How Long Should I Keep my Tax Records?

Tax season is over and the inevitable question is…what do I do with all the paper I have been collecting the past three months?  The best answer is, keep a file with just tax information.  The IRS is only allowed to review your return for three years after it was filed, assuming they are not looking because of fraud or because you grossly understated your income.  In those cases, statute of limitations can last significantly longer. However, for most “Average Joe’s” or Jane’s, the three year benchmark is the sweet spot.  However, it’s probably best practice to keep returns for 4-5 years just as a precautionary measure.  Each year when you put your new return in the file, destroy (shred) the return and related documents from 4-5 years back.  Also, you can consider digitizing your returns and related documents on a thumb drive with other important documents. If you have complex returns and issues related to returns from specific years, consider keeping them at least 6 years.

Remember that your CPA is generally required to keep certain return information for you longer than you are required to keep it personally, under professional standards set by the state.  Mandatory archiving varies state to state, but in California it’s seven years.  Thus, even if you throw your return away from 4 years ago, your CPA likely has a copy (but don’t assume they do).

dbbmckennon is a full service CPA firm with offices in Orange County and San Diego focused on providing quality accounting and consulting services at reasonable rates. For additional complimentary information regarding this topic or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact us here.

Employee versus Contractor

The biggest factor in assessing whether an individual is an employee or contractor comes down to control.  If a company can dictate hours and schedule, the person is more likely to be an employee.  Does a worker wear a shirt with your company’s logo on it while visiting clients?  Then they are likely an employee.  Here are a few other guidelines. Control: Does the hired person work directly under the orders of others in a defined position? They are most likely an employee. However, if the person works separately on specific projects with little to no supervision or time constraints, they are more likely to be a contractor.

Reimbursement: An important difference between a contractor and an employee is the method of payment for services provided. If the paycheck is constant and includes benefits such as a pension plan and vacation days, the person involved is an employee.

Importance: The proximity of the hired person to your vital operation is a good indicator of hired status. Is the person working on a direct part of your business model required to complete the process? Are tools provided for the job? If so, the hired person is most likely an employee.

The difference between an employee and a contractor has important tax repercussions, and should not be ignored. For more information, read information provided by the IRS here.

dbbmckennon is a full service CPA firm with offices in Orange County and San Diego focused on providing quality accounting and consulting services at reasonable rates. For additional complimentary information regarding this topic or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact us here.

Minimize Business Taxes Before Year End

Minimize Taxes before year end If you find that your Company has been profitable during the year and it is looking at a hefty tax bill after the year end, there are a few things you can do to minimize your businesses taxes.  Note however, that you should consult your CPA to determine if these action items are right for you.

1. Make payments - Pay all your payables and payroll before year end.  Remember, cash expenditures during the year qualify for deduction.  If you normally would run payroll on January 2, consider running that payroll on December 31 instead.
2. Prepay - Prepay certain expenses normally due on the first of each month.  Traditionally, recurring bills such as rent and insurance are due on the first of the month for the following month.  Take advantage of prepaying these items to push the deduction to the current year rather than the next year.
3. Buy equipment – Certain types of businesses can accelerate depreciation for tax purposes during the year of purchase.  For instance, if you have a construction related business and buy a qualifying truck, you can accelerate the depreciation on that truck and take the total value as a deduction to businesses income.

Remember that your businesses may have NOL (Net Operating Loss) carry-forwards and getting extra deductions in a given year may not be needed.  In addition, law changes can effect when and how you should spend money.  Contact your CPA to determine what is best for your company.

dbbmckennon is a full service CPA firm with offices in Orange County and San Diego focused on providing quality accounting and consulting services at reasonable rates. For additional complimentary information regarding this topic or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact us here.

IRS Makes Offer in Compromise Rules More Flexible

The Internal Revenue Service ("IRS") recently announced, under release IR-2012-53, that they were making the terms to accept offers in compromise more flexible under the expansion of their "Fresh Start" program. An offer in compromise is an agreement between the IRS and the taxpayer in which settles the taypayer's liabilities owed. The IRS makes the determination as to what the taxpayer is capable of paying through review of the taxpayer's current income and assets. Under the expanded program, the IRS in calculating the taxpayer's collection potential, will now look at only one year of future income for offers with obligations paid in less than five months, down from four years. For offers for repayment in six to 24 months, two years of future income will be reviewed, down from five under the previous program. All accepted offers of compromise must be paid within 24 months.

