Tax season 2012 is in progress, and so far things are going fairly smoothly.  A few things to keep in mind:

If you have working children in college or high school, beware of them preparing their own tax returns.  Each year we amend large numbers of tax returns prepared by these students that inadvertently claim themselves as dependents on their own tax returns.  If your dependent child files their tax return prior to you filing your tax return and claims themselves as a dependent, we cannot electronically file a return with them listed as a dependent.  When this happens we need to file your return by mail and amend the dependent’s return.  Unfortunately, this greatly extends the processing time on the parent’s tax return thus significantly delaying any refunds.  Please keep in mind that we offer reasonable rates for preparing dependent’s tax returns.

In most situations it is more beneficial for the parent to take the child’s dependency than for the child to claim their own dependent exemption.  You can claim your dependent child as a dependent until age 24 providing they are a full-time student (Age 19 if not a full-time student).  Additionally, the American Opportunity Tax Credit is one of the best tax credits available.  This credit is available for the first four years of college and includes the cost of tuition and fees even if you are paying the tuition via student loans.  A problem, however, is that colleges send the required form 1098-T to the students instead of the parents so many parents do not include that form in their tax preparation forms.  Be sure to grab this form from your kids so that you can take advantage of this wonderful credit!

Health insurance coverage continues to be an ongoing problem in the preparation of the Massachusetts returns.  We need the Form 1099-HC form that you receive from your health insurance company.  This form indicates the months that you were covered through that particular provider.  If this form does not indicate twelve months of coverage we need to know if you had coverage through another source such as Mass Health or if you went without coverage for a portion of the year.  Be sure to let us know the status of your health coverage during the year so that you will not receive a penalty if you did indeed have health insurance.  If you had government provided or subsided health insurance they will not provide a Form 1099-HC, and you will need to let us know about this coverage.

The MA tax return provides a deduction for people that rent their home.  Be sure to provide us with this amount since our organizer doesn’t provide a place to include this information.

If you are anticipating refunds on your returns, be sure to file early in the season.  Typically, people that file earlier in the season will receive their refunds faster than those that file later when the system is more bogged down with returns.  For a faster refund, you can request a direct deposit directly into your checking account.  Be sure to include a voided check so that we can set up that feature for you.

I will be meeting with clients in Orleans on Tuesdays and in Westport for the balance of the week.  Additionally, Anna will be working in the Orleans office so you can drop off your tax package with her or slide your package through the slot in the door if she’s not there.  I am always available by phone or email so be sure to phone with any of your questions.  Also, feel free to drop by on Tuesdays to say hello or if you have any questions.

I look forward to working with you during the upcoming tax season!

As a reminder, 1099 forms are due to recipients by January
31^st.  Please be advised that you must file a form 1099 MISC if you
paid $600 or more in fees, commissions, or other forms of compensation
to an individual or independent contractor, who is NOT your employee, for
services performed in your trade or business.
The penalty for not completing these forms has doubled this year.  Be sure to contact us if you need us to
complete these forms for you.

An important
business deduction that clients tend to forget is the amount of miles driven
for business.  A business can elect to
deduct either the amount of miles or the actual expenses for a vehicle.  The standard business mileage rate for 2011
is .51 cents per mile for the period from January – June and .555 cents per
mile for the period from July – December.
This is an incredibly important deduction for many business owners.

Also, there will be
penalties on the Massachusetts tax return for individuals without health
insurance.  Be sure to provide us with
the form 1099-HC indicating that you have health insurance.  If you receive coverage through either social
security or MA Health, be sure to let us know so that you don’t receive a
penalty for not having health coverage.

Once again, we will
be scheduling appointments in the Orleans office on Tuesdays during the filing
season.  We encourage you to
mail your completed tax organizers along with all of your tax information to
our Westport office.  This allows
us the opportunity to work on your taxes and compile a list of questions or
missing information that we can then obtain from you via appointment, email,
phone or fax.  Also, please be sure to
make a list of any questions you might have for us so that we can answer all of
your questions after thoroughly reviewing your information.

Additionally, we are pleased to announce that we have formed
an alliance with BizChecks Payroll.
BizChecks is the local alternative to the huge, impersonal and expensive
national payroll companies.
Additionally, their attention to detail and accuracy as well as their
reasonable fee structure is designed to meet the needs of many of our small
business clients.  If you are currently
working with a large payroll company, I suggest you consider changing to
BizChecks.  Be sure to let them know that
you are a Taxing Matters client so that we can obtain access to year-ending
payroll reports needed for your tax preparation.  Please call Patty Dunigan at
866-932-9700.  You can find them on the
web at:  www.bizcheckspayroll.com.

I am looking forward to working with you in the upcoming tax
season.

Happy New Year!

