Tax

7 Tax Tips For A Happy New Year

December is the time of year when we all start thinking about our new year’s resolutions – many of which, let’s admit, we’ll fail to keep. But one resolution every trucking executive should make and keep is to do a good job of tax planning.

Tax planning is even more important than it has been in the past because of the government’s current fiscal situation. If you’ve been following the news lately, you know that the federal government is broke and looking for money wherever it can find it. If that money has to come from a hard-working, job-creating trucking company, well, so be it. Bell & Company has been in business 30 years. We’re seeing more audits now than we can remember seeing in a long time, and those audits are hitting carriers of all sizes.

How can you ensure that, six months from now, you’re not sitting across a table from an IRS agent who wants to use your company’s profits to reduce the federal budget deficit? These seven tips will help. Pay special attention to the first two, because if you get them right, the rest will take care of themselves.

First, discuss your tax situation with a qualified accounting firm at least quarterly. You should plan and strategize, not react and hope. Waiting until April to dump your records on your accountant makes it more likely you’ll face something unexpected, and when it comes to tax planning, surprises are bad. In fact, even a “good” surprise – a refund– is bad because that means a carrier has been paying too many taxes throughout the year instead of using that money to build its business. By providing information to your accountant throughout the year, he or she more likely will catch variances, spot developing problems, and keep you from paying too much or too little. Plus, you’ll have more peace of mind. As Jimmy Starr, owner of the Camden-based carrier Woodfield, Inc., put it, “If we see something turn either direction, then we can adjust to it throughout the year instead of having any kind of surprises that would be devastating for our cash flow.”

Also, don’t wait until December to start asking your accountant about last-minute purchases. A good tax benefit won’t outweigh a bad business decision. You don’t want to haphazardly buy assets in December like a last-minute Christmas shopper filling her cart with whatever is left on the shelf. Besides, the trucking industry doesn’t lend itself to that kind of purchase. The most important assets, trucks and trailers, need to be spec’d and ordered months in advance of the end of the year in order to take advantage of the full tax benefits.

Second, make sure your financial statements are complete and accurate. Even the best accountants may not catch something if you don’t provide them the right information, and that could lead to problems.

As part of your records, make sure your fixed asset additions are detailed for your CPA to add to your depreciation schedule. It may not be obvious that you’ve added trucks or trailers, done major repairs, or completed a big renovation to your office. Year over year, the expense may look the same, but there may be some capitalizable items within that profit and loss statement that need to be added to the balance sheet and to the depreciation schedule. Remember, accountants don’t like surprises.

Third, ask your CPA if leasing or purchasing is right for you. Leasing means the payment will be lower, and you can deduct expenses over time. For 2012 purchasing enables you to deduct 50 percent of the expense during the first year.

Fourth, periodically revisit your accounting method – cash or accrual. In the accrual method, you pay taxes on receivables even if you haven’t collected payment. Using the cash method, you pay taxes only on your actual collected revenues. Obviously, the cash method makes more sense for most trucking companies because of the timing issues (i.e. you pay your payables every day and get paid by your shippers every thirty days).  However, C corporations are sometimes required to use the accrual method.

Which brings us to the fifth tip: If you still are a C corporation, you should ask your accountant about converting to an S corporation. S corporations are pass-through entities that are not subject to income taxes, though shareholders’ incomes are. However, there are some additional reporting requirements. The S corporation is best for most carriers, but it may not be right for you.

Sixth, ask your accountant about the government’s changing tax laws. Even if you like to defer paying taxes, you may want to distribute your C Corporation earnings as a dividend this year rather than wait until the beginning of this year because capital gains taxes may increase in 2013. If that happens, you might be better off paying fewer taxes now rather than more taxes later. Also, ask your accountant if you should take the 50 percent bonus depreciation on new purchases this year or if you should elect out and take the depreciation over time. If taxes increase – as they eventually will – you may want to spread the depreciation out to reduce your tax burden over several years’ time.

