Year: 2011

401K Salt Lake City

Solo 401K Salt Lake City

If you are looking for any last minute tax planning ideas, look no further than a Solo 401K Salt Lake City UT.  Here is a brief summary of this robust tax deferral tool.

Available for business owners with no other full-time employees – Sole Proprietorships, Partnerships, LLCs and Corporations (S or C).

  • Employees under age 21 or who work less than 1,000 hours annually can be excluded.
  •  A husband and wife working in the same business can be considered as one owner.

Maximum annual employer contribution is:

  •  25% of owner compensation (salary) with employer and employee contributions not to exceed                    $49,000 (2011) $50,000 (2012) plus up to $5,500 for elective deferral catch-up contributions.
  • Self-employment compensation is 20% of Schedule C net earned income less half the self-                                     employment tax deduction.  Effectively, the 25% contribution is limited to 20% of net earned                             income before the owner’s contribution.

Contributions can be made after age 70 ½ but required minimum distributions must still be taken.

Maximum annual employee elective deferral (salary reduction) contribution is the lessor of 100% of                         compensation or $16,500 (plus $5,500 for catch-up if 50 or over).

As you can see some significant pre tax dollars can be deferred with this plan.  An additional added benefit is that the complexity of a regular 401K as it pertains to nondiscrimination rules are not applicable in a Solo 401K.

Areas of Service: 401K Salt Lake City UT, 401K South Jordan UT, 401K West Jordan UT

Nondeductible IRA Salt Lake City UT

Nondeductible IRA Salt Lake City UT

Just a reminder that if any of you have made contributions to IRAs in the past where there has been a nondeductible portion of the contribution, you must keep track of this amount and file Form 8606 to substantiate it on a yearly basis.  If you don’t do this the IRS may challenge the nontaxable portion of a distribution containing this previous nondeductible contribution.  Again it is imperative that you keep track of this from year to year. Nondeductible IRA Salt Lake City UT.

Salt Lake City UT Audit – Profile for S Corporations

Salt Lake City UT Audit  – Profile for S Corporations

A week ago I went to a Tax Seminar here in Salt Lake City UT and one of the things I learned regarding S Corporations from one of the instructors was the following:

  • S Corporations have a much lower audit profile than sole proprietorships.  In a recent study, only .4% of all S Corporations were audited by the IRS compared to a much much higher percentage of sole proprietorships.
  • This study was based on the fact that the owner was paid a reasonable and adequate wage out of the S Corporation.
I believe this is the case because the IRS views the sole proprietorship (Schedule C filer) as an unsophisticated taxpayer and thus they are prone to more errors, understatement of revenues and overstatement of expenses.  They believe that to form an S Corporation is a step up in sophistication and thus those that do it are more prone to be the opposite of what was indicated above.  Whether this approach is correct or not, I’ll let you decide, but this is an interesting finding none the less. (Salt Lake City UT Audit.)

Salt Lake City CPA – Abatement IRS Penalties

Salt Lake City CPA – Abatement IRS Penalties

The IRS has software titled Reasonable Cause Assistant (RCA) which is used by them for failure to file, failure to pay and failure to deposit penalty abatement requests.  Apparently the IRS’s over-reliance on its RCA leads to inaccurate penalty abatement determinations.  A 2010 usability test shows that IRS employees using the RCA determined penalty abatement requests correctly in only 45% of the cases!  The result is that the RCA is not supplementing human judgement as intended – it is supplanting it.  Without proper training and safeguards to ensure IRS employees arrive at appropriate abatement decisions using the RCA, the IRS continues to unecessarily harm taxpayers and create more re-work for itself.

