Monthly Archives: May 2013

Are your workers independent contractors or employees?

Do you hire independent contractors to help with business tasks? Are you sure those workers are independent contractors — or should you be treating them as employees?

As expanded employer responsibilities take effect under health care laws, correctly answering the question of whether your workers are employees or independent contractors is becoming more urgent.

How do you know the proper classification? While the IRS provides twenty factors to use as an analytical tool in making the decision, the final answer depends on the facts and circumstances specific to your situation.

Here’s where to start: Evaluate your right to control both the end result expected of the person performing the service for your business and the means of achieving that result. More control — such as providing an office, materials, or equipment — can indicate employee status.

If you determine your workers have been misclassified, you can choose to begin treating them as employees. The current Voluntary Classification Settlement Program, in effect through June 30, 2013, provides partial relief from back taxes and penalties.

Please call if you have questions about worker classification. We’ll review your business relationships with consultants, contractors, teleworkers, and freelancers; identify areas of risk; and offer suggestions for proactive solutions.

Identity theft is a major tax scam

Have you gotten a tax bill you weren’t expecting based on income you never received? Has your return been rejected, or your refund delayed? These unanticipated incidents can indicate your tax identity has been stolen.

Though it may be small consolation, you’re not alone. Tax identity theft topped the IRS list of tax scams for 2013. Here’s what you need to know if it happens to you.

  • What to do. File Form 14039 with the IRS. The “Identity Theft Affidavit” starts the process of notifying the IRS that you are a victim or potential victim of tax-related fraud. You’ll need to include proof of your identity, such as a photocopy of your driver’s license or passport.

    In addition, file a report with your local police department. Under the recently expanded Law Enforcement Assistance Program, you can complete a special form allowing the IRS to release a copy of the fraudulent tax return that was submitted under your social security number.

    Who else to notify: the Federal Trade Commission, the Social Security Administration, your bank, and the national credit bureaus.

  • What to expect. Once you file Form 14039 and validate your identity, you may receive an identity protection personal identification number. That number will allow you to file your tax return and receive your refund. However, be aware that straightening out your tax account can take a year or longer.

We’re here to help you safeguard your financial identity. Call for more information, as well as assistance with IRS correspondence.

Has your tax refund gone astray?

Your tax return is filed, and your direct deposit refund is… not the amount you were expecting, or not in your bank account at all. What should you do?

  • If your refund is less than you anticipated, part of the overpayment may have been applied to other debt such as student loans or state income taxes. You’ll get a notice in the mail from the IRS explaining the difference and providing the contact information for the agency to which the money was sent.

    Other reasons for a smaller-than-expected refund include math errors, misapplied estimated tax payments, and corrections to tax credits.

  • If your refund is more than the amount on your tax return, wait before spending it. The extra money could be due to an error caught by the IRS, which means you’ll get a notice. If the adjustment is correct, the cash is yours to keep.

    If not, the overpayment could be the result of a mistake on someone else’s tax return, such as an incorrect bank routing or account number. In that case, you’ll need to contact your bank and the IRS to return the money to the rightful owner.

  • If your refund is delayed or missing, verify the direct deposit information on your return for errors. Generally, when your bank is unable to match the account number, the refund is rejected and the IRS issues a paper check.

    What if your direct deposit went into someone else’s bank account? Contact us immediately. We’ll work with you and your bank to trace the funds and get your money.

Do you have other questions about your refund? Give us a call. We’re here to help.

Update your estate planning

Have you been putting off your estate planning due to uncertainty in the tax law? Then you’ll be happy to hear much of the uncertainty has been eliminated by the American Taxpayer Relief Act of 2012.

Here are three rules the Act made permanent, beginning in 2013.

  • The basic federal estate tax exemption is $5 million, adjusted annually for inflation. For 2013, the exemption is $5.25 million, meaning you can transfer assets up to that amount, estate tax-free, to your heirs under your estate plan or through gifts during your lifetime.
  • “Portability” can increase your exemption. Portability is an election you make as an executor to apply the unused portion of one spouse’s basic exemption to the second spouse’s estate. The potential benefit: no estate tax on $10.5 million of assets.
  • The maximum estate tax rate is 40%, an increase from last year’s 35%. Keep in mind that’s the federal tax rate. Your state may also impose an estate tax, and additional taxes may be due if you own property in other states.

Improved clarity paves the way for updating estate plans. Give us a call to schedule an appointment for a tax review of your wills, trusts, beneficiary designations, and exposure to state taxes.

The health care laws will affect 2013 taxes

As you wrap up your 2012 federal tax return and begin to assess 2013 in light of new rules, it’s time to remember some older ones: the health care laws enacted in 2010. Here are three provisions from those laws that start this year.

  • Additional Medicare tax. You’ll pay this 0.9% tax on wages, compensation, and self-employment earnings when that income exceeds $250,000 and you’re married filing jointly ($200,000 when you’re single).

