New from the IRS: Surviving Spouses to Benefit from Portability Election; Estate Tax Return Required to Make this Choice For Some, Form 706 Due as Early as Oct. 3
WASHINGTON — The Internal Revenue Service today reminded estates of married individuals dying after 2010 that they must file an estate tax return to pass along their unused estate & gift tax exclusion amount to their surviving spouse.
Available for the first time this year, the new portability election allows estates of married taxpayers to pass along the unused part of their exclusion amount, normally $5 million in 2011, to their surviving spouse. Enacted last December, this provision eliminates the need for spouses to retitle property and create trusts solely to take full advantage of each spouse’s exclusion amount.
The IRS expects that most estates of people who are married will want to make the portability election, including people who are not required to file an estate tax return for some other reason. The only way to make the election is by properly and timely filing an estate tax return on Form 706. There are no special boxes to check or statements needed to make the election.
The first estate tax returns for estates eligible to make the portability election (because the date of death is after Dec. 31, 2010) are due as early as Monday, Oct. 3, 2011. This is because the estate tax return is due nine months after the date of death. Estates unable to meet this deadline can request an automatic six-month filing extension by filing Form 4768. The IRS emphasized that estates of those who died before 2011 are not eligible to make this election.
Friday, September 30, 2011
Thursday, September 29, 2011
Schedule C for self employed individuals
Each separate business requires a separate Schedule C. You cannot combine different entities on a single Schedule C. The IRS will assess a 25% accuracy penalty for a combined Schedule C.
If you have one business but both spouses work in the business each can file their own Schedule C. The Schedules C do not have to be a 50-50 split of income and expenses. What the split does is it separates the Social Security taxes and benefits for each spouse.
The split also defines the "legal ownership interest" in the business. Nevada is a community property state and ownership is assumed to be 50-50. By splitting the ownership with two Schedules C the issue may be resolved before it becomes an issue.
The new and revised Schedule C has a new income line to report the credit and debit card income separate from the cash and check income. Your credit card processor will provide you a 1099K in January.
The one issue that has not changed is the activity a Business or is it a Hobby. Business losses are deducted on the tax return. Hobby losses are used only to offset Hobby income. If you have losses 3 out of the past 5 years then it is up to the business owner to prove to the IRS that this is a business. You prove it is a business by showing that you maintain a separate business account, you maintain all the books and records of the business or hire KatTax to do them for you, you belong to the Chamber of Commerce and you take continuing education classes. You want a business not a hobby.
If you have one business but both spouses work in the business each can file their own Schedule C. The Schedules C do not have to be a 50-50 split of income and expenses. What the split does is it separates the Social Security taxes and benefits for each spouse.
The split also defines the "legal ownership interest" in the business. Nevada is a community property state and ownership is assumed to be 50-50. By splitting the ownership with two Schedules C the issue may be resolved before it becomes an issue.
The new and revised Schedule C has a new income line to report the credit and debit card income separate from the cash and check income. Your credit card processor will provide you a 1099K in January.
The one issue that has not changed is the activity a Business or is it a Hobby. Business losses are deducted on the tax return. Hobby losses are used only to offset Hobby income. If you have losses 3 out of the past 5 years then it is up to the business owner to prove to the IRS that this is a business. You prove it is a business by showing that you maintain a separate business account, you maintain all the books and records of the business or hire KatTax to do them for you, you belong to the Chamber of Commerce and you take continuing education classes. You want a business not a hobby.
Thursday, September 22, 2011
Update for 2012 for investment gains and losses.
The IRS has come up with a new tax form. Imagine that! The new form is 8949 and it will accompany the Schedule D for reporting gains and losses on investments like stocks and bonds.
The newly revised 1099B from your stock broker will now include the acquisition date, cost, short and long term gains and losses and will include any wash sales. Sounds great! The bad news is the information is only available for investments purchased in 2011 and after. Don't throw out those old broker statements yet.
Also new for 2011 is the basis for inheritated assets will now be the fair market value as of the date of the decedients death. That means if Uncle Bill dies and leaves you shares of Ford, your value of the shares is the value on the day Uncle Bill died. If Uncle Bill paid $2 per share and they are now worth $40 you only pay tax on the profit over $40. If Uncle Bill paid $40 and the stock now sells at $2 no one gets to take the loss.
The newly revised 1099B from your stock broker will now include the acquisition date, cost, short and long term gains and losses and will include any wash sales. Sounds great! The bad news is the information is only available for investments purchased in 2011 and after. Don't throw out those old broker statements yet.
Also new for 2011 is the basis for inheritated assets will now be the fair market value as of the date of the decedients death. That means if Uncle Bill dies and leaves you shares of Ford, your value of the shares is the value on the day Uncle Bill died. If Uncle Bill paid $2 per share and they are now worth $40 you only pay tax on the profit over $40. If Uncle Bill paid $40 and the stock now sells at $2 no one gets to take the loss.
Tuesday, September 20, 2011
Protect your small business from an IRS audit.
Kathy and Larry are both members of the Professional Association of Small Business Accountants (PASBA) The following is a re-print of their article.
You can access more of their articles at smallbizaccountants.com
Protect Your Small Business from an IRS Audit
Published on : Sep 01 2011
Small businesses often find themselves being targeted for audit by the Internal Revenue Service (IRS) for a variety of reasons. For all small businesses, proper record keeping and tax preparation is imperative to not raising the concerns of the IRS. While hiring qualified accounting and bookkeeping services to assist you in passing under the auditing radar can save you time and headaches, there are certain measures you as a small business owner should keep in mind when tax season rears its head.