Last but not least, make sure your company is paying taxes in all the states where taxes are owed. Many companies are unaware they have multi-state tax issues. They may think that paying their International Fuel Tax Agreement taxes takes care of those state-by-state demands, but IFTA is not an income tax. Also, different states have different rules. For example, if you haul from Texas to Arkansas, Texas doesn’t expect you to pay anything. In driving through Arkansas, you owe Arkansas money according to the number of miles traveled through its borders. One particular carrier had no idea it owed money until a tax auditor happened to see one of its trucks arriving at a shipper’s location, wrote the carrier’s name down from the side of the truck, and researched the company’s tax history. This is happening more often now that the states are searching for revenue sources.   

When it comes to tax planning, there is not always a right or wrong answer because each carrier has different needs and philosophies. Some carriers like to defer taxes as much as possible so they can use the money to build their business. Some prefer to pay their taxes as they go so they don’t have a big future expense coming due at a bad time.

But no one likes an unexpected tax bill, and no one likes an audit. Following these seven tips will help keep either of those from happening so that 2013 is a happy new year for you and your business.

New Proposed Regs

The IRS has issued new proposed regs on capitalization vs. expensing of materials and supplies. I usually think about pens or pencils, paper, etc. as supplies and never considered a computer to meet the definition of materials and supplies, but computers are used as an example to explain one section of the proposed regs.  The de minimis rule exception for capitalization can now apply to computer equipment. 

If you file a timely election on your tax return for 2012 and thereafter, and if you have a written policy in place for expensing such computer items under a certain dollar amount, for example- $500 per unit, then you may deduct the total purchase of computers for the year that meet your policy guideline of $500 or less per unit times the number of units purchased.  This is subject to the upper limit of .1% times the gross sales of the business, or 2% of the total amount of depreciation and amortization claimed.    

For additional information, give Kelly Phillips, Pancho Espejo, or myself a call.

 

Richard Bell, CPA

501.753.9700

1099s

The deadline for providing 1099s to recipients is January 31. We wanted to make you aware of some new questions that you have to answer on your tax returns.  The IRS wants to make sure that you are following the rules on providing 1099s to those who meet the reporting threshold.  If you pay a non-incorporated service provider at least $600 during the calendar year in the course of your business or farm activity, you are required to report those payments to them on a Form 1099.  Attorneys are a special category of vendors, in that you are required to send them a 1099 for all payments.

The IRS is asking if you have made payments to a service provider that would require a Form 1099 to be filed.  If you answer this question yes, they ask if you have filed the Form 1099 or are going to do so.  If you have questions on 1099’s please give Jeff Lovelady a call 501.753.9700 or e-mail jeff.lovelady@bellandcompany.net.

 

 

 

Tax Gap

I read a recent PPC article which reported on the tax gap between tax paid and not paid on 2006 income.  What this is saying is that when there are requirements and guidelines as to the issuance of W-2s and 1099s, the misreporting of income is impacted positively.  Fewer taxpayers are misreporting income. 

The point of this study will lead to increased reporting requirements in future years, for payment of goods and services.  You can expect these requirement increases to be piggy backed on bills that are proposed and probably passed by Congress. The recent repeal of the enhanced 1099 reporting bill passed as part of the Health Affordability Act would have greatly increased the reporting requirements of company payments for goods and services in 2012.   

Consider the repeal temporary, with this type of data reported on the income gap between payments and reported income, expect Congress to move in this direction again in the future irrespective of which party controls congress or the executive branch. Bell & Company continues to emphasize to our client base the importance of compliance reporting, especially in the area of 1099’s. If you have any questions, give us a call to discuss.

Long-term Care Services Deductions

A recent tax court case, Estate of Lillian Baral vs Com. USTC 137 TC No. 1, provides a detail guideline for deducting long term care services provided to a chronically ill  patient by caregivers who were not licensed health care providers.  For a copy of the ruling  or to discuss if it may apply to a loved one, contact Kelly Phillips at Bell and Company. 

Kelly's contact information:

Phone: 501.753.9700

E-mail: kelly.phillps@bellandcompany.net.

Tax Tips - Itemized Deductions

This is the time of year we like to start sending out some tax tips.  Following are some itemized deductions some you may know however you may learn some new ones today.   

Charitable
      ·        Contributions to a qualified charitable organization are deductible.
      ·        The amount of deduction is limited to a percentage of the taxpayer’s adjusted gross income, usually 50%, with a special rate of 30% on certain capital gain property.
      ·        You can check qualified charitable organizations on www.guidestar.org.
 