Tax season is right around the corner, and some strategic planning done before year’s end can amount to significant savings. I often meet with clients during the last few months of the year with an eye toward projecting their tax liability and developing a plan to reduce their tax liability.

A self-employed individual can expect to pay approximately forty-five percent tax on income that reaches into a higher tax bracket. Income taxed in a lower tax bracket is taxed at approximately thirty-five percent. The key to managing a tax liability is to know when you have income that goes into a higher tax bracket. Single taxpayers pay a higher (25% versus 15%) rate of tax when taxable income exceeds $34,500. The tax rate for married taxpayers changes at $69,000. This means that taxable income that exceeds these amounts is subject to a higher rate of federal income tax. Income below this threshold is taxed at a lower rate. Self-employed individuals pay an additional self-employment tax of 15%. So, with a combined federal income tax rate of 25%, self-employment rate of 15% plus a MA state tax rate a self-employed individual can expect to pay about 45% tax on income in a higher bracket. So, almost half of the additional money earned in the higher bracket will be sent off to pay federal and state taxes. Ouch!

Once provided with this information, however, an opportunity for some strategic planning exists. The key is to reduce taxable income thereby lowering the tax liability. Additional business expenses will reduce all three federal, state and self-employment tax liabilities. Taxpayers can also purchase equipment or vehicles before the end of the year that can net huge tax savings. For example, a$2,000 computer purchase will end up costing only $1,100 when the tax savings is factored into the purchase. At tax time we review business assets purchased during the year and make the decision to either “expense” the asset (deduct in full) or depreciate the asset over a period of years. Some taxpayers will make the decision to simply not work as hard before the end of the year knowing that almost half of their earnings will go to pay taxes. There are also tax deductions, retirement funding for example, that we utilize that will reduce the federal tax but not the self-employment tax. Planning and projecting a tax liability is an integral segment of the tax preparation process. Clients that take advantage of this opportunity feel very empowered when they make decisions that result in lowering their tax liability.

In addition to tax deductions there are some tax credits that have been reauthorized and some credits set to expire have been extended for two years. Tax credits are beneficial because they directly reduce the tax while a tax deduction reduces the amount of money being taxed. Once again I particularly like the energy credits, particularly the solar credit, and the education credits. Credits for windows and doors still exist, but are capped at 10% up to $500 (windows are capped at $200). The credit for high-efficiency boilers and furnace is $150. The modified education credit is now referred to as the American Opportunity Tax Credit. This credit has been expanded to include expenses for course books, supplies, and equipment. The credit is equal to 100% of the first $2,000 spent and twenty-five percent of the next $2,000 per student each year. Therefore, the full credit amount of $2,500 may be available to a taxpayer who pays $4,000 or more in qualifying expenses. With two daughters in college this is one credit that I really enjoy!

Remember that I am here throughout the year to answer any questions you might have, and I am looking forward to helping you maximize those tax deductions and credits in the upcoming tax season!

Happy Holidays!

Over twenty years ago I read The Road Less Traveled by M. Scott Peck. I particularly remember a passage about delayed gratification. I knew then that I was the type of person that would always save the frosting on the cupcake for last. Over the years I have worked with dozens of clients weighed down with thousands upon thousands dollars of credit card debt. Lured by huge marketing campaigns geared towards promoting a buy now pay later attitude many of my clients bought into this approach only to find themselves buried under the mountain of debt this attitude results in.

In the last few years more and more clients have had 1099-C forms as part of their tax preparation. These are forms that the credit cards issue when they agree to compromise or reduce a credit card debt due to an individual’s inability to fully pay their debt. Unfortunately, when a credit card company agrees to cancel a credit card debt the amount of the debt cancelled is typically taxable. Usually, the taxpayers that have these forms had no idea that they would be paying tax on the amount of debt that the credit card companies agreed to cancel.

Approximately ten years ago I was doing presentations to students at local high schools about the pitfalls of credit card debt. Many of them were headed for colleges where credit card companies would have tables set up at orientation encouraging them to sign up for their first credit card. Ironically, a few years later I was reading articles about the alarming number of graduating college students that were filing bankruptcy due to astonishing high credit card debt. A few months ago my twenty-three year old daughter applied for and was denied a credit card. Kudos to the credit department that had the foresight to realize that a college student employed only part-time might not be the best credit risk.

For many years the credit card companies took the position that everyone should have credit cards. They calculated their risks and knew that high interest rates they charged would more than cover the number of people that filed for bankruptcy or settled their debt for a lesser amount. Times have changed and most credit card companies have tightened their criteria. Could this possibly mean a return to a time when people actually save their money and wait until they can afford something before purchasing it; a return to a period of delayed gratification? Stores like Sears and K-Mart have seen the change coming, and they know that people do not have the same credit card buying power that they did not that many years ago. Programs like lay-a-way and Christmas Clubs may become popular once again. Personally, I welcome the return to a lay-a-way lifestyle. I have already started my Christmas shopping, and I am putting it all on lay-a-way.

