure that each entity pays the taxes it owes. You don’t want to get involved in a long, costly legal fight with the IRS. Although you shouldn’t just “cave in” in a situation where you have a strong case that would significantly benefit your business, you need to choose your battles carefully. As a government agency, the IRS has a lot more resources than you, and can turn a fight into a no-win situation.
How should you keep your head when it comes to taxes? Even though none of us will ever enjoy filling out our annual tax forms, you need to have a balanced approach. An extreme reaction to taxation can lead you to make mistakes that you’ll regret down the road. Here are tips to maintain a balanced, sane approach to taxes:
Recognize your responsibility to pay your fair share of the government’s budget.
Recognize the IRS’s right to collect the income tax.
Stay away from tax evasion schemes. If someone offers you a tax kit that will supposedly exempt you from tax, or puts your money in some offshore bank you’ve never heard of, just say no.
Learn about the IRS—the way it thinks, operates, and acts as it approaches its assigned task.
Focus more on knowing how the IRS interprets the law; the interpretations in practice tend to be more important than the actual letter of the law.
Learn how to report your income without providing excess data that increases the chance of an IRS audit.
Even if you prepare your own tax return, find a trustworthy tax advisor; you can always get some help and guidance and benefit from a professional review of your return.
Don’t be afraid of the IRS. There are some true stories of IRS abuses, but the IRS is usually reasonable when it’s dealing with taxpayers, and the Taxpayer Advocacy Program is an effective help for dealing with a large, complex system.
Never, ever, ever intentionally fail to report your income or pay wages when you can’t remit the payroll tax.
ANXIETY-FREE TAXES FOR BUSINESS OWNERS
For most people, tax time only comes once a year, but for business owners and the self-employed, it rears its ugly head in the form of quarterly tax payments four times a year. And because business owners already have so many worries on their plate, thinking about and planning for taxes can be an easy task to keep moving down the To Do list.
Often entrepreneurs open their first business without giving taxes much of a thought. Of course, when it was time to make their first tax payment that was something they deeply regretted. Over time, they get better at managing the tax-side of the business and even grow to appreciate the process. If you’re a business owner overwhelmed with anxiety at the thought of paying your taxes, here are a few tips:
Take full advantage of a home business
If you run your business from home, take full advantage of the benefits that come with it. For example, depending on how much of your home facilities are devoted to your business and how much business you do from home (e.g. do you use it for significant management or administrative activities?) you can claim the Home Office/Storage Tax Deduction.
While it can certainly be a bummer to send off a portion of your hard-earned money to the IRS, that isn’t usually where the anxiety and stress of paying taxes factors in for business owners. From my experience, and in speaking with fellow entrepreneurs, the real drag is compiling all of the information you need in order to figure out your tax bill. Tracking down all those receipts, invoices, pay stubs, etc. takes a lot of time out of a business owner’s already very busy day. The best way to avoid that tax time stress is to stay organized throughout the year. Implement systems or use software that will help you keep track of all those details.
Don’t miss out on deductions
The bright light in the taxes tunnel are deductions, so be careful not to leave any of those stones unturned. As a small business owner, you’ll have many opportunities for deductions. In fact, there are many opportunities for taking deductions that you shouldn’t miss. Along with the home facilities deduction, you should also look for deductions if money is spent for office furniture, supplies, or other equipment. You can also deduct insurance premiums, retirement contributions, and half of your Social Security contribution.
Don’t go it alone
Business owners often are convinced that they can do everything themself. If they can juggle managing three employees, attracting new clients, and helping to take care of customers, then doing their taxes should be a breeze. They realize how wrong they were and didn’t have the skill set needed to effectively and efficiently do their taxes, and that is okay. There is no shame in having someone else do your accounting, payrolls and taxes. In fact, it’s probably the best way to ensure you take advantage of all the deduction opportunities and other incentives and credits that are available for you. Outsourcing allows you to spend more time growing your business, not doing administrative, compliance and bookkeeping tasks, in addition to earning bigger net profit margins.
