10 Documents You’ll Forget To Give To Us

1. W-2s - Many times clients work multiple jobs or change jobs during the year. Because clients are anxious for refunds they forget one or more W-2s.
2. 1099-INT - Does your client have multiple bank accounts? Did you compare the current year 1099-INTs to the previous years Schedule B?
3. 1099-DIV – Clients buy and sell investments all year-long. Did you compare the current year 1009-DIVs to the previous years Schedule B?
4. Capital Gains/Losses – 1 in 10 returns submitted to us is missing basis information.
5. 1099-SSA – older clients often mistake these documents for other correspondence they received form the Social Security Administration. Clients will often say “I get $600 per month so just multiple that by 12”. Unfortunately, these amounts are net of Medicare premiums.
6. Tuition Deduction – Form 1099-T is often mistaken as a college financial aid document. For families with college students, we can’t calculate the deduction without the form.
7. Real Estate Taxes – clients that don’t have their real estate taxes escrowed by the mortgage lender often forget to bring the municipal tax bills with them. A quick review of the previous years Schedule A would reveal the omission.
8. Sales Tax – sales tax on autos, campers, motor homes and other large purchase are often forgotten.
9. Mortgage Interest – interest on family-financed mortgages are often overlooked because clients think they are doing the family member a favor by not reporting the interest. Also, clients that re-finance during the year sometimes forget about the previous lender.
10. Non-Cash Charitable Contributions – Clients often do not keep or lose detailed records of these types of contributions. Dates, description, name and address of the charitable organization are all necessary for proper deduction.

ObamaCare Makes a House Call to My House

The health care crisis in this country made an unannounced, uninvited visit to my house. I had no idea that it was coming. It never called ahead; never wrote. The least it could have done was "drop a dime" and called from the rest area at Kennebunk. I didn't have any groceries. The house was a wreck. The sink was full of dishes. It was definitely an unwelcome visit. What are you gonna do? It was there at the door. No matter how much I wanted to be rude and send it on its way, I couldn't. I wanted to but, I couldn't. It was here to stay; for how long I have no idea.

We hear about the crisis from Brian Williams of NBC News every week. You never think that it will affect you until it knocks on your front door. I got the shock of my life when I opened the door. I wished that I hadn't opened the door. It's not like it's going away. It's just going to sit on the front porch. So, we'll all probably face the beast at one time or another. The beast is health care insurance and the issue is whether or not you can afford the premiums.

My small company employs 6 people at the busiest time of our business cycle. I offer health insurance to my staff. The company pays 50% and the employee pays the balance. For $250 per month, (the company pays $125 and the employee pays $125) we get a $5,000 deductible, with $30 co-pays for office visits and prescriptions. As long as you don't have a chronic illness or an accident, you have enough comfort that you can sleep at night. It's not great insurance but, it's better than going without. I was clear about what it was when I agreed to buy the policy. I'm paraphrasing Shakespeare when I say that "it doesn't matter what you call it, it doesn't change what it is." The what "is" catastrophic insurance. You really have to be terminally ill or hit by a bus before you'll meet the deductible. If you were in an accident or had a heart attack, the ambulance ride to the hospital will cost $5,000. That's a good thing, right? The deductible would be met and the insurance would kick-in and all is well as long as you survive and recover from the incident, right? Not so fast, the insurance only pays 80% of covered costs after the deducible. The $5,000 ride to the hospital and the 20% balance is yours to pay. Assuming that you survive and recover, the next challenge you'll have is the financially devastating hospital bills and the almost certain realization that you'll spend the rest of your life paying a nominal amount to the multiple health care providers that saw to your care while you were laid up. I can understand why some people would want to end their lives facing that mess. I guess it's better than no insurance at all.

Here's how the ugly beast revealed itself: I got the policy renewal for the next policy period starting March 1st. The monthly premium doubled. That's right, double. The single employee will now have to pay $250 per month and the company will pay the other half. I was carrying the premium for myself and my domestic partner, Mary Lou. I thought I could manage the $455 per month but, now the $989 is completely out of the question. That amount is greater than the monthly mortgage payment on my house which includes principle, interest, taxes and insurance. Imagine that, more than my mortgage payment. What if I was supporting a family? What would be the premium cost?. I can't even think about it.

