On the Road with the IRS
The IRS has recognized that gas is expensive! Be sure to take advantage of the IRS's latest mileage increase.
Beginning July 1 and running through the remainder of 2011, you can deduct 55.5 cents per mile under the optional standard rates for operating a vehicle for business. This figure is up 4.5 cents a mile from the first half of the year. The rate for medical and moving expenses has increased from 19 cents to 23.5 cents a mile for the last six months of 2011.
The rate for providing services for charitable organizations is not changing. It's still 14 cents a mile.
Christy L. Lee 7/19/2011 10:13:02 PM
Tax: That Three Letter Four Letter Word
By Robert S. Steinberg, PA
Tax time is for most
too unhygienic.
We all dislike taxes,
I guess it's genetic.
Tax is a three letter,
four letter word.
For who wants to pay
for a governing herd?
Blue and red hucksters
gang gaggling amuck.
Some few call a Congress,
and I call a duck.
Quack, quack the flock promises
quacking aloud,
anytime anyone
gathers a crowd.
Quack, quack about giving
the worker a living.
Quack on about trying
to spend less on flying.
Quack about budgets
and Social Security.
Quack ideologically
on Adam Smith purity.
But where does this quacking
that hackles up foes,
lead us, I wonder?
If only to woes.
We'd pay taxes more gladly
if Congress had unction
to work compromises,
as grownups should function.
But politics being
no noble profession,
we grudgingly file
our income confession.
Burnt homage to hacks
who spend off our backs,
that three letter, four letter
hated word "tax."
(As appearing in Section of Taxation News Quarterly, Vol. 30, No. 3, Spring 2011, p. 28)
Christy L. Lee 6/1/2011 12:52:59 PM
We're Upgrading to Serve You Better!
Big changes are ahead at Law Offices of Christy Lee, P.C.! Over the next few months, we'll be sharing exciting news about the firm. And to reflect the changes, we're upgrading our website to serve you better. You'll have easy accessibility to information about tax, financial planning, and business needs, and navigating the site will be even simpler in the upcoming weeks.
During the transition, our blog posts may appear only intermittently. But keep checking in with us. We enjoy your visits!
Christy L. Lee 5/20/2011 12:10:47 PM
Bypassing Legal Loopholes in Favor of Criminal Tax Evasion?
Don't think that the Anchorage restaurateur just convicted of criminal tax fraud is the only person in history to have gotten jail time for messing with the IRS. No, I'm not about to launch in on a hundred bad jokes concerning eating establishments, indigestion, and cooking the books. I'm simply pointing out that, if you keep bad financial records and deliberately report inaccurate figures to the IRS on your tax returns, you run the very real risk of being criminally prosecuted.
Think you're not vulnerable to revenue scrutiny? Even the most dangerous of criminal ilk has been brought down by tax agents. Remember Al Capone? It wasn't his mob activity that landed him in prison. It was his second set of books that did him in. The IRS didn't quite take to the double recordkeeping. When the tax people got involved, it was all over for Capone. He died in jail serving a sentence for tax fraud and evasion.
The way to stay prosecution-free is spelled out in the Internal Revenue Code, and the premise is relatively simple:
When reporting information to the IRS, be honest, in fact as well as intent - meaning that you should not enter into communications with the IRS with the objective of fraud in any capacity.
Here's a list containing some of the missteps that the IRS labels as evasive, egregious tax behavior, which could land you in prison, with rapists, murderers, child molesters, robbers. . .you get the idea.
- Using a false social security or tax identification number.
- Hiding or transferring assets to pretend you don't own as much as you do.
- Keeping a second set of books or destroying your factual records to hide financial reality.
- Reporting lower-than-actual income to the IRS.
- Not reporting all cash income.
- Falsifying receipts.
- Falsifying employee records and paying laborers under the table.
- Ignoring a summons to appear before the IRS.
- Claiming exemptions inappropriately.
- Making false statements under oath to the IRS.
In other words, conduct yourself honorably. If you feel you might have crossed the line into illegal tax activity, give us a call at Law Offices of Christy Lee, P.C. We will be happy to assist you on the road back into compliance with the IRS. Better for you to be on the offensive and make the appropriate changes before the IRS comes a-knockin'!
Christy L. Lee 5/11/2011 7:37:48 PM
IRS Penalties Don't Always Arrive in the Form of Fiscal Assessments
The case of the U.S. vs. Kisun Hamilton, the previous owner of a restaurant based in Anchorage, has garnered quite a bit of attention of late. Why? Hamilton was accused of filing false tax returns. The IRS maintained that from 2000 to 2007, Hamilton kept two sets of books - one accurately reflecting the profits of the business, the other one containing underreported accountings of income. According to the IRS, Hamilton's list of violations included paying employees under the table (i.e., without withholding or paying employee taxes) and failing to report cash transactions.
The IRS estimated that over seven years Hamilton dodged paying nearly $1 million in federal and employee taxes. The money she "saved" was spent on luxuries, such as jewelry, travel, and investment properties and upkeep.
For the criminal activity, Hamilton received a $25,000 fine and was ordered to pay restitution to the U.S. of $160,000, in addition to the $320,000 she has already paid. Given that Hamilton's debt was estimated to be $1 million and that the IRS has been known to assess penalties and interest equating to almost 100% of the original tax debt, Hamilton might consider herself fairly fortunate. Unless the IRS hits her with even more assessments, she will end up paying only about a quarter of what she might otherwise have faced.
Of course, the downside is that Hamilton has to serve time. She must spend 14 months on home confinement, 5 years on probation, and 100 hours of community service informing the public about the negative consequences of tax evasion. And that's a very real penalty, effectively equating to more than half a decade, with a lifetime label of " convicted felon."
Law Offices of Christy Lee, P.C., did not represent Hamilton. However, we do handle tax fraud cases. If you think you may have crossed the lines concerning your tax filings, give us a call. We'll be glad to assist you in becoming IRS compliant.
Christy L. Lee 5/4/2011 7:09:30 PM
Divorce Planning
If you are thinking about a divorce or you are currently going through a divorce, you might be tempted to ignore advice about protecting yourself, especially since paying attention to seemingly mundane matters, such as tax consequences, may not be high on your list of priorities. But here's one fact you can't brush aside: sometimes divorce can negatively - and heavily - impact your tax liability. So put tax planning high on your list of all the other to-dos connected to the paperwork involving economic changes in your life.
Among the questions to ask yourself:
- Do I have copies of all the tax returns filed jointly over the past several years?
- Do I have readily available all copies of tax returns I filed singly?
- Do we as a couple currently have any outstanding tax liabilities?
- Am I liable for any business debt incurred by my ex-spouse?
- If so, where are the records located? Will I have easy access to those files?
- How much will the assets I keep from the marriage cost me in tax liability, if anything?
- Are there any retirement accounts up for negotiations?
- What paperwork should I retain regarding the transfer or division of assets?
- Am I receiving property or cash in the settlement that must be claimed as gifts?
- What about alimony and child support payments?
- Who will be claiming the children as dependents?
Since many of these questions could raise prickly responses during communications with your soon-to-be ex, it might be a good idea to consult a tax professional regarding your specific situation. Give Law Offices of Christy Lee, P.C., a call. We can provide you with the best options for minimizing tax liability when planning for your new financial future.
