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Tax Prep Software versus CPA: What’s Right for You?

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January 7  |  Uncategorized  |   admin

Preparing your taxes for 2014 will be a daunting task. With every important job comes the question of whether or not individuals should prepare their taxes themselves or hire a professional. While the ever improving selection of tax preparation software certainly makes it easier and cheaper to do your own taxes, there are intangible costs of doing them yourself as opposed to hiring a Certified Public Accountants (CPAs).

The Advantages of Using Tax Software

There is no way around the fact that you will pay less for a software package than you will to hire a CPA or another qualified tax professional. The price of tax preparation software ranges from the $25 to $120 range to websites that offer the service for free. On the other hand, the least expensive tax preparers will cost at least $150 and a CPA is likely to charge at least twice that amount. The upfront savings of using tax software over an accountant is one of the most attractive benefits of filing your own taxes. Beware of hidden costs: many software companies charge you an additional amount to prepare the state tax return and then add additional fees for e-filing your return. THERE IS NO FREE LUNCH!!!

Once you have all the necessary documents in front of you, it is possible to complete your own taxes in a few hours. In contrast, the best professionals can prepare the taxes with you during your appointment or, it may take longer depending on the complexity: from several days to a few weeks to complete the returns and file your forms.

Good tax preparation software walks you through the process very quickly and easily. For those who have only a W-2, (or few sources of income and deductions), then there is little need to sit down with an accountant to sort it all out.

The Benefits of Hiring a Professional Accountant
Better Software
CPA’s typically pay around $3,000 to $15,000 for their software, which is far more sophisticated than the tax preparation software sold to consumers. These more advanced programs have the ability to quickly scan your information and organize line items and forms correctly. By automating much of the data entry and organization, there’s less chance for human error to hurt your tax return.

Human Touch
A good tax professional can interpret your tax information and know the tax implications that may affect you. Like a good family doctor that knows your medical history, you can develop a relationship with an accountant so that he or she understands your family’s financial situation and future goals. Tax professionals are often able to make valuable tax savings suggestions that a software program just can’t anticipate. The value of this advice can easily exceed the additional cost of consulting with a professional. For example, a tax accountant can provide you advice on tax-friendly ways to save for your children’s education, or how to reduce taxes on your capital gains.

CPA’s Can Answer Your Questions Year Round
As a trusted professional, a good CPA will be able to answer important questions that arise not just during your annual consultation, but at other times during the year.

A CPA Saves You Time When Handling Complicated Issues
Taxpayers who find themselves at the center of complicated business and investment matters may even have the skill to sort through their taxes on their own, but is it worth their time? A professional tax preparer is so familiar with the system, he or she can quickly and easily accomplish tasks that might take even skilled taxpayers hours of research. For busy non-tax professionals, their time can generally be better spent earning money in their area of expertise. Even if your tax situation is straightforward, hiring a professional will save you the time and stress of doing your taxes.

The Bottom Line
Ultimately, there is no universally correct answer to the question of hiring a tax professional or doing your taxes yourself with software. There are tangible and intangible costs and benefits in making your choice. Your comfort and familiarity with IRS rules will be part of your decision, but the complexity of your finances should be the key deciding factor. Those with a single employer and few investments may save hundreds of dollars by preparing their own taxes, while those taxpayers with more sophisticated issues stock options, passive activities, business income or rental properties will find the expense of hiring a CPA to be worth their peace of mind and potential tax savings.

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Reasons You Should Hire A CPA

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January 6  |  Uncategorized  |   admin

Would it surprise you to learn that many small business owners trust their CPAs as much as their family members? It’s true. According to a survey by the American Institute of CPAs, CPAs are considered business’ most trusted advisors, and with good reason. CPAs, in order to keep their qualified status, are continually educated, tested and regulated by the State Boards of Accountancy. It is a profession that requires commitment, integrity, intelligence, and a strong sense of ethics.