Why did the premium double? What happened? How could this happen? The health care crisis is a very , very complicated beast with many, many faces and tentacles. I don't understand the everything about the issue but, I understand more than most. I have a first-hand connection to the issue. My "domestic partner", Mary Lou is a Registered Nurse working in the Emergency Departments at two major hospitals in this area. I hear the stories about parents bringing their children to the ER for rashes and other non-emergency maladies. Why do they come? Shouldn't they call their family doctor? They cant because they don't have a doctor, insurance or money. There's enough there for a totally separate article. I'll save that part for another day.

With this issue at my front door, I wondered what we, as consumers, can do to help reduce the cost of health care. For that, I turned to Maureen Hedges, CEO and Founder of Health Benefits Insurance & Consulting, LLC and asked for five ways to reduce health care costs. Here's what she had to say:

The first thing that most people need to recognize is the Health Care Reform legislation is really only addressing some insurance issues … and totally ignoring the actual COST of health care.

• One of the biggest problems is the inappropriate use of Emergency Rooms – especially by those without commercial health insurance. More than 60% of ER visits are non-emergency situations – frequently for upper respiratory distress [colds]. Free standing out-patient clinics such as Concentra and offices in many WalMart stores need to be expanded – and public programs such as Medicaid need to penalize patients for non-emergency visits to hospital emergency rooms [just like the insurance companies do].
  
  
• The federal and state governments pay providers of Medicare and Medicaid services significantly less than their cost to provide those services … forcing cost shifting to private patients and insurers. As baby boomers start to increase the Medicare rolls this is only going to increase exponentially. Public programs need to pay equitable sums to providers. This is, in my opinion, the greatest short coming of all current and proposed government health care programs, and one that almost no one is addressing realistically.
  
  
• We need to change the way health care services are delivered. More video/telephonic visits with a provider. Greater use of physician assistants and nurse practitioners and off site testing locations [example: get the EKG at WalMart in Houlton transmitted directly to your cardiologist in Bangor and then discuss results on the phone]. We should encourage creativity in this area … rather than imposing more and more regulations to “protect” the consumer, resulting in higher costs not commensurate with any risk these innovations might bring.
  
  
• Many people have no idea what medical services cost … a $20 or even a $30 office visit isn’t enough to make people really think about whether or not a visit is really necessary or appropriate. This is where phone/video conferencing with a provider could significantly reduce medical cost … especially where there are long term relationships with a primary care provider.
  
  
• Physicians often tend to be overly cautious and order more tests than might be immediately necessary - to ensure not missing even remote diagnoses [malpractice]. Patients should be more involved, inquire about the reasons for tests, and be part of the decision making process as a consumer as well as a patient.
  
  

Maureen Hedges is a Certified Employee Benefits Specialist and consults with individuals and businesses regarding health insurance and other employee benefits. She can be contacted at:

P.O. Box 1172
Bangor, ME 04402-1172
Voice: (207)v223-1233
Fax: (866) 363-0876
http://www.healthbenefitsmaine.com/

Death & Taxes

We've all heard the old adage that there is nothing more certain than death and taxes. Truer words have never been spoken, in my opinion.

Back in 2001 when "Dub-Yah" was in office, Congress decided to gradually reduce the effect of the estate tax until 2009 when it would expire leaving 2010 with no estate tax at all. I am certain that many of our older and wealthier Americans would have, if they could have, planned their own "final exit from earthly bonds" to take advantage of zero estate tax. The plan was to bring the estate tax back to life in 2011 with a $1 million dollar exemption and a 55% tax rate.

In December 2010, Congress performed it's own "Miracle on 34th Street" by extending the estate tax retroactively to all estates in 2010. So much for planning to die conveniently in 2010.

The new law (for 2010 and 2011) allows $5 million to go to your heirs tax free and a 35% tax on the value of your estate that exceeds the $5 million.

