It’s January: Time to Prepare for Tax Season

by Clayton Himstedt, CPA

Tax SeasonNow that the holidays are behind us, we can start focusing on everyone’s favorite time of year, tax time. Throughout the month of January, your 2015 tax documents will begin arriving in your mailbox. The best time to provide your tax information to your tax preparer is early February even if you don’t have every last tax document. By early February you should have collected the bulk of your tax documents and the additional time to prepare and file your tax return will benefit you and your tax preparer.   The following is a list of the typical documents you may receive and should bring to your tax preparer:
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Business Health Checkup: Pre-Tax Net Income – Operating Expenses

Authors: David Wagstaff and Calvin Longer 

checkboxPeriodically we will highlight a ratio or benchmark and talk about how you can use these to better understand your business.

The disclaimer: Benchmarks and ratios, blindly applied, can be dangerous. Benchmarks can be useful in understanding areas to investigate, but it’s important to understand what’s being compared and why variances might exist.

The Benchmark: Operating Expenses

The last two month we discussed Pre-Tax Net Income (November) and Gross Margin (December). Jointly they provide a solid foundation to assess a business’s current health. This month we will dig a little deeper and look at Operating Expenses.

Operating expenses are those expenditures that a business incurs in management of the business.   These include selling and general and administrative expenses but do not include the cost of the materials used in the production of the goods or services.

Operating expenses vary widely from industry to industry depending upon the nature of the business. Operating expenses are important because they speak to the efficiency of the administration of the enterprise.
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The Bipartisan Budget Act of 2015: How it Changes Social Security Claiming Strategies

By Francis C. Thomas, CPA PFS

Closeup of US Social Security cards and money
The Bipartisan Budget Act of 2015 (BBA) has introduced substantial changes to Social Security law. The BBA passed the federal legislative branch on Halloween weekend 2015 without public input or debate. It became effective when the act was signed by the President on November 2nd. The Social Security aspects of this act were a great surprise to the general public and planning profession. Specifically, the new law has limited Social Security claiming strategies that would have resulted in more retirement income for you. The legislation has affected millions of Americans who were planning to use “file and suspend” and “restricted application”. These two provisions were created by the Senior Citizens Freedom to Work Act of 2000 to encourage seniors to continue working, provide a more satisfying retirement, and extend retirement portfolios of middle-income Americans. The new rules impact married, single, and divorced individuals.

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The Tax Scam Cometh – Beware!

Author: Catherine M. Miskiv, CPA

Tax Scam AlertStatistics show that phishing has become rampant and, based on the number of calls we receive from clients, the scammers are very good at impersonating the taxing authorities.

This past year we saw a significant increase in incidences where clients get telephone calls from people claiming to be the IRS or state taxing authorities. These people are extremely aggressive and intimidating, often threatening to send the police over to arrest or deport the intended victim. These scammers are good – when they call you, the caller ID will often show an official looking name, such as “Department of Taxation” or “Internal Revenue” and the caller will even give you a fake badge number.

There have also been reports of telephone scammers who, if you give them a hard time, will claim that they are going to hang up and call the police. And then you will immediately receive a phone call that comes up on your caller ID as some form of law enforcement agency. It’s all part of the ruse.
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Business Health Checkup: Pre-Tax Net Income – Gross Margin

Authors: David Wagstaff and Calvin Longer 

Periodically we will highlight a ratio or benchmark and talk about how you can use these to better understand your business.

The disclaimer:Gross Margin Benchmarks and ratios, blindly applied, can be dangerous. Benchmarks can be useful in understanding areas to investigate, but it’s important to understand what’s being compared and why variances might exist.

The Benchmark: Gross Margin

Last month we discussed Pre-Tax Net Income, which is fundamental to indicating a business’s current health. In unraveling the layers which contribute to Net Income, this month we will look at Gross Margin.

Investopedia defines Gross Margin as “A company’s total sales
revenue minus its cost of goods sold” (direct costs attributable to the production of the goods or services sold, including materials and labor), “divided by the total sales revenue, expressed as a percentage. The gross margin represents the percent of total sales revenue that the company retains after incurring the direct costs associated with producing the goods and services sold. The higher the percentage, the more the company retains on each dollar of sales to service its other costs and obligations.”

