Paul N. Gada, tax attorney and writer has said,”Tax filing insights can come in various forms, but just about all of them can be grouped into two categories: those dealing with the mechanics of your filing method and those that should be tied to your overall tax planning for the year.”
It may only be October, but it really is time for your clients to start thinking about taxes. In fact, it should be on the agenda all year long. It’s been said that the difference between tax planning and tax filing has to do with what the date is. After December 31st the time for tax planning has come and gone. It’s time to file.
Tax Simplification is Not So Simple
In an article published on CNN:Money back on July 21, 2005, Krysten Crawford said, ” In the nearly two decades since Congress last cleaned up tax laws, more than 14,400 changes have been made to the Internal Revenue Code. Today the code and its myriad regulations take up nearly 100,000 pages – with a word length that is about 10 times the size of the standard English version of the Bible.”
Despite promises to simplyfy the tax code, we still have a very complicated tax system. As congress changes and adjusts the tax code every year, the need to make tax planning a year-round process becomes more and more important. And the need for a small businesses bookkeeper and accountant to be actively engaged in the process is even more critical.
You Can Help Your Clients Plan Now to Save Later
Most small business owners work very hard at the day to day responsibilities of operating a business. They work IN the business and never get around to working ON the business. Especially for small business, keeping sight of the big picture is really important.
Michael Gerber, in his book The E-Myth, states that as a general rule, CEO’s should focus 90% of their time on the coming year and 10% on today. They should work on issues that will improve the business in some way.
I’m convinced that this also applys to tax planning. Often, the daily decisions we make have long-term tax ramifications that need to be considered as the business moves forward. The bookkeeper and accountant are in a unique position to assist the business owner as he works in today and plans for the future.
Look to the Future and Your Clients Will Appreciate Your Value
Many organizations find it very helpful to begin each year with some dedicated time to forecast into the future. Often this envolves sales goals, customer service objectives, large equipment or other purchases, but it should also include how those decisions might impact the company’s tax obligation for the coming year.
As the bookkeeper/accountant you will want to keep up to date on basic tax issues and have a good working relaitonship with the company’s tax accountant to be informed of specific tax issues and how they affect the business. (You might also consider adding Professional Tax Preparation to your list of services to add even greater value to what you might already be doing. Click here to learn more about what Universal Accounting Center can do to help you add Professional Tax Preparation to your Bookkeeping service .)
Planning for Tax Savings in the Future Will Help the Overall Health of the Business Now
The real purpose of forecasting and planning isn’t all about a company’s taxes. (Although taxes should be a big part of it.) It’s all about improving profitability in the long term. Every business needs some sort of planning process, whether it’s a year end session for the coming year or for the next quarter, the next month, or the next week. In his book In the Black:Nine Principles to Make Your Business Profitable, Allen Bostrom gives some important planning questions that need to be asked about the company’s next fiscal year:
- What are your major objectives for next year?
- Will you need new equipment? How much will that cost? How will you pay for it? What are the tax ramifications of purchasing this equipment?
- Which profit centers are really working? Which are not? What changes need to be made?
- Will you need additional people? When? How many?
- What will be the financial and tax impact of the changes, as you are planning for the future?
- How will these plans affect your profitability next year?
Adding Tax Planning Services to You Product Mix Will Help Your Accounting and Bookkeeping Practice be Even More Profitable
The logical “next step” for many Professional Bookkeeping and Accounting Practices is to add Professional Tax Preparation Services to the mix. I feel so strongly about this, that I’d like to offer you a special bundled price if you purchase both the Professional Bookkeeper Program and the Professional Tax Preparer Certification together.
Special Bundle Pricing for Tax Preparation and Accounting/Bookkeeping Training
When you choose to purchase complete business service training, we will give you a significant discount. This includes things to get your business started such as Universal Accounting’s guide to Financing a Small Business, which shows you how to get funding for your business.
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Note: Here’s a short article to pass on to potential costumers. Not only will it provide them with practical information, but it’s a good way to introduce the value of your services (see numbers 4 & 5). Copy and paste this piece onto your computer, delete this “note,” and add your contact information at the bottom. Then hand out copies to individuals and businesses and wait for your client base to grow.
