MLP Funds vs. Direct Investment: Need-to-Know / Investors who are comfortable picking their own stocks – especially those who hire an accountant at tax time anyway – investing directly in MLPs has several advantages.

Dee Gill for Y Charts writes: Master limited partnerships (MLP) investments are notorious for creating onerous tax filing requirements, and that reputation leads a lot of investors to choose MLP funds over shares of individual companies. But for investors who are comfortable picking their own stocks – especially those who hire an accountant at tax time anyway – investing directly in MLPs has several advantages. It lets you avoid significant fees, see exactly where your money is going, and still get access to glorious dividends.

Consider returns of several popular MLP funds compared to the returns of some big MLPs. First, the funds: JPMorgan Alerian MLP Index ETN (AMJ), ALPS Alerian MLP ETF (AMLP), Nuveen Energy MLP Total Return Common (JMF), First Trust Energy Infrastructure (FIF), and UBS E-TRACS Alerian MLP Infrastructure ETN (MLPI). Keep in mind that the gains seen in the charts do not include the fees investors pay, which range from 0.85% to more than 2%.

AMJ Total Return Price data by YCharts

Now look at the returns for the top five holdings in the Alerian MLP Index (AMZ), which in itself retuned about 20% in the past year. They include Enterprise Products Partners (EPD), Kinder Morgan Energy Partners (KMP), Plains All American Pipeline (PAA), Energy Transfer Equity (ETE), and Energy Transfer Partners (ETP). The total returns here reflect what last year’s investors could pocket today.

EPD Total Return Price data by YCharts

Isn’t it more risky to pick your own? With ordinary equities, investors usually choose funds so great gains in one stock can cover for the losses in another. But as YCharts explained, mostMLP funds don’t work like typical index funds. Many MLP funds, including some of the most popular, are exchange traded notes, which are debt securities. These MLP fund investors pay fees to make unsecured loans to the issuer in exchange for a payout based on an index. So while of course buying individual shares carries risks, they’re not always diminished by purchasing MLP funds. Funds can carry different kinds of risk.

It’s true that owning a share of an MLP individually means getting a K-1 at tax time with dozens of data points, and owning MLPs generally has tax advantages when held in certain ways. A conversation with an accountant on the subject is advised before investing in any of them. Then let that professional deal with the additional paperwork at tax time.

Preparing for the Implications of 2013 Tax Changes

Kelly Postlewaite for BKD.com writes: With all of the tax changes planned for 2013, this is the year to revisit your tax planning. The increased individual tax rates in 2013 from the American Taxpayer Relief Act of 2012 (ATRA) and arrival of surtaxes embedded in thePatient Protection and Affordable Care Act require a fresh look at your choice of entity and its ownership structure as well as your organizing documents.

The top individual rate is now 39.6 percent in 2013 as a result of ATRA. In addition, we return to the phase-out provisions based on adjusted gross income on both itemized deductions and personal exemptions. These phase-outs can add more than 1 percent to your marginal rate. The 3.8 percent surtax on excess net investment income (including passive income from your business) or the 0.9 percent surtax on self-employment income (on top of the 2.9 percent already in place) can lead to a top federal marginal tax rate of about 45 percent. When state and local income taxes are considered, the combined marginal tax rate can rise above 50 percent.

Your choice of entity can alter the imposition of the self-employment tax, including the surtax. Limited liability company income could be subject to the full 3.8 percent tax, while income from S corporations (apart from adequate wage compensation) is not. While incorporating your business might save you some self-employment taxes, there are multiple considerations to review with your tax advisor along the way.

Prior to 2013, it was beneficial for income to be passive, because passive income can absorb losses from other passive activities. After 2012, this paradigm should be challenged, as passive income could attract the new 3.8 percent surtax on the lesser of (1) net investment income or (2) the amount that adjusted gross income—as modified for certain foreign income exclusions—exceeds the applicable threshold amount ($250,000 for joint taxpayers or $200,000 for single taxpayers). It is possible to plan around this surtax by reconsidering owner participation in various business activities. Another possibility may be to move business ownership into a qualifying trust where the trustee is active in the business. As with choice of entity, this requires careful planning with your tax advisor.

Finally, ownership agreements should be revisited to ensure distributions will satisfy the new, higher tax liabilities in 2013. Agreements specifying a fixed percentage of taxable income for tax distributions should be reviewed under the new rules. 

Tax planning is never simple, but it has never been more important because of the higher tax rates that apply this year and into the future. 

PARENTS AND STUDENTS: CHECK OUT COLLEGE TAX BENEFITS

Donna H. Laubscher fpr HHCPA.com writes: In general, the American opportunity tax credit, lifetime learning credit and tuition and fees deduction are available to taxpayers who pay qualifying expenses for an eligible student. Eligible students include the primary taxpayer, the taxpayer’s spouse or a dependent of the taxpayer.

Though a taxpayer often qualifies for more than one of these benefits, he or she can only claim one of them for a particular student in a particular year.  (Otherwise, this would be double dipping which is most generally disallowed in the tax law.) The benefits are available to all taxpayers – both those who itemize their deductions on Schedule A and those who claim a standard deduction. The credits are claimed on Form 8863 and the tuition and fees deduction is claimed on Form 8917.

The American Taxpayer Relief Act, enacted Jan. 2, 2013, extended the American opportunity tax credit for another five years until the end of 2017. The new law also retroactively extended the tuition and fees deduction, which had expired at the end of 2011, through 2013. The lifetime learning credit did not need to be extended because it was already a permanent part of the tax code.

For those eligible, including most undergraduate students, the American opportunity tax credit will yield the greatest tax savings.  Alternatively, the lifetime learning credit should be considered by part-time students and those attending graduate school. For others, especially those who don’t qualify for either credit, the tuition and fees deduction may be the right choice.

All three benefits are available for students enrolled in an eligible college, university or vocational school, including both nonprofit and for-profit institutions. None of them can be claimed by a nonresident alien or married person filing a separate return. In most cases, dependents cannot claim these education benefits.

