September 2013 Letter

Will additional Health Care Reform laws be delayed? Will student loan rates get a permanent fix from the recent doubling of interest rates? While we wait for these answers, the 2013 tax year steams into the dog days of summer. This month's newsletter provides some ideas to help reduce this year's tax bite, discusses a recent error in IRS announcements, and provides some hints on becoming a smarter renter.
As always, should you know of someone who may benefit from this information, please feel free to forward this newsletter to them.

Oops. You Owe the IRS More Interest

The IRS is having a bad year. First it was the acknowledgement of mishandling non-profit applications for groups with "Tea Party" and "Patriot" in their name. Then it was the bad publicity around lavish spending at IRS internal conventions and meetings. The latest oops is the admission that notices sent out to taxpayers in July miscalculated the amount of interest owed. Here is what you need to know: Did you receive a CP2000? If you receive a notice from the IRS using form CP2000 saying you owe additional tax, there is a good chance the interest calculation on the notice is incorrect. Unfortunately, the amount stated in the incorrect notices is too low. You will owe more.

	How do I know? The incorrect notices were sent in early July. Notice dates prior to and after July 2013 should be correct.
	New Notices. The IRS has stated they will be sending out corrected notices to affected taxpayers.
	What should you do? Since your incorrect notice will not be labeled as such, what should you do? It is always best to respond to IRS notices in a timely fashion. So respond to the notice as appropriate using certified mail. Corrected payments can be made at a later date.

Becoming a Smarter Renter

Renting an apartment or condo, leasing a piece of equipment, renting business property, or leasing a car all involve the common practice of renting something that is owned by others. This experience can easily become a nightmare with a bad landlord or lack of understanding of your obligations. Here are some hints to become a smarter renter. Read all agreements. Read the lease agreement thoroughly prior to signing. Ask for clarification of anything you do not understand. Look for clauses in the agreement that might suggest this property owner has problems with its current tenants. If it seems unfriendly, don't sign it. Negotiate up-front. Be ready to negotiate your lease terms up front. If anything is unclear in the lease, have it clarified and put in writing. Do not depend on word of mouth. Be very clear about security deposits, first and last month rents, and services included in the lease.

	Follow the terms. Be the tenant that pays a little early, not the one that always pays late. That way if you ever need a little extra time to pay, you have established the necessary trust to do so.
	Pro-active disclosure. If you think you will need a temporary exception to part of the lease, try to include it in your upfront negotiations. If this is not possible, consider pro-actively disclosing the exception to your property owner. This will help build trust and a reputation as being a good tenant.
	Keep the property clean. This is especially important if you have a pet in an apartment. When landlords come into your apartment, you will build confidence if the place looks like you treat it as if you owned it. The same is true with rented equipment. Always return it cleaner than you received it.
	Know the owner & neighbors. Building a relationship with the property owner and your neighbors helps. If your neighbor has a problem, wouldn't you rather have them come to you than to your landlord? Establishing a good working relationship with a landlord will help you when you need something out of the ordinary or you are in need of support with a problem in your apartment or with the equipment you rent.
	Leave with a smile. This is especially true for apartment and vacation rentals. When you leave, have the property cleaned and hassle free for the landlord. Request a reference from the landlord for future rentals.

Taxes are up. What Can You Do?

Tax rates are up. Itemized deductions and personal exemptions are being phased out. Long-term capital gains and ordinary dividends maximum tax rates are up 5%. What action can you take to reduce the potential tax bite? Here are five ideas.
	Take full advantage of capital gains tax law. Remember losses on investments can be used to offset any investment gains. The best-case scenario for tax savings is to offset losses with short-term capital gains that could be taxed as high as 39.6%. In addition, you may take up to $3,000 in excess losses against your ordinary income.

	Maximize Tax-deferred Retirement Savings. Numerous retirement plans allow you to defer paying income taxes until funds are withdrawn. Primary examples are 401(k)s, Individual Retirement Accounts (IRAs), and 403(b)s. The pre-tax money you contribute reduces your taxable income this year. Funds are not taxed until you withdraw the contributions, usually during your lower income retirement years.
	Consider Utilizing Home Equity. Interest on most debt, except home mortgage interest, is no longer tax deductible. But since interest secured by your primary home is deductible, you can often leverage the equity in your home via a home equity loan and deduct the interest expense. This can effectively move non-deductible interest to deductible interest. Some caution should be taken here as non-payment could put your house in jeopardy. Limits apply.
	Shift income and expense. Remember for most of us, taxes use the cash versus accrual method of reporting. That means your income and deductible expense is based upon when you receive the funds or when you pay them. So pre-paying an obligation due the following month can move that expense into the current tax year. Delaying receipt of a bonus from December to January will lower your income in the current year.
	Take advantage of tax credits. The bad news? There are thousands of pages in our current tax code. The good news? Included in those thousands of pages are numerous tax credits that can reduce your tax obligation. From Child Credits to Foreign Tax Credits, the options are vast. Understanding them all is almost impossible, but a quick planning session could help identify some tax savings opportunities for you.

