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DiSabatino CPA Blog

DiSabatino CPA Blog

A blog by Michael DiSabatino CPA with topics on Tax Savings, Business, Management and more...
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Weekly Tips

Mike's weekly post usually concentrated on tax saving strategies.

Better Bartering Basics

 

The IRS is clear on their point of view.  If you barter you must include the barter activity's fair market value as income on your tax return in the year the barter activity is performed.  But is it really that simple?  Here are some things to consider if you barter.

What is fair market value? The classic definition is the price someone is willing to pay and someone is willing to receive for the exchange of goods or services.  But we all know this requires a level of judgement.  What if an item is on sale when the barter activity is performed?  Are prices always the same for a similar item or service?  Prior to establishing the value of a barter item, shop around and take the lowest defendable value possible for your bartered item.

Example: You barter dog grooming for accounting work.  If you offer a range of prices from $20 to $60 for your grooming service and a dog owner can readily get the same service done for $15 somewhere else…what is the fair market value? If you can reasonably substantiate the $15, this lower amount could become your fair market value.

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Safe Harbor for California Use Tax

For the last few years we had a reminder in our tax organizers about paying your share of California's sales tax on out-of-state purchases - or better known as Use Tax.  There is a updated (read, BETTER) news about this subject.... read on...

 

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Better Bartering Basics

 

The IRS is clear on their point of view.  If you barter you must include the barter activity's fair market value as income on your tax return in the year the barter activity is performed.  But is it really that simple?  Here are some things to consider if you barter.

What is fair market value? The classic definition is the price someone is willing to pay and someone is willing to receive for the exchange of goods or services.  But we all know this requires a level of judgement.  What if an item is on sale when the barter activity is performed?  Are prices always the same for a similar item or service?  Prior to establishing the value of a barter item, shop around and take the lowest defendable value possible for your bartered item.

Example: You barter dog grooming for accounting work.  If you offer a range of prices from $20 to $60 for your grooming service and a dog owner can readily get the same service done for $15 somewhere else…what is the fair market value? If you can reasonably substantiate the $15, this lower amount could become your fair market value.

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There's Still Time to Fund Your IRA

 

Remember you have until you file your tax return to make a contribution to a Traditional IRA or Roth IRA for the 2011 tax year.  The annual contribution amount is $5,000 or $6,000 (if you are age 50 or over).  Prior to making the contribution, if you (or your spouse) are an active participant in an employer's qualified retirement plan, you will want to make sure your modified adjusted gross income (MAGI) does not exceed certain income thresholds.  There are also MAGI (income) limits to qualify to make Roth IRA contributions.

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Using an IRS withdrawal to Pay for Education

In response to a questions as to when you can avoid early withdrawal penalty on an IRA for Higher Education:

Beginning January 1, 1998, a taxpayer may make withdrawals from an individual retirement account (IRA) to pay the qualified higher education expenses for the taxpayer, the taxpayer's spouse, or the child or grandchild of the taxpayer or taxpayer's spouse at an eligible educational institution. The taxpayer will owe federal income tax on the amount withdrawn, but will not be subject to the 10 percent early withdrawal tax that applies when amounts are withdrawn from an individual retirement account before the account holder reaches age 59-1/2.

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Found Money!


Congress extends payroll tax cut

In an anticipated move, Congress has approved an extension of the 2% Social Security payroll tax cut through 2012.   The provision was set to expire at the end of February, but now wage earners and self-employed households will see this tax saving throughout the year.  So what should you do with the estimated average $1,000 tax savings per household in 2012?

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Income the IRS Can't Touch

Wouldn't it be nice to have a source of nontaxable income?  You may be more fortunate than you realize. Listed here are a number of income items that the IRS does not tax.

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Where's My Tax Return?

Common items that are often forgotten

Wondering why your tax return is not finished? Often the delay can come from one or two items that were overlooked and are needed to complete your tax return. Here are some of the most common:

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How to Provide Your QuickBooks file to Your CPA

It is tax time again, and we often ask our clients to send us a copy of their QuickBooks file.  Some don't know how to accomplish this.  As a QuickBooks Pro Advisor, we thought we might share some steps to help.

There are 2 ways to effectlively transfer the QuickBooks (QB) data

  1. Mail a back up *.qbb file if your tax preparer needs to view and modify your entries.

  2. Mail a Portable File *.qbm file for the smallest file size results - better for emailing.

Here are the steps for each method - some version may vary slightly... if you have questions, don't hesitate to call us:

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IRS Eliminates Homebuyer Credit Notices

Don't forget your payment

The IRS recently announced that it will no longer send you a reminder to repay your First-Time Homebuyer Credit. However there is now an on-line tool to keep you up to date on the status of your repayment.

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Should I Pay My Tax Bill With a Credit Card?

 

Your tax bill is now due and you may be considering paying the bill with your credit card. Is this a good idea? How does it work?

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The IRS Says ''Gotcha!''

 

Late filing of S-Corp returns can be costly

The last couple of years, the IRS has been penalizing late filers of Sub S Corporation tax returns. This despite the fact that late filing of the Sub S tax return (1120S), due March 15th, often does not impact the receipt of the taxes due on April 17th. Those that are getting this "gotcha" penalty are often couples and other small firms who have formed a Sub S Corporation to provide legal protection for their small businesses.