Normally, a student will receive a Form 1098-T from their institution by the end of January of the following year. This form will show information about tuition paid or billed along with other information. However, amounts shown on this form may differ from amounts taxpayers are eligible to claim for these tax benefits.

Many of those eligible for the American opportunity tax credit qualify for the maximum annual credit of $2,500 per student. Here are some key features of the credit:

• The credit targets the first four years of post-secondary education, and a student must be enrolled at least half time. This means that expenses paid for a student who, as of the beginning of the tax year, has already completed the first four years of college do not qualify. Any student with a felony drug conviction also does not qualify.
• Tuition, required enrollment fees, books and other required course materials generally qualify. Other expenses, such as room and board, do not.
• The credit equals 100 percent of the first $2,000 spent and 25 percent of the next $2,000. That means the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualified expenses for an eligible student.
• The full credit can only be claimed by taxpayers whose modified adjusted gross income (MAGI) is $80,000 or less. For married couples filing a joint return, the limit is $160,000. The credit is phased out for taxpayers with incomes above these levels. No credit can be claimed by joint filers whose MAGI is $180,000 or more and singles, heads of household and some widows and widowers whose MAGI is $90,000 or more.
• Forty percent of the American opportunity tax credit is refundable. This means that even people who owe no tax can get an annual payment of up to $1,000 for each eligible student. Other education-related credits and deductions do not provide a benefit to people who owe no tax.

The lifetime learning credit of up to $2,000 per tax return is available for both graduate and undergraduate students. Unlike the American opportunity tax credit, the limit on the lifetime learning credit applies to each tax return, rather than to each student. Though the half-time student requirement does not apply, the course of study must be either part of a post-secondary degree program or taken by the student to maintain or improve job skills. Other features of the credit include:

• Tuition and fees required for enrollment or attendance qualify as do other fees required for the course. Additional expenses do not.
• The credit equals 20 percent of the amount spent on eligible expenses across all students on the return. That means the full $2,000 credit is only available to a taxpayer who pays $10,000 or more in qualifying tuition and fees and has sufficient tax liability.
• Income limits are lower than under the American opportunity tax credit. For 2012, the full credit can be claimed by taxpayers whose MAGI is $52,000 or less. For married couples filing a joint return, the limit is $104,000. The credit is phased out for taxpayers with incomes above these levels. No credit can be claimed by joint filers whose MAGI is $124,000 or more and singles, heads of household and some widows and widowers whose MAGI is $62,000 or more.

Like the lifetime learning credit, the tuition and fees deduction is available for all levels of post-secondary education, and the cost of one or more courses can qualify. The annual deduction limit is $4,000 for joint filers whose MAGI is $130,000 or less and other taxpayers whose MAGI is $65,000 or less. The deduction limit drops to $2,000 for couples whose MAGI exceeds $130,000 but is no more than $160,000, and other taxpayers whose MAGI exceeds $65,000 but is no more than $80,000.

There are a variety of other education-related tax benefits that can help many taxpayers. They include:

• Scholarship and fellowship grants—generally tax-free if used to pay for tuition, required enrollment fees, books and other course materials, but taxable if used for room, board, research, travel or other expenses.
• Student loan interest deduction of up to $2,500 per year.
• Savings bonds used to pay for college—though income limits apply, interest is usually tax-free if bonds were purchased after 1989 by a taxpayer who, at time of purchase, was at least 24 years old.
• Qualified tuition programs, also called 529 plans, used by many families to prepay or save for a child’s college education.

Taxpayers with qualifying children who are students up to age 24 may be able to claim a dependent exemption and the earned income tax credit.

There are some opportunities for planning when preparing the returns for both parents and students.  See Six Important Facts about Dependents and Exemptions.

HSA (Health Savings Account) Tax Advantages

A Health Savings Account (HSA) enables anyone with a qualifying high-deductible health insurance plan to shelter HSA contributions from federal income taxes. By reducing your adjustable gross income and through tax-deferred growth, HSAs can reduce your income taxes.

Here are several ways an HSA can offer tax advantages:

• Reduce your federal income taxes. Regardless of your income level, any money you deposit into your Health Savings Account is considered an "above-the-line" deduction, giving you a 100%write-off against adjusted gross income. There are no income limitations.
• Reduce your state income taxes.  For those states that follow federal tax treatments, accountholders are eligible for the same tax benefits at the state level as they receive at the federal level. However, treatment of HSA contributions at the state level varies. Consult a tax professional for more information on your state’s tax benefits.
• Tax-deferred growth. Like funds in an IRA, the money in your account grows tax free.
• Pay for a wide range of medical, dental and vision expenses with pre-tax dollars. Pay for eligible expenses for yourself, your spouse and tax dependents.
• Pay Medicare expenses with pre-tax dollars. You can use your funds to pay Medicare Parts B & D premiums, as well as deductibles, co-pays, and coinsurance under any part of Medicare. If you have retiree health benefits through a former employer, you can also use your HSA funds to pay for your share of retiree medical insurance premiums.
• Pay for long-term care insurance with pre-tax dollars. You can use your funds to pay for qualified long-term care premiums.

HSA Tax Questions

How much can I contribute to my HSA?

The amount that can be contributed to your HSA changes each year. Click here for contribution limits.

What is the cut-off date for contributing to my HSA ?

You may contribute to your HSA for the current tax year until April 15th of next year.

Is there a penalty for over contributing to the HSA?

Yes, you must pay income tax plus a 6% tax penalty on the excess contribution.

What tax forms will I get? What is reported to the IRS?

Two tax forms will be provided to you and to the IRS.

Form 1099-SA reports the distributions made from your Health Savings Account during the calendar year: This form is provided no later than January 31. The amount in Box 1 of your 1099-SA should be reported on Form 8889

Form 5498-SA reports the contributions made to your Health Savings Account. . Our custodian bank provides this form no later than January 31 for contributions made during the calendar year. Taxpayers who make additional contributions made between January 1^st and April 15^th for the prior year will be provided a revised 5498-SA form in May. Please note that this form is informational and not filed with your taxes.