Christy L. Lee 4/27/2011 4:26:23 PM
Access Your IRS Now!
Tired of vicariously following your friends on Facebook? Disgusted by the instinct to Google every factoid your hear? Philosophically challenged from catching up with 140-character attitudes on Twitter? Crave deep, meaningful political, social, and financial information instead of mindless tweets?
The IRS is here to save you. With IRS2Go. It's the IRS's first smartphone application. According to IRS Commissioner Doug Shulman, the techonological move "reflects our commitment to modernizing the agency and engaging taxpayers where they want when they want it."
And it's all free. Good ol' tax dollars at work!
So now you can have the IRS with you 24-7.
Now you can almost instantaneously access the status of your refund if you e-filed. You can follow the IRS Twitter news feed, @IRSnews, which offers up the very latest in tax-related changes and programs. You can get daily tax tips to help you save on taxes.
Supposedly, all the news and tips are presented in plain, understandable English, not IRS-ese. There's no longer any excuses for remaining badly informed about the IRS.
If you're an Apple user, get your application by visiting the Apple App Store. Android users should go to Android Marketplace.
Christy L. Lee 4/19/2011 2:33:22 PM
Playing the Procrastination Game with the IRS
The deadline for filing your 2010 tax return is midnight, April 18. Still haven't prepared your return yet? Tempted to put it off 'til next month, next season, next year? Before you start playing the procrastination game, get the rules down first.
First, decide if you still have time to prepare a return. If you work for an employer who regularly withholds federal tax from your paycheck, you probably can meet the deadline for filing. Pick up one of the basic tax software packages on the market, and plug in all the requested information. The software figures your taxes, whether due or refundable, based on the information you provide. Then you just print out the pages and mail off the return. If you made under $58,000 last year, you can use free software available on the IRS website.
But if you absolutely require an extension, file IRS Form 4868, Application for Automatic Extension of Time to File U.S. Individual Tax Return, by the deadline of April 18. This request extends the deadline to file the return until October 17, 2011.
If you made estimated tax payments all along last year, or if you claimed the appropriate number of exemptions for tax withholdings, you'll probably be due a small refund for 2010. If you have a refund coming, don't wait too long to claim it. There's a three-year window of opportunity to file for a refund, and you have to be current with all your filings to claim an older refund.
And here's the catch if you file for an extension while owing tax dollars to Uncle Sam: if you're fairly certain you will need to make a payment once you do have your return completed, make sure you send in a check for the estimated taxes now, right along with your request for the extension of time to file. If you don't pay now, you'll end up being hit with heavy penalties for not paying on time and for late filing, all courtesy of the IRS. And those penalties come on top of the accrued interest.
When it comes to IRS deadlines, be careful you don't find yourself behind the proverbial 8-ball of filing late, paying late, getting assessed unnecessary and harsh penalties and interest, then not having enough cash on hand to meet the next IRS deadline.
But if you're already in that jam, call us at Law Offices of Christy Lee, P.C. We'll be happy to assist you with looking at your options concerning meeting your IRS obligations.
Christy L. Lee 4/15/2011 2:50:42 PM
Correctness Counts When It Comes to the IRS
Get frustrated when dealing with all the tidbits of data demanded for your tax filing? Better suck it up and give the IRS the correct information. Why? The IRS has crosschecks in place for just about every fact the taxpayer provides on all the various forms necessary for compliance. When the facts and figures you put on your returns and other filings don't match those that the IRS has obtained from other sources regarding you or your business, flags start flying, and that's a surefire path to an audit.
How to avoid careless mistakes? The Internal Revenue Service Data Book, 2010, reveals a veritable cornucopia of errors that taxpayers are prone to make. These errors cause penalties to mount up fast and ferociously.
So before launching your filing on its merry way to the hallowed halls of the IRS, do what other hapless - and now indebted - taxpayers have failed to do:
· Verify due dates of the filing in question. Don't take for granted that the date you signed the filing is sufficient proof that you remitted it in time. The IRS looks at the postage stamp date, not the date of your signature, for verification that you filed on schedule.
· Be sure that you've made the associated required payment for the filing by the deadline. If you used the Electronic Federal Payment System (EFPS), print out a receipt and attach it to your copy of the filing. If you mail a check, be sure that you've included the correct amount in numbers as well as words, and be sure to sign the check. Likewise, if you're charging the debt, provide accurate, complete information about your credit card, so that the charge goes through. Otherwise, you might be looking at some serious monetary set-backs.
· If you're working on your tax return, double- and triple-check your numbers involving income, including what's reported for wages, tips, compensation, dividends, early withdrawals from retirement accounts, and so forth. The IRS compares your Forms 1099 and W-2 to those submitted to the IRS by the payer. If the figures don't match, you may be headed for an audit.
· Keep receipts for every deduction you plan to take. If you can't back it up, you shouldn't claim it.
· If you have a bookkeeper or an accountant for your business, don't just sign IRS Forms 940 and 941 without review, assuming that they are correct. These are the forms for reporting withholdings and liability for employee taxes, and the IRS levies heavy fines on employers who are careless with them. In some cases, you might be held personally responsible for liability arising from incomplete, incorrect, or late filings and payments.
· Confirm that your social security and other tax identification numbers are accurate.
· Review the filing a "final time," then a third, fourth, and fifth time before pushing that filing through the mail slot for pick-up.
Of course, there are going to be times that, no matter how careful you are, slip-ups will happen. Then give Law Offices of Christy Lee, P.C., a call, so that we can help you get on your feet again.
Christy L. Lee 4/13/2011 2:11:08 PM
The Golden IRS Rule: File and Pay on Time, Every Time
The Internal Revenue Service's Data Book, 2010, provides figures - lots of them - concerning what it has collected from taxpayers over the last several years. It's particularly interesting to see what the taxpayers originally owed the IRS and what the IRS eventually managed to collect, including penalties. The staggering bottom line: in 2010, taxpayers paid almost $30 billion for unpaid assessments and amounts due from filed returns.
Consider the "unpaid assessments" a hot-button topic if you're prone to missing IRS deadlines for filings and payments. Penalties and interest accumulate swiftly after a missed deadline, and they tend to be heavy. Unfortunately, there tends to be a general perception, maybe based on TV ads, that you can get such penalties abated pretty easily.
Stats for 2010 say otherwise. Civil penalties in 2010 constituted enough money to operate a small country, debt that taxpayers unnecessarily incurred for themselves through carelessness. Meanwhile, during the same time period, abatements by the IRS totaled about a third of that figure, at only $10,025,544,000.
How to avoid civil penalties? Make sure that:
1. Your return is accurate, including your computations. Bad math raises IRS flags all over returns.
2. There are sufficient funds in your checking account to cover that payment you just mailed in.
3. You make educated guesses as to the estimated taxes you will owe for each quarter.
And the most important rule:
Make sure you file required tax forms and pay the required taxes on time, every time.
This rule is particularly important for businesses. Late filings and payments for employee taxes will rack up some of the most severe penalties the IRS can mete out.
If you absolutely can't make the required payment to the IRS, it's still recommended that you file your return on time, since penalties are calculated separately for late payments and late filings; then pay the amount due as quickly as possible.