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Tips to Organize Your Tax Records

Creating order out of chaos


As important tax records start filling mailboxes, how can you make sure your tax preparation goes smoothly and efficiently this year?  Here are some tips.

1.  Keep it all in one place. It seems obvious, but how often have you found yourself going through piles of paper looking for that elusive missing 1099 tax form or charitable deduction receipt?  If you only do one thing, this is it.  Granted if all you do is this, you end up with a massive jumble of paper, but it is better than missing something.

2.  Time to sort. The best idea here is to sort your information into the same buckets as your tax return.  At minimum sort the information into the basic categories.  If you have a lot of something, then sort into sub-detail categories.  A basic list of the more common items is here for your use.

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The ''Basis'' Mess of 2011

Investment sales reporting changes hit tax returns

 

After a long transition period, the requirement for brokerage firms and banks to report the cost of investments you sell is now in place. The term the IRS uses for the approved cost is called "basis". This means those 1099-B forms that will start appearing in mailboxes must now include the original cost (or basis) of the investment.

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2012 Tax Law Changes - Brief

* PAYROLL TAX CUT for employees extended through February 29, 2012. (Social security tax rate on wages up to $110,100 will be 4.2% rather than 6.2%.)

* ADOPTION TAX CREDIT decreases to $12,650 for adoption of an eligible child.

* SECTION 179 maximum deduction decreases to $139,000, with a phase-out threshold of $560,000.

* STANDARD MILEAGE RATE for business driving remains at 55.5¢ a mile. Rate for medical and moving mileage decreases to 23¢ a mile. Rate for charitable driving remains at 14¢ a mile.

* ESTATE TAX top rate remains at 35%, and the exemption amount increases to $5,120,000. The ANNUAL GIFT TAX EXCLUSION remains at $13,000.

* 401(k) maximum salary deferral increases to $17,000 ($22,500 for 50 and older).

* SIMPLE maximum salary deferral remains at $11,500 ($14,000 for 50 and older).

* IRA contribution limit remains at $5,000 ($6,000 for 50 and older).

* KIDDIE TAX threshold remains at $1,900 and applies up to age 19 (up to age 24 for full-time students).

* NANNY TAX threshold increases to $1,800.

* TRANSPORTATION FRINGE BENEFIT limit decreases to $125 for vehicle/transit passes and increases to $240 for qualified parking.

* SOCIAL SECURITY taxable wage limit increases to $110,100. Retirees under full retirement age can earn
up to $14,640 without losing benefits.

* HSA CONTRIBUTION limit increases to $3,100 for individuals and to $6,250 for families. An additional
$1,000 may be contributed by those 55 or older.

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Social Security Tax Break Gets 60 Day Extension

Late breaking news out of Washington

Prior to adjourning for the Holidays a spending package was signed into law by President Obama. Key among these provisions are two changes that will impact a number of Americans:

1. Temporary extension of the employee payroll tax break. The employee portion of Social Security will remain at 4.2% versus the normal 6.2% for two months through February 29th, 2012.
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Avoid Name Mismatch Audits

 

If you were married, divorced, or changed your name for any reason during the past year, do not forget to file to change your name prior to preparing your 2011 tax return. The IRS automatically conducts a name match on the first few letters of your last name. If the name on your tax return does not match the name on file at the Social Security Administration for your social security number, here's what could happen;

  • You are unable to e-file your tax return
  • The IRS automatically accepts your income as taxable, but then disallows any deductions.
  • You may receive a notice from the IRS with taxes owed and underpayment penalties.

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2012 Standard Mileage Rates

2012 Standard Mileage Rates (IR-2011-116, Notice 2012-1)(Dec. 12, 2011)

The IRS has released the 2012 optional standard mileage rates that employees, self-employed individuals, and other taxpayers can use to compute deductible costs of operating automobiles (including vans, pickups and panel trucks) for business, medical, moving and charitable purposes.

The 2012 standard mileage rate remains at 55.5 cents per mile for business uses, is reduced to 23 cents per mile for medical and moving uses, and remains at 14 cents per mile for charitable uses. For purposes of computing the allowance under an FAVR plan, the standard automobile cost may not exceed $28,200 ($29,300 for trucks and vans).

The updated rates are effective for deductible transportation expenses paid or incurred on or after January 1, 2012, and for mileage allowances or reimbursements paid to, or transportation expenses paid or incurred by, an employee or a charitable volunteer on or after January 1, 2012.

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Planning Some Last-Minute Tax Moves

Action you can take before time runs out

 

Here are a five last-minute tax saving ideas.  But act soon, the tax year is quickly nearing an end.

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Planning Dividend Tax Risk

What you need to think about now

 

Currently ordinary dividends are taxed at a maximum rate of 15%.  The tax provision that set this lower rate is NOT a permanent part of the tax code.  As such, unless Congress acts, starting in 2013 Dividends will once again be taxed as ordinary income, or as much as 39.6%.   So what should you think about throughout 2012?

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