- IRS alerts taxpayers to scams involving college tax credit - The IRS has issued a tax scam warning connected with th... http://t.co/KdYrLhEA
- Understand the time value of money - When making financial decisions, do you consider the time value of money? If yo... http://t.co/fiwopQJA
- Business Alert: Bartering has tax consequences - Did you know there's a way to get goods and services you need for y... http://t.co/gBduTP8l
- IRS offers penalty relief in “Fresh Start” initiative - Taxpayers who are struggling to pay their taxes may get some... http://t.co/DvXK6m3F
- Is your business due for a change? - The business entity your company operates under can have a significant effect o... http://t.co/qe95PVQK
IRS alerts taxpayers to scams involving college tax credit
The IRS has issued a tax scam warning connected with the American Opportunity Tax Credit.
Promoters of the scheme target senior citizens, low-income individuals, and members of church congregations. The con artists say they can get a tax refund or stimulus payments based on the American Opportunity Tax Credit, even if the taxpayer was not enrolled in or paying for college.
Victims of these scams can lose the upfront fees they are asked to pay to have the promoters file these claims on their behalf.
The IRS also warns taxpayers to be careful of these scams because they are legally responsible for the accuracy of any tax return filed and will have to repay any refunds received in error, plus penalties and interest. They may also face criminal prosecution.
In its notice about the promotion of these bogus refund claims, the IRS cautions taxpayers to beware of any of the following:
* Fictitious claims for refunds or rebates based on false statements of entitlement to tax credits.
* Unfamiliar for-profit tax services selling refund and credit schemes to the membership of local churches.
* Internet solicitations that direct individuals to toll-free numbers and then solicit social security numbers.
* Homemade flyers and brochures implying credits or refunds are available without proof of eligibility.
* Offers of free money with no documentation required.
* Promises of refunds for “Low Income — No Documents Tax Returns.”
* Claims for the expired Economic Recovery Credit Program or for economic stimulus payments.
* Unsolicited offers to prepare a return and split the refund.
* Unfamiliar return preparation firms soliciting business from cities outside of the normal business or commuting area.
Understand the time value of money
When making financial decisions, do you consider the time value of money? If you have a basic understanding of time-value concepts, you’ll be able to make better choices in many business and personal financial situations.
* Here’s an example. Say you want to sell a piece of property for $10,000 cash. A potential buyer offers $5,000 cash down, and $5,500 one year from now. How does the buyer’s offer compare to your terms?
If you receive the entire $10,000 today, let’s assume you could earn 5% on the money. A year from now you’ll have $10,500, which is referred to as the “future value” of $10,000.
On the other hand, the future value of the buyer’s offer turns out to be $10,750, which is the sum of the payment one year from now ($5,500) plus the future value of the down payment ($5,250). If the buyer has good credit, you may be better off taking the buyer’s offer.
* Calculate present value. Another way to evaluate this kind of offer is to compare the “present value” of both alternatives. Using a financial calculator or special financial table, and still assuming you can earn 5% on your money, the present value of the buyer’s offer is calculated to be $10,238, compared to a present value of $10,000 for a lump-sum cash payment. A higher present value means a better deal for you, so the buyer’s offer is more attractive.
If you’re on the other side of a transaction (buying something), time-value concepts can also help you make better decisions. For example, a time-value analysis can help you decide whether to buy or lease a car. You can also use time value to analyze investment alternatives, negotiate a divorce settlement, or hammer out the best possible deal when leasing real estate or business equipment.
If you’re about to enter into any financial arrangement that requires you to pay money over time, or entitles you to receive periodic payments, time value could be an important issue.
Business Alert: Bartering has tax consequences
Did you know there’s a way to get goods and services you need for your business without using up your company’s cash?
A growing number of businesses are using the barter system to supplement their normal purchasing activity. Bartering is a payment method in which goods and services are exchanged between parties in lieu of cash.
In a simple bartering arrangement, two parties trade items of similar value. For example, let’s say your business owns a building located next to a telephone company. An Internet service provider might be interested in putting its servers in an unused portion of your basement and, instead of paying you rent, offers to provide you with a high-speed Internet connection and a website.
Before you consider jumping on the bartering bandwagon, though, it is important to be aware of the tax consequences of these transactions. While your first thought might be that bartering is a simple exchange of goods or services with no tax implications, the tax authorities have other ideas.
The IRS requires that the fair market value of goods or services received in a bartering transaction be recognized as taxable income. However, the business can deduct the fair market value of the business goods or services that were tendered in exchange. A bartering arrangement doesn’t always result in a deduction immediately equal to the income you recognized. For example, you might provide a service and recognize income immediately in exchange for some equipment you’ll end up depreciating over several years.
Records of bartering transactions should be maintained just like ordinary transactions to maintain compliance with sales tax laws.
The growth of bartering has also led to a number of companies that bring parties together and facilitate bartered transactions. Such companies operate much like a bank, whereby clients register with them and earn “trade” credits in an account that can be used against future transactions. The normal fee structure is a one-time registration fee with a fee per transaction based on its dollar value.
IRS offers penalty relief in “Fresh Start” initiative
Taxpayers who are struggling to pay their taxes may get some relief from the IRS’s expansion of its “Fresh Start” initiative, a program started back in 2008. The new Fresh Start provisions provide penalty relief to the unemployed and make installment agreements on taxes owed available to more people.
