Another week gone by and this one brought the first Winter Storm Warning for us here in Southeastern Michigan.  Once again, the 6-9 inches resulted in only 3 inches or so and was not nearly as bad as predicted.  Our beloved Red Wings lost their first game at home since November 3, 2011 and we saw what very well could have been the final Republican debat for the 2012 Primaries.

Having prepared many tax returns already this year has led me to my topic for today; is it better to give or to receive?  I know what most of you are thinking right now, so let me talk about this in terms of tax refunds vs. tax payments

The IRS rule to avoid penalties and interest is that you must pay in 100% of last year’s tax (110% for high income earners) or 90% of the current year’s income tax.  Penalties and interest are an unnecessary waste of money; which in most cases can be avoided with proper tax planning.

If your withholding and/or estimates are more than your tax is for the year, then you will get a tax refund from the IRS. This is what we all want, right? Well, not necessarily.  If you are receiving a refund from the IRS when you file your tax return, then in a sense you gave them an interest free loan during the prior year.

So, in this instance is it better to give or to receive?  Most people will initially say it is better to receive in these situations.  I suggest that it is better to give!  With solid professional tax planning, you can pay in the minimum amount required. Then, when it is time to do your tax return you may owe taxes, however because of your proactive tax planning, the tax burden is something that you are well aware. Oh and by the way because you were aware of this tax burden, you have put the money for these anticipated taxes into an interest bearing account. Now, you are able to write a check to the IRS (no matter how big it is) and keep the interest that your money earned for yourself.

In reality, I realize that many of you count on that tax refund each and every year. Some consider it a “forced savings”. For others it pays their property taxes every year. And still for others it is their “vacation fund”.

Why not set up your own savings, your own escrow or your own vacation fund instead of giving the IRS a tax fee loan every year? Let us help you implement this money saving strategy starting today!

Call me or any of my associates at our offices in West Bloomfield, Michigan at 248-932-0040 or email us at info@lbfcpa.com and please visit our firm website at www.lbfcpa.com and utilize all of the free information and financial tools available.

I do appreciate you taking time out of your busy schedule to read my blog, have a tremendous week.

Well another week gone by and still no accumulation of snow here in Southeastern Michigan.  We did however get the announcement that the Winter Classic 2013 will be played in Ann Arbor at Michigan Stadium. There will be a great week of hockey in Downtown Detroit leading up to the New Years Day Classic featuring the Detroit Red Wings and Toronto Maple Leafs. This is awesome for the City of Detroit!

This week at our offices, featured a lot of clients getting ready for our firm, LBF Group PLLC, to prepare their 2011 tax returns.  As clients are setting up appointments with our office, a common theme that we are hearing is “I need more time to get my records together before I can get you the information.”

I suggest you set up a system to make your tax filing much easier for YOU.  If you don’t have a system for gathering your tax information through-out the year, allow us to help you set up a system.  Keeping track of your tax records during the year will allow you to easily compile all that is needed for your tax professional. Then once you receive all of your W2’s, 1099’s, K1’s and 1098’s you are ready to have your return prepared! 

Software programs, Excel spreadsheets or even manual ledgers can all be utilized and we can assist you in setting these up to make your information gathering easy and stress-free.  It is important that you maintain these records throughout the year so that you aren’t scrambling at tax time to make sure you get all of the deductions you are allowed.   

Contact me at 248-932-0040 Ext 232 or by email Alan@lbfcpa.com and allow me to assist you with any of your tax and accounting needs.  Also, visit our firm website at www.lbfcpa.com .  Thank you for reading my blog and have a tremendous week.

Well January 2012 is here and gone; we have barely had any snow up here in Southeastern Michigan. 

Now, mind you I am not complaining in the least.  Every day without a winter storm is one day closer to a nice Michigan summer!

Even though it is only the beginning of February 2012, I have already prepared a handful of 2011 personal income tax returns.  It is nice to see that our tax planning, done early in 2011, has been paying off for those clients that were able to implement some of the tax savings strategies. Most notably, the section 105 HRA (Health Reimbursement Account) Plan.

Filing early, a few of my clients have already discovered that by setting up the HRA they were able to get a legitimate tax deduction on their out of pocket medical expenses. In prior years these out of pocket medical expenses were below the phase-out threshold and non deductible.