What tax forms do I need to complete?

All taxpayers who have a Health Savings Account must complete Form 8889 if:

• they, or someone on their behalf, made contributions to their HSA
• they received any HSA distributions
• they failed to be an eligible individual during the testing period.
• they acquired an interest in an HSA because of the death of the account beneficiary.

Sage Introduces Bank Integration For Sage One

Seth Fineberg for Accounting Today writes: Sage North America has added several new features to its Sage One cloud accounting product, including bank integration to work with over 10,000 banks and financial institutions.  Users can now select and link as many bank accounts and credit cards with Sage One as they wish and may reconcile transactions and apply payments against customer invoices in Sage One.

Sage One has also simplified its user interface and incorporated features, such as recurring transactions and accounts payable, to streamline and automate typical financial management processes.  Users can also now entering and categorizing vendor bills for tax purposes. Payables enhancements include the ability to set up recurring transactions for predictable expenses, such as a loan payment. The new features support bills with multiple line items, each with a different expense category, automating accurate cash flow tracking.

“Managing and tracking cash flow is a challenge for many time-strapped entrepreneurs,” said Henry Benamram, general manager, Sage One. “Bank integration with Sage One further simplifies accounting and business management for entrepreneurs. Rather than keying transactions and trying to determine spending and balances from multiple sources, business owners relying on Sage One can see their accounting, projects, tasks and now banking, all in one place.”

Sage has also lowered the $29 subscription fee to $24 per month for 12 months, and existing customers who are not on a discounted rate will be given the new lower monthly rate automatically.

"Receipts" by Wave Accounting Review / A free professional small business app that makes it possible for users to track and categorize all of their receipts effortlessly.

Angela LaFollette for 148Apps.com writes: I’m the queen of throwing receipts in the trash. When it is time for taxes, returning items or keeping a budget, I feel like pulling my hair out because the receipts that I do have are quite unorganized. Thankfully, there are many apps to help with this problem. In particular, a new free app known as Receipts by Wave is gaining in popularity.

Receipts by Wave is target toward small businesses, but it’s also useful for anyone. To get started, users will either need to sign up for an account or sign in via Google or Yahoo! accounts. Adding a receipt is as simple as tapping the plus button at the bottom of the receipt list screen. Receipts can either by pulled from photos or taken with the camera. Users can also upload receipts directly into the Wave web app via the website. Unfortunately, the email feature is not available yet but it is coming soon.

It’s essential to have proper light and focus to ensure that the Optical Character Recognition (OCR) technology works well. Once a receipt is captured, it needs processing. The processed receipt can then be changed manually if any information looks incorrect. Filters can then be applied to receipts to organize them. While the wait wasn’t long, I still had to go back and edit a few fields after my receipt was scanned. It was a little time consuming, but the smooth interface made the process rather easy. However, the ability to manually enter a receipt would be a great feature to add.

All the receipt information is used to create an accounting record and it is organized with other transactions. The original receipt image is stored, so users can pull it up at any time.
If privacy and security are a concern, the app promises that it is safe and secure. It also comes with a passcode option so users can feel safe that their information is protected just in case someone happens to try to view their information.

The best part is that it’s completely free. It even comes with free email support for those who have any problems. Additionally, Receipts by Wave is designed to integrate well with Wave’s other apps. Since it’s completely free, well-designed and fast, downloading this small business app is a no brainer.

Online payments within invoices / eWAY and Xero have combined the powers of Online Invoicing and instant online payments to smash your receivables days and get paid faster.

What's wrong with traditional invoicing?  Here's the scenario. You or your customer has issued their invoice. Someone has printed it, stuffed it in an envelope and mailed it to it's destination then sooner or later the deadline comes around and you haven't been paid. You spend time wondering if they received the invoice, chasing them up and fretting about how you're going to pay your bills. Sound familiar?  Everyday businesses waste time and money chasing overdue invoices. It hurts your cash flow, increases your stress levels and weighs on your wallet.

Online Invoicing in real-time and Pay Now

eWAY and Xero have combined the powers of Online Invoicing and instant online payments to smash your receivables days and get paid faster.

Traditionally issuing an invoice meant producing, printing and delivering a piece of paper. That's too many p's! Here's one, Pay Now. With Xero's Pay Now button you can connect directly to your customer's and their payment with the tap of a button.

eWAY Pay Now integration is available with Xero's Online Invoicing. Online Invoicing allows you to share the invoice with your customer online. That's one invoice, one location in real-time. You simply email the invoice link to your customer, they click Pay Now, they enter their credit card details, and you receive your invoice payment instantly!

eWAY and Xero are closing the gap between your cash flow and maintaining your business records. Whether it's your business or your customer's business, online payments within invoices is the perfect tool for getting paid faster or building clients.

The benefits of combining eWAY and Xero

What is time worth to your business? eWAY and Xero combined save you time and therefore money. Chasing outstanding invoices = time + expenses + opportunity cost. Connect directly between your business and your customer using Online Invoices to:

• get paid faster and easier;
• receive instant online payment;
• smash your receivables days; and
• stay on top of cash flow.

Allowing your customer's to Pay Now directly on their online invoice makes payment easy. There's no need to print and process. Just the tap of a button, fill in their credit card details and done! They receive instant confirmation of payment keeping your paperwork and payment processing automated.

How do I get Pay Now with eWAY?

Pay Now with eWAY is a feature add-on to Xero's Online Invoicing. The functionality will be available to businesses with both an eWAY and Xero account.

Pay Now with eWAY is expected to be launched in June 2013. Register your interest to receive notification of when you can start getting paid faster.

Why Home Insurance Premiums and Tax Deductions Don’t Go Together

Arthur Murray for Taxpayersforjustice.org writes: Among the great side benefits of buying a home are the tax deductions you also acquire once you sign on the bottom line – and sign and sign and sign. You’ll have to itemize next year to get them, of course. But it’s well worth the time you’ll spend on it. But not everything related to your home, particularly when it comes to home insurance, is deductible.