To maintain the highest possible professional standards, CPA candidates are required to complete rigorous coursework at an accredited college or university and also pass the Uniform CPA Exam. This exam tests auditing, taxation, business and general accounting skills and was developed as a way of ensuring the utmost competence of CPAs entering the field. It is often considered the accounting equivalent of the bar exam for lawyers and the medical boards for doctors. Once the CPA license is received, CPAs are required to undergo many hours of continuing professional education every one to three years, the exact number of hours is regulated by the state in which the CPA is practicing, but usually fall around 40 hours annually.

Hiring a CPA can save you a lot of time and money. By turning to an expert, you do not have to worry about wasting time understanding complicated legal issues, or trying to analyze finances with limited experience. You and/or your business can become more financially organized and legally sound with the help of a CPA. At the same time, you can learn more about financial matters from your CPA and consequently gain knowledge and confidence in handling your business’ future financial issues and making critical financial decisions.

At tax time, you can’t afford even the smallest mistake on your returns. Instead of spending time and energy trying to navigating the seemingly endless stream of tax forms, consider hiring a CPA. They are specifically trained to complete multiple and complex state and federal tax returns, and know how to get the maximum number of tax deductions for you. They can also effectively organize your receipts and other documentation necessary for these returns.

Consider the following helpful CPA hiring tips before signing on the dotted line;

  • Get recommendations from a wide variety of trusted contacts to help you find the best fit for you.
  • Know your plans and objectives before meeting with your CPA. Collect enough information and necessary details so you can ask specific questions about your finances. Past tax returns, investment documents, business plans, and financial statements will make the process much smoother for you and your prospective CPA.
  • Make sure the CPA is licensed to practice in your state. Also, inquire about which professional organizations the CPA belongs to. CPAs are required to meet strict professional and technical standards.

Tax preparation, financial planning, auditing or advice on developing a working accounting system, can all be made easier with the help of a CPA. CPAs can help you set a course for your business or advise you on your investments, estate planning, and more. Finally, once you’ve hired your CPA, make sure to keep him or her current on what’s happening in your life and business. Marriage, divorce, children, inheritances, and other life situations all can impact your financial situation and tax liability.

Ten Reasons to Hire a Professional Tax Professional

January 6  |  Uncategorized  |   admin

10. It takes the hassle out of doing it yourself.

9. You don’t have to keep up with the many tax law changes or understand complicated tax law.

8. Making mistakes can be very costly.

7. Your time is worth money – add up the hours you would spend doing it yourself and calculate what that’s worth. Also, tax programs have hidden fees that add up.

6. A tax program in a box cannot represent you in an audit. Nor can it answer questions about your deductions.

5. A tax professional can answer your questions to help you make smarter tax-saving decisions.

4. A tax professional can help you plan all year and for future years.

3. A tax professional can recommend ways to save on taxes

2. It gives you peace of mind knowing that a professional is taking care of it.

And the number-one reason you should hire a tax preparer is:

1. It can save you money – if your tax preparer finds even one significant deduction or tax credit you may have missed, it can easily exceed the average $300 fee it costs to have a professional prepare your return.

What You Should Know about AMT

January 6  |  Uncategorized  |   admin

IRS Tax Tip 2014-10, February 10, 2014

Have you ever wondered if the Alternative Minimum Tax applies to you? You may have to pay this tax if your income is above a certain amount. The AMT attempts to ensure that some individuals who claim certain tax benefits pay a minimum amount of tax.