Finally, if you believe you have been unfairly assessed fees, seek professional assistance from your accountant, or give us a call at Law Offices of Christy Lee, P.C., so that we can help you seek relief from the IRS.
Christy L. Lee 4/7/2011 3:27:15 PM
Homebuyer Tax Credit Delays
This past week, the IRS finally made an announcement concerning some home buyer tax credit recipients.
If you claimed a home buyer tax credit in 2008, and wondering why you have not received it yet, your tax refund is being delayed because of computer processing problems.
IRS said the problem is affecting only a small percentage of tax returns that involve the repayment of the 2008 First-Time Homebuyer Credit and asked that taxpayers who have not yet filed take special measures when completing their returns.
For married taxpayers filing joint returns, IRS recommends that each spouse fill out a separate Form 5405 (First-Time Homebuyer Credit and Repayment of the Credit). For taxpayers who had a different filing status in 2008 and only one spouse received the credit, the Form 5405 is only required of the taxpayer who received the credit.
The IRS said that taxpayers who have already filed do not need to take any action. The IRS said it is completing the affected tax returns by hand and has assigned additional staff and resources to address the issue promptly. However, if you have ever had any dealings with the IRS, their definition of "promptly" is not very prompt; unless they want to lien or levy your property.
In addition to affecting filers who bought homes in 2008, IRS said the problems have impacted taxpayers who received the credit and are now reporting the sale or disposition of their home and taxpayers who received the credit and are attempting to pay back more than the typical $500 required.
IRS said most refunds will be available by mid-April assuming there are no other issues with the tax returns.
The problems do not affect taxpayers who claimed the credit on home purchases made in 2010.
Christy L. Lee 4/1/2011 10:08:52 PM
Be Smart When Being Nice with the Giving of Charitable Contributions
If you're one of the thousands of concerned people giving to charitable organizations for, say, the earthquake victims of Japan or Haiti, remember that your donations may be tax deductible. On March 22, the IRS posted the following eight tips to help ensure your contributions pay off on your tax return.
1. To protect yourself against scammers as well as to get the tax deduction, be sure to give to a qualified organization. Donations made to specific individuals, political organizations, and candidates do not qualify.
2. File Form 1040, and itemize deductions on Schedule A.
3. If you receive a benefit - such as merchandise, tickets to a ball game, or other goods and services - because of your contribution, then you can deduct only the amount exceeding the benefit's fair market value.
4. Donations of stock or other non-cash property are usually valued at the fair market value of the property. Clothing and household items must generally be in good condition to be deductible. Special rules apply to vehicle donations.
5. Fair market value is generally considered the price agreed on by both the buyer and the seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts.
6. Regardless of the amount, to deduct a contribution of cash, check, or other monetary gift, make sure you have a receipt showing the name of the organization and the date and amount of the contribution. Other records, such as bank statements or payroll deduction stubs, will also suffice.
7. For donations of cash or property equaling $250 or more, you should also obtain documentation reflecting whether the organization provided any goods or services in exchange for the gift. And if your total deduction for all noncash contributions for the year is over $500, complete and attach IRS Form 8283, Noncash Charitable Contributions, to your tax return.
8. Taxpayers donating an item or a group of similar items valued at more than $5,000 must also complete Section B of Form 8283, which generally requires an appraisal by a qualified appraiser.
Remember that your contributions may not only be tax-deductible, but they also bring about good karma. And if you are ever uncertain as to the tax ramifications of donating, give us a call at Law Offices of Christy Lee, P.C. We'll be happy to discuss how to get the maximum deductions from your good deeds.
Christy L. Lee 3/23/2011 2:04:49 PM
Throw That Musher a Bone!
This year we all should remember Shakespeare's warning about the Ides of March. Some of the Iditarod mushers, like Mackey, faced some real hardships along the trail, including sick animals and harsh, harsh conditions.
But other mushers fared extremely well. So congrats goes out to John Baker for his win! For his record-setting time of 8 days, 19 hours, and 46 minutes, he receives a $50,000 purse, along with a new Dodge Ram 1500 truck. The total purse split among the top-30 finishers hit $528,000.
While that amount's down from about a third from 2008, it's still a respectable amount of money that the IRS will want a cut of.
So is the Iditarod musher running a business? Compared to the Iron Dog Classic, I would argue "yes, most definitely," even if the musher doesn't make any profit. Unlike snowmachiners, most of whom hold other jobs and don't engage in intensive training throughout the year, mushers have responsibility for their dogs every day of the year. Think the responsibility ends at training? Think again. Mushers pay big bucks for kibble and vet care, not to mention the dogs themselves. Add up the attending risks and costs, and you have the very definition of a business, complete with profits and losses.
For the mushers who took home the prizes, don't forget to calculate them in your tax return for 2011. And if you are confused about what deductions you can take, see your accountant, or give us a call at Law Offices of Christy Lee, P.C.
Christy L. Lee 3/17/2011 8:12:08 PM
Iron Dog Finally Finishes
Congrats to the winners of the 2011 Iron Dog Race! The three teams of top dogs this year:
Tyler Huntington and Chris Olds - $50,000
Todd Palin and Eric Quam - $35,000
Cory Davis and Scott Davis - $18,000
Rounding out the top 5 spots: the Branholm/Spernak duo, with $6,000 earnings, and the Sottosanti/Zwink pair, with $5,000. A total of $202,500 in cash and prizes - a record-setting purse - was awarded to the various winners.
The person in charge of naming the other awards possesses an enviable sense of humor. Check out some of these Iron Dog contingency prizes:
· Golden Wrench Award - $500 for the first team to scratch due to mechanical failure
· Better Safe than Sorry Award - $500 for the last team carrying Orion Safety Flares or First Aid kit into Nome
· The always classic Red Lantern Award - $500 each for the last team making it to Nome and to Fairbanks, respectively
· And my favorite: the Poorman Hard-Luck Award - $300 for the team with the worst luck getting to Poorman!
Again - congrats to all the winners!
Just as a reminder: even if you don't receive a 1099 from race officials, be sure to declare your winnings on your tax return. The IRS considers those winnings to be income.
The next big event in competitive Alaskan sports: the Iditarod. The ceremonial start is scheduled for 10 a.m., Saturday, March 5, at 4th Avenue, Anchorage. Willow hosts the restart the next day at 2 p.m. See you there!
Christy L. Lee 3/2/2011 12:30:36 PM
Iron Dog - Hobby or Business?
If you've ever driven a snowmachine (or a snowmobile, if you're in the Lower 48) for any length of time, you know it's tough. The Iron Dog is the world’s longest, most brutal snowmachine race. The course spans over 2,000 miles of some of Alaska’s most rugged terrain. Each Pro Class race team consists of two racers and two snowmachines released at the Race Start in Big Lake. They head northwest for Nome, then back east to Fairbanks. The winners split $50,000, plus there's the possibility of winning lots of other prizes. teams/?team=16
So enquiring minds want to know: Would the IRS categorize the Iron Dog race winnings as a hobby or a business?