It really doesn’t follow: Many of the other things related to buying and owning a home are deductible. That includes your mortgage interest payments, your real-estate taxes and, in many cases, your private mortgage insurance payments. Private mortgage insurance usually is required by lenders when the buyer puts down less than 20%. It’s best to check with your tax accountant on whether this deduction is available to you.

But homeowners insurance isn’t deductible. Nor are any closing costs you paid when you buy a home. Nor are utilities, including water, electricity and natural gas.

That being said, the mortgage interest deduction is substantial, particularly in the early years of homeownership, when much of your payment goes toward the interest on your loan. You can reduce your tax liability substantially through using it.

The home business exception
There is one situation in which home insurance premiums – or at least a portion of them – can be deducted. That’s when you operate a home business. This is an extremely complicated area – you should work closely with a tax specialist before you choose this path because there are a number of conditions you must meet before you can qualify.

If you do wind up being able to use the home business option, remember that you’ve now established that you are running a business out of your home. This means you need some form of business insurance – home insurance in most cases will not cover claims related to a business you operate from home. If customers visit your home or if you perform a service that could result in a malpractice or similar claim, you could be vulnerable.

Home insurance premiums and your tax refund
With any luck, however, homeownership means you’ll get a tax refund – possibly a larger one than you were expecting. Now you’ve got a new question: What should you do with that money?

Your options are numerous – you could blow it on something you want, for example. But most people know that’s not necessarily a great idea. Here are some better spending choices that could even save you some money:

• Buy something for your home. Maybe your appliances are wearing out. You could invest in a new refrigerator or dishwasher or water heater. In some cases, if you buy an Energy Star certified model, you could qualify for a tax credit on next year’s taxes.

• Start a roof replacement fund. You likely could get a break on your home insurance premium when you install that roof.

• Pay your home insurance premium in a lump sum using your refund. You’ll likely get a discount for paying in full, and you’ll have peace of mind for the coming year.

History of the Tax Attorneys Fees Deduction

From How To Become a Lawyer we read: You mean that you didn’t know that there was such a thing as the tax attorney’s fees deduction? Well, perhaps that’s because it’s not actually called the tax attorney’s fees deduction. Tax attorneys like me just like to call it that. It’s technically part of the Job Expenses and Certain Miscellaneous Deductions subject to the 2% floor and it can be found at line 23 on Schedule A (downloads as a pdf). You might overlook it since it’s labeled as “Other expenses” cause it’s thatimportant.Miscellaneous deductions are the third most popular of the itemized deductions (you can read more about itemized deductions in this prior post). 

Those deductions are currently only allowed to extent they exceed 2% of your adjusted gross income (“AGI”), similar to the way that you figure the deductions for medical expenses. The threshold for the deductions is often referred to as a “floor.”Here’s a quick example: assuming you have miscellaneous deductions that total $5,000 and AGI of $50,000, you can only deduct $4,000. The math is: $5,000 (total expenses) less $1,000 “floor” ($50,000 x 2%) = $4,000 in deductions on Schedule A.So, which fees qualify as deductible? Usually, legal fees related to individuals are not deductible. When it comes to attorney’s fees you pay to defend the action from your crazy neighbor about your tree, not deductible. But attorney’s fees related to tax may be deductible. To qualify, your legal fees must be:

• To produce or collect income that must be included in your gross income,

• To manage, conserve, or maintain property held for producing such income, or

• To determine, contest, pay, or claim a refund of any tax.

That means generally, tax planning advice related to your income or income-producing property (including estate planning that is related to tax planning) and some tax controversy work would be deductible. This also extends to tax advice rendered in the course of planning for divorce or to collect alimony; divorce-related attorney fees are otherwise not deductible.Great news, right? It’s like a rebate on your tax attorney bill. It is worth noting (so that I don’t get virtually egged by my colleagues) that the IRS also allows a deduction at line 23 for “tax advice fees” not restricted to that provided by attorneys, so advice provided by your accountant, CPA and investment advisor may also be deductible.Tax-related legal expenses may also be deductible if they are tied to doing or keeping your job. This includes fees paid to defend yourself against criminal charges arising out of your trade or business – good news for “Whitey” Bulger.(Other business-related legal fees may also be deductible – just on other tax schedules.)The history of the deduction is interesting in that the statutes didn’t change wildly for most of the history of the Code, though the interpretations of the deduction did. 

The language in the Tax Code which allows for deductions for “all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business” remained virtually unchanged in most versions of the Tax Code, including those from 1926 (downloads as a pdf) and 1939 (downloads as a pdf) and included tax-related legal fees.The difficulty was in the interpretation. The courts, of course, read this language strictly meaning that the taxpayer had to be involved in a trade or business, not merely producing income. (See Higgins v Commissioner, 312 U. S. 212 (1941))

 That meant that taxpayers who incurred fees to produce income not in the course of business were not able to take the deduction. The fact that the income was taxable but not deductible because of the wording in the law clearly bothered many on the bench and in Congress. The Revenue Act of 1942 changed that by adding language which clarified that fees related to profit-seeking activities, including personal investments and hobbies, would be deductible so long as the respective income was taxable.The deduction survived for decades until the 1980s. As part of Reagan’s sweeping tax changes, the Treasury issued a report on November 27, 1984, referred to as the “Tax Reform for Fairness, Simplicity, and Economic Growth.”  In the report, it was proposed that a floor be imposed on miscellaneous itemized deductions. The suggested floor was 1% of AGI and the justification was based on simplification. The report (downloads as a pdf) stated:

Allowance of the various employee business expense deductions and the miscellaneous itemized deductions complicates recordkeeping for many taxpayers. Moreover, the small amounts that are typically involved present significant administrative and enforcement problems for the Internal Revenue Service. These deductions are also a source of numerous taxpayer errors concerning what amounts and what items are properly deductible.In terms of administration, the deduction was a bear. In addition to the confusion behind what was properly deductible (miscellaneous is just so vague), the report noted that the sheer number of returns claiming the deduction was overwhelming.