With the holidays upon us, tax season is just around the corner. How can you prepare in order to avoid a stressful and potentially costly return? Here are a few tips from a tax professional to help you avoid any IRS anxiety in 2007.
1. Gather all necessary documentation long before you sit down to prepare your taxes.
Much of the stress associated with preparing your taxes has to do with finding the proper documentation. Take the time to find all tax-related material before your W-2 form arrives in the mail. Whatever system youuse, whether it comes in the form of tax software, a tax preparer, or your own grey matter, you can’t file your taxes if you don’t have the right information. You also can’t claim deductions if you don’t have any evidence they existed.
Note for 2007: Create a system where you gather all this information into one file from the start of the year, rather than at the end of it. It will make 2007 tax preparation much easier a year from now; in fact, it may just require you to pull a manila envelope out of a file drawer and set it on your desk.
2. Categorize and tabulate your receipts.
If you haven’t been saving your receipts up until now, number 2 might just work as a “note to self” for next year. Hopefully you have been saving all tax-related receipts, and now’s the time when you sit down, put them into their proper categories, and tabulate them.
Note for 2007: In that file we mentioned above, include an envelope for tax-related receipts and begin saving them January 1st.
3. Calculate twice, record once.
The IRS states that math errors are the biggest mistake taxpayers make when filing their own returns. The IRS already has access to much of your financial information, and if you make an error when transferring that information to your return, or if you make simple addition and subtraction errors when working with those numbers, you’ll quickly receive a correction notice from the IRS. So calculate twice and record once.
4. Recognize that tax saving is a year-round task.
There are things you can do year-round in order to increase your tax benefits, especially if you have your own business. Find out what these are and begin doing them. You may be weary of enlisting the help of a professional tax preparer, but the truth is they can often save you much more money then you’ll pay them in the end.
Note for 2007: Consult with a tax professional to see how tax planning might benefit you in the 2007 tax year.
5. Don’t procrastinate professional help.
If you wait until April 1st to enlist the help of a tax professional, chances are you’ll be out of luck. That’s the busiest time of the year for most tax preparers and they’ll be hard-pressed to fit you in that late in the game. Consult with a professional early in the year and come equipped with well-organized documentation; you’ll be ready for a stress-free tax season.
Note for life: As your tax situation becomes more complicated, a tax professional makes more sense. Tax laws can be confusing and deductions difficult for the layperson to recognize. There comes a time when the benefits of a tax professional far outweigh the costs. In fact, often a percentage of those benefits (and perhaps a percentage of your enhanced tax return) pays for those costs. Don’t wait another year to see if that time has arrived. Visit a tax professional today!
End of Letter - This piece is designed to be able to get you a foothold within the company that is now considering where they need to go to have their company’s taxes prepared and filed. It is also designed to open the dialogue that you need to ahve when you go knock on their doors about the importance to have you and keep you on as year round for tax advisement purposes.
Lastly, it’s also designed to be able to light a fire under you to get yourself into the activity of customer acquisition, which is the lifeblood of any business. For more tips, and a program that helps you with your marketing and business growth efforts check out the Art and Science of Getting Clients. Click Here to view today.
The Latest Tax News…
We hope everything went well for you this holiday season. As the new year gets ramped up, we thought you’d appreciate a briefing on four noteworthy tax events.
IRS Headquarters Reopens
After a six-month closure due to flooding, IRS headquarters reopened roughly one week ago. As of December 11th, submissions should no longer be sent to the temporary address and now follow standard procedures. Taxpayers have also been reminded to fax a copy of their requests to the headquarters’ (202) 622-7707 number; the temporary fax and telephone numbers should no longer be used.
No Change in Interest Rates
On December 12th the IRS announced that there will be no change in interest rates for the first quarter of 2007. Current interest rates are as follows:
- 8% for overpayments [7% in the case of a corporation]
- 8% for underpayments
- 10% for large corporate underpayments
- 5.5% for the portion of a corporate overpayment exceeding $10,000
As a matter of code, interest rates are determined on a quarterly basis. Interest rates for overpayment and underpayment is determined by the federal short-term rate plus 3% for taxpayers other than corporations. For corporations, underpayment is the federal short-term rate plus 3%; overpayment is the federal short-term rate plus 2%.