A hobby sounds just like what you think it is - something that you love and spend lots of money on, but make little to no profit playing around with. I like to collect dolls. Is that a hobby? Yes. Why? Because I don't sell them for profit. When I do sell a doll, it's only because I found a match for one I already own, but the new doll is older and of better quality.
But change the facts a little: What if I owned a doll store, where I bought and sold dolls, with the intent of making a profit? That would be a business, not a hobby. In general, a business is an activity that you enter into or continue to engage in with the objective of making a profit. That is simple enough.
In the case of the Iron Dog, though, the IRS classification gets complicated. Iron Dog racers could win $25,000 each. Now that is most definitely income reportable to the IRS. However, even though most of these racers have sponsors, they also incur heavy costs for $30,000 snowmachines, equipment, entry fees, gas, tools, supplies, and the list goes on. No doubt every racer has enough expenses to counter the potential income, but if the IRS decides that racing is a hobby, the racer would only get to counter the deductions with the income and completely lose all the other deductions. Yikes!
Well, maybe. Do all those racers want to win the $50,000, the new truck, the other treats? Heck yeah! But what? Remember, if there is a small chance of making a large profit, the IRS may categorize your activity as a business, complete with the advantages of full deductions. However, what are your chances of making any profit whatsoever, even if you win first place, if you've invested thousands and thousands on the activity? The IRS has special rules for what it considers "recreational activity," so a detailed look at all the facts is necessary.
If you have questions about whether your hobby is tax deductible as a business, give my office a call. We can review the status of the activity so that you're in compliance with the IRS.
Christy L. Lee 2/24/2011 3:08:36 PM
Offshore Accounts: Time to 'fess Up
Suspect that you're out of compliance with your offshore accounts? On February 8, the IRS announced a new voluntary disclosure initiative that Commissioner Douglas Shulman has labeled "the last, best chance for people to get back into the system." The IRS hopes that the plan mirrors the success of the 2009 initiative in returning offshore funds to the U.S. tax structure. If you want to take advantage of the initiative, do it fast. August 31, 2011, is the deadline, but in general, as with most things IRS, the earlier you tackle the problem, the more successful and less stressed you'll be. If you're unsure about where to start, or if you just want the reassurance of professional advice, give us a call at Law Offices of Christy Lee, P.C. We'll be happy to consult with you about optimum ways to get - and to stay - in compliance with the IRS.
Christy L. Lee 2/21/2011 8:10:10 PM
The IRS Wants to Hear From You
On March 17, 2011, the IRS Taxpayer Advocacy Panel will be conducting an open meeting to hear taxpayer's concerns and questions. In partnership with the IRS, the panel focuses on ways to improve IRS responsiveness to taxpayer needs and the quality of taxpayer services. The panel provides an effective forum for direct citizen input into IRS programs and procedures.
I will be attending, with my own questions and concerns. If you can't make the meeting but you have questions, comments, or suggestions you want to air, get in touch with us. I'll be happy to play Stump-the-Panel on your behalf.
Christy L. Lee 2/9/2011 1:43:27 PM
When Your Home Is Uncle Sam's Business
Tried out your Aunt Ruby's Yankee Noodle Candy Casserole lately? Better test the recipe if you're planning to declare your home office expenses on your 2010 tax return. Why? That deduction rings loud bells in your Uncle Sam's ears. He just might be dropping in for dinner.
What is the home office deduction? It can be a respectable money saver if it's used correctly. But Uncle Sam knows that many people claim a higher-than-legitimate dollar amount for a home office.
To avoid hosting an unwelcomed guest at your dining room table after April 18 this year, ask yourself the following:
1. Is my home office a designated area in my home, used regularly and exclusively for business?
2. If yes, is this area my principal place of business?
If you can answer "yes" to both questions, you might be able to claim the home office deduction for costs associated with the percentage of the structure used only for business. This deduction can include a percentage of the homeowner's mortgage and interest, insurance, utilities, repairs, and depreciation. Renters can claim a percentage of their monthly lease for the home office deduction, along with other applicable costs.
So how does it work? Let's say that you pay $1,000 per month in rent and that for a year you have used one-quarter of your apartment only for business. One-quarter (25%) of $1,000 is $250. Multiply that by 12 months, and you have an annual deduction of $3,000. Also, you get to take the 25% deduction on utilities, renter's insurance, and so forth. The total quickly racks up.
Sounds ideal. But taking the tax deduction is not without some risk. You stand an increased possibility of being audited if you claim the home office deduction. Get creative about what you can do to ensure that Uncle Sam sees your home office as devoted solely to business use. Here are some simple, but highly effective suggestions to that end:
1. Install a separate phone line dedicated to business use.
2. Keep personal paperwork and other objects in separate areas of your house.
3. Avoid turning your office into a spare bedroom when company shows up.
4. Post your business license, professional credentials, and insurance declaration on a bulletin board.
5. Mount a plaque with the business name on the office door.
6. Decorate the space with an eye to creating an atmosphere suitable to your line of work. For instance, install business-appropriate desks, artwork, storage cabinets, and seating areas. If clients tend to drop by for coffee and a chat, have cups, a coffee maker, and supplies handy inside the room.
As usual with the IRS, the rules involving the home office deduction are accompanied by limitations, qualifications, and restrictions. If you're nervous about claiming the home office expense but feel that it's a legitimate deduction, consider checking in with your accountant, or call us at Law Offices of Christy Lee, P.C., for clarification on what's acceptable. That way, if Uncle Sam stops in for a quick bite, he won't suffer indigestion over your business activities.
Christy L. Lee 2/2/2011 3:43:08 PM
2010 End-of-Year Reports Are Due
If you have employees, don't forget to file your IRS 2010 year-end reports. The below reports are due Monday, January 31, 2011.
· Form 941 for 4th quarter 2010 - Employer's Quarterly Federal Tax Return
· Form 940 for 2010 - Employer's Annual Federal Unemployment Tax Return
· Forms W-2 and W-3 - the Social Security Administration
File, no matter what! The IRS will likely assess penalties for failure to file, so file the report even if you don't have the money!! Filing late means at least one penalty to pay. Also, collections agents are usually more gentle when the reports have at least been filed.
Christy L. Lee 1/29/2011 11:59:33 AM
Driving Under the Influence of the IRS
If you like to claim tax deductions for the business or charitable use of your vehicle, better set aside some extra time for every trip you make. The reason is simple - whenever you're in the driver's seat, you'll need to spend several minutes jotting down detailed notes to satisfy the IRS's requirements for proof of vehicle expenses.
In general, vehicle-related deductions showing up in tax returns cause a lot of rubbernecking by IRS agents. The higher the costs claimed, the longer the agent's going to stare at your expenditures. And when you declare that the vehicle is used 100% of the time for business purposes, you're practically begging Uncle Sam to ride along shot-gun on your sales calls, purchasing expeditions, and the like. The federal government has just become your metaphorical passenger, and that means beyond having a full gas tank, you'll need a travel journal handy.
For each foray you make for business- or charity-related purposes, record the following in your driving diary:
1. Date and Time
2. Point of Departure and Odometer Reading
3. Point of Arrival and Odometer Reading
4. Total Miles Logged
5. Reason for Trip
Of course, like all IRS regulations, deductions involving your vehicles come along with a thousand and one exemptions, exceptions, and other stipulations. Tax deductions related to vehicle usage are normally calculated on a per-mile basis, which often differs from year to year, and sometimes even from quarter to quarter. The rates also depend on what type of activity you're involved in, for instance, profit versus non-profit.
