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Accounting Made Simple, Smart and Secure with Xero Accounting

In today’s on the go, information at your fingertips world, being able to do business anywhere is essential.  That’s why I’ve become a Xero Certified Advisor.

Xero is a cloud-based accounting software that connects people with the right numbers anytime, anywhere, on any device, allowing you to focus on what you do best – running your business.  Here are a few key features of Xero and why I believe it’s a great solution for many small businesses:

Bank Feeds –  allows you to automatically import account transactions into Xero from your bank or other financial institution.  Once “bank feeds” are up and running, you’ll no longer need to download and import bank statements to get transactions into Xero.  No more gathering bank and credit card statements!

Real Time – use Xero to collaborate in real time with your accountant via Xero’s web-based access.  With “bank feeds” importing data daily, adjusting journal entries can be made as needed, and reports can be produced on a frequency (monthly, quarterly, etc.) that you choose.  No more swapping flash drives with backup data, waiting on adjusting entries from your accountant, or waiting until year-end to have a set of accurate financial statements.  Real-time data also leads to better decision making through timely analysis of financial information.

Mobile – Xero’s mobile app gives you freedom, with easy access to the essential tools for doing business on the move. With Xero mobile you can get paid faster by sending an invoice the minute you’ve finished a job, capture receipts on the go, and stay on top of your cash flow by reconciling bank transactions from wherever you happen to be.

I’d love to show you the features of Xero and how I can offer you a flat-rate monthly price based on your needs.  No guesswork as to the amount of your invoice each month.  If you’re interested in learning more about Xero and how it can help your business, give me a call or contact us here!

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Employ your children and get a tax deduction

Business owner clients often ask me about putting their children on the payroll.  It’s a common strategy that can really save money depending on the number of children you can employ and how much you can reasonably pay them.  Self-employed individuals and partnerships, including LLCs filing as partnerships where the only partners (LLC members) are husband and wife, reap the biggest benefits by employing children.

The beauty of this strategy is the shifting of taxable income from parent (who typically is in a much higher tax bracket) to child.  Depending on the amount of wage paid to the child, the child could pay $0.00 tax.  See example below.

Applicable info to consider

  1. Wages paid to children are exempt from Social Security and Medicare withholding as well as employer matching in a parent’s unincorporated business (example = self-employed consultant), a partnership (or LLC filing as a partnership) in which each partner (LLC member) is a parent of the child, or a single-member LLC filing as a sole proprietorship.
  2. A dependent’s (child’s) standard deduction ($6,300 for 2016) can be used to offset wages paid to the child.  Simply stated, paying a child wages of $6,300 will go untaxed to the child.
  3. Since earned income (i.e. wages) is the prerequisite for making traditional or Roth IRA contributions, the funds paid to your child could be invested for future growth
  4. Wages paid by a parent’s business to a child are deductible by the parent’s business if the work is done by the child in connection with the parent’s trade or business.
    1. Caution: Wages paid to a child must be reasonable in relation to the services rendered.  The business owner should keep detailed records of the child’s employment, including payroll records, in case Federal or state taxing authorities or labor departments seek verification.

Let’s take a look at an example:

John is a self-employed geologist operating his business as a sole proprietorship.  His marginal Federal tax rate is 28% and his state tax rate is 6%.  John has a 16 year old son name Carter.  John hires Carter to handle various computer tasks including technical data entry as well as administrative tasks.  Carter works 15 hours per week throughout the year earning $6,000.  John may deduct the $6,000 as wage expense from his business income.  The wages are exempt from BOTH Social Security and Medicare tax and Carter pays $0.00 income tax.

Carter’s tax return calculation:

Wages                                                    $6,000

Less:  Standard Deduction             ($6,300)

Taxable Income                                     $-0-

The beauty of this scenario is that John saves approximately $2,800 between Federal and state income tax as well as self-employment tax while Carter pays $0.00.  To sweeten the deal, Carter could contribute $5,500 (max for individuals under 50) to a Roth because he has earned income, wages.

John could increase Carter’s pay to $11,800 and Carter would still owe $0.00 Federal income tax assuming Carter made a $5,500 maximum traditional IRA (contrast that to a Roth contribution where you do not get a tax deduction) contribution.

Carter’s tax return calculation:

Wages                                                  $11,800

Less:  IRA Deduction                       ($5,500)

Less:  Standard Deduction            ($6,300)

Taxable Income                                    $-0-

As always, the above examples do not illustrate all of the possible measures that can be used to save a few dollars by employing your children and paying them a reasonable wage.  If you have any questions about this technique, feel free to contact us.