Medical

      ·        Qualified medical expenses can be deducted in the year paid.
      ·        Only the expenses above 7.5% of adjusted gross income are deductible.  The percent goes up to 10% in 2013.
      ·        If you are unsure whether an expense is deductible, give us a call 501.753.9700 or visit the IRS website

 

Taxes

       ·        Taxes not directly related to a trade or business may be deducted, including:
                  o   State, local, or foreign real property taxes.
                  o   State, local, or foreign personal property taxes.
                  o   State and local income taxes or state and local general sales tax.
        ·        Amounts are deductible in the year paid, not in the year assessed.

 

Interest

·        Interest paid on a taxpayer’s primary residence for a mortgage or home equity loan are deductible, up to $1.1 million of indebtedness.

·        Mortgage and home equity loan interest is also deductible on one other home, such as a vacation home, as long as it is not rented out.

·        Personal interest, such as interest on credit cards, is not deductible.

·        Investment interest expense is deductible to the extent of net investment income.

 

Miscellaneous itemized deductions

Some miscellaneous itemized deductions are only deductible for the amount that exceeds 2% of adjusted gross income, these include:

o   Unreimbursed employee expenses that are:
     §  Incurred and paid during the tax year,

     §  Incurred as an employee for carrying out your trade or business, and

     §  Ordinary and necessary.

o   Tax preparation fees.

o   Hobby expenses to the extent of hobby income.

o   Safe deposit box fees.

 

The following miscellaneous itemized deductions are not subject to the 2% floor:

o   Casualty and theft losses from income-producing property.

o   Gambling losses up to the amount of gambling winnings.

o   Amortizable premium on taxable bonds.

o   Impairment related work expenses for people with disabilities.

 

If you have any questions about the deductions listed above please e-mail kelly.phillips@bellandcompany.net.

Income Exclusions

Taxable income on your tax return is all income that is not specifically excluded by statute. The following are some items that are excluded from income.

- Life insurance: Life insurance proceeds paid as a result of the death of the insured are generally excluded from income. It doesn’t matter whether the amounts received are the return of premiums paid, the increase in the value of the policy, or the death benefit feature, all amounts payable upon death are generally excluded. The life insurance contract must meet certain tests under state or foreign law.

- Annuity: Money received as an annuity from an annuity, endowment, or life insurance contract, and paid out for reasons other than death, are excluded from income to the extent of the taxpayer’s basis in the annuity. The tax free amount is spread out over the annuity’s payments evenly.

- Inherited Property: The value of property received by inheritance or bequest is excluded from gross income. Any income flowing from the property is still taxable though.

- Gifts: The value of any gifts received is excluded from income. Any income from the gift is still taxable. Gifts may be taxable to the donor under certain circumstances.

- Health Savings Accounts and Medical Savings Accounts: Contributions to a health savings account are excluded from income. Distributions are not included in income as long as they are used for qualified medical expenses.

- Cafeteria Plans: Employees participating in a cafeteria plan can exclude the benefits from gross income. This includes contributions to a 401(k), accident and health insurance payments, disability coverage, group-term life insurance, and dependent care assistance programs.

- Reimbursed Living Expenses: If a taxpayer has a residence that is damaged due to fire, flood, storm, or other casualty, and has to temporarily live somewhere else, the insurance payments reimbursing the taxpayer for those living expense are excluded from income. This includes costs for suitable housing, as well as extraordinary expenses such as transportation, food, and utilities.

- Scholarships: Students working toward a degree at a qualified educational organization who receive scholarships do not have to include the amount of the scholarship in gross income as long as the scholarship was used for tuition and related fees, books, supplies, and equipment required for classes. Room and board payments are taxable.

- Foster Care Payments: Payments made by a state or a qualified foster care placement agency to foster parents for the expenses of the individuals placed in the home are not included in gross income.

- Military Exemptions: Payments to members of the military for travel, food, housing, and moving are excluded from gross income. Any pay received while serving in a combat zone is also excluded from income.