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Year-End Tax Planning

Happy Holidays from Capaldi Reynolds & Pelosi 
Authors: Jennifer Wallace, CPA and Jason A. Mendick

INDIVIDUALS

Tax planning can help you minimize your tax liability in both the current year and future year giving you, rather than the government, the use of your money for investment, business, or personal purposes. Timing the payment of deductible expenses or when income is received can permanently reduce your taxes or defer some of your tax to a future year.

To obtain the maximum benefit, you need to be able to project your tax situation for the current and subsequent years. Based on those results, you can decide what actions are needed before year-end. If you expect your current year tax rate to increase in the subsequent year, then you may want to consider deferring the payment of deductible expenses and accelerating income in the current year. Conversely, you may want to prepay deductible expenses and defer income in the current year if you anticipate a lower tax rate in the following year.

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Business Health Checkup: Pre-tax Net Income

Authors: David Wagstaff and Calvin Longer 

Periodically we will highlight a ratio or benchmark and talk about how you can use these to better understand your business.

The disclaimer: Benchmarks and ratios, blindly applied, can be dangerous. Benchmarks can be useful in understanding areas to investigate, but it’s important to understand what’s being compared and why variances might exist.

Benchmarking Run Amok

Alarmed, a client called me. He had been running some benchmarks and saw his company had over 10 times the number of people in its collections department as other loan collection companies its size. The client was in the process of engaging consultants to help “right” size the department and wanted strategies for how to reduce staff. We conducted a day-long preliminary assessment and found the problem wasn’t with the number of staff but rather the choice of “comparable” companies. The subject company was collecting on $5,000 used auto loans and the comparables were banks that were collecting on $250,000 mortgages (a 50 to 1 ratio). It naturally takes many more staff to collect on $250,000 worth of used auto loans than to collect on a single $250,000 home loan.
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Have you thought about Exit Planning?

Author: Michael J. Reynolds, CPA, CEPA 

If you’re a business owner, one of your most valuable assets is your business.

It is also probably true that you devote a lot of time and thought to managing and growing your company and much less time imagining your company if you are not part of it. Have you ever asked yourself:

  • What will happen to my business if I am no longer able to run it – for example, if I suddenly become too ill to run the business?
  • When am I planning to step down to let the next generation of my family take over my business, and is the next generation ready to do so? Do I have family who are willing to take over the family business and do they have had the proper training and experience to do so?
  • Who would assume the responsibility that I have to my customers and employees if suddenly I were unable to work?

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Charitable Contributions – A Sound Strategy for Tax Reduction

Author: Frank Pelosi, CPA, CVA

One of the strategies to reduce your taxable income is to make a charitable contribution to a qualified organization before the calendar year ends.

DonateCommon examples of qualified organizations include churches, religious organizations, nonprofit educational organizations, nonprofit hospitals and medical research organizations, volunteer fire companies, etc. Some foreign charities also qualify as qualified organizations. To ensure that you are eligible for a charitable contribution deduction, ask your organization if it is a qualified organization OR you can use the online tool
[1] on the IRS website to determine the status of an organization.

In addition to assuring that the contribution is to a qualifying organization, it’s important to maintain proper documentation of your contribution. A valid charitable contribution may be disallowed by the IRS if not adequately substantiated.

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Assessing the Potential Impact of the Supreme Court Ruling on Maryland Tax Law on Individuals

Estimated $200 Million in Refunds Will Be Made Available to Maryland Residents… Will Residents of Your Home State Benefit Next?

Maryland v. WynneMonday, May 18th marked the date of a landmark ruling by the U.S. Supreme Court. In a five-to-four ruling, the Supreme Court ruled (in Comptroller of the Treasury of Maryland v. Wynne et ux.) against the Maryland tax law’s double-taxation treatment of income earned by residents who work out of state. Maryland’s current tax structure is based on a two-tier system, whereby residents are assessed a state tax of up to 5.75% on their income, in addition to a county tax of up to 3.2% depending on the resident’s county of domicile. Residents who earned income from out-of-state sources, and thus paid tax to those foreign jurisdictions, were afforded a credit for taxes paid on the state portion of their income tax assessment, but not for the county portion. Thus the Supreme Court ruled that the failure to allow a credit on all taxes imposed by the state of Maryland was “inherently discriminatory and operates as a tariff”, and is thus unconstitutional under the dormant Commerce Clause, which grants the federal government regulatory authority over the states where instances of double-taxation that might discourage interstate commerce are found.
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