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IRS First-time Penalty Abatement PRM CPA Lafayette, LA

Did you receive an IRS notice assessing penalties?

If so, time out.

You may qualify for the IRS’ first­-time penalty abatement (FTA) waiver.  The FTA is an administrative waiver that the IRS grants to taxpayers providing relief from failure ­to ­file, failure to ­pay, and failure to ­deposit penalties if certain criteria are met.  The policy behind this procedure is to reward taxpayers for having a clean compliance history; everyone is entitled to one mistake.  Individuals and businesses may request FTA for any failure ­to­ file, failure to ­pay, or failure ­to ­deposit penalty.  FTA does not apply to other types of penalties such as the accuracy ­related penalty.

To qualify for the FTA waiver a taxpayer must meet the following criteria:

  1. Filing compliance:  Must have filed (or filed a valid extension for) all required returns and can’t have an outstanding request for a return from the IRS.
  2. Payment compliance:  Must have paid, or arranged to pay all tax due (can be in an installment agreement as long as the payments are current).
  3. Clean payment history:  Has no prior penalties (except an estimated tax penalty) for the preceding three years.
    1. Note:  If the taxpayer received reasonable cause relief in the past, he/she is still eligible for FTA

Another thing to consider is that the penalty notice may be erroneous which happens often.  We may not need to request the FTA.  Simply sending a letter to the IRS detailing specific items might resolve the issue.  So, before you move forward or make a payment, give us a call at 337.406.1099 or contact us today and we’ll review the penalty.  We’ve been successful in requesting waivers and getting penalties abated.

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Can I claim a loss due to the flooding?

Casualty Losses 

Personal Property

Those affected by the recent floods may qualify for casualty loss deductions.  These losses are reported on Form 4684, Casualties and Thefts.  The loss is limited to the lesser of cost or decrease in FMV of property, less insurance proceeds or other reimbursements.

There are various methods to determine the amount of the loss or decrease in fair market value.   The first method is an appraisal of the property (before and after the loss).  Secondly, one could use the cost of cleaning up or making repairs to property.  The following conditions must be met in order to use the “cost of cleaning up or making repairs”:

  • Repairs are actually made
  • Repairs are necessary to bring the property back to its condition before the casualty
  • Amount spent for repairs isn’t excessive
  • Repairs take care of the damage only
  • The value of the property after the repairs is not, due to the repairs, more than the value of the property before the casualty.

The deductibility of losses on personal-use property is limited to the following amount for each loss event:

Loss – $100 – (10% X Adjusted Gross Income)

For example:

Your loss after insurance reimbursement is $10,000.  Your AGI for the year of the loss is $85,000.  Your first apply the $100 rule and then the 10 % rule.

  • Loss after insurance                      $10,000
  • Subtract $100 per incident             (  100)
  • Loss after $100 rule                       9,900
  • Subtract 10% * $85,000 AGI           ( 8,500)
  • Casualty Loss Deduction         $ 1,400

 If 10% of your AGI exceeds your loss after insurance reimbursement, you do not have a deductible casualty loss.

Business or Income Producing Property – Casualty Loss

Property completely destroyed

For business or income-producing property, including rental property, that is completely destroyed, the decrease in fair market value is not considered.  Your loss is figured as follows:

Your adjusted basis in the property

Less any Salvage Value

Less any insurance or other reimbursement you receive or expect to receive

Loss of Inventory

If you have a loss of items held for sale to customers, you can deduct the loss through an increase in cost of goods sold, including any insurance reimbursements related to the lost inventory in gross income.

Business property – not completely destroyed

If your business property was damaged but not completely destroyed, your casualty loss would be the smaller of the decrease in Fair Market Value (FMV) of the property or the adjusted basis in the property before the casualty less any insurance reimbursement.  For example:  a truck used for business sustained damage from flooding; the insurance company reimbursed $3,000 (the cost to repair the truck (the assumed decrease in FMV), less the deductible of $1,000);the basis of the vehicle was $10,000.

  • Adjusted basis in the truck before the flooding             $10,000
  • Decrease in FMV                                                                      $ 4,000
  • Amount of loss (lesser of line 1 or 2)                                   $ 4,000
  • Less insurance reimbursement                                            ( 3,000)
  • Business Casualty Loss Deduction                                      $ 1,000

If a single casualty involves more than one item of property, you must figure the loss on each item separately.  Then combine the losses to determine the total loss from that casualty.

Gains from Casualties

Please be aware that gains can result if insurance proceeds exceed the adjusted basis of the property before the casualty.

When can I claim this loss? 