You're probably not going to get away with, say, writing off that thrilling excursion between your house and your office during which you've basked in the hazy reflection of the Alaskan mountains. And forget trying to take tax advantage of joyriding in a limousine after your cousin's wedding. But claim the deductions if they are legitimate.
If you're unsure about whether your vehicle expenses are deductible, get in touch with your accountant. Or call us at Law Offices of Christy Lee, P.C. Professional tax advice might be some of the best "vehicle insurance" you could ever purchase.
Christy L. Lee 1/20/2011 9:03:11 PM
The Strategy of the Matching Game . . . or The Taxman Cometh
Relish the thought: this year you get three extra days to submit your 2010 federal tax return. In honor of Emancipation Day, the federal government has extended the deadline for filing. You can take comfort in the fact that, until April 18, 2011, your local IRS representatives will be frantically scrambling around trying to assist taxpayers by answering questions and providing reams of necessary forms. I don't envy their job!
But once the tax season is over, the IRS agents can turn their attention back to examining returns. You don't want their gaze settling on you for long. Some audits are done completely at random, but there are some simple steps you can take to lessen the chance that the beady eye of Uncle Sam will linger on your 1040.
One of the big things you can do to help ensure a relatively painless tax season is to play the matching game. Make sure the numbers you submit to the IRS are the same numbers that the IRS has access to. In other words, report your income and the taxes you've paid exactly as shown on your W-2. Employers send copies of W-2s to the Social Security Administration, which in turn forwards them to the IRS. So the IRS knows what you've earned and what you've paid out. If discrepancies appear between the numbers on the W-2 and the IRS's records, a loud, clanging bell goes off in the Great Halls of the Taxman, and the auditors will come running.
If you've worked at more than one job, be sure to report the total income showing on all W-2s. Don't be like Lazy Susan, who thinks that if she happens to misplace one of her W-2s for one year, she can simply claim that income on the next year's return.
The same principle applies to the 1099, which generally reflects income that's not been subjected to tax withholdings. Based on these reports from employers and other institutions, the IRS is definitely onto the amount of money flowing in to you each year. That income has to be reported.
If you find errors in the totals reported on either your 1099 or your W-2, contact the issuer, so that the inconsistency can be resolved. If the issue remains problematic, get in touch with your accountant, or call us for legal advice. You want to do everything possible to keep the taxman from knocking on your door.
Christy L. Lee 1/13/2011 9:28:23 PM
A Tax Attorney's New Year Blessing on You!
May you be forced to consume much black ink when printing out your account ledgers.
May you have the opportunity to turn to red ink when it benefits you the most.
May your banker be lenient with reimbursements of fees and empathetic regarding your capital needs.
May your investment advisor know when to hold and when to fold.
May your bookkeeper understand the urgency of retaining original receipts in a neat and orderly fashion.
May your accountant know tax regulations . . . and all the loopholes therein.
May your CPA correctly prepare all your IRS filings, so they do not trigger audits.
May you remain under the IRS radar throughout the next twelve months and beyond.
And may you be gifted with the foresight, wisdom, and ability to file and pay your taxes on schedule, all the better to avoid late penalties and interest and the scrutiny of a force much greater than any other known on earth.
If this blessing is not sufficient to ensure your financial peace of mind in 2011, drop by to chat with us at Law Offices of Christy Lee, P.C.!
HAVE A HAPPY AND PROSPEROUS NEW YEAR!
Christy L. Lee 12/31/2010 1:36:40 PM
Happy New Year from the IRS!
Our government really, really likes acronyms, and the ones for bills affecting taxes in 2011 and 2012 sound very much like dinosaur roars: EGTRRA (the Economic Growth and Tax Relief Reconciliation Act of 2001) and JGTRRA (Jobs and Growth Tax Relief Reconciliation Act of 2003). Congress finally approved an extension of certain provisions of the two aging bills, so taxpayers can expect a little financial relief over the next couple of years.
Here are a few highlights of the temporary extensions which promise to impact the taxpayer:
- Tax brackets will remain the same, instead of rising roughly 3% - 4%. Also, the repeal of the Pease Limitation (a cap on the total amount of itemized deductions the taxpayer is allowed to take) will remain in effect.
- Rather than increasing 10% - 20%, capital gains and dividend rates will remain at current rates.
- Regarding dependents: the tax credit of $1,000 per qualifying child will continue. The carry-over of the dependent care credit means that you can still claim 35% of eligible dependent care expenses, up to $3,000 in costs for one dependent, and $6,000 for two or more. Deductions and exclusions for certain adoption costs and employer-assistance programs up to $10,000 are also extended. Employers can claim a credit up to $150,000 for renovating or building childcare facilities.
- The earned income tax credit allows working families with three or more children to claim up to 45% of the first $12,570 of earned income and increases income limits for married couples filing jointly.
- New estate tax laws - finally!!! Starting January 1, 2010, the estate tax exemption is set at $5 million per person and $10 million per couple, with the tax rate capped at 35% for estate, gift, and generation skipping transfer taxes. However, this law allows an estate arising from January 1, 2010, to December 31, 2010, to elect to choose no estate tax and modified carryover basis.
- There are several positive ramifications for Alaska Native settlement trusts, which can now opt to pay tax at the lowest individual marginal rate. Beneficiaries of settlement trusts do not have to pay taxes on distributions from an electing trust's taxable income. And contributions to the settlement trusts by Native corporations will not be taxed as distributions to the shareholders.
- Businesses will also receive tax benefits in 2011 and 2012. The deduction for depreciable tools and equipment is now set at 100% of cost of the investment made from September 8, 2010, through December 31, 2011; from December 31, 2011, through December 31, 2012, the businessperson can claim 50% of the cost of the investment.
- And the big one: social security contributions will drop for employees from 6.2% to 4.2% on wages up to $106,800. Self-employed individuals will pay 10.4% in contributions, down from 12.4% from previous years.
As always, get out your reading specs when you're completing your 2010 tax return because - as you already know - the IRS likes its fine print. Many of the provisions from EGTRRA and JGTRRA contain caveats, so consult your tax pamphlets and your accountant, then call us at Law Offices of Christy Lee, P.C., to make sure you haven't overlooked anything important.
Christy L. Lee 12/22/2010 4:46:55 PM
If You're Doing It Yourself . . . Tax Season Is Coming!
The general consensus is that it's better to hire a professional than to struggle with preparing your tax return by yourself.
But if you do plan to prepare your 2010 tax return on your own, one smart tactic is to get to know the changes in IRS regulations from 2009. There's a wide range of these changes, from the Affordable Care Act all the way to wage thresholds.
To help you avoid the Dreaded IRS Tax Audit, here are a few tips about the changes.
- Deductions for long-term care insurance premiums have increased. These deductions are based on age. In general, the older you are, the more you can deduct.
- Deductions for property losses, such as damages or theft, have also increased. In some instances, you can deduct losses as low as $100, down from $500 in 2009.