In other words folks if you have a penalty abatement request denied, try again!  Chances are (a 55% chance) that their decision is wrong.  If you need penalty relief help, come see us. (Salt Lake City CPA – Abatement IRS Penalties)

IRS Wants Salt Lake City Tax Preparers – to Be Their “Homeboys”

IRS Wants Salt Lake City Tax Preparers – to Be Their “Homeboys”

It appears that the IRS is involved in a campaign of intimidation.  The IRS is sending out letters to thousands of  professional tax return preparers stating that “the returns they prepared for clients during the most recent filing season have a high percentage of attributes associated with returns typically containing inaccuracies and misinterpretations of tax law”!  Is that so?!  Not only does a letter of this type offend me but I highly disagree with this method and the amount of my time (as well as other professional CPAs time) they will waste with this program!  The letter further states “We will visit some return preparers who receive this letter starting in November to confirm compliance with return preparer requirements”.  I understand the need to police those preparers that have no business preparing returns because they are unethical or lack the knowledge or education to prepare a return accurately, but to target tax professionals that have prepared returns for years and have no history of excessive audits of their client’s returns nor situations where significant tax dollars have been recovered because of tax preparer error is plain ridiculous!  The only conclusion that I can draw from their current methodology is that they are trying to intimidate the tax preparer community to the point where they look out for the government’s best interests instead of their client’s best interests through proper tax planning and prudent identification of tax benefits and savings.  What is your opinion? I would like to know! (IRS Wants Salt Lake City Tax Preparers – to Be Their “Homeboys”)

Salt Lake CPA – Student Loan Interest Deduction

Salt Lake CPA – Student Loan Interest Deduction

A client called me today confused over who can take the student loan interest deduction.  He said he was told by another CPA that if he paid on his child’s loan, he could take the deduction even if his child was not a dependent.  I had to tell him the bad news that this was not correct.  According to Publication 970 you can take the deduction on qualified student loan interest if ALL of the following conditions are met:

  • Your filing status is any filing status except married filing seperately
  • No one else is claiming an exemption for you on his or her tax return
  • You are legally obligated to pay interest on a qualified student loan
  • You paid interest on a qualified student loan
Examples that are mentioned in this publication as exceptions are when a parent pays a loan payment for a non dependent child as a gift.  This payment is still deductible by the child.  Another example would be if the a parent is obligated on the loan and the educational expenses are incurred while the child was a dependent, then interest payments made by the parent on the loan would be deductible on the parents return.  Please keep in mind that the amount of interest that can be deducted on an individual tax return is capped at $2,500 per year.  Also, the deduction is only available to the following modified adjusted gross income limits:
  • single, head of household or qualifying widowers  less than $60,000 – not affected by phase out                                                                                                                                  between $60,000 and $75,000 – reduced by phase out                                                                                                           $75,000 and over  – no deduction
  • married filing jointly                                                            less than $120,000 – not affected by phase out                                                                                                                             between $120,000 and $150,000 – reduced by phase out                                                                                                       $150,000 and over no deduction
If you should have any further questions, please call us. (Salt Lake CPA – Student Loan Interest Deduction)

Salt Lake City CPA – Children Employed in Family Owned Business

Salt Lake City CPA – Children Employed in Family Owned Business

One great tax planning tool just got clarified in the last couple of days.  In final regulations issued by the Treasury Department on October 31, 2011 the exceptions from taxes under FICA and FUTA under sections 3121(b)(3) (concerning individuals who work for certain family members) and 3306(c)(5) (concerning persons employed by children and spouses and children under 21 employed by their parents) has again been extended to entities that are distregarded as separate from their owners for federal tax purposes.

Recent changes to Section 301.7701-2(c)(2)(iv) provide that, with respect to wages paid after December 31, 2008, a disregarded entity is treated as separate entity for purposes of employment taxes and is treated as a corporation for purposes of employment taxes and related reporting requirements.  Therefore, the entity, rather than the owner, is considered to be the employer of any individual performing services for the entity.

So in layman’s terms, the ability to take advantage of employing children under the age of 18 and not paying FICA or FUTA taxes if the parent owns a disregarded entity (single member LLC)  and pays the child through that entity  has been restored.  The same holds true for persons employed by children and spouses and children under 21 employed by their parents through a disregarded entity are not subject to FUTA taxes.   Prior to this regulation the recently passed law had made this impossible since an entity regarded as a corporation for payroll tax purposes could not take advantage or these exclusions.