The President has declared that a major disaster exists in the State of Louisiana due to the recent flooding events. This declaration allows you to claim casualty losses on either your 2015 tax return or on your 2016 tax returns.  If you filed your 2015 return already, you can file an amended return to claim the losses.  See the link below for more information.

 https://www.irs.gov/taxtopics/tc515.html

Please do not hesitate to contact us if you need assistance with tax matters related to the recent flooding.

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Tax Relief to Louisiana Storm Victims

Louisiana storm victims will have until January 17, 2017

to file certain Federal individual and business tax returns and make certain Federal tax payments, the Internal Revenue Service announced Monday.  All workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization also qualify for relief.  Taxpayers in East Baton Rouge, Livingston, St. Helena, Tangipahoa, Acadia, Ascension, East Feliciana, Iberia, Lafayette, Pointe Coupee, St. Landry, Vermillion, Avoyelles, Evangeline, Iberville, Jefferson Davis, St. Martin, St. Tammany, Washington, and West Feliciana parishes will receive this and other special tax relief.

The Federal tax relief

postpones various tax filing and payment deadlines that occurred starting on August 11, 2016.  As a result, affected individuals and businesses will have until January 17, 2017 to file Federal returns and pay any Federal taxes that were originally due during this period.  This includes the September 15, 2016 deadline for making quarterly estimated tax payments.  For individual tax filers, it also includes 2015 income tax returns that received a tax-filing extension until October 17, 2016. The IRS noted, however, that because tax payments related to these 2015 returns (see more on this below) were originally due on April 18, 2016, they are not eligible for this relief.  A variety of business tax deadlines are also affected including the September 15, 2016 deadline for corporation and partnership returns on extension and the October 31, 2016 deadline for quarterly payroll and excise tax returns.

In addition, the IRS is waiving late-deposit penalties for federal payroll and excise tax deposits normally due on or after August 11, 2016 and before August 26, 2016 if the deposits are made by August 26, 2016.  Details on available relief can be found on the disaster relief page on IRS.gov.

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area.  Thus, taxpayers need not contact the IRS to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.

In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area.  Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227.

What does this mean for you?

  • Any 2015 individual or business tax return (including trusts) with an extended due date ON OR AFTER August 11, 2016 will now be extended until January 17, 2017 (Federal tax returns)
    • This includes 2015 individual income tax returns originally due April 18, 2016 but on extension until October 17, 2016. 
    • This includes S Corporations and C Corporations originally due March 15, 2016 but on extension until September 15, 2016 as well as partnerships and trusts originally due April 18, 2016 but on extension until September 15, 2016.
    • This includes 2016 3rd quarter estimated (quarterly) tax payments due September 15, 2016.
    • This includes 2016 3rd quarter payroll tax returns due October 31, 2016
  • CAUTION:  This relief does not apply to Federal taxes owed prior to August 11, 2016.
    • What do we mean by this?
      • Consider your 2015 Federal individual income tax return originally due April 18, 2016.  If you filed for an extension but did not pay ALL of the tax due, any penalty/interest accruing from April 18, 2016 will continue to accrue.  The individual extension extends the time to file the return (originally until October 15, 2016, now until January 17, 2017 based on the info above) but does NOT extend the time to pay your tax.

In addition to the Federal relief detailed above, the Louisiana Department of Revenue has also granted relief.  Individual and corporate tax returns as well as estimated payments due on or after August 11, 2016 (including returns on extension) will have an extended deadline of January 17, 2017.  This new due date mirrors the Federal extended due date.

Please do not hesitate to contact us if you have any questions.  We are here to help! CONTACT US TODAY!

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Get in Gear for the New Year!

With the new year approaching here’s a quick list to refresh your memory on the documents you’ll need to give to your tax preparer.