Here are some things from the IRS that you should know about AMT:

  1. You may have to pay the tax if your taxable income, plus certain adjustments, is more than the AMT exemption amount for your filing status. If your income is below this amount, you usually will not owe AMT.
  2. The 2013 AMT exemption amounts for each filing status are:
    • Single and Head of Household = $51,900
    • Married Filing Joint and Qualifying Widow(er) = $80,800
    • Married Filing Separate = $40,400
  3. The rules for AMT are more complex than the rules for regular income tax. The best way to make it easy on yourself is to use IRS e-file to prepare and file your tax return. E-file tax software will figure AMT for you if you owe it.
  4. If you file a paper return, use the AMT Assistant tool on to find out if you may need to pay the tax.
  5. If you owe AMT, you usually must file Form 6251, Alternative Minimum Tax – Individuals. Some taxpayers who owe AMT can file Form 1040A and use the AMT Worksheet in the instructions.
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Tax Tips for 2014 That You Need to Know

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January 6  |  Uncategorized  |   admin

The Patient Protection and Affordable Care Act health insurance mandate goes into effect

Starting in 2014, you must carry a minimum level of health insurance for yourself, your spouse, and your dependents, or possibly pay a fine.

If you have adequate health insurance through your employer, you purchase coverage yourself, or you are enrolled in a government program such as Medicaid, you don’t have to do anything different.

If you qualify for an exception; for example, if your income is too low for you to be required to file a return, you won’t have to pay the fine.

If you don’t have coverage or qualify for an exception, you could get hit with a tax penalty of up to 1% of your yearly income or $95 per person for 2014, whichever is higher. The penalties go up in 2015.

New 3.8% Medicare Investment Tax

The Affordable Care Act also mandated an additional 3.8% tax on investment income, including interest, dividends, capital gains, rental and royalty income.

This special tax is collected for Medicare, starting in 2013. You only pay it if your modified adjusted gross income is $200,000 or more ($250,000 if filing jointly, or $125,000 if married filing separately).

You pay the 3.8% tax in addition to tax you already pay on investment income. For example, if you pay 20% tax on a long-term capital gain, your total tax on the gain is 23.8% (20% + 3.8%).

New Medicare Health Insurance Tax on wages

The Affordable Care Act levies a special tax on the wages and other earned income of high-income taxpayers.

You must pay this tax if you earn more than $200,000 in wages, compensation, and self-employment income ($250,000 if filing jointly, or $125,000 if married and filing separately).

Your employer generally withholds the Additional Medicare Tax from your pay. If you’re self-employed, you should plan for this tax when you calculate your estimated taxes.

This tax went into effect for 2013.

Simplified option for home office deduction

The IRS may have good news for you if you work at home as an employee or are self-employed and take a home office deduction.

Starting in 2013, you can use a simplified option for determining your deduction, based on $5 per square foot of home use for business (up to 300 square feet).

When you take the simplified deduction, you can still deduct mortgage interest and real estate taxes in full as itemized deductions. In addition, you don’t have to worry about calculating depreciation on your home, or recapturing depreciation later when you sell your home.

Energy credits

Thanks to an extension through 2015, you can still get an energy efficiency tax credit for qualifying energy-efficient products such as windows and doors, biomass stoves, and insulation.

The credit is 10% of the cost of your qualified energy efficiency improvements installed during the year, plus any residential energy property costs.

Your total credit for all years after 2005 cannot be more than $500.

Reminder: IRS e-file starts late this year

The IRS will begin processing individual income tax returns starting on January 31, 2015. The IRS is getting a late start accepting e-file returns this year because of the sequester.

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New Standard Mileage Rates Now Available; Business Rate to Rise in 2015

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January 6  |  Uncategorized  |   admin

IR-2014-114, Dec. 10, 2014

WASHINGTON — The Internal Revenue Service today issued the 2015 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2015, the standard mileage rates for the use of a car, van, pickup or panel truck will be:

  • 57.5 cents per mile for business miles driven, up from 56 cents in 2014
  • 23 cents per mile driven for medical or moving purposes, down half a cent from 2014
  • 14 cents per mile driven in service of charitable organizations

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile, including depreciation, insurance, repairs, tires, maintenance, gas and oil. The rate for medical and moving purposes is based on the variable costs, such as gas and oil. The charitable rate is set by law.