This is a great way to save some significant tax dollars.  Please be aware that these exclusions are also available to partnerships owned exclusively by Mom and Dad. (Salt Lake City CPA – Children Employed in Family Owned Business)

IRS Provides Guidance on Employee Use of Cell Phones

The IRS has issued guidance on the treatment of employer-provided cell phones, as well as on the treatment of employer reimbursement to an employee for the cost of maintaining a personal cell phone that is used for business purposes (Notice 2011-72 ).

This notice provides that, when an employer provides an employee with a cell phone primarily for noncompensatory business reasons (i.e. it is necessary for the employee to have one to do his or her job effectively) , the IRS will treat the employee’s use of the cell phone for reasons related to the employer’s trade or business as a working condition fringe benefit, the value of which is excludable from the employee’s income.  In addition, the IRS will treat the value of any personal use of a cell phone provided by the employer primarily for noncompensatory business purposes as excludable from the employee’s income as a de minimis fringe benefit. The rules of this notice apply to any use of an employer-provided cell phone occurring after December 31, 2009. The application of the working condition and de minimis fringe benefit exclusions under this notice apply solely to employer-provided cell phones and should not be interpreted as applying to other fringe benefits.

I have been thinking a lot lately about the small business owner and how they can plan for the future in these turbulent times.

Several key techniques for mitigating risk and planning for the future are as follows:

1. Plan for the contiuation of your business if you should die or become disabled. This is an often overlooked principal that the small business owner never feels they have time for. A financial planner friend of mine told me of a company whose owner had a light-bulb moment. It became clear to him that two of his employees were extremely important to the company’s success – the head of the sale’s department and the project manager. So he approached them about getting life insurance. They in turn, expressed their own concern, saying the owner needed life insurance as well. The result was a buy/sell agreement funded by life insurance policies on all three. Just a short time later, the owner died in a car accident. The widow received the proceeds of the life insurance policy, while the two employees received control of the company. Those two employees took the company to new heights. Having a buy/sel agreement in place is crtical, especially when you have key employees.

2. The risk of not having enough liability insurance. Many small businesses believe that “big business problems” don’t apply to them. Things like harrassment suits or hackers bringing down their computer systems could potentially harm a small business or in some cases end it. Employment practices liability insurance is probably one of the more important coverages that is not purchased by small businesses. It covers employee litigation for such things as sexual harrassment and discrimination which often come in the form of a lawsuit for wrongful termination. Most business general liability insurance exclude this coverage while a small number offer very limited coverage. The lawsuits generated from wrongful termination are very expensive and could cost anywhere from $20,000 on up. Another overlooked coverage is privacy breach insurance. This insures a small business against the effects of having their computer system hacked and the network being destroyed or private records being made public. This type of insurance addresses the potential damages from these breeches that can cause litigation, busniness interruption or crisis management.

3. Many small business owners do not have a plan for retirement. Many are planning on selling their business and using that for retirement. Others have funded IRAs and 401k plans but is it enough? Considering the precarious position we are in with Social Security, we can’t rely too heavily on that. One way to assess whether we will have enough or not is to do a projection of future cash inflows and outflows after retirement and see how fast the money runs out based on a lifestyle that has been chosen. Our firm can provide this type of analysis free of charge and there are many other financial planners out there that will do likewise. Many of the financial projection software programs will give a matter-of-fact disclosure of what needs to be done to shore up your financial future.

Whatever you do, please don’t procrastinate implementation of sound plan for yourself and your business

Epay Your Estimated Tax Payments

Just had a client ask me today if he could shedule his estimated tax payments to come directly out his checking account on a quarterly basis.                     

There are two ways to have this automatic withdrawal to occur.  If you efile your return through a tax preparer, you can have your preparer designate how much to withdraw on each of the dates 4/15, 6/15, 9/15 & 1/15.  You can also notify the IRS within 2 days of the payment date that you don’t want to make the payment if circumstances change.  The other method is to register with EFTPS and you can designate up to a year in advance what dates and what payments you would like to have taken out of your account.  For those of you who have a tough time remembering to make your estimated tax payments on time, this is a great way to take the worry out it.  You just need to make sure you have money in the account on the appointed days