Should you wish a review of your situation, please call.

I Need a Copy of My Tax Return Retaining copies of your federal tax return is important. Not only will you need the return in case of audit, but the tax return is often used to secure student aid, obtain loans, purchase a home or business, plus much more. What can you do if you cannot find a copy of your tax return? E-filed tax returns have their data stored in software. This means, if necessary another digital copy could be produced. IRS requested transcript. The IRS can provide you with a transcript of your current tax return or from the prior three years. You can request a transcript of these tax return's data from the IRS using their online tool at: www.irs.gov using their "order a transcript tool". Information will be provided to you within approximately 5 to 10 business days. Request an actual copy. If you require an actual copy of your tax return, one can be provided for $57 by filling out Form 4506. But plan accordingly as this can take up to 60 days to process.

As always, should you have any questions or concerns regarding your situation please feel free to call.

August 2013 Letter

ill additional Health Care Reform laws be delayed? Will student loan rates get a permanent fix from the recent doubling of interest rates? While we wait for these answers, the 2013 tax year steams into the dog days of summer. This month's newsletter provides some ideas to help reduce this year's tax bite, discusses a recent error in IRS announcements, and provides some hints on becoming a smarter renter. As always, should you know of someone who may benefit from this information, please feel free to forward this newsletter to them.

Oops. You Owe the IRS More Interest The IRS is having a bad year. First it was the acknowledgement of mishandling non-profit applications for groups with "Tea Party" and "Patriot" in their name. Then it was the bad publicity around lavish spending at IRS internal conventions and meetings. The latest oops is the admission that notices sent out to taxpayers in July miscalculated the amount of interest owed. Here is what you need to know: Did you receive a CP2000? If you receive a notice from the IRS using form CP2000 saying you owe additional tax, there is a good chance the interest calculation on the notice is incorrect. Unfortunately, the amount stated in the incorrect notices is too low. You will owe more. How do I know? The incorrect notices were sent in early July. Notice dates prior to and after July 2013 should be correct. New Notices. The IRS has stated they will be sending out corrected notices to affected taxpayers. What should you do? Since your incorrect notice will not be labeled as such, what should you do? It is always best to respond to IRS notices in a timely fashion. So respond to the notice as appropriate using certified mail. Corrected payments can be made at a later date.

Becoming a Smarter Renter Renting an apartment or condo, leasing a piece of equipment, renting business property, or leasing a car all involve the common practice of renting something that is owned by others. This experience can easily become a nightmare with a bad landlord or lack of understanding of your obligations. Here are some hints to become a smarter renter. Read all agreements. Read the lease agreement thoroughly prior to signing. Ask for clarification of anything you do not understand. Look for clauses in the agreement that might suggest this property owner has problems with its current tenants. If it seems unfriendly, don't sign it. Negotiate up-front. Be ready to negotiate your lease terms up front. If anything is unclear in the lease, have it clarified and put in writing. Do not depend on word of mouth. Be very clear about security deposits, first and last month rents, and services included in the lease. Follow the terms. Be the tenant that pays a little early, not the one that always pays late. That way if you ever need a little extra time to pay, you have established the necessary trust to do so. Pro-active disclosure. If you think you will need a temporary exception to part of the lease, try to include it in your upfront negotiations. If this is not possible, consider pro-actively disclosing the exception to your property owner. This will help build trust and a reputation as being a good tenant. Keep the property clean. This is especially important if you have a pet in an apartment. When landlords come into your apartment, you will build confidence if the place looks like you treat it as if you owned it. The same is true with rented equipment. Always return it cleaner than you received it. Know the owner & neighbors. Building a relationship with the property owner and your neighbors helps. If your neighbor has a problem, wouldn't you rather have them come to you than to your landlord? Establishing a good working relationship with a landlord will help you when you need something out of the ordinary or you are in need of support with a problem in your apartment or with the equipment you rent. Leave with a smile. This is especially true for apartment and vacation rentals. When you leave, have the property cleaned and hassle free for the landlord. Request a reference from the landlord for future rentals.