Tax Law Changes and How They Affect Charitable Contributions
Last summer the Pension Protection Act made several changes to tax law, many of which you should be aware of when giving charitable contributions this year-end:
- IRA pension owners, 70 ½ and over, can transfer up to $100,000, tax-free, to eligible charities.
- Clothing and household items donated after August 17th, 2006 must be in good condition to qualify.
- Taxpayers can claim any item more than $500 regardless of condition, as long as it’s accompanied by an appraisal.
- Monetary contributions more than $250 must come with a receipt from the charity and a bank record
- Donations can be made by cash, check, electronic transfer, credit card, or payroll deduction (must accompany a copy of the pay stub, W-2 statement, or other employer document)
For more information, visit the IRS website.
Hybrid Cars and Alternative Motor Vehicles Will Get You a Tax Credit
The clean-burning deduction has been replaced with a tax credit by the Energy Policy Act of 2005. Taxpayers who purchased hybrid and alternative motor vehicles after January 1, 2006 can claim an additional tax credit and either lower the federal tax due, or eliminate their federal obligation altogether. The credit is only available to actual purchasers of qualifying vehicles; leasing companies claim the credit for qualifying vehicles leased to customers.
For more information, visit the IRS website.
Keep in Mind How Universal Can Help You - Universal Accounting Center ’s self-paced program enables you to complete the parts that interest you and skip over the parts that don’t. Even if you have used the program for years, the program teaches you shortcuts and methods you may not have known. You will be impressed by the simple flow and completeness of our program.
And enroll now and get $100 off our retail price. For just $385 you can get the Professional Bookkeeper’s Guide to QuickBooks and the full academic version of QuickBooks Pro. Or choose to get the QuickBooks training with a free trial version of QuickBooks for just $285! For less than $400 you could improve the accuracy of your tax returns and add an additional income stream to your tax practice. Enroll today!
All The Tools You’ll Need to Become a Professional Tax Preparer are at Your Fingertips… and You Don’t Need a College Education
The US Department of Labor forecasts that as the economy continues to grow, the need for qualified tax prepares will increase for the foreseeable future. As the tax code continues to evolve and change, the need for well trained and qualified tax professionals has never been greater.
Let’s take a look at how Universal Accounting’s Tax Tips Newsletter can help you take advantage of this trend.
What Does the Tax Tips Newsletter Have to Offer Me?
- Learn About the Exciting and Rewarding Business of Professional Tax Preparation
- Learn How to Earn a Better Income
- Learn How to Start Your Own Business
- Learn How to Create a Stable Income
- Learn How to Take Advantage of Increased Tax Benefits
- Learn About a Recession-Proof Career with Unlimited Potential
Once a week you’ll receive tips and information that will introduce you to the exciting and lucrative business of Professional Tax Preparation. Ideas that will help you build a profitable practice that will help you create the lifestyle that you and your family deserve.
Enjoy a PDF Version of Allen Bostrom’s Book In The Black on Us
We hope you find the information contained in the Tax Tips Newsletter to be helpful and informative. The exciting and rewarding business of Professional Tax Preparation has been just the ticket for hundreds of people as they create the kind of professional and personal success that they have been looking for.
President of Universal Accounting, Allen Bostrom’s book, In the Black:Nine Principles to Make Your Business Profitable, has helped people all over the country evaluate the critical place the accounting process plays in the profitability of any business. I’d like to give you a PDF version of the book today for signing up for our new newsletter.
Once again, welcome to Universal Tax Tips. Sign-up today for the most informative and up-to-date information available about this rewarding and enjoyable profession. I’ll look forward to talking with you in our next newsletter.
You Can Sell Property to Charity and Get a Tax Deduction
“Bargain Sale” of Property
You or your client may be able to claim a tax deduction for a charitable donation the charity pays you to make. How? By selling your property to charity at a bargain price. This is a “bargain sale.”
Both you and the charity can benefit from a bargain sale. The charity acquires property it wants at a good price. And you not only get cash, but also a sizable tax deduction (depending on how big a bargain you give the charity).
How Does It Work?
The bargain sale is treated as two transactions: (1) a sale, and (2) a charitable gift. The deduction for the charitable gift can more than offset any gain on the sales part.
Idea in action: You bought a painting for $2,000 six years ago. It’s now worth $10,000 and your local museum wants it–but you want to recover the $2,000 you paid for it. The museum agrees to buy the painting for the $2,000 bargain price.