One question entered my mind: What's likely to happen for 2012?

President Obama and the Congress will have to pay for the stimulus package(s) some how. The government has very few options. It's simple arithmetic really: increase revenue, decrease spending. Increasing revenue can only happen two ways: raise tax rates and or create new taxes. Neither one are particularly attractive especially when you're a Democratic President that wants a second term in office. Talk about the "kiss of death"!

To answer the question of what's likely to happen for 2012 and some salient advice on the need for all of us to do some estate planning, I turned to estate planning attorney Roberta Kuriloff of Ellsworth, Maine. Here's what she had to say:

7 Reasons Everyone Needs Estate Planning

• Do you have concerns should you become disabled?
• Do you have concerns about passing on core values to your beneficiaries?
  
• Do you have concerns that some of your beneficiaries could lose their inheritance because of creditor problems or divorce?
• Do you have concerns that some of your beneficiaries don’t have the ability to handle money, or are receiving government benefits that could be affected by an inheritance?
  
• Would you like to give your beneficiaries the same asset protection that is available to wealthy families?
  

If the answer to any of these questions is YES, please continue reading.

Congress has now passed estate tax reform. Each individual has a $5 million federal exemption from estate taxes. Maine has a $1 million exemption. But even if your estate is not taxable, the need for estate planning won’t be eliminated.

That’s because good estate planning is first and foremost a means to insure your goals and objectives for yourself and your family. Whether or not you have a taxable estate, you still need to plan for the possibility of your disability and to ensure that your property, however much you have, goes to the people and organizations YOU CHOOSE, in the most meaningful and cost-effective way. Let’s look at some planning techniques.

1. Do you have a Financial Power of Attorney? If so, does the Power allow your agent to make gifts of your assets for continued estate and asset protection planning? If not, then if you become disabled your family will have to go to court to be appointed conservator over your estate. This is expensive, time consuming and not private.
2. Do you have a Medical Power of Attorney? Having this document in place allows you to make the decisions about your care should you become disabled. Without it, your family will have to go to court to be appointed your guardian.
3. Do you have a will? If you do not have a Will, even a simple one, the laws of intestacy will apply to your estate. This means that if you die leaving a spouse and children, the spouse gets the first $50,000 of your estate, and the balance is divided one-half to your spouse and one-half between your children! I’m sure this is not what you would want.
   
4. Do you have children? Are you concerned that after you die your spouse will remarry and the new spouse will get your share of the joint estate, not your children? You can protect against this by setting up a trust in your Will that requires that your spouse sign a prenuptial agreement should he/she remarry.
   
5. Do you have a child with special needs? If you do and you leave assets outright to the child, the child will lose his government benefits. If you leave the assets in a “special needs trust,” then the assets can be used to give your child a better quality of life without losing benefits.
   
6. Do you have a home or vacation cottage that you want to remain in the family and not lose should you need care in a nursing home? If so, you can protect the property if you plan ahead before disability hits.
   
7. Are you afraid that your child’s inheritance could be lost if she got divorced, or was sued? Well, if you plan like the parents of Ted Kennedy, that won’t happen. Ted had a trust set up by his parents. When he was sued by the estate of Mary Jo Kopechne, the estate could not invade his trust. When his previous wife sued for divorce, she didn’t get any of the trust assets. That’s because the assets were not his, but his parents, and they said the assets should be used for the beneficiaries’ health, education and maintenance, not to pay their creditors or non-beneficiaries!

As you can see, there’s a lot to think about, and a lot of meaningful planning you can do. Learn more and make informed decisions.

© Attorney Roberta S. Kuriloff

Roberta Kuriloff is an estate planning attorney located at:

20 Oak Street, Ellsworth, ME 04605, (207) 667-3107

www.kurilofflaw.com

What's on Your List?

15 Ways to Reduce Your Taxes Before December 31

If you're anything like me, at this time of year I get stressed about gift giving. What's the perfect gift to give this family member? What's the perfect gift to give the most important woman in my life? The tsunami of gift-giving anxiety can easily overwhelm anyone.