Paying your taxes will never be fun. But when you take steps to make it less stressful, you can ensure your tax worries don’t take valuable time away from actually running your business. And who knows, it may even lead to a very satisfying tax refund!
Strategy: Set up a “solo 401(k) plan.” If you qualify, you can effectively benefit from both “employee” and “employer” contributions to your account. In many cases, this dual tax winner can’t be beat because it often allows you to sock away more money than any other type of retirement plan.
An employee participating in a traditional 401(k) plan can make an elective deferral contribution to the plan within the annual limits and the employer may match part of the contribution, usually up to a single digit percentage of your salary.
A solo 401(k) offers even more. For 2016, you could defer up to $18,000 of compensation to your account, plus an extra catch-up contribution of $6,000 is allowed if you’re age 50 or older - the same as with elective deferrals to a traditional 401(k). Of course, the limits on deductible employer contributions still apply, but here’s the kicker: Elective deferrals to a solo 401(k) don’t count toward the 25% cap. So you can combine a 25% employer contribution plus an employee deferral for greater savings.
The contributions to a solo 401(k) grow tax-deferred until you’re ready to make withdrawals.
If the business isn’t incorporated, the 25%-of-compensation cap on employer contributions is reduced to 20% because of the way contributions are calculated for self-employed individuals. But that still leaves you with plenty of room to maneuver.
Note that a solo 401(k) may offer other advantages. For instance, the plan can be set up to allow loans and hardship withdrawals. Also, you might roll over funds tax-free from another qualified plan if you previously worked somewhere else.
Tip: Contributions are discretionary. Therefore, you can cut back on your annual contribution - or skip it entirely - if your business is having a bad year.
ROTH IRA CONVERSION STRATEGY TO AVOID TAXES
If you have money in a traditional IRA and want to take advantage of a Roth conversion, you need to know about the pro-rata tax treatment of conversions.
If you have both tax deferred and after tax money in a traditional IRA, you could face hefty taxes on the deductible IRA money, since you must convert a pro-rata amount of deductible and non-deductible money.
Roth IRA Conversion Strategy to Avoid Taxes. When you make a Roth IRA conversion for your IRA you must include a portion of tax-deferred money in the IRA in proportion to the amount held.
If your 401k provider allows transfers of IRA money, you can transfer your deductible IRA money to your 401k. When you convert your remaining non-deductible money in your traditional IRA to your Roth IRA, it will be tax free!
Tax Free Roth IRA Conversion Steps:
1. Identify how much money in your IRA was (or will be) deducted on your taxes.
2. Move your deductible IRA money to your 401k.
3. Make a Roth IRA Conversion with your non-deductible money.
4. Report your conversion with 100% basis on form 8606.
5. The conversion will be tax free.
Let’s say I have an IRA worth $100,000, with $50,000 (50%) tax deferred and $50,000 after tax. If you complete a conversion of $20,000 to a Roth IRA, you will be responsible for taxes on $10,000, or 50%. You cannot specify to convert only the after-tax money in the account.
If you used the strategy above, you would first move $50,000 of tax deferred money to your 401k. Then, when you make your $50,000 Roth IRA conversion, the taxable amount will be $0.
Which IRAs count? Don’t forget to account for all of your IRA money when you determine how you might make this work. All IRAs including rollover IRAs are considered one IRA for conversion purposes. The traditional IRA also includes your SEP-IRAs and SIMPLE IRAs.
Add additional money. Before your conversion, you can also contribute to a non-deductible traditional IRA at your broker of choice up to the IRA Limits.
Don’t have a 401k? If you don’t have a 401k, or your current 401k provider doesn’t accept incoming money, you could establish a solo 401k for the purpose of moving your deductible money in your traditional IRA.
Keep detailed records. If you do this, you need to keep very detailed records.
Early retirement and Roth IRAs. This strategy sounds like a lot of work to move money into a Roth IRA.... why would you want the hassle? If you are considering an early retirement, the Roth allows much more flexibility in early withdrawals than a traditional IRA. After a conversion, you only need to wait 5 years, then you can withdraw your conversion money tax free. A real benefit for anyone considering early retirement!