Taxes are up. What Can You Do? Tax rates are up. Itemized deductions and personal exemptions are being phased out. Long-term capital gains and ordinary dividends maximum tax rates are up 5%. What action can you take to reduce the potential tax bite? Here are five ideas. Take full advantage of capital gains tax law.Remember losses on investments can be used to offset any investment gains. The best-case scenario for tax savings is to offset losses with short-term capital gains that could be taxed as high as 39.6%. In addition, you may take up to $3,000 in excess losses against your ordinary income. Maximize Tax-deferred Retirement Savings. Numerous retirement plans allow you to defer paying income taxes until funds are withdrawn. Primary examples are 401(k)s, Individual Retirement Accounts (IRAs), and 403(b)s. The pre-tax money you contribute reduces your taxable income this year. Funds are not taxed until you withdraw the contributions, usually during your lower income retirement years. Consider Utilizing Home Equity. Interest on most debt, except home mortgage interest, is no longer tax deductible. But since interest secured by your primary home is deductible, you can often leverage the equity in your home via a home equity loan and deduct the interest expense. This can effectively move non-deductible interest to deductible interest. Some caution should be taken here as non-payment could put your house in jeopardy. Limits apply. Shift income and expense. Remember for most of us, taxes use the cash versus accrual method of reporting. That means your income and deductible expense is based upon when you receive the funds or when you pay them. So pre-paying an obligation due the following month can move that expense into the current tax year. Delaying receipt of a bonus from December to January will lower your income in the current year. Take advantage of tax credits. The bad news? There are thousands of pages in our current tax code. The good news? Included in those thousands of pages are numerous tax credits that can reduce your tax obligation. From Child Credits to Foreign Tax Credits, the options are vast. Understanding them all is almost impossible, but a quick planning session could help identify some tax savings opportunities for you. Should you wish a review of your situation, please call.

I Need a Copy of My Tax Return Retaining copies of your federal tax return is important. Not only will you need the return in case of audit, but the tax return is often used to secure student aid, obtain loans, purchase a home or business, plus much more. What can you do if you cannot find a copy of your tax return? E-filed tax returns have their data stored in software. This means, if necessary another digital copy could be produced. IRS requested transcript. The IRS can provide you with a transcript of your current tax return or from the prior three years. You can request a transcript of these tax return's data from the IRS using their online tool at: www.irs.govusing their "order a transcript tool". Information will be provided to you within approximately 5 to 10 business days. Request an actual copy. If you require an actual copy of your tax return, one can be provided for $57 by filling out Form 4506. But plan accordingly as this can take up to 60 days to process.

As always, should you have any questions or concerns regarding your situation please feel free to call.

July 2013 Letter

appy Independence Day! With all the new 2013 tax laws a good place to start might be forecasting your 2013 income to be more prepared to handle the changes. Ever wonder about those funny looking scan codes popping up on mail, at the store and on your computer? This month's article on QR Codes tells you what you need to know. All that and a new simplified way to capture home office expenses for your federal tax return round out this month's newsletter.

IRS Issues Report on Tax-Exempt Review Problems On June 24th, IRS Principal Deputy Commissioner Danny Werfel issued a report outlining initial findings within the IRS' review of problems delaying the approval of Tea Party related tax-exempt applications. The scope of the review included accountability for what went wrong, fixing the problems within the Tax Exempt Status application process, and conducting a broad review of other IRS operations. This 83 page report served as a 30 day update into their investigation stemming from mismanagement described by the Treasury Inspector General for Tax Administration (TIGTA). Comments and observations in the report worth noting: All five key executive management positions in the chain of command responsible for the review and approval of tax-exempt applications have been replaced. The initial IRS review shows no signs of intentional wrongdoing by IRS personnel. To date, there appears to be no involvement by parties outside the IRS involved in the mismanagement or misjudgment issues. There is introduction of a voluntary fast-track approval process for pending tax-exempt entity applications (section 501(c)(4)). The IRS suspended the use of their "BOLO" process for tax-exempt applications. This "be-on the-lookout" process is where key terms and other items identify areas of IRS focus. What's happening next The 30 day update report from the IRS stresses this is the starting point for a broad pursuit of reform at the IRS. The report discusses the need for: Simplified tax code. The complexity of the code, the vast increase in code, and the lateness of law changes have challenged the operational effectiveness of the IRS. Better understanding of the National Taxpayer Advocate. There is a concern that most are not aware of this taxpayer service to help solve problems. Establishing an Enterprise Risk Management Program. The purpose is to try to pro-actively identify problems within the IRS and fix them on a more timely basis. Increased Transparency Commitment. With new checks and balances, the service is committing to focus on better transparency of IRS operations. More will be forthcoming as the review continues and changes are implemented within the IRS.