It didn't take long for me to come up with the perfect gift that almost anyone can use. Lower taxes, of course. Are you surprised?

Even though there are precious few days left and this year, there is still plenty of things you can do to reduce your tax liability for 2010. Here are my 15 gift-giving ideas to yourself:

1. Increase Retirement Contributions - Most of us have at least two or more paychecks remaining this year. Check with your employer to see if you can increase your contribution to your 401(k)/403(b) retirement plan. Your contributions will reduce your taxable wages for the year.
   
   
2. Spend Your Pre-Tax Deductions - If you participate in a flexible spending account plan or a dependent care benefit plan where you work, check with your employer to see if you can increase your contributions before the year. Just like retirement savings, your contributions reduce your taxable wages. Be careful! These types of plans require that you "use it or lose it". If you don't spend the entire amount contributed to your account, you lose whatever you don't spend and may pay tax on whatever you leave in the account.
   
   
3. Alimony - If you're fortunate enough to have a good relationship with your ex-spouse, this one is a "no-brainer". Talk to your ex-spouse to see if you can accelerate some of next year's alimony into December of this year. This can be helpful if you have higher than expected income in this year.
   
   
4. Pre-Pay Business Expenses - Self-employed? Do you have more net profit than you want to pay tax on this year? I know that seems like a silly question given the state of the economy over the last few years. If this applies to you, you could look for some expenses you would normally pay next year and pay them in the current year. Expenses like office supplies, dues, subscriptions, airfare, convention attendance fees and the like can all be deductible in the current year.
   
   
5. Maximize Capital Losses - Why would you want to "maximize" a loss.? It's a little play on words so, try to stay with me. In simplest terms, the maximum capital loss you can deduct in any one year is $3000 more than capital gains. If you've been fortunate enough to experience capital gains in your investment accounts, consult with your financial advisor to determine if any of your investments that are worthy of being dumped would result in a capital loss. Deductible capital losses can exceed capital gains by only $3,000. Be careful with this one and be sure to consult your financial advisor.
   
   
6. IRA Distributions - Did you take advantage of President Obama's offer to forego taking your required minimum distribution from your IRA account in 2009? Unfortunately, skipping a required minimum distribution in 2010 is not an option. Consult with your financial advisor before the end of the year to be certain that you are in compliance. So, how is this a tax saving suggestion? Noncompliance with required minimum distributions carry very significant penalties. It's bad enough that taxes are as high as they are; I don't want you to pay a dime more than you absolutely must.
   
   
7. SIMPLE Contributions - Many small businesses have adopted this type of retirement plan in the last few years. Perhaps you are an owner/employee of your own corporation or merely employed by a small business. The deadline for contributions to this type of account is December 31; no exceptions. If you want to make additional contributions, you 'll need to work with the payroll department and your employer to coordinate these additional deposits into your "nest egg". Your contributions will reduce your taxable wages and reduce your overall tax.
   
   
8. HSA Contributions - As the health insurance crisis escalates in this country, Health Savings Accounts (HSA) have been growing in popularity over the last few years. While it is possible to make deductible contributions for 2010 on or before April 15, 2011, it never hurts to evaluate your current contributions. Consider contributing the maximum allowable amount to your account. Your contribution will be deductible against gross income and provides a significantly higher benefits than medical expenses as itemized deductions.
   
   
9. Self-Employed Health Insurance - Self-employed individuals with qualifying medical insurance plans may be able to deduct those expenses from gross income as apposed to an itemize deduction. Make sure your premiums are paid by December 31 to maximize your deduction for the current year.
   
   
10. Tuition & Fees Deduction & Education Credits - Is there a college student in the family? Pay for his/her tuition bills before the end of year to maximize your tax savings for the Tuition & Fees Deduction or the family of higher education credits. Check with your students college business office to be sure that your payments will be credited in the current year and reported on form 1099-T. Coordination of benefits between the deduction and credit programs is tricky business. Be sure to consult with your tax professional before tackling this beast.
    