The tax savings realized was more than enough to cover the administrative costs of this IRS approved plan.  Two of my clients have already filed their 2011 tax returns and are awaiting a nice tax refund due to this implemented strategy. 

If you are sole proprietor or the owner of a single-member limited liability company (LLC) and you have out of pocket medical expenses that you are not currently able to deduct on your tax return, contact me for more information on how you can implement a section 105 HRA and start saving tax dollars today!

Enjoy your weekend and don’t hesitate to reach out either by email at Alan@lbfcpa.com or call me at the office 248-932-0040 at your convenience. 

Although 2011 individual income tax returns don't have to be filed until April 17, 2012, taxpayers who file early get their refunds a lot sooner. The IRS begins accepting returns in January but does not starting processing returns until February. Determining whether to file early depends on various personal and financial considerations. Filing early to somehow fly under the IRS's audit radar, however, has been ruled out by experts as a viable strategy.

Required documents

Filing a return early may not be practical for many taxpayers because they do not yet have enough information to accurately fill out their return. If you have not received information returns, like Forms 1099 or Schedule K-1, or if you are missing documents or other information you need to complete your return, it may be difficult, if not impossible, to accurately prepare your tax return. For example, employers do not have to provide wage statements to their employees until January 31 (although an employer can provide Form W-2 sooner if an employee terminates employment). The IRS requires this statement to be attached to your return (either in paper form or electronically when filing online).

Information returns also do not have to be furnished until January 31. These include, among others, the forms for dividends, interest income, royalty income (Form 1099-MISC), stock sales (Form 1099-B), real estate sales (Form 1099-S), state tax refunds (Form 1099-G), mortgage interest paid (Form 1098), and distributions from pension plans (Form 1099-R). Waiting until you receive all the information needed to complete your return accurately also lessens your chances of making mistakes, which can call attention to your return by the IRS. The IRS will not process your return electronically until it is accurate.

Last year's return

You'll also want to take a look at your 2010 tax return. Did your circumstances change in 2011? Changes such as starting a new job, retiring, getting married, having a child, and so on, have important tax consequences. Another important consideration is the current economic downturn, which may have generated significant tax losses in many investment portfolios.

Refunds

If you have all the information you need to completely and accurately fill out your tax return, and you are owed a refund, filing early is attractive. The sooner you file, the sooner you'll see your refund check from the IRS. If you file your return electronically and choose to have your refund directly deposited into your bank account, the IRS typically will issue your refund in as few as 10 days.

If you owe money, however, you may want to wait until April 17th to file. Alternatively, you can file early online and date your tax payment to be released on April 17th. If you have the funds to pay what you owe and you pay early, you could lose out on keeping the money invested and earning interest until April 17th.

Also remember, no matter how early you file your return, the three-year statute of limitations during which the IRS can question your return and assess more tax doesn't start to run until April 17.

Please contact our office if you have any questions about filing early. Email me at Alan@Alanborsen.com or call the office at 248-932-0040

There are specific tax laws relating to home-based businesses.  These are Tax Advantages of owning a home-based business and I have created a brief video presentation at the end of this blog.  

Some people have declared that if you don't have a home-based business you are……..well I don't want to go there, but let's say that the tax advantages of owning a home based business are substantial enough that everyone needs to consider opening a home-based business.

As a practicing CPA, for over 27 years, I prepare tax returns and consult with business owners and I am well aware of these tax advantages. This is why I prepared this short video to outline the tax advantages (See the video link below)

After watching this 6 minute video which I call the $3,000 – $8,000 tax secret, please contact me either via email at Alan@Alanborsen.com or call me at 248-785-0300 and allow me the opportunity to work with you in setting up your home-based business and start letting the $3,000 – $8,000 tax savings work for you immediately.

Some of the tax deductions that will save you money by owning a home-based business include:

• Home Office Deduction
  
• Business Use of Auto
  
• Hiring Your Children
  
• Hiring Your Spouse
  
• Making Your Vacation a Business Trip
  
• Meals & Entertainment for Business Purposes
  
• Retirement Accounts
  
• Medical Reimbursement Arrangements (Out of pocket medical expenses) 

If you already own a home-based business contact me and let me help you make sure you are taking advantage of the tax breaks you are entitled to.  If you have yet to set up your home-based business, I will be happy to assist you in the process so that you too, can start recognizing the tax advantages of owning a home-based business.