  • W-2s, 1099s, 1098s, K-1s, 5498s, etc.
    • While you may not be sure of the relevance, if it comes on a standard form like W-2, 1099, 1098, K-1, etc., it makes sense to give it to your tax preparer.  Let them sort it out instead of you.  I’ve had clients receive notices from the IRS  resulting from income not reported on a tax return.  This error was directly related to the documents they DID NOT provide to me.  This could have been easily avoided.  When in doubt, toss these documents in your stack to give to your tax preparer.
    • Make sure to include ALL pages of 1099s, especially those lengthy consolidated 1099s received from your financial adviser.  Many times deductible investment advisory fees are shown on the 20th page of a 22 page document.
  • Business income and deductions
    • Have a business operated as a sole proprietorship?  You will need to calculate your income and categorize your expenses for the year.  Make sure you have proper documentation to substantiate your business expenses
  • Charitable donation receipts.
    • This is a sticky issue with the IRS and should be taken seriously.  Make sure those charities you give to frequently provide a receipt detailing the annual donations given.  Also, make sure the receipt includes some sort of language specifying that nothing was received in exchange for the donation.  This applies to gifts of cash (or check, credit card charge) to charities where nothing was received by the donor in exchange for the donation.  The best example of these are church donations.
    • If you purchased an item at a charity function, gala, fundraiser, etc. your donation will be limited to the excess you paid for the item.  For example:  A $500 purchase of a painting worth $200 would only yield a $300 donation.  Make sure the charity can provide a value of the item for purposes of properly limiting your deduction to only the excess.
  • Records of taxes paid.
    • This would only include real estate taxes paid in 2015.
    • Federal and state estimated (quarterly) tax payments
  • Full names, dates of birth, and Social Security numbers for any new dependents.
    • Birth of a new child
    • Family member(s) you’re now supporting (think elderly parent living in your home without much income)
  • Homeowners insurance “declarations page.”
    • Louisiana allows a credit for 72% of the amount of the LA Citizens (or LA Fair Plan) assessment included in your homeowners insurance premium.  Make sure this premium is for the policy period beginning in 2015.
  • Completed tax organizer.
    • Our policy at PRM is to send every existing client a tax organizer.  Our organizer includes a list of pertinent questions to answer and provides prior year data as a reminder.  Flipping through this document, and answering the questions, should refresh your memory about tax documents you need to gather.

Obviously this is not an exhaustive list.  Many of the documents referenced above will be mentioned in your tax organizer.  This is simply a way to get you thinking and preparing for tax season.

 

Feel free to call/email with any questions.

I look forward to hearing from you!

Happy Holidays!

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Do I have to pay these estimated taxes?

This question is a rather common one and the answer is, “It depends”.  The IRS and most states require taxpayers to “pay as you go”.  For many of us, that consists of having taxes withheld from our paychecks.  In that case, estimates are not required unless you receive other types of income (investments, business income, income from partnerships and S-corporations).  For taxpayers who are not solely W-2 wage earners, but receive other forms of compensation, estimates may be necessary.

The federal underpayment/estimated tax penalty is actually interest at the federal rate for underpayments (currently 3%).

For 2015, you could be subject to a federal underpayment penalty if you do not pay in:

  • 90% of your 2015 tax or
  • 100% or 110% of your 2014 tax (110% applies for high income earners)

 

* Qualified farmers and fishermen have alternative methods for calculating estimates.

Estimates must be paid in four equal installments to avoid a penalty.  Due dates for 2015 estimates are April 15th, June 15th, September 15th, and January 15th.  If the estimated tax payment is paid late, penalty is charged from the date it is due until the date of payment.  You cannot avoid penalty by doubling up on your next payment, since the penalty runs from the due date of the original payment.  If you are a W-2 wage earner with other taxable income, you might be able to avoid an underpayment penalty by increasing your federal withholding.  Withholdings are considered to be paid equally throughout the year, regardless of when the tax is withheld.

If you have a spike in income at the end of the year, there are methods to reduce the penalty for not having paid in higher estimates at the beginning of the year.  Mention this to your tax preparer if this happens to you.

Coming soon….June 15th estimated tax deadline.  Get your checkbook ready unless you are OK with tacking on extra to your tax bill!

http://www.irs.gov/pub/irs-pdf/f1040es.pdf – Federal Tax Voucher

http://www.revenue.louisiana.gov/IndividualIncomeTax#det – LA Est Tax

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Tax season is over…now what?

Your tax return has been submitted electronically to Federal and state taxing agencies.  Your refunds have been direct deposited.  Whew!!  Now you can leave the mess of taxes alone until next April, right?? Wrong!

The tax “off season” is a great time to get organized in preparation of filing your 2015 tax returns due 4/15/16.  Here are a few things to consider:

1. Did you incur costly out-of-pocket medical expenses that provided little or no benefit tax benefit due to the high threshold (> 10% of adjusted gross income) medical expenses have to exceed before they’re deductible?

If your health insurance carries a high deductible and meets certain other criteria, you could make tax deductible contributions to a health savings account (H.S.A.). Contributions TO a health savings account are deductible and distributions FROM a health savings account are non taxable to the extent distributions are used to pay for qualified medical expenses.  You could now deduct those previously non-deductible medical expenses by diverting the money to a health savings account.  For 2015 the maximum contribution to a health savings account is $3,350 for single coverage and $6,650 for family coverage ($4,350/$7,650 for taxpayers over 55).  Here’s a quick list of eligible expenses that meet the definition of “qualified medical expenses” for purposes of H.S.A. distributions

http://www.hsacenter.com/qualified-med-expenses.htm

2. Does the bulk of your income consist of W-2 wages for yourself and/or spouse? Did you receive a large refund or have a substantial balance due to the IRS or state?  If so, now is the time to review your withholding allowances on Federal form W-4 and LA form L-4 (R-1300) for LA residents.

