Claiming a 2005 Refund

You’ve probably already heard, but if gone unclaimed by April 15^th of this year, 1.3 million dollars worth of 2005 tax refunds will become the property of the US Treasury.  The IRS provides a three-year window for individuals to claim refunds on taxes withheld from their wages, and this year is the deadline for unfiled 2005 returns.

The IRS estimates that half of those taxpayers with unclaimed refunds would likely receive more than $581 if they meet the aforementioned deadline.  Most of these individuals probably didn’t file because they believed they had too little income to claim a refund.

If you have a client who hasn’t yet filed a 2005 return, remind them that they will not receive their refunds until they have also filed a 2006 and 2007 return.

For more information, visit the IRS website.

Help Clients Claim COBRA Medical Coverage Credit

The IRS released new information intended to help employers claim COBRA medical coverage credit for premiums they pay for former employees.  Taxpayers can use Form 941, Employer’s Quarterly Federal Tax Return, to claim COBRA premium assistance payments credit, starting with the first quarter of 2009.

IRS Commissioner Doug Shulman explains, “This is the first step in our effort to provide employers with information on this important benefit for people who have lost their jobs.”

In order to claim this credit, employers must have proper documentation, which is all detailed on the IRS’s website with this new information.

For more information, visit the IRS.gov.

Tax Break for First-Time Homebuyers

First-time homebuyers who purchase before December 1^st of this year can claim this tax credit in either this year’s return, if filed before April 15^th, or on their 2009 return.  These taxpayers could receive as much as $8000, if married filing jointly, or $4,000, if married filing separately.

“For first-time homebuyers this year, this special feature can put money in their pockets right now rather than waiting another year to claim the tax credit,” said IRS Commissioner Doug Shulman. Qualifying homebuyers will not have to pay this credit back.

Form 5405, First-Time Homebuyer Credit, has been revised accordingly and posted on IRS.gov.  For more information, visit their website.

Reporting Cash Payments over $10,000

In their e-Newsletter for small businesses, the IRS issued a reminder that businesses are generally required to file Form 8300, Report of Cash Payments over $10,000 Received in a Trade or Business, when receiving more than $10,000 from a customer in a single business transaction or two or more related transactions.  For more information on this requirement, visit the corresponding IRS website.

Publication 583: A Good Resource for Your Small Business Clients

It’s important that your small business clients maintain good records.  In order to encourage them to do so, consider giving them access to Publication 583, Starting a Business and Keeping Records.  The IRS has provided an online copy and a PDF for printing.

UAC’s Free Tax Resources

If you’re interested in accessing more tax resources, visit our website for free tax articles, a tax glossary, access to our tax forum, and convenient links to IRS tax forms.

Note: Here’s another good marketing tool. Include this sheet of helpful year-end tax tips in Christmas cards to current and potential clients. Just copy and paste this into your word processor, delete this note, include some contact information at the end, and you’re ready for a very happy new year of business.

I’m proud to be paying taxes in the United States . The only thing is—
I could be just as proud for half the money. –Arthur Godfrey

As the year winds down, there are a few things you can do in order to save your business some money. Here are five tips to help you maximize your 2006 tax benefits:

1. Defer income
Each and every penny you make up until December 31^st of this year will be included in your 2006 taxable income. Deferring payments to the beginning of January will save you some money in taxes.

2. Make charitable contributions
‘Tis the season to give. It’s important to check your list twice and see if any of your charitable contributions can come at the end of this year rather than the beginning of next. This will maximize your 2006 deductions. Just be sure to keep your receipts.

3. Increase expenses
Don’t procrastinate buying office supplies until next year; all year-end expenses are tax deductible and could save you a considerable amount come April, 2007. Look to things you’ll be using soon, including office supplies and equipment. Also consider paying January bills early.

4. Check for inventory write-offs
Look through your inventory to see if any products are damaged or outdated. Noting market-value loss could provide you with additional tax deductions.

5. Contribute to retirement plan
Small business owners should recognize that being your own boss means you are responsible for your own retirement. If you haven’t started contributing to a retirement account, now is the time. Any contributions made are tax deductible. And if you do have a retirement account, year-end contributions are a great way to boost your deductions.

Professional Tax Preparers can help you get the most from your yearly tax filings. But truth be told, they’re even more valuable when you enlist their help in year-round tax planning. Any good tax preparer worth his or her salt will save you more in taxes than they charge you in fees. Don’t wait to see how much a tax preparer could save you.

End of Letter – Place your contact information here when you create the marketing piece. so those that get this into their hands can give you a call.

This is designed to be able to get you a foothold within the company, and to work with the other handouts we have included in the last couple Tax Tips Newsletter editions. The art of giving your client useful information without giving away what you do for free is exactly how you can best create that account for your business. All these are designed to open the dialogue that you need to have 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.