Other changes announced were: allowing taxpayers to repay student loans, pay stated and local delinquent taxes and expanding the Allowable Living Expense allowance category and amount. These amounts are used in calculating the taxpayers future income. See the release above for specific information.

The modification to the offer in compromise program will allow taxpayers in which are having a difficult time meeting their financial obligations to obtain some relief from the IRS. It is always best practice to contact an attorney or CPA prior to negotiating with the IRS. Please contact dbbmckennon for a free consultation regarding your options and look here for information if you are contacted by the IRS or any other government agency.

dbbmckennon is a full service CPA firm with offices in Orange County and San Diego focused on providing quality professional services at reasonable rates. For additional complimentary information regarding this topic or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact us here.

dbbmckennon to sponsor The Elite OC seminar

On Wednesday, March 28, 2012, dbbmckennon will be sponsoring The Elite OC's Seminar - Building and Growing a Business - The Tie Between Entrepreneur & Leader. The event will kick-off with a light breakfast and schmoozing (7:00-7:30am), followed by an interactive session with three of Orange County's most respected Entrepreneurs + Leaders (7:30-9:00am). These 'Entre-Leaders' will share their wisdom with us and answer questions on how to successfully build and grow a business:

ANDY FATHOLLAHI - Chief Executive Officer, Incipio

ERIK HALE - Founder, Locale Magazine

BRYAN ELLIOT - Founder, Linked Orange County

This is an amazing opportunity to engage with three key OC-leaders, while also giving back to the local Make-A-Wish Foundation through the optional donation of a backpack or toy for children 3-18 years old.

**Attendance is free and seating is limited so please RSVP and arrive early enough to check-in and grab a seat!

Fletcher Jones Motor Cars at 3300 Jamboree Rd, Newport Beach will be hosting the event. For additional information please contact dbbmckennon or visit The Elite OC.

IRS Releases the Dirty Dozen Tax Scams for 2012

The IRS released their annual "Dirty Dozen" ranking of tax scams to remind taxpayers to use caution during tax season to protect themselves against a wide range of schemes.

The three most common schemes to watch out for are:

Identity Theft – The IRS is increasingly seeing identity thieves looking for ways to use a legitimate taxpayer's identity and personal information to file a tax return and claim a fraudulent refund.  If you believe your personal information has been stolen and used for tax purposes should immediately contact the IRS Identity Protection Specialized Unit.

Phishing – This scam is typically involves unsolicited emails or fake websites that poses as a legitimate site and attempt to get the victim to enter valuable personal and financial information.  These emails can appear to be legitimate, but it is important to keep in mind the IRS does not initiate contact with taxpayers by email or request personal or financial information.

Return Preparer Fraud – It is important you hire a trusted tax professional to prepare and file your tax returns. Questionable return preparers have been known to skim off their clients' refunds, charge inflated fees for return preparation services and attract new clients by promising guaranteed or inflated refunds.

You can find the complete IRS Release of the Dirty Dozen Tax Scams for 2012 here along with additional information on how to contact the IRS if you feel you have been a victim of a tax scam.

For additional complimentary information regarding this item or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact us here.

What’s that new number on your W-2?

You may see a something new on your W-2 this year; employer health plan costs. The Patient Protection and Affordable Act  requires many employers to report the cost of qualifying employer-sponsored health coverage. The new requirement is optional for the 2011 W-2’s (physically issued in January 2012) as employers make modifications to their payroll systems to accomodate the addition information. Starting with 2012 W-2's (physically issued in January 2013) most employeers in which issue in excess of 250 W-2's annually will be required to provide such information.

The costs on the W-2 encompass the costs to the employer for coverage under any group health plan that the employer makes available to the employee. The reporting by the employer provides the US Government to ensure the minimum health care costs are being expended by the employer in accordance with the Act. The amounts are not included in employees' gross income. These costs disclosed exclude long-term care, coverage under separate dental and vision plans, disability insurance, HSA plans, etc. The costs disclosed will include both the employee and employer portion paid.