- Mileage deductions are generally lower for 2010 than in 2009. For business-related driving, deduct 50 cents per mile, rather than the previous 55 cents. And if you're driving for medical reasons, take 16.5 cents a mile, rather than the previous 24 cents. But if you're driving for charity purposes, you can still deduct 14 cents a mile.
- And one of the biggies if you bought a vehicle any time between February 17, 2009, and December 31, 2009: you can claim the excise, local, and state taxes on the purchase. Take the deduction as either standard or itemized. The deduction is good up to $49,500 of the purchase price.
As always concerning tax code, most of these changes are accompanied by qualifications and regulations, so be sure to check the IRS pamphlets and website for any limitations that might affect your bottom line.
Better yet, consult with a professional to decrease your chance of an audit.
Happy filing!
Christy L. Lee 12/15/2010 3:29:18 PM
2011 Tax Deal "Compromise" Is Not a Done Deal
On late Monday night, December 6, 2010, President Obama opens an address with his favorite phrase: "Now let me be perfectly clear . . ." and then explains, in not so many words, that he did not go to bed with Republicans during this tax deal just to get reelected in 2012.
I must admit, the deal is pretty good for all Americans, not just the wealthy, even though the Democrats would like you to believe otherwise. So, as the year is reaching its end, with literally millions and millions lost in taxes because the two parties cannot come to an agreement to change the "no" estate tax for 2010, the House Democrats voted today to reject President Obama's tax deal with Republicans in its current form. Of course, I have no idea what specifically was unacceptable to the Democrats, so your guess is as good as mine.
Below is the tax deal "compromise," which I believe reflects the loud opinions the voters trumpeted during this past November's elections:
1. Tax rates on ordinary income (i.e., wages, etc.) and capital gains (i.e., investments, etc.) will remain at their current levels for the next two years.
2. For employees, social security taxes on wages will decrease by 2%, resulting in an immediate increase in your weekly paycheck.
3. Businesses can deduct 100%, instead of the current 50%, of their investments in ALL purchases, including depreciable assets (i.e., computers, equipment, etc.)
4. Estate taxes will not increase as much as anticipated. No estate tax for estates under $5 million. Any amount over $5 million will be taxed at only 35%. It is unclear if we will continue to use the 2010 modified basis formula or if the heirs will receive a carry-over basis.
5. Payment of extended unemployment benefits will go through 2011.
Since the tax laws for 2011 are still up in the air, this remains a very tumultuous time for American citizens and businesses.
If you have any questions about what these tax changes mean for you, give Law Offices of Christy Lee, P.C., a call. We'll be happy to discuss the implications for your financial future.
Christy L. Lee 12/9/2010 3:38:48 PM
It's Thanksgiving!
We're so thankful that we can help you! We tried to count our blessings for the year, but there were just too many. So we're devoting this space to you.
Here's what a few of you have to say about running your own business:
I am thankful for one good attorney out of five whom I like and can trust to get done what needs to be done and WIN.
--Kathy, Henry's Janitorial, Inc.
Alaska Adjusters and Dave and Stacy LeNorman are thankful for family, good friends, and good health. We appreciate our customers' loyalty and their confidence in our ability to always meet their needs.
--Dave, Alaska Adjusters, LLC.
I'm very glad to operate my own business as an interior designer. I have flex time to devote to my family, and I love knowing my clients are going home at night to a pleasing, relaxing space that I've helped create.
--Andrea, Cricket Alley, Inc.
I'm a physician's assistant, and medicine is a tricky, stressful practice. But at the end of the day, I know my services have made a difference in somebody's life.
--Anonymous
My job is great! All that traveling around the world translates into lots of frequent flyer miles.
--Brad, Endless Summers, Inc.
The thing about style is that it's always changing, and the thing about dirt is that there's always more to remove. So I'm happy to manage a maintenance company. I'll never run out of work.
--Starra, House Cosmetics
I'm grateful that it's not as slow business-wise as it was last year for me.
--John, Your Legal Tech
I'm just ecstatic that I'm not working for my former boss anymore!
--Anonymous
I'm so thankful that nature has produced so many fascinating and colorful creatures and spaces that inspire my art. Every day I find new stimulation. Oh, and I'm thankful for Vince, my husband, too. His help and support and encouragement make it easier for me to continue art-ing.
--Jeanne, Heart of Clay
As for me - I'm thankful that the government has invested your hard-earned tax dollars in hiring more IRS agents!
Job security, anyone?
Here's to having a Delicious Thanksgiving Day!
--Christy Lee
Christy L. Lee 11/24/2010 9:10:06 PM
An Easy Business Choice: The LLC
If you're leery at the thought of personal risks that go along with sole proprietorships and partnerships, take a look at the advantages the limited liability company ("LLC") offers. There's a solid reason for its increasing popularity.
The LLC is owned by its members. As the name suggests, the LLC generally guards all members against any liability incurred during normal business operations. In other words, let's say that Member Susie hasn't had her morning coffee or her power bar, and she accidentally runs the company truck through the side of Building Z. The owner of Building Z wants to sue. Who is liable? The general rule and best practice is that as long as the LLC is handled and run as a business and Member Susie is not grossly negligent in her driving, the LLC, not the members, should shoulder the responsibility. This means that the members' personal assets, including their personal residences, vacation cabins, vehicles, snow machines, etc., are all protected.
Because of the limited personal risks to its members, the LLC proves to be a great business model for investment opportunities, like real estate ventures and gifting interest to your descendants.
One possible downside to the LLC is that it's a relatively new business structure, and the law hasn't yet ironed out all the kinks relating to it. If you're considering an LLC, your best bet is to talk to an attorney who specializes in taxes and business formation.
Law Offices of Christy Lee, P.C., can help steer your LLC in the right direction, so that profits are maximized for the members. Give us a call to discuss your business options.
Christy L. Lee 11/19/2010 2:08:26 PM
Are You Enjoying Your Favorite Hobby Today . . . or Inadvertently Doing Business?
Ever thought to yourself that you might like to be in business? Chances are, you probably already have been at some point in your life, at least in one form or another. Mown a lawn for cash? Business. Babysat for pay? Business.
What you've done is work as a sole proprietor, maybe without even realizing it. And there are a few advantages to working for yourself. The sole proprietor doesn't have to worry much about anybody else's approval, except, of course, the customer's. You're your own boss. Except for taxes, you get to keep whatever profits the business makes all for yourself.
But you also have to face the responsibilities of being a business owner all by yourself as well. And those risks are huge.
As a sole proprietor, you are totally and personally liable for any mistakes made on the job by you and your employees. Also, and this is a biggie, so brace yourself: employers pay 100% of social security and disability contributions on earnings (as an employee of someone else, you pay only 50%). There are other issues that will probably emerge as your business grows more and more successful. Accurate bookkeeping and regular self-employment tax payments become crucial. Increasingly complicated tax issues could lead to an IRS audit.
While many business advisors will tell you that the sole proprietor doesn't need legal advice for the business, it's extremely important to retain counsel. Sound guidance can help you avoid the inevitable pitfalls that crop up along the way to financial viability as a sole proprietor.
A partnership is a lot like a sole proprietorship, in that you can be engaged in one without even fully recognizing it, so consider carefully whether your activities constitute a partnership.