Many of my clients are contractors struggling to stay in business. Unfortunately, they are often competing with contractors that are working illegally without any licenses or insurance. Typically, their helpers are being paid under-the-table. How can the legitimate contractor paying for insurance, licenses, and actual labor costs compete with this illegal worker? The answer is that they can’t; especially if the homeowner is just looking for the cheapest estimate. Just last week a contractor phoned to say that a homeowner he had bid a job for wanted to see his payroll reports prior to accepting his bid. Clearly, this homeowner wanted to be sure that the workers used by this contractor were legal workers being paid legally. Why should this be important to a homeowner? When workers are paid legally they are having taxes withheld and are contributing to our system instead of simply drawing from it. Additionally, workers that are paid legally on a contractor’s payroll are covered under the contractor’s worker’s compensation insurance. Many homeowners have found themselves the subject of a lawsuit for workers injured on the job when they were not being paid properly by their employing contractor. When you chose to hire a legitimate contractor you are rewarding them for taking the appropriate steps in running their business. Alternatively, when you hire a contractor who is working illegally you are supporting the illegal operation of his business and undermining those contractors that make the effort to do things the right way.

Included in this newsletter is information regarding the Domestic Production Activities Deduction. This deduction rewards companies that manufacture goods in the United States. As a young girl I can remember traveling with my grandparents to visit the historic mills in Lowell, Ma. Both of my grandparents had worked in these mills, and I remember my grandfather proudly pointing out the parts on the machinery that he had been responsible for maintaining. The success of our country was built upon the success of these mills that provided jobs and produced quality goods. Americans were proud of the things produced in their mills and factories.

So, I encourage you to cast your monetary vote. Where we chose to spend our money is just as powerful as the ballot choices we make. I hear that Italians make great shoes and I love English china, but I want the people that work on my home to be Americans. I want my food to come from the USA and everything I can purchase that can be made in the USA to be made in the USA. If that makes me prejudiced, then so be it; I’m not really afraid of offending anyone because let’s face it all of my clients pay their taxes. Anyways, I prefer to think of it as job security.

Happy Fall!

Many of my clients are contractors struggling to stay in business. Unfortunately, they are often competing with contractors that are working illegally without any licenses or insurance. Typically, their helpers are being paid under-the-table. How can the legitimate contractor paying for insurance, licenses, and actual labor costs compete with this illegal worker? The answer is that they can’t; especially if the homeowner is just looking for the cheapest estimate. Just last week a contractor phoned to say that a homeowner he had bid a job for wanted to see his payroll reports prior to accepting his bid. Clearly, this homeowner wanted to be sure that the workers used by this contractor were legal workers being paid legally. Why should this be important to a homeowner? When workers are paid legally they are having taxes withheld and are contributing to our system instead of simply drawing from it. Additionally, workers that are paid legally on a contractor’s payroll are covered under the contractor’s worker’s compensation insurance. Many homeowners have found themselves the subject of a lawsuit for workers injured on the job when they were not being paid properly by their employing contractor. When you chose to hire a legitimate contractor you are rewarding them for taking the appropriate steps in running their business. Alternatively, when you hire a contractor who is working illegally you are supporting the illegal operation of his business and undermining those contractors that make the effort to do things the right way.

Included in this newsletter is information regarding the Domestic Production Activities Deduction. This deduction rewards companies that manufacture goods in the United States. As a young girl I can remember traveling with my grandparents to visit the historic mills in Lowell, Ma. Both of my grandparents had worked in these mills, and I remember my grandfather proudly pointing out the parts on the machinery that he had been responsible for maintaining. The success of our country was built upon the success of these mills that provided jobs and produced quality goods. Americans were proud of the things produced in their mills and factories.

So, I encourage you to cast your monetary vote. Where we chose to spend our money is just as powerful as the ballot choices we make. I hear that Italians make great shoes and I love English china, but I want the people that work on my home to be Americans. I want my food to come from the USA and everything I can purchase that can be made in the USA to be made in the USA. If that makes me prejudiced, then so be it; I’m not really afraid of offending anyone because let’s face it all of my clients pay their taxes. Anyways, I prefer to think of it as job security.

Happy Fall!

The best new tax credit that we saw on 2010 tax returns was the American Opportunity Credit. This education related tax credit replaced the Hope credit, and can be as much as $2,500 per student per year for four years. The new credit is available for fees and book as well. So, be sure to keep track of those expenses as well as tuition. Colleges will send out Form 1099-T indicating the amount of tuition paid, but this will not include expenses for books or other fees. Since I have two daughters heading to college this year I know how much of a burden college costs can be.