- Cancellation of Debt: A taxpayer does not need to include in income debts forgiven in bankruptcy or when the taxpayer is insolvent. Generally, however, a taxpayer must report income on any debt forgiven.

- Sale of Principal Residence: As long as you have lived in and maintained your home as your principal residence for at least two of the last five years, the gain from the sale is excluded from income up to $250,000 for individuals and $500,000 for married couples filing a joint return.

- Municipal Bond Interest: The interest you earn from municipal bonds is usually tax free at the federal level and also at the state level if you live in the same state the bonds were issued in.

- Child Support Payments: Payments received for child support are excluded from income by the recipient and not deductible by the payor. Alimony, however, is taxable to the recipient and tax deductible by the payor.

Personal Use of Company Auto

Did you know if you use a company vehicle for personal use, that benefit is taxable compensation to you? The IRS requires that personal use of a company automobile be calculated for each person receiving the benefit.

The calculation is based on the personal mileage compared to business mileage, a personal gas factor of 5.5 cents per personal mile, and the IRS guidelines for the annual lease value of employer-provided vehicles. Recent IRS audit information shows that personal use of company auto generally is found to be in the 20% to 30% range. Business mileage does not include commuting miles, so these need to be included in the personal use percent. Adequate records, such as mileage logs, must be kept to support business use.

Any personal use is added to the employee’s W2 by issuing the employee a salary check. The employee will have Social Security and Medicare taxes withheld from the gross amount of personal use. Federal and state taxes are not required, but the employer may choose to withhold federal and state taxes. The employer is responsible for matching the Social Security and Medicare taxes and remitting any federal or state withholding on the personal use. If the employer does not withhold the income taxes, you will need to notify the employees so they can adjust any personal tax estimates for the consequences of the personal use.

For more information on this topic contact Bethany Pusifull at bethany.pursifull@bellandocmpany.net or call her 501.753.9700.

Types of Business Entities

When looking to form a business, it is important to understand the different types of business entities. Following is a summary of the five basic types of business formations.

Sole Proprietor:
 Easy to set up – no costs or legal requirements to set up and operate
 No personal limited liability protection, all assets are available to satisfy debts of the business
 No double taxation, report on your personal tax return using schedule C, E, or F
 Pay self employment tax on any income, which covers the employers and employees share of Social Security and Medicare tax

Partnership:
 Made up of two or more partners, no limit on the number of partners
 Formed by filing with the Secretary of State
 Easiest to set up, besides the sole proprietorship
 Files form 1065
 Partners get guaranteed payments instead of salaries, which subjects them to self employment tax
 No double taxation, the income passes through to the partners and is reported on their personal tax return, on which the partner pays self employment tax
 The income and losses can be allocated to the partners in any reasonable way
 No personal limited liability protection, unless the partner is a limited partner in a limited partnership
 A formal partnership agreement is recommended, but not required

Limited Liability Company:
 Formed by filing with the Secretary of State
 Members have limited liability
 No limit on the number of partners
 Can file a 1065 to be taxed as a partnership, or elect to be treated as a corporation
 A single member LLC does not require a separate tax return and still protects liability
 Proper business procedures must be followed in order to maintain the limited liability protection
 Income passes through to the members, which is most likely subject to self employment taxes depending on the type of business conducted

Corporation:
 Most strict formation and maintenance requirements
 File with the state to be recognized as a formal business entity
 Should pay shareholders salaries
 Taxes are paid at the corporate level
 Any distributions are not deductible by the company and are taxable to the shareholders at dividend rates
 Shareholders have limited personal liability as long as proper legal format and business procedures are maintained
 Insurance costs deductible for shareholders and employees
 Difficult and costly to get corporate assets out if needed

S-Corporation:
 A hybrid of the LLC and the Corporation
 Income passes through to the shareholders, is not taxable as self employment income
 Difficult and costly to get corporate assets out if needed
 Files with the state to be recognized as a formal entity
 Created by forming a C-Corporation and then electing to be treated as an S-Corporation, or forming an LLC, checking the box to be treated as a corporation, and then electing S status
 Shareholders need to pay themselves a reasonable salary, and can also take distributions of income
 Losses are only deductible if the shareholder has basis
 Shareholders cannot participate in pretax insurance plans or most fringe benefits
 Can have from 1 to 100 members
 Shareholders have limited personal liability

Tips If You Owe Money to the IRS

Here are some tips if you owe money to the IRS:

- If you receive a notice from the IRS, first check with a qualified tax preparer to make sure the tax assessment is correct before paying or making arrangements to pay. The IRS can make mistakes!