If you have decided to do your own bookkeeping you should be prepared to preserve meticulous records of all of your financial dealings. This includes retaining all receipts, ledgers of income and expenditures, and donations among others. Not only does this attention to detail help you fill out your tax forms with accurate information, it also provides you with hard copies to confirm the correctness of your data in case the IRS should find issue with your original tax filing.
Go over your bookkeeping and taxes multiple times when filling out your tax forms. Simple mathematical mistakes and wrong entries are a common cause of peaked interest at the IRS. Anything that does not add up correctly will could draw the attention of the IRS and potentially cause an audit. When you hire a professional accounting person from PASBA, you won’t have to worry about troublesome issues like taxes.
Your small business may also be part of a target group for which the IRS would like to take a closer look. These target groups can vary over time, but currently the IRS has been keeping a closer eye on the financials of the small business crowd with annual incomes of 1 million to 25 million. If you are a company within these parameters, it would be wise to hire a bookkeeping firm to assist you in keeping your fiscal matters in order so you can be fully prepared for potentially being targeted for an audit.
Hiring an inexperienced person to do your taxes can lead to an audit of your small business. Recently the IRS has announced that they will crack down on poor tax preparation. They intend to make certification and continued education the norm in tax preparation. This means that the IRS has its eyes on tax preparers to give close scrutiny to any that seem unfit. Expect your taxes to be more closely watched if your tax preparer has made mistakes in the past. At PASBA, we help you carefully select reputable small business accounting services to prepare your tax return to avoid any negative issues.
While only about one percent of tax filers receive an audit each year, it can be a scary and unpleasant experience. Your chances of being audited can be lowered or even all together avoided if you hire a certified small business accountant to handle all your business financials. To locate a Certified Public Accountant (CPA), you can enter your business address zip code on the Professional Association of Small Business Accountants (PASBA) website and narrow down qualified accountants within a specified radius. That makes it easy to locate the best accountant or tax preparer for your business.
Monday, September 19, 2011
Is a short sale better than a foreclosure?
That all depends on your point of view. A short sale is selling your house for less than is owed on the mortgage. You must get the approval of the lender to do a short sale. The house is sold and after the commissions, fees, repairs etc. are paid the lender gets the remaining proceeds.
If you have a security clearance required for your employment then a short sale is best. Usually you cannot maintain your security clearance with a foreclosure on your credit report. Short sales do not impact your credit rating nearly as bad as a foreclosure. A short sale will lower your credit score by 50 to 100 points while a foreclosure will drop your credit score 200 to 300 points and remain on your credit report for 7 years. A short sale is usually reported on your credit report as a past due loan that was paid. The time required for a short sale is about 7 months before it is complete.
Downside of the short sale is the lender usually has 6 years to come back to you to collect the short payment on the loan. Since a lot of real estate loans are recourse you stay liable for the repayment even after the property is gone.
If you have some type of mortgage insurance on your loan the lender will not agree to a short sale. Insurance is like a guarantee to the lender by VA or FHA or private mortgage insurance (PMI). In the case of insurance on the loan the lender can only collect if they foreclose on the property.
Call KatTax and we can refer you to an attorney that can help you with your decision.
If you have a security clearance required for your employment then a short sale is best. Usually you cannot maintain your security clearance with a foreclosure on your credit report. Short sales do not impact your credit rating nearly as bad as a foreclosure. A short sale will lower your credit score by 50 to 100 points while a foreclosure will drop your credit score 200 to 300 points and remain on your credit report for 7 years. A short sale is usually reported on your credit report as a past due loan that was paid. The time required for a short sale is about 7 months before it is complete.
Downside of the short sale is the lender usually has 6 years to come back to you to collect the short payment on the loan. Since a lot of real estate loans are recourse you stay liable for the repayment even after the property is gone.
If you have some type of mortgage insurance on your loan the lender will not agree to a short sale. Insurance is like a guarantee to the lender by VA or FHA or private mortgage insurance (PMI). In the case of insurance on the loan the lender can only collect if they foreclose on the property.
Call KatTax and we can refer you to an attorney that can help you with your decision.
Wednesday, September 7, 2011
Do you have unclaimed or uncashed payroll checks?
Rules for unclaimed and uncashed payroll checks are set by the State of Nevada for abandoned property. Employers are not allowed to keep the money from uncashed payroll checks. Nevada requires unclaimed and uncashed payroll checks be turned over to the state. The State of Nevada will cash the checks and hold the money for the employee.
Doing nothing with the checks is the worst mistake an employer can make. If these checks are found during a SUTA or Workers Comp audit the penalties can be more than the check and you still have to surrender the check to the State.
If you cash the employee's check in your office deposit the check to the business account. If you as the owner are also an employee of the business you need to process your checks as well. If you don't run the checks through your personal account, then deposit them back into the business checking account.
In Nevada any paycheck check over $50 that is uncashed or unclaimed must be sent to the State on form UP-1 by November 1st of each year. The report covers the year from July 1st to June 30th.
As an employer any payroll check that you write must clear your bank account. If the check does not clear it is considered unclaimed or uncashed. You may have given the employee cash for the wages but if the check does not clear your account the employee will get paid twice.
Doing nothing with the checks is the worst mistake an employer can make. If these checks are found during a SUTA or Workers Comp audit the penalties can be more than the check and you still have to surrender the check to the State.
If you cash the employee's check in your office deposit the check to the business account. If you as the owner are also an employee of the business you need to process your checks as well. If you don't run the checks through your personal account, then deposit them back into the business checking account.
In Nevada any paycheck check over $50 that is uncashed or unclaimed must be sent to the State on form UP-1 by November 1st of each year. The report covers the year from July 1st to June 30th.
As an employer any payroll check that you write must clear your bank account. If the check does not clear it is considered unclaimed or uncashed. You may have given the employee cash for the wages but if the check does not clear your account the employee will get paid twice.
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