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Business Owners and Non-Profit Organizations:

The IRS Announces a Formula for Calculating Telephone Excise Tax Refunds

In May of 2006 the Treasure Department announced that beginning April 1 the government would no longer collect federal excise tax on long-distance telephone service. They also announced that taxpayers could request refunds for telephone excise tax collected after February 28, 2003 . To avoid the troublesome task of calculating 41 month’s worth of long-distance telephone taxes, the IRS recently released a formula intended to help individuals, business owners, and non-profit organizations to calculate their refunds.

“Businesses and tax-exempt organizations generally have more varied phone usage patterns than individuals,” IRS Commissioner Mark W. Everson said. “The IRS has met with a number of businesses and tax-exempt organizations to understand their concerns. We believe we have developed a reasonable method for estimating telephone excise tax refund amounts while reducing burden.”

To request a refund, business owners and non-profit organizations should complete Form 8913, Credit for Telephone Excise Tax Paid and attach it to their regular return. In order to calculate their refund, they must use the new IRS formula. First compare two telephone service statements: April, 2006 and September, 2006. Calculate the tax percentage of each bill (April contains a tax on local and long-distance service while September only includes a tax on local telephone service). The difference between these two percentages must then be applied to the quarterly or annual phone charges to determine their refund.

The IRS also provides an example. If a small business had an April, 2006 phone bill of $1000 with $28 in federal excise tax, the percentage would be 2.8 percent. If their September 2006 phone bill was $1100 with $16.50 in federal excise tax the tax percentage would be 1.5. The business would subtract 1.5 from 2.8 in order to get a final tax percentage of 1.3. The business would then multiply 1.3 by their total phone expenses over the 41-month period in order to calculate their final return.

Large businesses of 250 or more employees are restricted to a 1% cap while small businesses and non-profit organizations are restricted to a 2% cap on what they can claim. In the example above, a small business could claim 1.3%, because it doesn’t go over their 2% cap, while a large business could only claim 1% of the 1.3 percentage.

The IRS has also included a standard refund amount for individuals: $30 for one exemption, $40 for two exemptions, $50 for three exemptions, and $60 for four or more exemptions.

The IRS devised the formula after discussing the issue with the business community, specifically the Small Business Administration and representatives from the tax-exempt community. They hope the formula provides a less burdensome approach to calculating the telephone excise tax refund.

You can find more information on the federal telephone excise tax refund in your 2006 tax return materials, or visit IRS.gov.

Universal Accounting is continuously looking to bring to you the latest in the industry. You are only as good as the training you complete! Take the opportunity, if you haven’t already and get more familiar with what’s all involved in the Module coursework. Click Here to find out more.

Tax Tip 2005-52, March 15, 2005

Taxes You Pay May Themselves Be Tax Deductible

Did you know that you may be able to deduct certain taxes on your federal income tax return? The IRS says you can if you file Form 1040 and itemize deductions on Schedule A. Deductions decrease the amount of income subject to taxation. There are four types of deductible non-business taxes:

1. State, local and local income taxes;
2. Real estate taxes;
3. Personal property taxes; and
4. Foreign income taxes.

This year, people will have a chance of claiming a state and local tax deduction for either income or sales taxes on their returns.

State and Local Tax Deductions

You can deduct any estimated taxes paid to state or local governments and any prior year’s state or local income tax as long as they were paid during the tax year. If deducting sales taxes instead, you may deduct expenses or use optional tables provided by the IRS to determine your deduction amount, relieving you of the need to save receipts. Sales taxes paid on motor vehicles and boats may be added to the table amount, but only up to the mount paid to the general sales tax rate.

Taxpayers will check a box on Schedule A, Itemized Deductions, to indicate whether their deduction is for income or sales tax.

Real Estate Taxes Which Apply

Deductible real estate taxes are usually any state, local, or foreign taxes on real property. If a portion of your monthly mortgage payment goes into an escrow account and your lender periodically pays your real estate taxes to local governments out of this account, you can deduct only the amount actually paid during the year to the taxing authorities. Your lender will normally send you a Form 1098, Mortgage Interest Statement, at the end of the tax year with this information.

Personal Property Tax Deductions

Personal property taxes are deductible when they are based on the value of personal property, such as a boat or car. To be deductible, the tax must be charged to you on a yearly basis, even if it is collected more than once a year or less than once a year.

Foreign Income Tax

Generally, you can take either a deduction or a tax credit for foreign income taxes but not for taxes paid on income that is excluded for U. S. tax.

You can find more information on non-business deductions for taxes in Publication 17, Your Federal Income Tax, under Chapter 24, Taxes. You may download Pub. 17 or order it by calling toll free 1-800-TAX-FORM (1-800-829-3676).

Links:

• Schedules A&B, Itemized Deductions and Interest & Dividend Income (PDF 116K)
• Publication 17, Your Federal Income Tax (PDF 2074K)

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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Tax Preparation Tips: Professional Advice

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