For additional complimentary information regarding this item or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact here.

Five Accounting Resolutions for 2013

Improving your company should be a constant effort.  Here are fie resolutions to make for 2013 to improve your company's accounting and business.

1. Outsource the work that doesn't benefit your top or bottom line – Business owners should not spend one, two, three or four or more hours a day doing administrative work that doesn't directly impact the company’s growth and future.  Business owners are the face of the company and shouldn't spend all their time behind a computer and a stack of paper.  Outsource the accounting work to a qualified accountant that can take over receivables, payables, and general oversight of the company’s accounting needs.  Use a payroll company that can also help you with HR related issues.  Don’t try to wear all the hats in the organization.
2. Review – Create a monthly or quarterly review process.  Review margins, receivables, payables, and cash forecasts.  Sometimes business owners aren't as profitable as they think they are.  You may get a great margin on a sale, but are you thinking about your overhead costs, how long the product sat on the shelf, etc?  Are your prices to low/high?  Your product/service may need price adjustments.  Reviewing these items regularly will ensure your company doesn't fall behind needlessly.
3. Automate – As your business expands, make sure that efficiencies are found where available.  Credit card processing, storing bank information for clients, or automating payments can assist in becoming more efficient.  Upgrading your accounting software or billing practices can also help.
4. Plan – Speak with your CPA a few times throughout the year not just at year end.   Planning with your CPA can help minimize taxes.  Planning expenditures, creating retirement plans, and taking advantage of certain deductions can all help minimize taxes.
5. Take action – Most resolutions never get off the ground.  Make a concerted effort to do at least one thing that will help your accounting in 2013.  The first step is usually the hardest!

dbbmckennon is a full service CPA firm with offices in Orange County and San Diego focused on providing quality accounting and consulting services at reasonable rates. For additional complimentary information regarding this topic or other questions you may have please call one of dbbmckennon‘s offices located in Southern California or contact us here.

Tax Prepares Required to be Registered with the IRS

Anyone who prepares tax returns and charges a fee will be required to register with the Internal Revenue Service (IRS). Tax attorneys, certified public accountants, and enrolled agents are exempt because they are already registered with the IRS.

What will be required for a tax preparer to sign a federal tax return:

• Register and obtain a preparer tax identification number (PTIN)
• Required competency tests except for certified public accountants, enrolled agents, and attorneys.
• Continuing education except for certified public accountants, enrolled agents, and attorneys
• Extending the ethical rules in the Treasury Department Circular 230 to apply to tax preparers.

These rules are meant to help tax preparers become more competent in preparing tax returns and reduce the amounts of errors on tax returns. The IRS will start implementing this plan sometime in 2011. Make sure your tax preparer is registered with the IRS.

For additional complimentary information regarding this item or other questions you may have please call one of dbbmckennon's offices located in Southern California or email us here.

December means tax planning!

This time of year, the masses are making last minute arrangements, running around the malls to get the best possible priced gifts for the holiday season. For CPA’s, December is not just the holiday season, it’s the time when we do final tax planning with our clients. Just like you shop for the best priced gifts for the holidays, so too, should you put effort into saving money on taxes. Year end tax planning can reduce tax liability while benefiting your personal finances or business.

How you ask?

Many profitable businesses that buy equipment at year end when they can better predict their year end profit. For instance, certain equipment purchase can be expensed in full to reduce the profitability of the Company and the tax burden. This deduction is predicated on the circumstance that the business NEEDS the requisite equipment. In addition, items such  401K’s, SEP IRA’s and other investment vehicles to shield income from taxes while benefiting your retirement are available. These and other tools are great ways to minimize your tax burden.

Individuals should consider such items as donating clothes and other household items for charitable donation deductions,  paying your entire real estate taxes prior to year end, etc. Timing of payments effect the deductions you take. Thus, on the flip-side making certain payments (such a s real estate taxes) after year end may be more beneficial in the long term if your income is going up in the following year. This is a great discussion point to have with a CPA.