Here is the link to the short video presentation "Tax Advantages of a Home Based Business"

The biggest new tax break for individuals in the recently enacted “Tax Relief, Unemployment Insurance Re-authorization, and Job Creation Act of 2010” is the one-year payroll tax reduction. Under this new provision, which is intended to supplement income and boost economic growth, the payroll tax—which funds Social Security—will be cut by two percentage points during 2011. Here are the details:

• The Social Security payroll tax on individual wages will be lowered to 4.2% in 2011, from the usual 6.2% rate. For an individual with wages of $60,000, that amounts to a $1,200 savings for individuals with an income of $60,000. If the individual gets paid twice a month, it will mean an extra $50 in his or her paycheck starting in January.
• Self-employed workers will also get the tax break. Their self-employment taxes will be cut from 12.4% to 10.4%.
• There is no phaseout (i.e., gradual reduction) of the payroll tax reduction for higher income workers. It goes to everyone who works, regardless of income. However, since Social Security taxes apply only to the first $106,800 in earnings in 2011, the benefit for high earners tops out at $2,136.
• The payroll tax reduction in effect replaces the $400-per-worker tax break included in the 2009 stimulus bill. That break, called the Making Work Pay tax credit, provided a tax credit of 6.2% on the first $6,450 of a workers's wages but was phased out for workers making more than $75,000 ($150,000 for couples). The Making Work Pay credit, which was billed as a way to stimulate the stalled economy, is widely though to have had little if any success in that regard, in part because of the small amounts involved—$400 for individuals, $800 for couples. The new law's payroll tax reduction, by contrast, provides a potentially much bigger tax break for taxpayers (up to $2,136 for individuals, $4,272 for couples). In addition, the benefits of the payroll tax reduction are distributed far differently than they were under the Making Work Pay credit, which was aimed primarily at low and moderate-income workers. For example, an individual making $100,000 in 2011 will be able to keep an extra $2,000 under the payroll tax reduction, but under the Making Work Pay credit (which was phased out for earnings over $75,000), the individuals' tax break would have been zero.
• The employer's share of Social Security tax is not affected; it stays at 6.2%. Thus, the cost of hiring new workers isn't directly affected by the payroll tax reduction.
• The tax break only applies for one year, 2011—for now anyway. There will almost certainly be efforts to extend it beyond 2011, and I will keep you apprised of any developments in that regard.
• The payroll tax reduction will cost the government an estimated $120 billion.
• The payroll tax reduction will not affect the worker's future Social Security benefit, because benefits are based on lifetime earnings, not the amount of tax paid by the worker into the Social Security system

I hope this information is helpful.  If you would like more details about the payroll tax reduction or any other aspect of the new law, please contact me at 248-932-0040 or email Alan@Alanborsen.com

If you plan to go into business for yourself, as a sole proprietor, here are some of the tax aspects of your sole proprietorship.

As a sole proprietor, you would report net income or loss from your business on your personal income tax return.  However, there are several important rules that you should be aware of:

For income tax purposes, you will report your income and expenses on Schedule C of your Form 1040  

The net income will be taxable to you regardless of whether you withdraw cash from the business. Your business expenses will be deductible against gross income (i.e., “above the line,” and not as itemized deductions subject to the 2%-of-adjusted-gross-income floor or the 3%/80% reduction rules). If you have any losses, the losses will generally be deductible against your other income, subject to special rules relating to hobby losses, passive activity losses and losses in activities in which you weren't “at risk.”

If you will be working from an office in your home, performing management or administrative tasks from a home office, or storing product samples or inventory at home, you may be entitled to deduct an aplicable portion of certain of the costs of maintaining your home

And if you have a home office, you may be able to convert nondeductible commuting expenses (of going from your residence to another work location) into deductible transportation expenses.