- If you get a bill for late taxes, the IRS expects you to pay the amount owed right away. - Based on your circumstances, you may be granted a short additional time to pay.

- With the combination of penalties and interest the IRS imposes for paying late, it might be cheaper to pay your tax bill with a credit card. For payments via credit card, the IRS uses processing companies, such as Link2Gov or RBS WorldPay, Inc.

- You can pay your balance by electronic funds transfer by using the Electronic Federal Tax Payment System. To use this service, call 1-800-555-4477 or visit www.eftps.gov.

- If you cannot pay your liability in full, you can request an installment agreement with the IRS. This is an agreement between you and the IRS in which you pay your balance in monthly installment payments for a set length of time. All required returns must be filed and you must be current with your estimated tax payments in order to set up an installment agreement.

- If you owe less than $25,000 in tax, penalties, and interest, you can request an installment agreement online using the Online Payment Agreement application found at www.irs.gov.

- To request an installment agreement by mail, complete and mail IRS Form 9465, Installment Agreement Request, with the tax bill you received from the IRS. The IRS will contact you and tell you if your request is approved, denied, or if they need additional information.

- If you owe more than $25,000, along with completing form 9465, you must file Form 433F, Collection Information Statement.

- A one-time user fee is charged if an installment agreement is approved. The user fee for a new agreement is $105, or $52 if the payment is deducted directly from your bank account. For certain lower income individuals, the fee can be reduced to $43.

- If you pay your tax within six months, it is normally better not to set up an installment agreement. Penalties and interest will still accrue, but they will usually be less than the application fee.

- If you have a balance due on your tax return, you may want to consider changing your withholding on your form W-4 with your employer. A withholding calculator can be found at www.irs.gov to help you determine how much should be withheld.

Deducting Moving Costs

If you’re moving, and it’s related to starting a new job, you may be able to deduct the costs of moving on your tax return using Form 3903, Moving Expenses. There are three tests you must meet in order to be able to deduct moving expenses:

Move related to start of work: moving expenses must generally be incurred within one year from the date you moved. You do not have to have a job set up before you move.

Distance test: your new main job location must be at least 50 miles farther from your former home than your old main job location was from your former home. For example, if your old main job location was 15 miles from your former home, your new main job location must be at least 65 miles from that former home.

Time test: you must meet either the time test for employees or the time test for self-employed individuals. The test for employees is that you must work full time for at least 39 weeks during the first 12 months after you arrive in your new job location. Self-employed individuals must work full time for at least 39 weeks during the first 112 months and a total of at least 78 weeks during the first 24 months.

If you meet the three tests mentioned above, you can deduct the following reasonable moving expenses:

Moving your household goods and personal effects. This includes the cost of packing and transporting your household goods and personal effects. You may also be able to deduct the costs of storing and insuring your items while in transit.

Traveling to your new home, including lodging but not meals. This includes airfare, vehicle mileage, parking fees and tolls, and transportation expenses.

• You can deduct the costs associated with connecting or disconnecting utilities.

• If your employer reimburses you for the cost of the move, you have to include the reimbursement on your income tax return. The following expenses cannot be deducted as moving expenses:

• Any part of the purchase price of your new home, expenses of buying or selling a home, or mortgage penalties.

• Car tags, driver’s license, or real estate taxes.

• Home improvements to help you sell your home, refitting of carpet and draperies, and expenses of entering into or breaking a lease.

• Pre-move house-hunting expenses, return trips to your former residence, and security deposits.

If you have questions on this subject please contact Bell and Company for more information. 501.753.9700

Tax Benefits for Parents

People with children know those little ones can be pretty expensive. But there are some tax breaks available for parents.

1. Dependency deduction – most of the time a child can be claimed as a dependent in the year they were born. For 2010 the deduction is $3,650 from your income, or the amount your tax is figured on.

