Is QuickBooks Helping the IRS Audit Your Books?

Posted on September 29, 2010 by taxblogger

Is QuickBooks Helping the IRS Audit Your Books? | Tip of the Week | September 29, 2010 | No. 10
 

Preparation is key if you are audited

Editor’s Note:  First part of this Tax Tip is for general knowledge.  Experienced QuickBooks users may want to read this Tax Tip until the end.

In the past, an IRS agent would request printed reports and back-up paper documents during an audit.  There is now the possibility that they will request an actual copy of your QuickBooks file – not just your printed general ledger.  The IRS recently purchased several thousand QuickBooks licenses in preparation of up-coming audits.

According to the National Association of Tax Professionals, IRS auditors are now being instructed to obtain a copy of the taxpayer’s QuickBooks data file for audits for any taxpayer that uses QuickBooks.  If the taxpayer refuses to provide the file and the auditor deems it necessary, they can issue a Summons for the file!

Government agencies are in desperate need of money, so they will be scrutinizing your records more than ever – keep it clean!

Give us a call if you have general or specific questions about increasing audit activities.

For Experienced QuickBooks Users:

Here are some things you need to keep in mind:

1.  In the newer versions of QuickBooks, you CANNOT turn off the audit trail.  Therefore, once you enter it in QuickBooks, it is NEVER gone.  You can’t undo it.  So use caution as you enter things and forget about delete.

2.  When you need to void a transaction make sure you memo why you voided it.  Did the customer refuse to pay the invoice, did you give away the product, did the bookkeeper double enter something?  Put a memo because you won’t remember in a few years why you did it.

3.  DO NOT MAKE CHANGES TO TRANSACTIONS IN A  CLOSED FISCAL PERIOD.  If your taxes for last year have been prepared – don’t make changes to that information.  If you do, it won’t match what was filed with the state and federal government and will present an issue should an audit be performed.  Prevent changes by setting the closing date password under Edit>Preferences>Accounting>Company Preferences>Set Date/Password.  Check your closing date exception report (on accountant versions of QuickBooks only) or have your bookkeeper and/or accountant pull that report for you.

4.  At your year end, consider making a copy of your QuickBooks data file and keeping it permanently as a “final backup” so that if a certain year is audited, you can condense prior years’ data and there will be no future years’ information in the data file for the auditor to see.  The auditors are instructed to review only the information for the year under audit, but why not make it possible for them to ONLY see the year in question.

Questions or Comments?

You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
…until next week.

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Watch Out: Expiring Tax Rates and Breaks

Posted on September 27, 2010 by taxblogger

Tip of the Week | September 22, 2010 | No. 9
 

Watch Out:  Expiring Tax Rates and Breaks

Without action by Congress by Dec. 31, 2010, lots of tax rates and breaks expire.

Capital gains taxes will revert to the levels of the 1990s.  Capital gains taxes on long term capital gains will go from 15% Federal to 20% or more Federal; taxes on dividends, currently at 15% Federal, will potentially go to the individual’s ordinary income tax marginal bracket as high as 39.6%.
Strategy:  If you have highly appreciated stock or land, 15% Federal tax may be the lowest rate you may see for a while; consider selling in 2010 rather than 2011 only after checking alternative minimum tax and all other tax ramifications of your situation.
Strategy:  Consider keeping dividend-paying stocks in tax qualified vehicles like IRAs or qualified pension and profit sharing plans until the tax law becomes clearer later this year or early next.  Consider growth stocks versus dividend paying stocks if you feel taxes are going up.

Taxes on ordinary earned income, with no action by Congress by December 31st, or soon thereafter, would rise for all taxpayers as the Bush tax cuts expire.  Current proposals by the White House and Congress have the top 2 tax brackets rise from 33% to 36% and 35% to 39.6% respectively.

Estate taxes will skyrocket.  Starting in 2011, all taxable estates $1 Million and over in value would be taxed up to 55%; in 2010, there is no federal estate tax.

My best guess:
Congress is unlikely to get tax legislation accomplished by the elections, with a last-minute compromise by parties involved.  And, I wouldn’t rule out last-minute compromises.  Progress after November 2, 2010 is more likely.  But, tax planning in November and December 2010 will be important.

Questions or Comments?

You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
…until next week.

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Don’t Miss the October 15 Deadline

Posted on September 15, 2010 by taxblogger

Tip of the Week | September 15, 2010 | No. 8
 

Don’t Miss the October 15 Deadline

If you need to file a Form 1040 (individual return), the deadline to file is October 15, 2010.  This assumes you had filed for an extension prior to April 15, 2010.  You also have until October 15, 2010 to fund a SEP-IRA for tax year 2009.
  
As a reminder, putting your tax returns on extension can be a good thing – but penalties to miss the extension deadline can be steep, up to 25% penalty of taxes owed, so make sure that you make the October 15th deadline.