 Further, the value of those deductions was tiny: in 1982, half of the taxpayers who itemized claimed miscellaneous deductions worth less than 1/2 of 1% of their AGI.However, the Treasury also recommended that the “expenses be deductible by the taxpayer, whether or not he itemizes deductions.” (Emphasis added and yes, the Treasury used the word “he”, not me)Congress took the Treasury up on some of its advice and did impose a floor on miscellaneous deductions when it enacted the Tax Reform Act of 1986.Section 67 of the Tax Code now allows for a deduction for miscellaneous expenses “only to the extent that the aggregate of such deductions exceeds 2 percent of adjusted gross income.”Congress did not take all of the Treasury’s advice and continued to restrict the deduction to those taxpayers who itemize. 

The deduction is also disallowed if a taxpayer is subject to the AMT.The Regulations have since clarified what is and is not deductible under the Code including, at Section 1.212-1, subparagraph (l):

Expenses paid or incurred by an individual in connection with the determination, collection, or refund of any tax, whether the taxing authority be Federal, State, or municipal, and whether the tax be income, estate, gift, property, or any other tax, are deductible. Thus, expenses paid or incurred by a taxpayer for tax counsel or expenses paid or incurred in connection with the preparation of his tax returns or in connection with any proceedings involved in determining the extent of his tax liability or in contesting his tax liability are deductible.

The Regulations have further clarified that tax advice connected to alimony and tax is deductible at Section 1.262-1:
Generally, attorney’s fees and other costs paid in connection with a divorce, separation, or decree for support are not deductible by either the husband or the wife. However, the part of an attorney’s fee and the part of the other costs paid in connection with a divorce, legal separation, written separation agreement, or a decree for support, which are properly attributable to the production or collection of amounts includible in gross income under section 71 are deductible by the wife under section 212.(Again, the sexism is in the Code, not on my end)There’s been no real movement on the deduction over the past 25 years. The deduction as written in 1986 stands today, still subject to the 2% floor.You don’t hear a lot about the deduction for legal fees come tax time which is odd since, in theory, these fees could add up a lot more quickly than medical expenses which you do hear a lot about. My advice, which is, of course, self-serving, is to ask your tax professional about the deduction.

Avoiding Family Conflicts During Estate Planning / Family litigation occurs not from a lack of planning / How to avoid family battles over wealth transfers.

E. Patricia Chantler and Wonsun Willey for WealthManagement.com write: With President Obama signing the American Taxpayer Relief Act of 2012 on January 3, 2013, families can begin planning their estates knowing the updated terms. Now is the best time to assess the Act’s impact and evaluate tax-advantaged wealth transfer opportunities.  

The American Taxpayer Relief Act of 2012 permanently sets the unified gift and estate tax exemption amount to $5 million, subject to annual inflation adjustments; and permanently provides for a maximum estate tax rate to 40% for descendents dying after 2012. For high-net-worth families and those with closely-held family businesses, this means reviewing their estate plans and seeking vehicles to mitigate tax exposure.

Unfortunately, estate planning can also cause family feuds over inheritance, often leading to litigation that can become lengthy and costly with no clear winner. From our experience, family litigation occurs not from a lack of trying to solve the issue, but from a lack of planning. Below are key tactics we suggest to help take advantage of potential tax cuts, as well as to avoid family battles over wealth transfers.

• Overcome the concept of fairness. One of the most common issues is when parents try to be “fair” in order to ensure their children get along. In this situation, the parents are also typically trying to protect and keep the legacy asset, whether it is a business or a home, in the family and on a growth trajectory. If one sibling is invested and interested in the family business, while the other sibling is not interested in the family business and wants to pursue a lifestyle that is quite different from the other sibling, splitting the business “fairly” between the two siblings, i.e. giving each sibling an equal portion of the business, is likely to cause tension and unnecessary disagreements and legal battles down the road.

• Transfer assets based on a natural flow. Instead of transferring assets equally, focus on what makes sense for the individual you are transferring the asset to. For example, if only one sibling is interested in the family business, he or she should be considered to own the family business in the future. If the other sibling is not interested in the business, other mechanisms can be set into place for transferring different assets to that child.

• Protect family assets. Each sibling's desires and needs are different.  The individual might be young with other goals, might not have the same interests as the family, or might have special needs. In these situations, certain mechanisms such as trusts can be set up to protect both the individual and the family assets. For example, an individual can receive income for life and have a trustee appointed to manage the financial assets.

• Make major decisions with every family member in the room. When it comes to transferring assets or discussing the future, the family needs to be on the same page. Not doing so can lead to family tension and legal battles in the future.

For example, the parents might transfer assets to the daughter without telling the son. If the son finds out, he can begin to question how much was given and imagine the reasons for him not to be included. He can also feel resentful towards the sister or the parents. Openness and transparency prevents unnecessary misunderstandings or resentment amongst the family members.

• Do not wait for the original founder of the family business, or a parent, to pass away. A simple fact: the more you talk now, the better it will be for your family’s future.

Many problems arise after the individual who has the majority of the wealth is out of the picture. When mom or dad doesn’t address an issue, the siblings begin to feud.

• Evaluate what you can and can’t afford to transfer. The first step in beginning the estate planning process is to get an estimated current value of the asset portfolio of the estate. Determine the assets that are more likely to appreciate in value, giving considerations to those that also carry other intangible values, such as the family legacy.

Oftentimes, the parents might say, “the kids need to financially take care of themselves. We need to focus on ourselves.” However, after evaluating the estate, they might realize that they can afford to transfer wealth now and minimize what they will give in taxes to the government later. One strategy is transferring hard assets, such as a real estate property, which are likely to increase in value but may not have a good income stream.  By keeping liquid assets such as cash and stock, the parents do not have to compromise their standard of living.  This way, the asset transferred is not the asset parents depend upon for living expenses.