2016 TAX LAW CHANGES TO KNOW ABOUT
After the giant ball drops in Times Square to signify a new year, the IRS is notorious for making some adjustments to the federal tax code. Some years have brought significant change, while other years remain very similar to previous years. For tax year 2016, there are some expected changes, but not much is dramatically different from tax year 2015.
Here is an overview of the most important 2016 tax law changes you need to know about:
Tax penalties for the Affordable Care Act have increased.
In 2014, the federal government started levying tax penalties through the Affordable Care Act for those without qualifying health insurance. These tax penalties started at $95 per adult, or 1% of income above the filing threshold. In 2015, they quickly rose to $285 per adult, or 2% of income above the filing limit. For 2016, the penalties are undergoing a dramatic increase. They are $695 per adult, or 2.5% of income. There is a family maximum penalty that applies to the per-person amount, and this penalty is now $2,085.
Tax brackets have gone up slightly.
For 2016, the federal income tax bracket amounts have increased by about 0.4%. The top marginal income tax rate of 39.6 percent will now be levied on taxpayers whose adjusted gross income (AGI) is $415,050 or higher for single filers and $466,950 or higher for married filers.
The standard deduction for head-of-household taxpayers has increased.
Thanks to the low inflation rate, the standard deductions for taxpayers who choose to file as single and married-filing-jointly remain unchanged for 2016. But if you qualify as a head-of-household tax filer, the standard deduction has gone up $50 to $9,300 for 2016.
The personal exemption that taxpayers can take on their income tax returns has gone up by $50 for 2016. This means the new personal exemption amount is set at $4,050.
Health savings account contribution limits have increased.
A health savings account is designed to allow individuals with high-deductible health plans to set aside money on a pretax basis to help cover their healthcare expenses. For 2016, the contribution limit on individual policies remains at $3,350. However, the maximum contribution for family policies has increased by $100 to $6,750. The so-called “catch-up contribution” of $1,000 for individuals who are 55 and older remains unchanged.
The Earned Income Tax Credit (EITC) value has gone up.
In 2016, the maximum allowable Earned Income Tax Credit (EITC) has gone up slightly. For taxpayers who have 3 or more qualifying children, the maximum credit has risen to $6,269. Taxpayers with 2 children are eligible for a maximum $5,572. Families with only one child can get up to $3,373. Those with no children can claim up to $506.
The estate tax exemption is now higher.
The lifetime exemption amount for what is known as the gift and estate tax is based on inflation. As such, it has increased in 2016. The exemption amount has spiked to $5.45 million. This amount is up $20,000 from 2015. The limit applies to the estates of individuals who pass away in 2016.
The standard mileage rate for business use of a vehicle has decreased.
In 2015, the standard mileage rate for self-employed individuals who use a personal vehicle for business trips was 57.5 cents per mile. For tax year 2016, the standard mileage rate has dropped to 54 cents per mile. This is the lowest the rate has been in several years and is likely due to lower gas prices. Other standard mileage rates for 2016 can be found on the IRS website.
Contact us to schedule your consultation to identify proven tax-smart strategies, options & solutions that deliver real value for the professional services needed based upon your particular situation by calling (314) 205-9595.
THE AMERICAN (USA) FREE ENTERPRISE SYSTEM
We encourage our readers to also be advocates for free enterprise within their own circles of influence, for this important component of freedom (Liberty) endorsed by most Americans. FREEDOM OF CHOICE.
The American economic system of free enterprise operates according to the five main principles:
Freedom to Choose Our Businesses Profession or Occupation. In America, the decision whether or not you should go into any kind of enterprise (business) or professional practice is basically yours alone to make. You will decide what fees to charge and what hours to work. Certain laws prohibit you from cheating or harming your customers or other people. Generally, you are left alone to run your business as you see fit.
Right to Private Property. Private property includes a piece of land, a home, or a car owned by an individual, a family, or a group. It differs from a public building, or public property, such as the city hall, a park, or a highway, all of which provide a government service for all citizens. In the USA: free enterprise economic system, its people have the right to buy and sell private property which is guaranteed by law.