If you and your friends have been baking cakes in your home, and word gets around that you're the ones to call for helping out with a party, and you start charging a little here and a little there for your product . . . you've been conducting business as a partnership. You don't have to be formally organized to be viewed as a partnership by state law or the IRS.
And no matter how delicious that cake is, by baking it with friends and selling it, you've just placed yourself at risk.
Remember: in Alaska and Texas, laws do not favor partnerships. Fallout for unwitting participants in partnerships is often swift and unpleasant. Partners face unlimited (100%) personal liability for damages caused by any of the partners in relationship to the business. Since the law does not require partnerships to have legally binding agreements in writing, disagreements among partners often undermine profits and render every partner vulnerable. Sticky problems can develop regarding taxes. To remove these types of obstacles certain to block business growth, you might eventually find yourself paying big bucks to accountants and attorneys.
So if you think you may unintentionally be engaging in business as either a sole proprietor or a partnership, call me to put into place safeguards that can protect both you and your family from personal liability.
Christy L. Lee 11/12/2010 3:17:20 PM
Elections Night Yielded No Clear Answers
Now that the elections are over and the results are in - well, not for Alaska - we know that the Republicans overtook the House. What tax changes are ahead for the future? There's really no way to be sure yet.
President Obama is now stating that he doesn't want to increase the taxes for the middle class (of course, his definition of middle class remains a little on the low side!), and he is ready to discuss possible alterations to the health care bill, which recently passed.
After I posted my blog last week, Jeff Schnepper of msn.com wrote an article about upcoming changes to the tax structure if Congress doesn't act before the year's end. For an interesting analysis and a smooth read, go to Biggest Ever Tax Hikes Just Ahead.
One thing's for certain - we can count on the threat of the presidential election of 2012 to influence how much Obama's Administration is willing to compromise about taxes in 2010.
Christy L. Lee 11/4/2010 5:20:31 PM
New Year, Higher Taxes
The new year is fast approaching, and with it comes increases to the current rates for the American taxpayer. Unless Congress moves quickly to extend them, the tax cuts from the Bush Administration will end at the close of 2010, and tax rates will return to those of the 1990s. That means your taxes will probably be much higher in 2011.
Unless Congress comes up with some acceptable alternatives to the upcoming tax hikes, there's a major change or two looming ahead for the average taxpayer. Among these changes are higher tax brackets, a 5% increase in capital gains taxes, and a 50% reduction in child tax credits. Married couples filing jointly will face increased liability. Overall, the taxpayer might be hit with a 3% - 5% increase in federal taxes. Other taxes, such as estate taxes, will also rise dramatically.
Congress can move to forestall the escalation of taxes when it meets again in November, but some members view a vote to extend the Bush tax cuts as a vote to increase the national budget deficit. Proposed tax legislation by the Democratic majority is currently unpopular with the Republicans, and even with some Democrats, as it takes up President Obama's stance of increasing taxes only for those earning more than $200,000 annually. The poor economy remains a problem in arriving at a solution regarding the best way to handle taxes. The debate over the benefits of tax cuts versus the benefits of high taxes promises to stay heated for some time.
How can you protect yourself financially in 2011? When it comes to taxes, it pays to plan ahead for those almost-guaranteed increases in the upcoming fiscal year. This year would be a great time to sell assets because capital gains are low now, but they promise to increase in 2011. There are also other steps you can take to safeguard your finances. Call us at Law Offices of Christy Lee, P.C., if you're unsure about the best way to pursue the lowest possible taxes for 2011.
Christy L. Lee 10/27/2010 4:03:32 PM
An Alert Regarding Internet Usage and Jurisdiction
The Internet has changed our lives. As a consumer, you can avoid getting out on a cold winter's day while you shop online. You can make new acquaintances from around the globe through social networking sites like Facebook, and you can keep up with friends and family through email and Skype. As a business owner, you can expand your clientele to an international base. When you're using the Internet, either as a client or as a host of a site, think about which state's laws could apply to your web activities and how they could apply.
Jurisdiction is the term given to the physical area governed by a specific set of laws. For someone to sue you in a particular state, the complainant has to have jurisdiction in that state. Laws concerning the same issues frequently differ from state to state and from nation to nation. What holds up legally in one state may not hold up in another. This is true even when it comes to the Internet, where business is conducted both locally and internationally.
The Supreme Court has established fairly clear guidelines about jurisdiction through a multi-pronged test:
1. Where was the activity launched, including communications? A user or business can be located in a home state while engaging in contact in a second state, called the forum state.
2. Did the claims asserted in the case result from contacts in the forum state?
3. What is reasonable jurisdiction regarding the case?
Based on these questions, the Supreme Court has ruled that a business does not have to be physically present in a state to be sued there. Being sued out of state disrupts the day-to-day routine of a business. It's usually very costly in terms of both time and money. Law Offices of Christy Lee, P.C., can review your website to help ensure that you and your business are protected when it comes to Internet usage and jurisdiction.
Christy L. Lee 10/20/2010 12:19:43 PM
Why Converting Your Traditional IRA to a Roth IRA Is a BAD Idea
If you’ve been keeping up with financial news this year, you know that there is much excitement over the fact that beginning January 1, 2010 anybody, regardless of income, may now convert his or her traditional IRA to a Roth IRA. This is big news, and most financial planners are encouraging just about all of their clients to take advantage of this “great opportunity.” Unfortunately, in many cases this advice is ill-founded, or even financially dangerous. What follows are a few reasons concerning why I think converting your traditional IRA to a Roth IRA is a decidedly bad idea:
1. Upon conversion, any tax-deductible contributions you’ve made to your IRA will suddenly be subject to taxation. Sure, you will have two years over which to spread out that tax bill (assuming you make the switch this year), but that’s still a lot of money suddenly coming out of your pocket and going into the government’s.
2. You may think that you will ease the pain of the sudden taxation by using the money from your current IRA to pay the taxes on the conversion, but this is just about the worst thing you can do. Suddenly you not only have an increased tax bill, but you’re losing some of the very savings you are trying to preserve.
3. The purpose of the Roth IRA is to pay your taxes now so you won’t have to worry about it when you’ve retired; but how can you be sure the tax structure will remain the same or won’t be more friendly to retirees in the future? We often assume that the tax structure we have now will endure forever, but it looks to me as if there are BIG changes ahead in certain government programs, and it’s unlikely that the tax structure will remain completely unaffected.
4. Let’s assume for a moment that the tax structure does remain the same. How can you be sure that your personal situation won’t change? You may be living in a high-income tax state now, but end up retiring to a low-income tax state such as Florida. In such a situation, deferring the payment of taxes could be the smartest thing you ever do.
5. One of the biggest reasons not to rush into converting your traditional IRA to a Roth IRA is for the simple reason that Roth IRAs are not really more beneficial than - or even much different from - a traditional IRA.
They say that “a bird in hand is worth two in the bush.” Converting to a Roth IRA is basically throwing the bird in your hand right into the bush and hoping someone will pay you for it. Why give your money to the government right now when you could keep it in your own pocket, available should you really need it? If you are absolutely determined to take the taxes out of your retirement contributions right now, you would be better served to take that percentage out yourself, rather than giving it to the government, and take control of your own destiny by investing it in something you truly believe in.