• Treat estate planning as an ongoing process. Every individual has life-changing events - marriage, children, divorce, sale of a business, stock options, IPO - along with changes in beneficiaries. We often refer to this as a “milestone review.” When a financial or significant life milestone occurs it is critical that the estate plan is updated.

For instance, if one of the children gets married, his or her spouse can greatly influence the individual’s opinion on how much he should be involved with the family business, etc. It is important for both the family, and the third party advising the family, to identify the goals and values of the estate and how these milestones will impact them.

• Pick the right professional advisor. Estate planning is a very personal business for both the advisor and the individual client. Look for someone you trust who will bring a personal interest to the relationship. As gifting involves giving up some control and is not something that can easily be reversed, understanding family dynamics and getting family members comfortable in all facets of the gift is important.

Communication and coordination are essential to make sure the overall tax, financial and personal outcomes are the best in the current tax regime. Keep in mind assistance from multiple advisors will be needed during this process. Trusted professional advisors can bring significant value in helping to select the best assets to transfer, for example, attorneys are essential to producing the legal documents needed to carry out the intention of the estate plan.

When planning one’s estate, don’t delay discussions about difficult inheritance and wealth transfer issues.  A family willing to have an honest and open discussion now will avoid scorched relationships and negative financial impact later. 

Get ready for the post-PC world, says accounting thoughtleader

Isaac M O'Bannon for CPA Practice Advisor writes:  More than 1,200 CPAs and financial professionals are in attendance at this year’s New Jersey Business and Accounting Show and Conference, which started today with a keynote by Rick Richardson, CPA.CITP.

In its 19^th year, the annual conference is held at the Meadowlands Exposition Center in Secaucus and is the New Jersey Society of CPAs’ largest annual technology gathering. The show offers two days of educational sessions by many of the top leaders in technology for accountants. Attendees can earn up to 12 hours of CPE during the event, including a combined four hours of CPE credits during the two free general session keynotes that open each day’s sessions.

The conference was called to order by Gerard Abbattista, CPA, the president-elect of the New Jersey Society of CPAs, who is a partner at EisnerAmper LLP, who commended the show for offering a wide opportunity for professionals to earn free and low-cost CPE.

The opening keynote was delivered by noted CPA and technologist Rick Richardson, who has been recognized as one of CPA Practice Advisor’s Thought Leaders and is a member of the Tax & Accounting Hall of Fame. This was the 11^th year that he has offered the opening keynote, which focused on “Technology Futures for 2013.”

Each year, Richardson presents his visions of technology trends shaping the profession, spotlights the key areas accountants should pay attention to, and then provides near and long-term technology predictions. He also does a quick recap of how his previous predictions have fared.

For trends this year, his key focus areas were on technology companies, platforms, hardware, communications and “Big Data.” He noted the remarkable progress Apple and tablet manufacturers have made in transitioning the market away from PCs and toward a much more mobile environment.

“We are nearing a post-PC world where fewer people care about personal computers,” Richardson noted. “Replacement cycles are lengthening as people adapt more mobile technologies, and the use of multiple devices is common. Mobile development is outpacing PC development,” and so is the revenue.

Also speaking at the show today are, Jim Bourke, CPA.CITP, CGMA, a partner at WithumSmith+Brown, who will discuss the Bring Your Own Device trend, and why it's a postitive if managed properly. Former CPA Practice Advisor Executive Editor Gregory L. LaFollette, CPA.CITP, CGMA, will offer two sessions: “How Smart Accountants are Capitalizing on the ‘Cloud Burst’,“ and “Accounting Services: Harnessing the power of the cloud."

Flagg Management has been the coordinator of the conference since it started in 2005. Located across the Hudson river from Manhattan, the show also draws several attendees from the New York area.

“I think it’s a miracle that a thousand CPAs from across the state can get up at 5am and say goodbye to their spouse, then drive for an hour or more to get to the show,” said Russell Flagg, president of the event management group. “I suspect it’s the desire on part of CPAs not only to get free and low-cost continuing education, but also to network with colleagues and get up to date on technology and other issues that they want to make sure they don’t overlook.”

The keynote scheduled for Thursday morning will be delivered by James W. Hughes, Ph.D. , of Rutgers University. He will focus on how the economy, fiscal cliff, sequester and Superstorm Sandy are continuing to affect business in the state and region.

Billbooks – New Kid On the Block of Online Invoicing App / Billbooks among the most sought after online invoicing application. Since the launch it has developed a strong user base and is growing quickly.

Today online invoicing is the simplest method of sending invoices to customers; it is an EFE (Easy, Fast and Economical) way of sending estimates or bills to clients. Using online invoicing software one can send invoices through e-mail or can print and send by post. Web based invoicing software are now been widely used by freelancers, small-medium and even large organizations.

Seeing the fast growing field of online invoicing services provided by already known sites like blinksale, invoicera, freshbooks, curdbee, zoho invoices and more, Billbooks is considered as the new kid on the block. Surprisingly after the launch of Billbooks within few months it has received warm welcome in this segment having increasing user base and the idea of pay per invoice (instead of fixed monthly rentals) has caught the nerve of today’s market.

Speaking to Founder Mr. Sagar Kogekar and Co-Founder Mr. Jayant Ingle, both had the same side of the story, “The reason for us to launch Billbooks was to give the user a new and fresh experience and EFE for creating and sending invoices and estimates. We understand the new age business and how time and cost is the major factor for the profit of an organization. Creating an invoice with a click of button among many more short keys, saves a lot of time and when it comes to save money we have come up with a pricing plan which is suitable for any kind of business from small to medium and large, where the user will have to pay as per their usage.”        

EFE of Billbooks online invoicing application.

Easy: Young generation entrepreneurs and business have adapted web based billing software, for the sole purpose of effective and simple way to send hassle free invoices. Billbooks provides a window to have a quick glance of pending and closed invoices, quick invoice preview, getting an instant profit & loss report are among the easy features.