On the sales part of the transaction, you have to figure your gain for tax purposes. To do this you need your tax cost. In this case, your tax cost is the portion of your original cost that’s in the same ratio as the sales price is to the current value of the property. That ratio is one-fifth ($2,000 sale price divided by the $10,000 current value). One-fifth, or 20 percent, of your original cost is $400 (20 percent of $2,000). Your tax cost is $400, so your gain is $1,600 ($2,000 - $400).
For the charitable gift portion, you get an $8,000 deduction ($10,000 gift less the $2,000 sales proceeds). This offsets the $1,600 gain for a net deduction of $6,400.
End result: You’ve helped out your local museum and received a $6,400 tax deduction–plus $2,000 in cash.
Tax Tips
Our Forum teaches Tax and Accounting tips from other Accountants and Tax Preparers. The Forum gives you the ability to ask questions as well as to contribute your input to others.
Learn Tax Tips in Our Forum
It’s important to help the less fortunate in our community. Making cash donations to local charities is a great way to support their good works. And of course, cash gifts are fully tax deductible. But giving stock (or bonds, land, or other investment assets) that has gone up in value can provide you, or your client, with an even bigger tax savings–which may allow either of you to make a larger gift than you thought you could make.
* Smart tax move 1. If you have owned stock for more than a year, you get a charitable deduction equal to the current value of the stock. Big tax plus: You avoid paying tax on the gain in value. So the cost of the charitable gift equals the stock’s original cost to you, but the deduction equals its present value.
You get a tax deduction for appreciation in value on which you pay no tax. In fact, no tax is ever paid on the appreciation. The charity, a tax-exempt organization, owes no tax when it sells the stock.
Example: Two years ago, your client bought stock for $500. Its value is now $750. The client wants to make a $750 donation to ABC Charity. He or she gives the stock instead of the cash. The client gets a $750 deduction for a cost of only $500. Assuming they’re in the 28 percent federal income tax bracket, they’ll also save around $70 in federal income taxes. (You may also save state and local income taxes.) Plus, he or she won’t have to pay capital gains tax on the stock’s $250 appreciation in value. Your advice has just saved your client lots of money and provided a great organization with some needed assets.
Note that this generous tax rule applies only to appreciated property held for more than a year (what the tax law calls “long-term capital gain property”). If the same property were owned for a year or less at the time you make the charitable contribution, your deduction is limited to the property’s cost to your client. In the example, your client’s deduction for the $750 stock gift would be only $500 if the stock were not bought before the contribution.
* Smart tax move 2. The obvious move is to hold on to short-term property until it’s owned for more than a year–and then make the contribution. If it’s not feasible to wait, you should sell the property and donate the net proceeds (after income tax and commissions). Your deduction is bigger that way. The reason? The net proceeds are greater than the stock’s original cost.
On the other side of the coin, let’s say you’re considering making a gift of stocks that have gone down in value since you purchased them. If that ’s the case, you should know…
* Smart tax move 3. Don’t donate stock that has gone down in value. Sell the stock first and then donate the net proceeds. That way, you get two tax deductions. You can claim (1) a capital loss deduction for the decrease in the value of the stock, and (2) a charitable deduction for the gift proceeds. If you give the stock outright, you could only claim a charitable deduction for the value of the stock at the time of the gift. You would forfeit any deduction for the stock’s drop in value.
Example: You bought 100 shares of ABC stock two years ago at $50 per share, and it’s now worth only $30 per share. You don’t expect the value to go up any time soon. If you donate the stock, you can claim a $3,000 charitable deduction ($30 times 100 shares). But by selling the stock and contributing the proceeds (after commissions), you can still claim the $3,000 charitable deduction. Tax bonus: You can also claim a $2,000 capital loss deduction ($20 loss per share times 100 shares). The added tax savings from the capital loss deduction more than make up for the sales commission.
Note: The capital loss deduction is limited to $3,000 a year. To the extent capital losses exceed capital gains, they are currently deductible against only $3,000 of taxable income. Any amount over $3,000 is carried over and deducted in the following years.
The Accounting/Bookkeeping and Tax section of the Forum gives accounting and tax professionals a place to share their knowledge.
Click HERE to Get Tax Advice
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