    Regardless of your income or filing status, the additional tax is withheld from your wages once your employer pays you $200,000. You’ll calculate the amount you actually owe on your 2013 federal income tax return.

  • Tax on net investment income. This 3.8% tax applies to 2013 net income from sources such as capital gains, dividends, interest, annuities, and rents when your modified adjusted gross income exceeds $250,000 (for married filing jointly). If you’re single, the tax applies when your MAGI exceeds $200,000.
  • Increased threshold for itemized medical deductions. When you’re under age 65, your unreimbursed medical expenses must be more than 10% of your adjusted gross income to claim an itemized deduction.

Other provisions in the health care laws become effective in future years, including subsidies and tax credits to help with the cost of purchasing a health insurance policy. Eligibility for these benefits depends on modified adjusted gross income, which is based initially on your 2012 income tax return.

Need more information? Give us a call. We’re ready to help with understandable explanations and personalized planning advice.

Pay attention to mortgage loan processing fees

If you’re planning to apply for a home loan, be sure to scrutinize the processing charges. By law, these costs must be disclosed to consumers. You’ll first see them in a Good Faith Estimate (GFE), a statement of estimated costs that’s filled out when you first apply for a home loan. At the end of the process, when you’re sitting in the escrow office for the actual closing, the form will appear again. It will then include actual costs for processing and closing the transaction.

The standard form that’s used at closing is called the “HUD-1” (also known as the settlement or closing statement). A few years ago the GFE was incorporated into the HUD-1, so now it’s easier to compare the estimated costs at the beginning of the process to the lender’s actual charges at the back end.

Setting up a home loan typically runs thousands of dollars, and mortgage payments often represent a huge slice of the family budget. So it pays to shop around and take a hard look at the processing fees. Here are some of the charges you may encounter on the HUD-1 settlement statement:

  • Loan origination fee. Generally expressed as a percentage of the loan amount, this fee covers the lender’s cost to evaluate and prepare your loan. Percentages vary among financial institutions, so this is a good candidate for comparison shopping.
  • Title search and insurance. This is a legitimate charge for searching property records to establish legal ownership and identify outstanding liens. Charges for this service also vary, so be sure to compare lenders.
  • Application fee. Even if your loan is denied, you’ll be charged this fee. It’s intended to weed out folks who are just “kicking the tires.” Watch out for the same fee being charged more than once. It may be called an “underwriting fee” on one part of the statement and a “processing fee” further down the page.
  • Document preparation fee. This fee is charged for drawing up legal documents. Again, make sure you aren’t charged twice for this service: once by the lender and again by the escrow agent.
  • Appraisal fee. If your property was recently appraised, a lender may be persuaded to waive this charge.
  • Inspection fee. This charge covers the lender’s cost to have the property inspected. Your job? Make sure the home was actually inspected. If it wasn’t, why should you pay for an inspection?

Expand your business carefully

Businesses grow in stages, and often that growth is linear. Year-to-year profits expand incrementally as new products are developed and new services offered. Sometimes, however, a company will want to seize new opportunities and expand rapidly. Perhaps a competitor drops from the market and your firm is suddenly faced with a new client base. Perhaps an improving economy makes opening new stores in another region a viable option. Perhaps a vendor that supplies one of your company’s key components has started searching for a buyer.

Proceed with caution! Although rapid expansion may provide opportunities for increased profitability, growth is also fraught with hazards. Not a few companies have crashed and burned because they plunged into new markets or acquired existing businesses without adequate forethought. If your company is mulling over expansion, consider the following:

  • Know your priorities. A firm should never lose sight of its core mission. Be slow to expand into products that, on the surface, seem similar but may actually take your firm in a different direction. If your company manufactures furniture, should you really buy a firm that produces airplane parts?
  • Know your investors. Some companies have established hand-shake agreements with investors, then spent thousands of dollars only to learn that financing was not forthcoming. Make sure you have adequate recourse should needed funds fail to materialize.
  • Partner wisely. For example, seek other firms that can assist with larger-than-expected orders. To prevent backlogs and problems with quality, scrutinize the capacity of your suppliers.
  • Acquire carefully. If in doubt about any aspect of the business you’re considering for acquisition, seek expert advice. “Winging it” is a sure recipe for disaster.
  • Plan for growth. Many aspects of your business may be affected by expansion, including accounting systems, organizational structure, inventory management, and sales. Be sure to examine every major system and function to determine how they can be integrated into a larger entity.
  • Monitor growth. As your business expands, always keep a watchful eye on your firm’s financial status and progress. Don’t wait until the end of the quarter to discover that cash flow has dried up.
  • Keep existing customers happy. A popular restaurant, for example, that expands too rapidly and fails to maintain quality may find itself losing customers to the eatery across the street. Remember, it’s generally harder to attract customers than to keep them.