2. Child tax credit – this is a credit for taxpayers who have one or more children under age 17 who are dependents. The credit is $1,000 per child for taxpayers with income below $110,000 for joint filers, $55,000 for married filing separately taxpayers, and $75,000 for single taxpayers.

3. Child and dependent care credit – if you pay someone to take care of your child under age 13 so you can work or look for work, you may be able to claim a credit on 20 to 35% of the expenses. The maximum amount of credit is $3,000 for one child or $6,000 for two or more.

4. Earned income tax credit – this is available to certain low-income individuals. The amount of the credit varies with the number of qualifying children the taxpayer has and their adjusted gross income. The taxpayer must have earned income from wages, self-employment, or farming.

5. Adoption credit – taxpayers may be able to claim a credit on their tax return for qualified adoption expenses. Qualified adoption expenses include reasonable and necessary adoption fees, court costs, attorney fees, and other expenses directly related to the adoption of an eligible child. Costs for a surrogate-parenting arrangement are not eligible for the credit.

6. Children with earned income – if your child has income earned from working, they may have to file a tax return. Whether or not they have to file depends on their amount of earned income, unearned income, and gross income. See IRS Publication 501 for more information.

7. Children with investment income – if your child has investment income, it may be taxed at the parent’s tax rate if certain conditions are met. For more information, see IRS Publication 929.

8. Higher education credits – the American Opportunity, Hope, and Lifetime Learning Credits are education credits to help offset the costs of education. For more information see IRS Publication 970 or visit Bell & Company’s August 17, 2011 blog post.

9. Student loan interest – you may be able to deduct the interest you pay on qualified student loans. The deduction is an adjustment to income. For more information see IRS Publication 970 or visit Bell & Company’s August 17, 2011 blog post.

10. Self-employed health insurance deduction – if you are self-employed and pay for your own health insurance, you may be able to deduct the premiums you pay for yourself, your spouse, and any child under age 27, even if the child was not your dependent.

Earned Income Tax Credit - Do You Qualify?

By George Wong, CPA

Have you heard about the Earned Income Tax Credit (EITC)? If not, you might possibly be missing out on free money from the Internal Revenue Service (IRS). According to the IRS, eligibility for the Earned Income Tax Credit (EITC) depends on the earned income, such as wages, salaries, tips, and net earnings from self-employment earnings, you have.

Also, the following rules must be met:

1) Have a valid Social Security Number

2) Have earned income from employment and/or self-employment

3) Cannot use the married filing separate filing status

4) Must be a U.S. citizen or resident alien all calendar year

5) Cannot be a qualifying child of another taxpayer

6) Cannot have foreign earned income

7) For 2011 year, must have earned income and adjusted gross income each of less than:

  a) $43,998 ($49,078 married filing jointly) with three or more qualifying children

  b) $40,964 ($46,044 married filing jointly) with two qualifying children

  c) $36,052 ($41,132 married filing jointly) with one qualifying child

  d) $13,660 ($18,740 married filing jointly) with no qualifying children

8) Must have investment income (i.e. interest, dividends, net capital gains) of $3,150 or less for the year.

If you have a dependent, the dependent must also meet the following tests to be a qualifying child for EITC:

1) Relationship test: dependent must be related to you by lineal descent

2) Age test: dependent at the end of the year was:

  a) Younger than age 19 or younger than age 24 and a full-time student

  b) Any age if permanently and totally disabled

3) Residency test: dependent must live with you in the U.S for more than half of the year

4) Joint Return test: dependent must not have filed a joint return for the year, unless the dependent and the dependent’s spouse did not have a filing requirement and filed only to claim a refund

5) In addition, the qualifying child cannot be used by more than one taxpayer.

Please contact George Wong at Bell & Company, PA. If you have any questions regarding the EITC, email george.wong@bellandcompany.net or call 501.753.9700

When is it Safe to Shred Tax Records?

By George Wong, CPA

Have you ever asked yourself: “When can I delete old bookkeeping files and tax files on my computer?” or “Why can’t I get rid of these old tax records that are cluttering up my house?” These are good questions! In this article, I will discuss when it is and when it is not appropriate to shred or erase (if kept on your computer) your tax records and files according to the Internal Revenue Service (IRS) guidelines.