Taxpayers always have the option of claiming deductions based on the actual costs of using a vehicle rather than the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after claiming accelerated depreciation, including the Section 179 expense deduction, on that vehicle. Likewise, the standard rate is not available to fleet owners (more than four vehicles used simultaneously). Details on these and other special rules are in Revenue Procedure 2010-51, the instructions to Form 1040 and various online IRS publications including Publication 17, Your Federal Income Tax.

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More IRS Tax Audits

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October 3  |  Audit Proofing, IRS News  |   admin

Taxpayers, you have been warned.

The IRS requested a 5.33% increase in enforcement activities (examinations, collections, and investigations) for the government’s fiscal year 2011. Increases in the federal government’s budget have allowed the IRS to hire new revenue agents, revenue officers, and special agents.

For FY 2010, the House approved a $5.504 billion increase in the IRS’s budget in order to focus on enforcement activities. In an effort to reduce the “tax gap,” the difference between what the government thinks it should collect and what it actually does, the IRS has been conducting more and more audits of employment tax, income tax, and Schedule C filers especially.

Ensure proper tax preparation with a local qualified CPA. Call our office at 619-497-1040 today.

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Understanding the IRS

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October 3  |  IRS News  |   admin

What words come to your mind when you think of the IRS? Perhaps strict, unsympathetic, uncompromising, or merciless? That is actually just fine with them.

The IRS prides themselves on such a self-image, because somehow it gets them what they want. The combination of fear and respect fuels the voluntary compliance with tax laws that they demand.

Seven regions and 63 districts, consisting of over 102,000 employees, make up the IRS’s organizational structure. The following are common titles of the enforcement people of whom you may want to be aware.

Tax Auditors: typically conduct audits of 1040 tax returns and related schedules in the local IRS office, but may occasionally audit 1040s with uncomplicated Schedule C’s.

Revenue Agents: conduct audits of more complex 1040s and business returns, such as the U.S. Return of Partnership Income (Form 1065) and the U.S. Corporation Income Tax Return (Form 1120). These audits are usually conducted on site at the taxpayer’s business.

Revenue Officers: collect delinquent taxes.

Special Agents: handle serious cases through criminal investigations and can make arrests.

Tax examiners: an alternate term used to describe both tax auditors and revenue agents, who belong to IRS’s Examination Division.

With the IRS, rather than giving you the benefit of the doubt, they automatically doubt any and all of your benefits. Do not expect to change their minds when going into an audit armed with only courteous, law-abiding behavior.

If you fall into the situation in which you receive an invitation to an audit, we can help you plan your strategy. Give us a call at 619-497-1040.

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Wages for S-Corporation Shareholders

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September 21  |  Industry News  |   admin

Many businesses elect the S-Corporation status in order to avoid double taxation on corporate income and losses, which actually then “flow-through” to the shareholders’ personal tax returns and are assessed at individual income tax rates. However, an S-Corporation can find itself at an automatic risk of getting audited if there is no stated amount for “Compensation of Officers” on Line 7 of Form 1120S.

The IRS assumes that no one works for free. Therefore, zero salary as well as salary below minimum wage are unreasonable. Whether you consider yourself an officer or shareholder who performs more than minor services to the S-Corporation, you are still an employee entitled to wage compensation (subject to federal employment tax). S-Corporation owner-employees must pay themselves a salary and pay payroll taxes on that salary, regardless if the business is losing money. Otherwise, they will be assessed a payroll tax penalty of 100% of the taxes owed.

Though there are no specific guidelines in the Code or the Regulations, a reasonable and appropriate level of a corporate officer’s salary can be evaluated upon a number of factors including: responsibilities, experience, number of hours worked, comparable market rates, and payments to non-shareholder employees.

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Differences Between Estate Taxes and Inheritance Taxes

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September 19  |  Estate Tax, Inheritance Tax  |   admin

Dealing with the loss of a loved one is no doubt an emotionally taxing experience for all of us. Important concerns surface when confronted with resolving issues regarding the last wishes of the deceased and necessary final expenses. For instance, what will become of the residence where they lived? Also, what specifications were made in their will regarding who receives financial sums or possessions? Answering these questions may require the outside assistance of a professional well-versed in related legal procedures and any required taxes that may apply in these situations, such as clarifying the way that estate and inheritance taxes differ.