You will also be required to pay self-employment taxes at a rate of 15.3% on your net earnings from self employment of up to $106,800 for 2009 and 2010, and at a rate of 2.9% on the excess

(The maximum amount will be reduced by any non-self-employment wages you earn.) One-half of your self-employment taxes will be deductible as a trade or business expense (that is, as a deduction against gross income, not subject to the limits that apply to itemized deductions).

For tax years beginning in 2010, you can deduct health insurance costs incurred in 2010 for yourself, your spouse, your dependents, and your under-age-27 children when calculating self-employment taxes.

You will be allowed to deduct 100% of your health insurance costs as a trade or business expense

This means your deduction for medical care insurance won't be limited by the normal 7.5%-of-AGI floor on itemized medical expenses.

Your income won't be subject to withholding tax

However, you will be required to pay estimated taxes quarterly. We can work with you to minimize the amount of your estimated tax payments while avoiding any underpayment penalty.

You will have to maintain complete records of your income and expenses

In particular, you should pay attention to recording your expenses in order to be able to take the full amount of the deductions to which you are entitled. Certain types of expenses, such as automobile, travel, entertainment, meals, and home office expenses, are subject to special recordkeeping requirements or limitations on their deductibility and require special attention.

If you hire any employees, you will have to get a taxpayer identification number and will have to withhold and pay over various payroll taxes.

You should consider establishing a qualified retirement plan

The advantage of a qualified retirement plan is that amounts contributed to the plan are deductible at the time of the contribution, and aren't taken into income until the amounts are withdrawn. Because of the complexities of ordinary qualified retirement plans, you might consider a simplified employee pension (SEP) plan, which requires less paperwork. Another type of plan available to sole proprietors that offers tax advantages with fewer restrictions and administrative requirements than a qualified plan is a “savings incentive match plan for employees,” i.e., a SIMPLE plan. If you don't establish a retirement plan, you may still be able to make a contribution to an IRA.

If you would like any additional information regarding the tax aspects of your going into business, or if you need assistance in satisfying any of the reporting or recordkeeping requirements, please give me a call at 248-932-0040 or email me at Alan@Alanborsen.com

Wow!  Can you believe that tomorrow is the first day of December?  Time certainly flies by doesn't it?  While December is a month of vacations, holidays and parties; it is also a month that can greatly impact your finances.  While I believe we should take every opportunity we can to enjoy the month of December, we must not forget that it is also the last month of the year.  This means we only have 31 days left to make sure we have taken a long hard look at our financial situation and properly planned for not only this year's tax return, but next year’s business decisions.

We should set up our budget for the upcoming year, both for our businesses and our personal situations. December is also the time that you should reach out to that trusted advisor of yours.  It is time for your year end tax planning needs to be considered in order to maximize many of the tax advantages that are afforded to those of us in home based businesses and self-employed.

If the entire year has gone by and you don't have your expenses recorded, you haven't considered setting up a retirement plan, you haven't considered converting your traditional IRA into a Roth IRA, it’s not too late.  Allow me to assist you.

Do you have a separate bank account for your business?  Have you set up a journal to keep track of your business expenses? Do you know how to properly document your business related items in order to “bullet proof” your tax return in case you are audited by the IRS?

If you do your own tax return, you should seriously consider hiring a professional to advise you on strategies that you can implement before the year is over.  When you are preparing your tax return in March or April is too late.  Sandy Botkin, CPA, Esq. advises in his book Lower Your Taxes Big Time “Have Your Return Prepared by a Competent Tax Preparer” as one method of reducing your chances of an IRS audit.

Don't get me wrong, I think everyone should do all they can to enjoy this joyous month of December, however, don't forget to take care of the items that are important to you and your family the rest of the year. Plan appropriately early in December so that you can enjoy the rest of the month knowing that you are all set for 2011!

If you are looking for a trusted advisor, please contact me either via email at Alan@Alanborsen.com or call me at the office 248-785-0300.

If you're self-employed and work out of an office in your home, and if you satisfy the strict rules that govern those deductions, you will be entitled to favorable “home office” deductions for the following:

• the “direct expenses” of the home office—e.g., the costs of painting or repairing the home office, depreciation deductions for furniture and fixtures used in the home office, etc.; and
• the “indirect” expenses of maintaining the home office—e.g., the properly allocated share of utility costs, depreciation, insurance, etc., for your home, as well as an allocated share of mortgage interest, real estate taxes, and casualty losses.