Normally, a failure-to-pay penalty of one-half of one percent per month, up to a 25% maximum, is charged for overdue taxes. The “Fresh Start Penalty Relief” initiative gives eligible taxpayers a six-month extension to fully pay 2011 taxes — that is, until October 15, 2012, before the penalty begins to apply. Interest of 3% will still be assessed starting from April 17, 2012.
The penalty relief is available to workers who have been unemployed at least 30 consecutive days during 2011 or 2012 and to self-employed individuals who experienced a 25% or larger reduction in business income in 2011 due to the economy. Income limits apply: the relief is not available to singles with adjusted gross income over $100,000 or to couples with income over $200,000. Also, taxes due cannot exceed $50,000.
The Fresh Start program also changes the eligibility threshold for streamlined installment agreements from $25,000 to $50,000 and increases the maximum term from five to six years.
Is your business due for a change?
The business entity your company operates under can have a significant effect on the taxes you pay and your costs of doing business. As your company grows or changes, it may be a good idea to switch to a different entity. Among the main entity choices: sole proprietor, partnership, C or S corporation, and LLC. For guidance in analyzing the entity issue for your company, contact us.
HSA limits increase for 2012
The amount you can set aside in a health savings account (HSA) in 2012 increased to $3,100 for an individual and to $6,250 for a family. If you’re 55 or older, you’re allowed an additional $1,000 contribution. HSAs permit taxpayers who have high deductible health insurance plans to set aside pretax dollars that can be withdrawn tax-free to pay medical expenses not reimbursed by insurance.
Tips for managing part-time employees
Part-time employees can play a valuable role in a small business, especially while a business is waiting for general economic recovery. Part-timers can help you deal with variations in workload without having to hire a full-time employee. And often, when there are many job applicants for any opening, you can find a person with above-average skills for the position.
But part-timers can turn into a liability if not managed well. You could end up with poorly motivated workers, unsure of their duties, unfamiliar with the company, and unsure who they report to. Here are a few tips to prevent this situation.
* Think before you hire. Know why you’re hiring. Decide exactly what you want the person to do, what hours you want the person to work, and who he or she will report to. The position may have well-defined duties, or it may involve filling in wherever needed. Decide on the pay level and what benefits you’ll offer.
* Communicate clearly with the part-timer. Explain the person’s duties, and who his or her superior is. Be very clear on hours and benefits. The more flexibility you can offer, the easier it will be to recruit somebody and the happier the new worker is likely to be. Make sure you explain what job performance you expect.
* Communicate clearly with your full-time staff. Explain why you’re hiring a part-time person. Make it clear what that person will and won’t be expected to do. Designate who will manage and assign work to the part-timer. Otherwise you might find everyone trying to unload work on the new employee.
* Make the part-timer feel like part of the company. Provide introductory training on specific duties and on the company’s business and policies. Assign a mentor or “buddy,” someone the new person can turn to with everyday questions. Wherever possible, include part-timers in staff meetings and company functions.
* Monitor part-timers’ progress. Provide feedback on their performance and recognition if they’re doing a good job. Consider including them in any bonus or incentive schemes. And monitor the reactions of your full-time employees. Sometimes there can be resentment of a part-timer’s shorter hours, especially if your other employees are overloaded and having to work overtime.
With attention to these points, you can make hiring a part-time employee a winning decision for your company.
2011 refunds are delayed
Taxpayers are waiting longer for their tax refunds this year largely due to IRS efforts to catch fraudulent filings. According to a recent IRS report, the Service has identified more than 2.1 million fraudulent tax returns, many of which involve identity theft. IRS computers have had additional screening steps added which is the major factor in the refund delays.
Be smart with your tax refund
Are you receiving a tax refund this year? No doubt you’ve already heard the standard admonishment about why you should not be giving the government an interest-free loan. Maybe you’ve decided to “do better” during 2012 by revising your withholding or estimated tax payments to reduce the amount of next year’s refund — or maybe you haven’t.
Either way, set aside your guilt. Financial planning means creating effective strategies that work for you — which can include forcing yourself to save by overpaying your income tax during the year.
The more important consideration is what you do with the money you get back. Here are ideas for making the most of your refund.
* Save. The unexpected happens. The question is, how do you pay the resulting bills? Parking part of your refund in a readily accessible location, such as a bank checking, savings, or money market account, will help you weather short-term, temporary setbacks without incurring penalties or transaction fees.
* Spend. Spending your refund wisely can get your finances in shape and pay off over the long run. For instance, home improvements like energy-efficient windows or a new water heater may result in lower electric and insurance bills. Refinancing your mortgage reduces your monthly cash outlay, freeing money for investing or saving. Ditto for paying down high-interest credit cards — so long as you resist the urge to reload them.
* Self-invest. Using your refund to refresh your current career-related skills or to learn new ones can provide a double benefit: more employment opportunities and tax savings. Unsure of your job security? Put your refund to work by financing a home-based business and creating a second stream of income.
Need more time to file?
If you can’t file your 2011 tax return by the April 17 deadline, you can file for an extension by that date and get until October 15, 2012, to file. You can request the extension on paper, by phone, or online. The extension is automatic, with no explanation necessary. Be aware, however, that an extension to file does not give you more time to pay taxes due for 2011. For assistance, contact our office.