As you may already know, the main purpose of keeping your prior year tax records is to have documentation if the IRS audits your tax return. Having tax receipts is your main defense in proving your deductions during audit.

Generally, a three year statute of limitations exists after the original date the return is filed or due, whichever is later, for all returns. Basically, the IRS can audit your tax returns filed three years ago. Therefore, you should generally keep your tax records for at least three years.

In special circumstances, the IRS may go back 6 years if the taxpayer omits from gross income an amount in excess of 25% of the amount of gross income reported on the originally filed tax return. This statute of limitations begins from the date the original tax return was filed. In an extreme case where either the taxpayer filed a false or fraudulent tax return, the taxpayer is willfully attempting to evade taxes, or the taxpayer does not file a tax return, the IRS may assess taxes. In addition, if a fraudulent tax return was filed, the IRS can impose additional taxes at any time, without regard to statutes of limitations, although the burden of proof falls on the government to prove fraud by the taxpayer. Hopefully in this case, you kept all of your tax records from the beginning of time.

When in doubt, keep all your tax receipts, records, and tax returns. It is also a good idea to hire a Certified Public Accountant or tax advisor to represent you in an audit by the IRS or state taxing authority. If you have any questions, please contact by email george.wong@bellandcompany.net

Deducting Medical Expenses

If you itemize your deductions on Form 1040, Schedule A, you may be able to deduct medical expenses. Here are some things to keep in mind:

• You may deduct the amount of medical expenses that exceed 7.5% of your adjusted gross income. Starting in 2013 as part of the new health care law, the threshold will increase to 10%.

• You can only deduct medical expenses you actually paid during the year, minus any reimbursements.

• You can deduct expenses you pay for yourself, spouse, and dependents. If you’re divorced or separated, each parent can deduct the medical expenses he or she actually pays for a child, even if the child is not claimed as a dependent.

• You can deduct transportation and traveling costs to a health care facility. Transportation costs include mileage, tolls, and parking fees.

• Lodging is deductible if the trip is primarily for and essential to medical care. Lodging expenses for a person accompanying the individual seeking medical care is also deductible, but meals are not deductible. The deduction is limited to $50 per night per individual.

• Distributions from Health Savings Accounts and withdrawals from Flexible Spending Arrangements may be tax free if you pay qualified medical expenses with the proceeds.

• Medical expenses are those that are for the prevention or alleviation of a physical or mental defect or illness. This includes payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or treatment affecting any structure of the body. The following types do qualify:
   o You can deduct the costs of health insurance, dental insurance, long-term care, and long-term care insurance.
   o Medicines prescribed by a medical professional. Insulin does not need a prescription, but is deductible.
   o Costs for medical devices, equipment, and supplies, such as eyeglasses and wheelchairs, as prescribed by a medical professional.
   o Co-pays for doctors, dental visits, and eye exams qualify as medical expenses.
   o Weight-loss programs are only deductible if it is prescribed by a physician to treat a specific disease. You can include the cost of special food only if the food does not satisfy normal nutritional needs, the food alleviates or treats an illness, and a physician confirmed the need for the food.


The following types do not qualify:
   o Over the counter medicines and treatments, nutritional supplements, vitamins, and first aid supplies do not qualify unless specifically prescribed by a medical professional. Medications obtained from another country cannot be deducted as medical expenses.
   o Medical marijuana or other controlled substances are not deductible as medical expenses, even if your state allows it.
   o Gym memberships, teeth whitening, and cosmetic surgery that is only cosmetic in nature is not deductible.

Outsourcing Payroll

If you find yourself too busy to devote the attention needed to all of your business operations, your clients, and your employees, outsourcing payroll can be a cost and time effective strategy.

Some of the benefits to outsourcing payroll include:

Reduced IRS penalties – If you find yourself having to pay late payment penalties and interest to the IRS, outsourcing the duty will ensure that deposits and reports are made on time.

Reduced costs – Outsourcing your payroll functions can actually save you money over hiring a temporary person, doing it yourself, or adding another staff person.

Direct deposit – You may be able to offer direct deposit to your employees, saving them the time and hassle of having to go to the bank.