What is estate tax?

Regardless of whether your estate is inherited by means of a formal will or not, heirs of any deceased taxpayer are responsible for paying a federal estate tax on assets that comprised the residence of that individual. A number of states impose taxes on personal assets as well. For states that impose an estate tax, tax liability increases. As of 2011, estate tax applies to any estate starting with a value of $1 million, although congress is expected to reinstate the previous higher taxable estate value starting at $3.5 million in the near future. Because of the monetary value cut off limit, estate tax does not apply to a number of Americans. Notably, dual-income families should consider if their combined earnings will be cause for an estate tax as more than half of all estates must be paid in federal estate taxes once they reach a particular value.

Federal law

Obtaining direction regarding federal laws governing estate taxes can result in greater personal power over financial outcomes. Estate planning is a proactive approach that can prove very beneficial in arranging for the future distribution of assets once you pass away. It is important to familiarize yourself with government stipulations in order to best protect your assets. Be aware that a federal gift tax applies to keep people from giving away their property before they pass away. In addition, individuals are entitled to own half of a spouse’s estate free of tax as each is considered an equal estate owner. Estates are typically transferred from the last surviving parent to their descendants. Time is an important factor when filing federal estate tax as it must take place within nine months of the individual’s death. However, in cases where an estate needs more time to cover tax liabilities, an extension may be granted.

Tax rates

The estate tax rate scale of taxation does not apply to lower end estates valued at up to $1 million. Estates worth more than this amount are subject to a tax of 55 percent of the estimated value. Overall value is determined through combining assets, including real estate, monetary holdings, investments, annuities and more. Through the gift tax code, up to $13,000 can be gifted to any number of beneficiaries during your lifetime on an annual basis free of tax. This number is doubled for married couples. Gift allowances can also be used to shrink the value of an estate so that estate taxes will no longer apply. In view of this fact, the subject of estate tax has created controversy in terms of how it affects the wealthy, their inheritance, and their incentive to stay in the workforce.

Decreasing estate taxes

Many enforced financial liabilities that occur as a result of estate tax can be overcome with the creation of an irrevocable trust.  An irrevocable trust is an agreement between yourself, your bank and your beneficiaries that is most often permanent in nature. When formulating the trust, you relinquish control over any property included in the trust in order to gain beneficial tax advantages. One clear advantage is that of decreased estate taxes and increased savings passed on to your loved ones in the future.

What is inheritance tax?

Beneficiaries of the deceased should also determine whether an inheritance tax will apply to them. The IRS defines an inheritance as the act of leaving property to a specified person through their last will and testament. In many cases, the term inheritance tax is not properly or easily understood. Even tax professionals may refer to such a tax as an estate tax. To avoid personal tax conflicts, it’s crucial to know exactly what an inheritance tax is. This is a tax collected as a result of a person inheriting property or money from one who is deceased. On the other hand, estate tax is imposed on the fair market value of the estate and results from that estate. Unlike estate taxes, which are imposed by the state on the gross appraised value of the property, inheritance taxes are assessed based solely on the part of the estate that the beneficiary receives.

Tax rates

Inheritance tax rates fluctuate based on specific facts, such as the fair market value of your inheritance. This figure will determine how much can be excluded from taxation as well as the particular tax rate that will affect the remaining value. Depending on where you live, you may be liable for state and federal inheritance taxes. These tax rates are progressive and relate directly to beneficiary earnings. State inheritance tax rates may not apply at either exact or progressive rates, depending on the state in which you live. States that do collect inheritance taxes may impose various tax rates on your inheritance depending on your relationship with the deceased. Spouses, siblings, children or parents might be deemed fully exempt from an inheritance tax or pay very low rates. If you are a beneficiary who is not related or only distantly related to your benefactor, the highest inheritance tax rates will usually apply.

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