Understanding QR Codes What is that funny looking thing? There have been little funky squares popping up everywhere. They are appearing on envelopes in the mail, in magazines, on menus at restaurants, on web sites and more. All you need to do to read the code is download a free QR reader application for your phone and you can scan anything from QR stickers to QR codes on TVs or computer screens. So what should you know about them? The QR Code Phenomena The QR Code or "Quick Response Code" is a trademarked name to describe a two dimensional bar code introduced in 1994 and patented by a subsidiary of Toyota, Denso Wave. The code was originally intended to hold information about parts or vehicles during manufacturing. The patent has been made available without charge to anyone wishing to use it, and with that action the use of QR Codes has grown exponentially. How are they being used? From the early automotive manufacturing application, QR Code use has broadened dramatically. Here are some common uses: Contact information. Scan a QR Code from a business card and the scan automatically adds the contact information into your phone's contact list. Linking to a website. These scans bring you into a web site that tells you more about the item or service you are looking at. This is often used in magazine ads and on products purchased at retail. Payment systems. The QR Code is beginning to be used as an additional security check when you wish to make an online payment. Not only would you need a password and logon id, you would also need the QR Code to validate your devise as being owned by you. Product information. Some QR Codes are on packages to tell you more about the product. At restaurants it may tell you meal ingredients or nutritional facts. It is also being used by manufacturers to help provide more information about product production in case of product recall. Couponing. QR Codes are also being used to deliver coupons to interested consumers. Helping you with parts and service. QR Codes on products can help you link to a manufacturer's website to view correct user manuals and order the correct parts or accessories. What are the risks? What is it? When you scan a QR Code you do not necessarily know what it does. Does it bring you to a web site? Does it give you a coupon? The best QR Codes tell you what the scan will do. Unless you see this, think twice about scanning the code. Attagging: QR Code with malice. Scanning a malicious QR Code (called Attaging) could put your phone and computer contents at risk. It may take you to a bad website, it may plant a virus on your phone, steal your identity, or use your phone to send expensive premium texts. All this could be done while you innocently watch your expected QR Code scan bringing you to the service you expected. How to avoid this? Never scan a QR tag that is a sticker on top of a product or service. While wide-spread QR Code use in the United States is still not a reality, look for expansion of this service as more consumers become aware of the convenience and benefit of scanning these new codes.

Simplified Home Office Expense Deduction Beginning in 2013 there is a simplified way to take a home office expense for a portion of your home. This new 'safe-harbor' option greatly simplifies how to record valid expenses for business use of your home. Here is how it works. You may opt to take your office space square feet times $5 and use this as a valid home office expense up to $1,500 (300 sq. ft.). This replaces the cumbersome allocation of valid home expenses like electricity, heat, depreciation, and other home expenses that are allocated by a % of the home devoted to your office space. You may still take property taxes, mortgage interest deductions and casualty losses as itemized deductions on your personal tax return. Better still, you no longer need to allocate these expenses between personal and business use. Your home office must qualify for the deduction using current home office standards in the tax code. Foremost among these is that your home office must be used regularly and exclusively by the business. The deduction may not be taken in excess of available business revenue. You may still take other qualified business expenses unrelated to the home. This "safe-harbor" calculation is meant to simplify the household expense allocation process only. What you should know The IRS estimates 3.4 million taxpayers used 1.6 million hours to calculate the home office deduction's 43 line form to allocate their home office use. When the IRS reviews these returns in the future, it hopes to save a tremendous amount of time and effort required in prior years to confirm the accuracy of the old home office allocation. Since 2013 is the first year of this new provision, you will probably need to conduct the home office use calculation using the old method to ensure the safe-harbor opportunity makes sense for you.

Consider 2013 Income Forecasting With the dust finally beginning to settle on the passage of massive tax changes for 2013, now might be a good time to reduce the possibility of a bad surprise when you file next year's taxes. An important aspect of forecasting your upcoming tax obligation is projecting your adjusted gross income at the end of the year. Provided here are some questions that may help you assess your current situation and develop a good year-end income projection: Is your year-to-date income above, at, or below last year's equivalent income? Do you have or expect to have new sources of income? Do you have any pre-tax deferred savings opportunities? Will your filing status change this year (single, head of household, or married filing joint)? Will you have income from which taxes will not be withheld? Do you have new deductible expenses (new dependents, large medical bills, new mortgage interest)? Can your year-to-date income be used to project your full year income? Once you have addressed these questions, you will be better positioned to determine your estimated income at the end of the year. Action to take Now that you have an income forecast, what next? Adjust withholdings. Perhaps you will need to adjust your withholdings up or down to accommodate your tax obligation. Estimated tax payments? If you find yourself with a potentially large tax surprise, you may need to send in quarterly estimated tax payments. Tax-saving opportunities? If your current projection suggests a large tax bill may be looming in the future, think of ways to reduce this projected tax obligation. Accelerating expenses or deferring income are options that should seriously be considered. If you have concerns, please call for a review of your situation.

As always, should you have any questions or concerns regarding your situation please feel free to call.