Give us a call if you need help meeting your deadline.
 

Questions or Comments?

You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
…until next week.

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Dissecting the Healthcare Bill | Part 4 of 4| No. 7

Posted on September 8, 2010 by taxblogger

What’s in store….Maybe

Good Morning!  This week we will look at provisions of the Healthcare Bill that take effect in 2013 – 2018. 

Looking this far ahead is unpredictable.  Who knows how many changes may take place within Congress and the Federal Administration during this time period–or how the winds of politics may shift.  However, these highlights give us a roadmap of what to expect:

  

2013

  • Maximum health Flexible Spending Account (FSA) contributions capped at $2,500/year and increased annually by inflation.
  • Increases Medicare Part A payroll tax rate by 0.9% on earnings over $200,000 for individuals and $250,000 for married filing joint returns.  Note: this increase is only on the employee share of Medicare and not the employer’s share.
  • Self-Employed individuals and couples will also pay an additional 0.9% Medicare care tax with incomes above these levels.
  • An added Medicare tax (3.8% total) will be assessed on the investment income of individuals and couples meeting the above-stated thresholds.   This means there will be an additional tax on all interest, dividend and capital gains income.
  • The ability to deduct medical expenses on your Schedule A personal tax return will increase from the current “floor” of 7.5% of AGI to a 10% “floor”.  Note:  taxpayers over 65 will keep the 7.5% level until 2016.

2014

  • Employer and individual mandate to buy health insurance begins.  Both self-employed and W-2 employees must buy individual polices if their employer does not provide coverage.
  • For low-income individuals, a premium assistance credit becomes available.
  • Businesses with 50 or more employees must provide health coverage or pay a $2,000 penalty per employee.
  • Penalties will also be assessed against individuals who do not buy health coverage.
  • Various “Voucher Programs” will be introduced to help pay for health coverage.

2017 – 2018

  • A 40% excise tax will be assessed to employers offering “Cadillac Insurance Plans”.  Currently, this is defined as plans where the cost of health coverage for individuals exceeds $10,200 or exceeds $27,500 for family plans.
  • States may allow large groups (greater than 100 employees) to purchase coverage through Exchanges.

Questions or Comments?

Call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
…until next week.

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Don’t Miss the September 15 Deadline| Tip of the Week | No. 6

Posted on September 1, 2010 by taxblogger

Don’t Miss the September 15 Deadline

Pardon the interruption!  We were scheduled to send you the fourth tip from our series on Dissecting the Heathcare Bill, but with these September tax deadlines looming in a couple of weeks, we thought it best to send you a reminder.

If you need to file a Form 1065 (partnership return), Form 1120S (S corporation return) or Form 1041 (fiduciary return) the deadline to file your 2009 return is September 15, 2010.  This assumes you had filed for an extension prior to April 15, 2010.

The IRS shortened the extension period for all pass-through entities that issue K-1s a couple of years ago.

If you put your personal tax return on extension (Form 1040), you still have until October 15, 2010 to timely file your 2009 return.

As a reminder, putting your tax returns on extension can be a good thing—but penalties to miss the extension deadline can be steep.

Give us a call if you need help meeting your deadlines.

Stay tuned for next week’s final segment on the Healthcare Bill where we’ll talk about the provisions of the Healthcare Bill that take effect in 2013-2018.

Questions or Comments?

You can add comments on the blog, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
…until next week.

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The 1099 Nightmare | Dissecting the Healthcare Bill – Part 3 of 4 | Tip of the Week | #5

Posted on August 25, 2010 by taxblogger

On page 737 of the Healthcare Bill is a three-paragraph section that has nothing to do with hospitals, doctors, drugs or health insurance.  Starting January 1, 2012 all business entities will be required to issue 1099s to all individuals and business with which they spend $600 or more annually for goods and services.

Currently, businesses must file 1099-MISC forms only to individuals and unincorporated business for goods and services provided.  For example, a small business contracts with an individual to design a web site for the company.  The cost is $1,200 to perform the work.  A 1090-MISC is issued to that contractor to insure the income is reported on that contractor’s personal tax return.

The intent of the new reporting requirements is to capture an estimated $2 billion in taxes on income that currently goes unreported each year.

So starting in 2012, if a small business purchases a computer from Staples, they will need to get Staples’ federal identification number and address in order to issue them a 1099.  Same goes for the provider of their internet services, office supply company, software vendor, utility company, etc.

These reporting requirements will add a HUGE compliance problem for American businesses. Small companies, especially, just don’t have the manpower to track down the information and submit 100 or more 1099s each year.  And what about all the companies on the receiving end?  There is going to be a flood of 1099s pouring into Office Max, Apple, Procter & Gamble, etc. each year.