Maybe your traditional method of filing single with zero (0) withholding allowances (or something similar) has your employer withholding WAY too much throughout the year. Changing your withholding status (single vs. married) and/or the number of withholding allowances claimed could leave you with more money in your pocket throughout the year avoiding the long wait until tax time to recoup your over payment (essentially a loan to the government).  Run a few scenarios with the payroll processor at your company to see what works for you.

Here are quick links to the current Federal and LA withholding forms.

http://www.irs.gov/pub/irs-pdf/fw4.pdf

http://revenue.louisiana.gov/TaxForms/1300(4_11)F.pdf

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Thinking about e-filing?

Many of our clients have always filed their tax returns using the old-fashioned, tried and true method of paper returns, mailed in to IRS, LDR or another taxing authority. Some feel that there is added security filing this way.

Every year we hear of massive data breaches and we are all concerned about identity theft. Recent highly visible attacks on Anthem Health, Sony Pictures and the Pentagon Twitter account have us questioning whether our personal data sent over the Internet is safe.

IRS gives us the top 5 reasons for switching to e-filing this year:

1) It’s accurate and easy.
2) There are convenient options.
3) It’s safe and secure.
4) Refunds are processed and issued faster.
5) It allows payment flexibility.

You still have a choice. If your comfort level is higher filing your returns on paper, that’s your option. We still offer the preparation of paper returns for mailing.

PRM offers you the option of filing electronically through our software provider’s secure network. We can get prompt notification of the receipt and acceptance of an e-fiiled return. It could take as long as 6 weeks before we are able to follow up on a paper filed return.

We are here to explain the process or to facilitate your return filings. Call us at PRM with any questions or concerns at 337-406-1099.

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Tax Season can also be Scam Season

Recently a few PRM clients have been the target of some very brash and sinister scam artists posing as IRS affiliates. In over 40 years as a CPA it is easy for me to recognize an IRS scam, but the sophistication of the latest scams is alarming.

Tax-related fraud plays on your natural inclination to avoid trouble with official agencies. A practiced con artist armed with a script and the element of surprise can often create understandable confusion and fear, but it is important to consider these points:

Tip-offs to an IRS scam:

An unexpected phone call. The IRS makes initial contact regarding tax issues in a written letter, sent to you via U.S. postal mail.

The threat of arrest. Warnings of arrest or other police action are designed to frighten you into agreeing to send money or disclose personal financial information such as your social security number. Local police departments will not threaten to arrest you for federal tax- related issues.

Request for immediate payment. If you actually owe money for any type of federal tax, payment options are available. You’ll receive notices in the mail detailing the amount due and you’ll have time to respond.

Payment via prepaid debit card. The IRS does not require you to purchase prepaid cards to pay any tax you may owe, and will not call to ask for personal identification numbers.

It is important to know that the IRS is aware and concerned about the many varieties of tax fraud and therefore operates in a predictable manner.  It is essential to consider the following points when in contact with the IRS:

• The IRS does not initiate contact with taxpayers by e-mail or social media to request financial information. The IRS never asks taxpayers for detailed personal financial information.  So if you receive what looks like an official IRS e-mail, you should forward it to phishing@irs.gov. Do not reply to the sender, and do not open any attachments.

• The address of the official IRS website is www.irs.gov; don’t be misled by sites claiming to be the IRS but ending in .com, .net, .org, or anything else.

• If you receive an e-mail claiming to be from the IRS or directing you to an IRS site, do not reply to the message, open any attachments, or click on any links.

• To help the IRS fight identity theft and refund fraud, report any bogus correspondence and forward any suspicious e-mail to phishing@irs.gov.

How can you protect yourself?

• Advance warning gives you an advantage. Being aware of tax fraud schemes makes it likely you’ll recognize common techniques used by fraudsters, such as threats, multiple calls, and repeated demands for an immediate decision.

• If you choose to contact the IRS directly concerning the call, do not use the phone number the caller gave you. Why? In this latest scam, the number provided will connect you with another con artist in the same organization.

• Be assertive. You have no obligation to answer your phone, engage in conversation, or provide information to anyone who calls you. Let contacts from unknown numbers go to voicemail. If you do answer and the caller’s requests make you uncomfortable, disconnecting immediately is neither rude nor impolite.

PRM is here to keep you safe and informed, our Partners and staff are available to assist you any time you are contacted about your tax information.

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