Christy L. Lee 10/13/2010 1:11:25 PM
Will New Health Care Legislation Affect YOUR Small Business?
Small business owners have been following the new health care legislation closely, wondering how it will eventually affect their businesses, their employees, and especially their wallets.
There have been a number of mixed reactions to the legislation thus far. Some small business owners are looking forward to the new laws making it easier for them to provide insurance for themselves and their employees. Other groups claim the new legislation doesn’t do enough to help them expand insurance coverage while at the same time placing too high a burden on what they’re required to provide. And still others are simply confused about where they fall on the “small business spectrum” and exactly what the new laws mean for them.
The following points can help small business owners understand what’s coming down the pipeline and what it may mean for them:
The first thing you need to know is how the government will define “Small Business."
- "Small businesses" are those with no more than 100 employees.
- Part-time employees will be counted toward the employee minimum on a pro-rated basis based on hours worked. This means more small businesses will be brought into the group required to provide coverage.
What are the details of the legislation?
- By 2014, businesses with more than 50 employees will be required to either offer healthcare coverage or to pay a penalty of $750 a year per full-time worker. Some businesses with fewer than 50 employees may still fall within the requirement if they meet a certain payroll threshold.
- By 2014, the states will be required to set up Small Business Health Options Programs (SHOP Exchanges), in which small businesses will be able to pool together to buy insurance. As mentioned above, small businesses are defined as those with no more than 100 employees. However, states will have the option of limiting pools to companies with 50 or fewer employees through 2016; companies that grow beyond the size limit will be grandfathered in.
- Starting this year, and until the above-mentioned SHOP Exchanges are set up, businesses with 10 or fewer full-time-equivalent employees earning an average of less than $25,000 a year will be eligible for a tax credit of 35% of health insurance costs. (The owner's salary is not included.)
- If your business is above those thresholds, you may still get the tax credit, but the credit decreases with every employee above 10 until it's completely phased out at 25 full-time workers with average annual earnings of $50,000 or more.
- After 2014, when the SHOP Exchanges begin to sell coverage, the tax credit will still be available to small businesses, but it will increase to a maximum of 50% (35% for nonprofits.) The benefit will be limited, however, with each small business able to take the credit for only two years.
Keep in mind, some of these changes don’t go into effect until 2014, and still others go into effect earlier but change after 2014. If you want to really understand how the new health care legislation will affect your small business - in the coming few years and in the long-term - call my office. Together we not only can determine how your business will change, but also plan to deal with those changes and keep your business as profitable as it can be.
Christy Lee 10/6/2010 2:19:20 PM
Estate Planning Tools 101: Your Revocable Living Trust
As mentioned in my last blog post, the tool that most readily comes to mind when you mention estate planning is the last will and testament. However, a will is not the only estate planning tool - there is also something called a Revocable Living Trust, which many people find to be more flexible and longer lasting and which offers more protection to your family and your estate.
A trust is a far more extensive tool than a will, with as many permutations and possibilities as the people who choose to create them. Even mentioning “a trust” is slightly misleading because there is no one trust; in actuality, there are many different kinds of trusts, each of which may be used for specific situations.
Most trusts created for estate planning purposes are revocable living trusts (or RLTs.) An RLT is a document created not simply to distribute your property, but to own your property on your behalf, to be invested and spent for your benefit or the benefit of your named beneficiaries. As such, a trust takes effect as soon as you sign it, and your property is protected by and subject to the trust parameters as soon as you place them in the name of your trust.
There is a lot of flexibility available with a trust, and yours can be created to fit your unique situation. Most RLTs name the trust creators as the initial trustees, nominating individuals or banks to take over as trustee when the creator becomes incapacitated or passes away. The benefit of a trust is that when the creator passes away, property is not merely distributed and that’s the end of it; the creator can instruct the trustee to distribute the money slowly and in any number of ways, even to the extent of creating new trusts for each beneficiary. Trusts can last for generations, as in Alaska - perpetually.
Trusts can offer much more extensive protection than a will from a tax perspective as well. First of all, the flexibility of a trust allows you to organize the distribution of your property in a way that will achieve maximum tax protection depending on your personal and family situation. Also, because a trust is an entity in itself, you may allow your trustee to make tax elections based on the most current tax laws after your death.
If a will is the cornerstone of your estate plan, then a trust is the structure itself. Your trust can be the equivalent of a small family home or a sprawling ranch house large enough to accommodate multiple generations; the choice is yours. And if created correctly, your trust can provide the same comfort and protection that comes with a beloved and well-built home.
Christy Lee 9/29/2010 12:37:54 PM
Estate Planning Tools 101: Your Last Will and Testament
When people think of estate planning, the first thing that generally comes to mind is a Last Will and Testament. This is the document that is always mentioned in books and movies, and it’s the one most people ask about when they come into our office—and with good reason! The will is the oldest and most respected tool for the distribution of property upon death; it is probably the most basic building block of a good estate plan.
What is a will?
In its simplest form, a will is an official declaration of your wishes. In it you declare the extent of your privately held property (a will does not cover jointly owned property) and your wishes for the distribution of that property. You name an executor to carry out your wishes, and you can even include such things as your wishes regarding what should be done with your remains and a nomination of the person whom you want to serve as guardian for your young children. The court uses your will during the probate process to determine your final wishes and to distribute your property accordingly.
How does a will work?
A will does not go into effect until after you die; before then, it is simply a piece of paper containing your private wishes. However, once you have passed away, your will no longer remains private; it now becomes a matter of public record, available to anybody who would like to view it. (In fact, if you are interested, you can find some of the famous wills throughout history online - including Princess Diana’s, George Washington’s, or William Shakespeare’s.) Once you have passed away, your executor will file your will with the probate court to begin the process of distributing your estate.
What if I don’t have a will?
If you die without a will (or any other kind of estate planning), the government has one for you. Every situation will be somewhat different, but the most likely scenario is that your estate will go to your spouse, will be split between your spouse and children (regardless of the ages of your children), or will go to your parents or to your siblings.
A will can stand alone, or it can be the cornerstone of a more elaborate estate plan. Either way, everybody should have a will and should update it regularly, if for no other reason than to give your family - and yourself - comfort and peace of mind.
Christy Lee 9/22/2010 5:34:47 PM
On Taxes, Tennis, and Other Tidbits
Some things to know about me:
· My favorite person is my thirteen-year-old black lab. She constantly reinforces my position in the universe as food provider, caring walker, and saliva depository.
· White cake with whipped frosting comforts me.
· Tennis reigns supreme. Since moving to Alaska, where the weather's not always conducive to play, I obsess over the sport on the small screen. To compensate for not regularly smashing tennis balls around Anchorage, I plan to take up amateur dog mushing next year. My Anchorage office conference room pays homage to these sports, decorated as it is with signed memorabilia from both.
· I currently live in Anchorage, Alaska, and Arlington, Texas, with offices in both states. France, Scotland, Florida, and Tennessee have also all acted as home to me at one time or another.
· When not using English, I speak French. I try to avoid legalese in both languages.
· I promote legitimate tax collection, but will vigorously protect innocent taxpayers' rights.
Christy Lee 9/14/2010 8:38:27 PM