    
11. Dependent Care Credit - If you have children in daycare, make sure your fees are paid by year-end. This credit considers only the first $1,200 of expense per child for a maximum of $2,400 for no more than two children. You should also be sure to have your child care provider's Taxpayer Identification Number or Social Security Number on file. You'll need this information to claim the credit.
    
    
12. Medical - Before you head to the cosmetic surgery center, pull back on the reins for this one. Most medical expenses are deductible. Medical expenses are part of itemized deductions and not all taxpayers qualify to itemize their deductions. To be deductible, the qualified medical expense must be paid by December 31. It's not enough to simply "incur" the expense; only the amounts that you actually pay will be reportable as an itemized deduction. If you have a large unpaid bill for which you've been making installment payments, only the total of your payments in the calendar year will qualify. On top of that, the total allowable medical deduction is limited to the amount exceeding 7.5% of your adjusted gross income.
    
    
13. State & Local Income Taxes - Most of us understand that state and local income taxes that are withheld from our paychecks or deducted from other income such as pension and retirement payments are deductible as an itemized deduction. Some taxpayers manage payments of these taxes on their own by making payments to IRS and/or state revenue departments on prescribed dates throughout the year. The last and final installment is due on January 15, 2011. Consider mailing a check to your state revenue department on or before December 31 of this year. Payments made by this cut off will be deductible as an itemized deductions in the current year.
    
    
14. Charitable Giving - "Charity sees the need, not the cause." (German Proverb). There's a surprisingly long list of methods and causes to which you can support that not only make your heart warm but also give you a tax deduction. Most taxpayers know that cash contributions to charities are deductible as itemized deductions. Most taxpayers also believe that the just about every "worthy cause" qualifies for the deduction. For the most part, qualifying exempt organizations are easy to recognize as they are icons of our everyday life. The Salvation Army, Goodwill, your local church, colleges & universities, local governments and municipalities are just a few examples. Just because you may believe in the mission or the purpose of an organization or you think it's a "worthy cause" doesn't make it a deductible contribution. Only organizations recognized by the federal government as "charitable-exempt organizations" are eligible for deductible contributions. Before you give, be sure that your organization or cause is qualified. Most charitable organizations can provide you with a copy of their charitable exempt organization certification by IRS. IRS also publishes a comprehensive list of all recognized charities which is available on their website. Just about anything can be contributed to a charitable organization to get a tax deduction. The most common gift is cash but, your contributions of personal property such as clothing, furniture and appliances also qualify. Property such as antiques, real estate, securities and art will also qualify. For non-cash gifts, limitations apply; so, contact your tax professional to determine the allowable deductible amount of your contribution.

Bonus Gift: Energy Tax Credit - Could you use a a $1,500 credit on your taxes this year? Purchase qualifying home-improvement material such as energy-efficient windows and doors, metal roofs or furnaces (natural gas, oil and biomass) qualifying for the credit program and you may be entitled to a 30% credit (maximum's lifetime $1500 credit) for your purchase.

Please accept my best wishes for a safe and happy holiday season. Please feel free to contact my office if you have any year-end tax concerns.

I am, as always, Father Tom.

QuickBooks Users Beware!

If you're a Quick Books user, you may have good reason to be concerned when it comes to the IRS. Within the last two years, IRS has promised to audit substantially more taxpayers that report income as sole-proprietors (using Schedule C) than it ever has before. Taxpayers that report more than $100,000 of revenue are the prime targets of the increased audit efforts. The prevailing justification is, at least statistically, that this type of taxpayer is more like to under-report income and over-report expenses. If you have a business with this level of revenue, you're probably a Quick Books user or, at the very least, have a bookkeeper that uses this popular program. So, what's the big deal about? The IRS now has a new power. When you are selected for an audit, IRS can compel you to provide a back-up file of your data. With their own Quickbooks license, they have a "full-access back stage" pass to all your transactions, past and present. Imagine that. Giving an IRS auditor the privilege to look at any transaction is scary at best.

What's the best defense? It's simple. Maintain good clean data. Our QuickBooks Pro Advisor, Joy Peterson, is available to help you maintain a clean, high-quality set of accounting records. Joy can be contacted at 207.990.3127.