Profit Motive. The main reason why you or any entrepreneur started a business was to make money. You do this by earning more money than you spend. The amount of money left over after subtracting your business expenses from your business income is known as your profit. In the free enterprise system, business firms try hard to keep costs down and increase their income from sales. The better they succeed at this, their profits are higher. Economists describe the efforts by business firms to earn the greatest profits as the profit motive.
Competition. Just as you are free to start up a business or professional practice, so is everyone else. You can compete without interference from the government, as long as you so without practicing actual violence or fraudulent deception. If your business is profitable, it is likely that others will enter the same business hoping to be as successful as you are. They will be competing with you for the same customers. To win a share of the business, other sellers may try to offer more and better services or services at lower prices. Because of the pressure of competition, business firms and professionals must constantly try to provide the best services and create the best products at the lowest possible prices.
Consumer Sovereignty. In the end, it is the customers, clients or consumers, who determine whether any business succeeds or fails. In the U.S.A. free enterprise economy, consumers are said to have sovereignty-the power or freedom to have final say. Consumers are free to spend their money for Product X or for Product Y. If they prefer Y over X, then the company making X may lose money, go out of business, or decide to manufacture something else (perhaps Product Z). Thus, where consumers select to spend their dollars causes business firms of all kinds to produce certain goods and services and not others.
Providing a wide range of Specialized non-traditional Solutions plus offering traditional CPA services including:
Real Estate Transactions
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Business & Tax Advisory
Strategic Tax Planning
Comprehensive Accounting Solutions including data and payroll processing.
Representation for Resolution of Tax Problems involving levy, liens, audit defense, payment plans, un-filed tax returns, penalty abatement and offers in compromise.
Tax Return Preparation for Business and Real Estate owners, Professionals, Investors, Individuals, Corporations, Partnerships, Estates, Trusts and Exempt organizations.
Our experienced team of dedicated Professionals are committed to providing personal attention, quality work, reliable proactive, helpful services and solutions to make complex accounting and compliance tasks easier, gain greater financial control and increase profitability by providing timely, accurate and comprehensive accounting, data and payroll processing services. This allows you more time to focus on growing your enterprise.
Professional Tax Advisors consult on all aspects of tax compliance, advisory and planning, including individual, corporate, partnership, fiduciary, trust, gift and tax exempt organization tax returns. These tax related services are provided by Zerjav & Associates, Certified Public Accountants, which has an alternative practice structure that is a separate and independent entity which works together with the Advisory Group Associates to serve clients’ needs.
Our Core values include: Accountability, Accuracy, Collaboration, Commitment, Efficiency, Integrity, Passion, Quality, Respect and Service Excellence offered by our team of Professional Tax Advisors.
Our primary objective is the well-being of clients, their family and their survivors, as well as their satisfaction with the work we do, while our goal is to be the best, not the biggest firm.
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Our professional service offerings are tailored to each stage of a client's tax life, from basic compliance and tax return preparation, where our process is imperative to minimizing costs, to many complex circumstances, where both our process and specialized knowledge is the key to successful results.
Our complimentary monthly electronic newsletter to subscribers provides comprehensive and timely insight on a wide range of taxation issues including federal and state tax incentives and current issues.
We also offer an initial complimentary consultation to help us identify proven tax-smart strategies, options and solutions that deliver real value for the professional services needed based upon the particular situation of any taxpayer.
Our Mission: Sharing Solutions that deliver a real value.
Tax Professional Standards Statement. The TAX TIPS NEWSLINE is published monthly to provide general educational tax compliance tips, information, updates and general business or economic data compiled from various sources. This document supports the marketing of professional services and does not provide substantive determination or advice affecting specific tax liability. It is not written tax advice directed at the particular facts and circumstances of any taxpayer. Nothing herein shall be construed as imposing a limitation from disclosing the tax treatment or tax structure of any matter addressed. To the extent this document may be considered written tax advice, in accordance with applicable requirements imposed under IRS Circular 230, any written advice contained in, forwarded with, or attached to this document is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding any penalties that may be imposed under the Internal Revenue Code.
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