Fast: Invoicing gets faster like never before, functions like short keys helps to create invoices and estimates at a click of a button. Billbooks introduces a whole lot of short keys like “I” for invoice, “E” for estimates, “C” to add new clients and many more.

Economical: Billbooks flaunts its unmatched economical pricing model, unlike fixed monthly or yearly rentals. It introduced pay per invoice sent model, which is the key for the success of this application.

Adding to be called Billbooks as new kid on the block, Sagar says "we have studied and understood our competitors, with a whole lot of features and many more to be added very soon, Billbooks will no longer be a kid in the competitive market of online billing application".

PayPal to Offer Free Payment Processing for 'Qualifying' Merchants

Todd Wasserman for Mashable writes:  In a bid to one-up Square, PayPal is offering free payment processing through the rest of the year for some U.S. businesses that use its PayPal Here mobile payment system.

Starting next month, PayPal will offer free credit, debit card and check processing to "qualifying" merchants. The company's announcement didn't outline how such businesses can qualify for the program. Reps from PayPal could not be reached for comment.

When PayPal Here launched in March 2012, PayPal took a 2.7% fee, though each merchant that signed up got a PayPal debit card, which earned the merchant back 1% instantly, taking the cut down to 1.7%. Square charges a 2.75% fee for every transaction, though the company also offers a program in which a participating companies can pay a $275 monthly fee in lieu of the per-transaction charges.

Other competitors in the space include VeriFone Payware, which takes a $49 yearly activation fee, though "additional merchant fees may apply" and Intuit GoPayment, which takes a 2.7% cut of every transaction unless you opt for a high-volume plan that offers a 1.7% rate with a $12.95 monthly fee. Intuit also offers a debit card, like PayPal does, but does not give merchants 1% back instantly.

General Accounting & Tax Tips for Families

BakkenCPA writes some general accounting & tax tips for families:

9 Tips on Reporting Charitable Contributions on Your Tax Return

Giving to charity may make you feel good and help you lower your tax bill.

Here are nine tips to help ensure all of your contributions are eligible for deduction on your tax return.

1. If you want a tax deduction, you must donate to a qualified charitable organization. You cannot deduct contributions you make to either an individual, a political organization or a political candidate.
2. You must file Form 1040 and itemize your deductions on Schedule A. If your total deduction for all noncash contributions for the year is more than $500, you must also file Form 8283, Noncash Charitable Contributions, with your tax return.
3. If you receive a benefit of some kind in return for your contribution, you can onlydeduct the amount that exceeds the fair market value of the benefit you received. Examples of benefits you may receive in return for your contribution include merchandise, tickets to an event or other goods and services.
4. Donations of stock or other non-cash property are usually valued at fair market value. Fair market value is generally the price at which someone can sell the property.
5. Used clothing and household items generally must be in good condition to be deductible. Special rules apply to vehicle donations.
6. You must have a written record about your donation in order to deduct any cash gift, regardless of the amount. Cash contributions include those made by check or other monetary methods. That written record can be a written statement from the organization, a bank record or a payroll deduction record that substantiates your donation. That documentation should include the name of the organization, the date and amount of the contribution. A telephone bill meets this requirement for text donations if it shows this same information.
7. To claim a deduction for gifts of cash or property worth $250 or more, you must have a written statement from the qualified organization. The statement must show the amount of the cash or a description of any property given. It must also state whether the organization provided any goods or services in exchange for the gift.
8. You may use the same document to meet the requirement for a written statement for cash gifts and the requirement for a written acknowledgement for contributions of $250 or more.
9. If you donate one item or a group of similar items that are valued at more than $5,000, you must also complete Section B of Form 8283. This section generally requires an appraisal by a qualified appraiser.

For more information on charitable contributions, talk to your tax preparer today.

May 15th, 2013

No comments yet

cpalaur

10 Tips on Filing an Amended Tax Return

Do you need to make corrections or change information on a tax return that’s already been filed? Don’t worry; you can do this easily by filing an amended tax return. This year you can use the new IRS tool, ‘Where’s My Amended Return?’ to track the status of your amended tax return.

Here are 10 tips you should know about filing an amended tax return:

1. Use Form 1040X, Amended U.S. Individual Income Tax Return, to file an amended tax return. An amended return cannot be e-filed. You must file it on paper and mail it in.
2. You should consider filing an amended tax return if there is a change in your filing status, income, deductions or credits.
3. You normally do not need to file an amended return to correct math errors. The IRS will automatically make those changes for you.
4. Generally, you must file Form 1040X within three years from the date you filed your original tax return or within two years of the date you paid the tax, whichever is later.
5. If you are amending more than one tax return, prepare a 1040X for each return and mail them to the IRS in separate envelopes. You will find the appropriate IRS address to mail your return to in the Form 1040X instructions.
6. If your changes involve the need for another schedule or form, you must attach that schedule or form to the amended return.
7. If you are filing an amended tax return to claim an additional refund, wait until you have received your original tax refund before filing Form 1040X. You may cash your original refund check while waiting for the additional refund.
8. If you owe additional taxes with Form 1040X, file it and pay the tax as soon as possible to minimize interest and penalties.
9. You can track the status of your amended tax return three weeks after you file with the IRS’s new tool called, ‘Where’s My Amended Return?’ The automated tool is available on IRS.gov and by phone at 866-464-2050. You can track the status of your amended return for the current year and up to three prior years.
10. Always be sure to mail the amended returns as certified mail and request a return receipt! Amended returns take up to 12 weeks to process, so be patient when waiting for any refund you may be owed.

May 8th, 2013

No comments yet

cpalaur

Should You Take the Standard or Itemized Deductions?

What’s the Difference?

When clients come to our office to file their tax return, we often get asked whether it is more beneficial for them to itemize deductions or take the standard deduction. You should compare both methods and use the one that gives you the greater tax benefit.