• Expert knowledge – You will be able to have an expert in the field of payroll stay on top of the ever changing regulations, forms, and withholding rates.

• Payroll staff – If you have a bookkeeper or someone else to do your payroll, you won’t be left in a lurch trying to figure out how to pay payroll that week if they are out of the office.

More time – You will have more time to devote to other business or personal matters.

If you are unsure of whether or not you want to outsource payroll, consider the following:

• How much free time do you have? Payroll can be time consuming. If you weren’t doing payroll, what would you be doing – getting more business, relaxing, spending time with family, working on employee relations, etc.? Does the time you spend on payroll affect the efficiency of your operations?

• Are you missing payroll deposit deadlines or filing payroll reports late? Late deposit penalties can be as high as 10 percent.

• How confident are you that you are able to avoid mistakes? If you make errors, those mistakes can be held against you and penalties can be assessed. Not only can mistakes cause you money, it can anger employees, take time to correct, and in some cases bring about more government scrutiny if the mistake is significant.

The decision to outsource payroll is one that should not be taken lightly. Even if you do decide to outsource your payroll functions, you are still ultimately responsible for your federal tax liabilities and payroll reports. You can outsource these functions, but if the payroll service fails to make the tax payments, the IRS will hold you as the employer responsible for taxes, penalties, and interest. For more information please contact bethany.pursifull@bellandcompany.net.

"Little GAAP"

As financial reporting continues to be reviewed and proposals are made on how to merge or adopt international standards creating more costs and complexities, there is also effort to ease the burdensome reporting requirements of GAAP for small private companies. A blue-ribbon panel was established in late 2009 to address this issue, and on January 26th the panel submitted a formal request for the creation of “Little GAAP” to the Financial Accounting Foundation. The goal of this panel is a modified version of GAAP that would make accounting rules more relevant to private companies as well as require fewer disclosures and less-detailed measurements of some assets and liabilities. For more information, please contact Heather Hudgens at heather.hudgens@bellandcompany.net.

IRS Delay in Processing 1040s

Because of extended and newly enacted provisions of recent tax bills, the IRS announced a delay in the processing of returns for taxpayers who file schedule A, have educator expenses, or tuition and fees deductions.

The IRS announced that they will start accepting the affected returns on February 14th.

Many software providers will accept returns for e-filing and hold them until the IRS will accept them.

Check with your paid preparer or your tax software vendor for their specific instructions.

Or call Kelly Phillips for more question 501.753.9700.

UNTRUE article issued by Natl. Association of Realtors

The National Association of Realtors recently released a document stating that landlords will have to issue 1099s to tenants who pay them over $600 in rent. THIS IS NOT TRUE.

The article was corrected later, but the damage may have already been done. Several newspapers picked up the uncorrected story, and our office received calls from landlords worried about this reporting requirement.

No landlord has to report rents received to renters on 1099s.

For 2011, the new law is that landlords who receive over $600 in rental income are required to provide 1099s to unincorporated service providers who the landlords pay over $600 to for services during 2011.

For more questions concerning this issue contact kelly.phillips@bellandcompany.net or call 501.753.9700.

Tax Software Vs. CPA Firm

Whether or not you feel secure doing your own taxes, of course, depends on many factors, such as the complexity of the return and your understanding of tax law. If your return is simple enough to require little more than math calculations, do-it-yourself tax software may be all you need.

However, the problem with doing your own tax return lies in the ever-changing nature of the Internal Revenue Code, which is measured at more than 3 million words. In 2009 and 2010, new laws were passed that contained numerous tax changes, affecting common issues such as Section 179 business equipment depreciation, retirement plans, and more.

During some years, Congress passes laws so late in the year that the tax forms have been printed and some tax software packages are already on store shelves.

It is true that most tax software packages can be updated online to reflect changes, but only if you know what to look for and use the update feature before completing your tax return. Otherwise, you run the risk of missing tax breaks or unintentionally violating the rules.


A red flag is an error or omission that attracts the attention of IRS auditors. It may be a simple error, but once auditors realize there is something wrong with a return, they may begin to wonder what else might be wrong and dig deeper. That's a scenario taxpayers want to avoid.

For more information on taxes please contact kelly.phillips@bellandcompany.net