The Residential Energy Credit is in place for 2011 with reduced amounts. This credit covers items such as: exterior doors, windows, insulation and certain high-efficiency heating and air-conditioning units.

We are starting to schedule appointments for tax planning. The next quarterly estimated tax payment is due on September 15, 2011. This is an excellent time for us to review your year-to-date income and determine whether your estimated payments are in line with your current earning situation. If your estimated payments are too high, you are needlessly giving your money to the IRS. However, if your estimated payments are too low, you may be in for an unpleasant surprise at tax time. Furthermore, if you are not making estimated tax payments, this is a good time for us to discuss whether or not you should be. Please contact us to set up your appointment and feel free to ask any other questions that you may have. I hope your summer is going very well, and I look forward to seeing you soon.

The IRS just released an updated standard mileage rate that goes into effect July 1st. So, for those of you that deduct mileage you will need to keep track of mileage from January 1st – June 30th and July 1st – December 31st. The new mileage rate effective for July 1st for business use is 55.5 cents per mile. This increase reflects the increase in fuel prices over the last several months.

The American Opportunity Tax Credit for education remains in effect through 2012. This enhanced credit is one of my favorites. It includes tuition and qualified expenses for post-secondary education. The credit is for $2,500 and up to 40% of the credit is refundable. We were able to do some wonderful things with this credit in 2010!

The home-energy savings credit has been lowered to $500 for 2011 down from $1,500 in 2010. This is the last year, however, to take advantage of this credit so you will need to act quickly if you haven’t already utilized this credit. The solar credit remains in effect for a 30% credit with no cap. More and more people are beginning to recognize the viability of solar. We have both a wind turbine and a solar hot water system on our farm, and the solar system far surpasses the wind turbine in its effectiveness. There are both federal and state tax credits for solar that make this a great time to consider installing a solar system. You can visit the website for my husband’s business: www.thevillageplumber.com if you have questions regarding solar systems.

We recently launched our newly designed website: www.taxingmatters.com. Please visit it when you have a moment.

This time of the year I spend my afternoons pulling the weeds out of the vegetable garden. Thanks to all of the recent rain this year my vegetables are huge. Clients that come to Westport for appointments this summer can expect to find gargantuan zucchinis hidden in their cars when they leave. Have a wonderful summer!

Tax season finally wound down here last Tuesday. The season started late and ended late due to the late release of many forms and the Massachusetts holiday.

Many clients took advantage of the home energy efficiency credit, and these credits are in place again for 2011 though reduced with the exception of the solar credit which continues at 30 percent with no cap. Be sure to keep track of exterior windows, door, insulation, and high-efficiency heating and cooling systems.

For months we have been hearing about the changes being made to 1099 reporting requirements. These changes would have required substantial additional 1099 reporting placing a tremendous burden on business and property owners. These changes have been scrapped, and we will be required to prepare 1099 forms as we have done in the past. Your business is required to issue a 1099 Form to any individual or business that provides in excess of $600 in services. These forms are due to the recipients by January 31st, and we start preparing these forms for clients in early January.

Economically, this has been a hard tax season. Many clients have been struggling with the depressing economy, and this year we saw more and more people on unemployment. Clients in the retail trade saw increased sales numbers while most of my contractor clients continued to be in a period of decline. In twenty-five years I have never seen such a large number of foreclosures, bankruptcies, and debt cancellation issues. Most of the local trade publications I follow are pointing to small signs of an upward trend and an improving economy, and I am hoping to see signs of this during the next income tax filing season. Since most of my retail clients seemed to experience the decline in the economy before my contractor clients did, I am hopeful that the reverse holds true for the recovery period and that the contractors will start to experience some improvement soon.

Remember, that I am here throughout the year should you have any questions or tax issues. Be sure to contact me if your income changes during the year, and we need to revise or adjust estimated payment amounts.

Happy Spring!

Tax season is well under way, and, after a bit of a slow start, things are starting to flow very smoothly! It’s time to get your stuff together if you haven’t already. You can mail your information to the Westport office, drop off information at the Orleans office or set up an appointment in Orleans on Tuesdays or Westport.

A few things I especially love this tax season.

1. Energy efficiency credits – If you installed new exterior windows, doors or insulation, high-efficiency boilers, hot water heaters or a solar system, this is one credit you do not want to miss. Be sure to give us this information so that we can get you this valuable credit.
2. American Opportunity Education Credit – This credit exists only for 2009 and 2010. It includes tuition and fees. We need Form 1098-T from your or your child’s college in order to calculate this credit. I am hoping they extend this incredibly valuable tax credit, but for now let’s be sure to get it for 2010 if we can!

I look forward to working with you in the next month or so. Remember, that you can always contact me if you have any questions regarding your tax situation.

Take Care,