What’s Your Time Hog?

I know that having your own business has its appeal, such as freedoms that wouldn't be a normal privilege if employee of someone else’s business. However, if not managed wisely, time may be something that the day just doesn’t have enough of for you.

A common ‘Time Hog’ of the self employed is the bookkeeping. Perhaps you’re one of the few who have it all together where the paper trail is concerned, but haven’t caught up to the ‘times’ with the use of software. You’re still in the trap of not using your time to best advantage!

Perhaps you’re using software, feeling your time has been freed up, but still the dollar investment seems extraordinary when you see the fee for your tax preparation services. There’s always room for improvement when it comes to what our software can and is doing for us.

As a small business entrepreneur you want to know how you can free up those precious minutes of your day to be doing more of what you really want to do: managing your business.

If you’re like most entrepreneurs, you’ve been wearing so many hats for so long that you can’t remember what it was like to actually have a life. Coming to the realization that you are not using your time most effectively is just the first step on the road to time recovery! The next step is choosing software (if you haven’t already) that will allow you to “free up” you some valuable time and then treating yourself to some training/assistance with its proper setup and use.

As a QuickBooks Pro Advisor, I frequently find the software is in use, but certainly not used properly. Allow me to offer valuable advice: making a small dollar investment in training on your software will pay huge dividends in the future. Without the initial investment in training, more of your valuable time will be spent on “trial & error” learning. The single most important objective with any accounting/bookkeeping system is to provide the business owner with timely and accurate information from which to manage their business.

Treat yourself. Invest wisely. Two hours could very well be the best use of your time and money to bring you one step closer to “taking back” from the “Time Hog”. Get connected with those who can make your clock tick more in favor of what you like to do best!

Joy Peterson is a QuickBooks Pro Advisor with J.T. Hicks & Co. She can be contacted at:

email: joy@thomashickscpa.com
phone: 207.990.3127
web: www.jthicksandcompany.com



Photo Credit: The Pug Father via Flickr

Home Sweet Home

Here's a little good news from the government that may seem ironic and contradictory in light of the depressing economic news we hear on television. It seems ironic (at least to me) that the government announced a new program intended to "stimulate' the real estate market by offering an $8,000 tax credit to qualifying first-time home buyers that purchase a home before December 1, 2009.

On it's face, it seems like the classic "catch-22". It's a great time to buy a house. Inventory is high, prices are low and mortgage rates are at an all time low. Here's the ironic part: a mortgage is not as easy to get anymore and a job is not an easy thing to come by anymore. If you feel good about your employment prospects and your credit is good, then you're in Fat City; If not, you're on the outside looking in.

Here's the details:

WASHINGTON — The Internal Revenue Service announced today that taxpayers who qualify for the first-time home buyer credit and purchase a home this year before Dec. 1 have a special option available for claiming the tax credit either on their 2008 tax returns due April 15 or on their 2009 tax returns next year.

Qualifying taxpayers who buy a home this year before Dec. 1 can get up to $8,000, or $4,000 for married filing separately.

“For first-time home buyers this year, this special feature can put money in their pockets right now rather than waiting another year to claim the tax credit," said IRS Commissioner Doug Shulman. “This important change gives qualifying home buyers cash they do not have to pay back."

To qualify for the credit, you must be a first-time home buyer; you qualify if you, and your spouse (if you are married), did not own any other main home during the three-year period ending on the date of purchase. To claim the credit, you can file Form 5405 with your 2009 income tax return or you can amend your 2008 tax return using the same form. All things being equal, you should file an amended return to get the money faster. The government could change it's mind (it not like that has ever happened before).

So, if you're fortunate enough to have a job that looks stable for the foreseeable future and you want your piece of the American dream, call a real estate agent and get busy.

Remember, time is of the essence. You have to close the purchase by December 1, 2009 to get your "free money". It's free money, right? That will be a subject for another blog.

I am, as always, Father Tom.

Thomas Hicks is a Certified Public Accountant working in Brewer, Maine. For more information or to contact Tom, click here.