Here are six facts to help you choose:

1. Calculate your itemized deductions by adding up the cost of items you paid for during the year that you might be able to deduct. Expenses include:

• Home mortgage interest
• State income taxes or sales taxes (but not both)
• Real estate and personal property taxes
• Gifts to charities
• If your expenses are over the minimum threshold, you can also include:
  • Medical and dental expenses that insurance did not cover
  • Unreimbursed employee business expenses
  • Cost of preparing your tax return

2. Know your standard deduction.  If you do not itemize, your standard deduction amount depends on your filing status. For 2012, the basic amounts are:

• Single = $5,950
• Married Filing Jointly  = $11,900
• Head of Household = $8,700
• Married Filing Separately = $5,950
• Qualifying Widow(er) = $11,900

3. Apply other rules in some cases. Your standard deduction is higher if you are 65 or older or blind. Other rules apply if someone else can claim you as a dependent on his or her tax return.

4. Check for the exceptions.  Some people do not qualify for the standard deduction and should itemize. This includes married people who file a separate return and their spouse itemizes deductions.

5. Choose the best method.  Compare your itemized and standard deduction amounts. You should file using the method with the larger amount.

6. File the right forms.  To itemize your deductions, use Form 1040, and Schedule A, Itemized Deductions. You can take the standard deduction on Form 1040.

For more information about allowable deductions, contact your tax preparer today.

May 1st, 2013

No comments yet

cpalaur

Is Your Tax Return Sending a Red Flag to the IRS?

There are certain items that if reported (or not reported) on your return will trigger the IRS to want to dig a little deeper into your finances. Take a look at these 10 tax audit red flags to be sure you aren’t drawing the attention of the IRS.

1. Foreign Assets – If you check off the box on your tax return (Schedule B) that declares you have an ownership interest in foreign accounts. You should always provide the information about that asset. If you do not, the IRS will definitely want to know how much money you have stored out of the United States.
2. A vengeful enemy – Did you recently go through a messy divorce? Fire a disgruntled employee? Some people will go to great lengths to seek revenge by ruining another person’s reputation. This can be done by contacting the IRS, phone call or letter, and reporting possible underreporting of income, or even committing a serious financial crime. These allegations do not have to be based on facts to get the IRS to check into it.
3. Rounding – When reporting expenses on your tax return, the IRS recommends rounding to the nearest dollar, not to the nearest hundred or thousand. Items such as business expenses or unreimbursed employee expenses that all happen to be, for example, $1,000 or $3,500 can cause the IRS to question the validity of the expenses. It may seem like these are made up figures or overstated figures to the IRS.
4. Questionable Deductions – Trying to take a tax deduction for an expense that is not clearly allowable on your return always runs a risk of being scrutinized. Writing off a pool as a medical deduction is one of the most common risky deductions. To qualify, you must be able to prove that you purchased the pool solely to help with the treatment of a medical condition. If you don’t have a doctor’s prescription requiring the use of a pool the deduction likely won’t be allowed.
5. High Net Worth – It is more common for taxpayers with income over $5 million to be audited than people with less income. This is simply because the tax returns tend to be more complicated and any mistake will usually lead to higher revenue for the IRS.
6. Reporting versus Saying – If you report large net losses on your business returns regularly and then in an interview state that you see huge profits, this might make the IRS want to check in on your company. Even if what is said is not factual, it does not mean the IRS won’t want to confirm the information anyways.
7. Lots of Work Related Driving – Although it may seem like a nice idea to be able to get a big deduction for all of the gas costs you had for the year, make sure you are tracking what was business versus personal use. A large vehicle expense can easily make the IRS second guess your figures, resulting in an audit.
8. Overestimated Donations – The IRS bases the reasonableness of your charitable donations on your income level and other measures. If you are reporting large donations, make sure you keep your receipts to be able to back up your calculations.
9. Unprofitable Business – If year after year your business has not seen profits, beware the IRS might reclassify it as a hobby instead. If you can authenticate the losses and explain how the business is staying open while making no money, they will accept the losses as is. If you can’t verify the reasoning behind the losses and don’t have items that prove you are a real business (such as business cards), the IRS might revise your tax return.
10. A Shady Tax Preparer – If the IRS has found by auditing taxpayers that the same tax preparer keeps coming up on the returns, they may target your return simply because of the person you have file it. Be sure you are always having your returns prepared by a qualified professional.

April 26th, 2013

No comments yet

cpalaur

Are Your Children Being Educated About Money?

Three out of ten parents don’t talk to their children about money or have had just one major talk with their children on the subject, according to a U.S. survey conducted for the AICPA. Children tend to be over the age of ten by the time their parents first talk to them about money.

Above talking to children about finances, parents are more likely to talk to them about other important topics, such as:

• The importance of good manners
• The benefits of good eating habits
• The importance of getting good grades
• The dangers of drugs and alcohol
• The risks of smoking

It is important to teach children the right lessons about financial responsibility and help them to be prepared for a sound financial future.

Some tips for how to get these ideas across to your children:

• Start Early. Your children learn at a young age to want items, such as toys, clothes, or games, at this time, you should start teaching them about saving. Have them practice saving by putting away some of their birthday or allowance money to purchase the item they want, give them a goal to meet and once it has been met, let them buy the item. This will teach them the basics of delayed gratification and budgeting for a goal.
• Speak in Their Terms. Your child may have no interest in learning about the compounding interest on their college savings account; they are more likely to care about money to spend with friends or to buy a toy. Take this opportunity to teach about savings by relating it to something they will care enough about now to listen.
• Repeat Often. The more often you talk to your children about good financial decisions, the more likely it is to stick with them in their future. At meal times, talk about saving for big purchases, like vacations, and how it might affect budgets.
• Walk the Talk. As they say, actions speak louder than words. By giving in easily to your children if they make a fuss over a toy at store, then you will have a hard time convincing them that delayed gratification and sticking to a budget is effective.

Teaching your children now about the benefits of saving and budgeting is just as important as teaching them to be polite. These are basic skills that your children will need to know to be a well-rounded adult. For more information on what other financial knowledge you should be passing on to your children, contact your accountant today.