Fortunately, Representative Dan Lungren (R- Calif.) has introduced a bill to roll back this provision.  We offer him our support!

Questions or Comments?
You can add comments here, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
…until next week.

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What’s in Store for 2011 and 2012 | Dissecting the Healthcare Bill – Part 2 of 4 | Tip of the Week | No. 4

Posted on August 18, 2010 by taxblogger

Good morning!
Last week we looked at the changes this bill created for 2010.  This week we highlight the changes for 2011 and 2012.

2011 Highlights

  • A new national employee-funded long-term care benefit known as the “Community Living Assistance Services and Supports Act” (CLASS Act).  Estimated monthly premium of $120 for a $50/day benefit
  • The value of employer provided group health coverage to be reported on each employee’s W2
  • Distributions of proceeds from HRAs, FSAs and HSAs will no longer be non-taxable for over-the counter medications.
  • Any distributions from HSAs and MSAs for non-medical expenses will have an additional 20% penalty tax (currently 10% for HSAs and 15% for MSAs
  • Brand-name drug manufacturers and importers will pay an added $2.5 billion in annual taxes

2012 Highlights

  • Employers must provide a Summary Plan Description (SPD) of group policies to all employees
  • A new tax of $2/covered individual will be assessed to all those covered by self-insured health plans.
  • Payors (including all corporations) will need to issue 1099s to report all payments of $600 or more for goods and services purchased.

Next week we will look at this “1099 Nightmare” in more detail.

Questions or Comments?
You can add comments here, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
…until next week.

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Dissecting the Healthcare Bill – Part 1 of 4 | Tip of the Week | No. 3

Posted on August 11, 2010 by taxblogger

What you need to know for 2010

Good morning!
We are going to start a four-part series of Tax and Money Tips to take a look at the Patient Protection and Affordable Care Act and the Health Care & Education Affordability Act.  These acts represent over 2400 pages of new laws and are collectively called the Healthcare Bill.

Despite widespread belief that health coverage is mandatory now, the mandate for health insurance coverage does not actually take effect until 2014.  In fact, some provisions of the Healthcare Bill do not take effect until 2018.

This week we will highlight the changes that take effect in 2010.  Subsequent Tax Tips will look at future changes.

Here is what you need to know for 2010:

  • Health care coverage availability for children up to age 26 (by 9/23/2010)
  • Ban on lifetime benefit limits of health care plans
  • Ban on exclusion of coverage for pre-existing conditions for those under age 19, (2014 for all)
  • Policies must cover preventive checkups without employee co-pays
  • Tax credits available to small business owners to offer health care coverage
  • 10% sales tax on tanning salon services
  • Businesses must provide the same coverage for all employees
  • 20% – 40% penalties associated with transactions that do not meet the “Economic Substance” test
  • Medicare Part D “donut hole” will be narrowed by providing a $250 rebate to senior citizens
  • A new $13,170 refundable Adoption Credit

There are many unknown and unanswered questions about this mammoth and far reaching bill.  As Speaker of the House, Nancy Pelosi said, “Let’s pass this bill and see what is in it.”

We’ll find out together.

Questions or Comments?
You can add comments here, call 919-847-2981, or visit our web site. We look forward to hearing from you.

Mark Vitek, CPA/PFS, CFP®
…until next week.

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Tax Deadlines | TMTW#1

Posted on July 5, 2010 by taxblogger

As the first “official “TMTW” I wanted to pass along some key tax deadlines as we look out the rest of the year.

September 15, 2010
3rd quarter estimated tax payments due for 2010 tax year.

Final deadline to file corporate tax returns if an extension was requested. (Forms 1120, 1120A, 1120S).

Final deadline to file trust tax returns (Form 1041) if an extension was requested.

Final deadline to file partnership tax returns (Form 1065) if an extension was requested.

October 15, 2010
Final deadline to file individual tax returns (with extension).

Last day the IRS will accept an electronically filed tax return for 2009. If filing after October 15th, you’ll need to mail in your tax return for processing.

Final deadline to fund a SEP-IRA for tax year 2009 if you requested an automatic extension of time to file.

November 2010
Start planning any year-end tax moves.

December 1, 2010
If you are covered by an HSA-compatible health insurance policy as of December 1st, you’ll be eligible to contribute the full amount to a Health Savings Account for the year.

December 31, 2010
Last day to make any tax moves for the year 2010.

Marital status on this date determines your marital status for the whole year.

I’m looking forward to opening a meaningful dialogue and helping you navigate the increasing complexities of the tax and financial environments. I welcome your suggestions for topics or general comments. Just email me at mark@markvitekcpa.com. Please let me know how my firm can assist you.

Until next week,
Mark Vitek, CPA, CFP(R), President/CEO
…. and the guy behind TMTW

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