In addition, if your home office is your “principal place of business” under the rules discussed below, the costs of traveling between your home office and other work locations in that business are deductible transportation expenses, rather than nondeductible commuting costs. And you may also deduct the cost of computers and related equipment that you use in the home office, without being subject to the “listed property” restrictions that would otherwise apply.

Tests for home office deductions

You may deduct your home office expenses if you meet any of the three tests described below: the principal place of business test, the place for meeting patients, clients or customers test, or the separate structure test. You may also deduct the expenses of certain storage space if you qualify under the rules described further below.

• Principal place of business

You're entitled to home office deductions if you use your home office, exclusively and on a regular basis, as your principal place of business. (What “exclusively and on a regular basis” means is not entirely self-evident. We can help you figure out whether your home office satisfies this make-or-break requirement.) Your home office is your principal place of business if it satisfies either a “management or administrative activities” test, or a “relative importance” test. You satisfy the management or administrative activities test if you use your home office for administrative or management activities of your business, and if you meet certain other requirements. You meet the relative importance test if your home office is the most important place where you conduct your business, in comparison with all the other locations where you conduct that business.

• Home office used for meeting patients, clients, or customers

You're entitled to home office deductions if you use your home office, exclusively and on a regular basis, to meet or deal with patients, clients, or customers. The patients, clients or customers must be physically present in the home office.

• Separate structures

You're entitled to home office deductions for a home office, used exclusively and on a regular basis for business, that's located in a separate unattached structure on the same property as your home—for example, an unattached garage, artist's studio, workshop, or office building.

Space for storing inventory or product samples. If you're in the business of selling products at retail or wholesale, and if your home is your sole fixed business location, you can deduct home expenses allocable to space that you use regularly (but not necessarily exclusively) to store inventory or product samples.

Amount limitations on home office deductions

The amount of your home office deductions is subject to limitations based on the income attributable to your use of the home office, your residence-based deductions that aren't dependent on use of your home for business (e.g., mortgage interest and real estate taxes), and your business deductions that aren't attributable to your use of the home office. But any home office expenses that can't be deducted because of these limitations may be carried over and deducted in later years. We can help you figure out how these limitations affect your home office deductions.

Sales of homes with home offices

If you sell—at a profit—a home that contains, or contained, a home office, the otherwise available $250,000/$500,000 exclusion for gain on the sale of a principal residence won't apply to the portion of your profit equal to the amount of depreciation you claimed on the home office. In addition, the exclusion won't apply to the portion of your profit allocable to a home office that's separate from the dwelling unit. Otherwise, the home office won't affect your eligibility for the exclusion.

We can help

Proper planning can be the key to nailing down the optimum tax treatment for your office at home expenses. We are prepared to assist you with advice about any of the issues discussed above. Please call me at 248-932-0040 or email us at info@lbfcpa.com,  if you would like to discuss these (or any other) matters. 

Visit LBF GROUP PLLC for more information and become a fan on our FACEBOOK Page

2010 TAX PLANNING –

NO TIME LIKE THE PRESENT

Tax Planning needs to be done throughout the year.  Most people wait until they have their taxes completed before asking their tax professional how they can minimize their taxes, 2011 is too late, start the process of tax planning today.

There are many issues that you need to consider before the end of 2010. Some of these issues are the following

• Do you have retained earnings in your closely held corporation that you should consider distributing to your shareholders before the dividend rate increases in 2010?
• Do you have Long Term Captial Gains that you can sell in order to take advantage of the 2010 lower tax on Long Term Capital Gains?
• Do you have an IRA that you should consider converting to a Roth IRA in order to spread the payment of the tax on conversion over 2 years?
• If you are self employed, should you set up a retirement plan before the end of 2010?
• Should you make home improvements that qualify for the energy credit before the end of 2010?

These are just a few of the items that you need to consider before the end of the year.  Don’t wait until you are ready to have your taxes completed, start planning NOW and make sure you take advantage of the tax breaks you are eligible to take.

Contact me at Alan@Alanborsen.com or our offices at info@lbfcpa.com  and set up an appointment with a professional tax consultant before it is too late!