If you are worried what your tax bill might look like come April 15, 2012, consider being proactive and call or email dbbmckennon today to inquire about year end tax planning. Being proactive is your single most advantage when it comes to taxes.

Ten Questions to ask a Tax Preparer

There are approximately 100,000 paid tax preparers in the US, but not all are equal. With so many individuals and firms providing these services, it’s not necessarily hard to find a preparer, but it is to find a good preparer who is appropriate for your business and/or personal return. Because everyone’s situation is different, here are the top 10 questions to assess the quality of a prospective tax preparer.

1. Do you specialize in the type of tax returns I require?  Why – Don’t hire a preparer with no experience in the tax returns you require. For example not many preparers specialize in non-profit returns. Find someone who specializes in what you need.
2. How many years of experience do you have preparing returns?  Why – Make sure the person signing off on your return has at least five years experience.
3. Are you a CPA or Enrolled Agent (EA) and are you registered to practice with the IRS under their new regulations? Why – CPA’s and EA’s are completely different. EA’s are licensed to practice in front of the IRS which can be valuable. CPA’s generally have a greater understanding of accounting and business as a whole. Make sure anyone you chose is registered with the IRS to be a paid tax preparer which is required starting in 2012. If a preparer brushes this issue off, keep looking.
4. Do you have experience in IRS audit representation should one of my tax returns get audited? Why – If your return gets chosen for audit, you want to make sure the same person that prepares your taxes can handle your audit. This allows for efficiencies.
5. What are the benefits of using your services rather than a self-preparer service such as TurboTax or a low-end service such as H&R Block. Why – TurboTax and H&R Block are great when you are lower income levels and have an otherwise easy return. But if you own your own business, have income from multiple sources, or have life changing financial events, the expertise of a CPA is advantageous. Most CPA’s can be a value added individual rather than just a simple service provider. CPA’s can also offer planning which will help to minimize your tax burden over the long-term. Lastly, remember that most big-name tax preparation services use seasonal employees. Thus year-to-year, you never see the same preparer which creates a lack of continuity.
6. How will you make sure I get every tax benefit available for me?  Why – Make sure they have a system to catch as many benefits as possible.
7. Does your company offer tax planning and will that be a benefit to me?  Why – Tax planning is a great way to minimize your tax burden through structured and planned actions. However, tax planning is not always necessary. Most companies and individuals don’t need quarterly tax planning but would benefit from tax planning once or twice a year. Unless you are a relatively large company or high-net worth individual, avoid firms that recommend tax planning quarterly as often times they just want to collect more fees than are necessary.
8. Does your firm offer e-filing and how do you ensure the security and retention of my information?  Why – You want to ensure that you use a firm that is up to date with technological advances, which includes the latest in security protection. Firms that take this seriously are serious about keeping your business for the long-term. Investing in technology generally means they are investing in both your future and theirs.
9. How responsive can I expect you to be if I have questions or require tax documents during the year?  Why – Look for preparers that will respond within 24 hours. However, be realistic; good preparers are usually flush with work during tax filing deadlines and often require a little extra time to respond. Be careful about a preparer that overpromises their responsiveness.
10. Will my taxes be filed on time if I am able to provide you with my information in a timely manner before the applicable deadline?  Why – Make sure the preparer is committed to getting your taxes filed on time. However, remember that in order for the preparer to do their job, you need to get you information to them in a timely manner.

For additional complimentary information regarding this item or other questions you may have please call one of dbbmckennon's offices located in Southern California or email us here.

dbbmckennon Takes to the Air

On Tuesday October 18^th, David Gosselin, a director with dbbmckennon, was interviewed on Critical Mass: The Radio Show hosted by Ric Franzi. Topics included future financial concerns of CEO’s, fraud, mitigation of risk through internal controls, and dbbmckennon’s market advantages compared to other CPA firms. dbbmckennon was thrilled to provide our time to contribute to the Orange County business community and get our message to the airwaves. If you didn’t get to listen live, the podcast can be accessed through iTunes podcast. Tune into Ric’s radio show each Tuesday from 4-5pm on www.octalkradio.net.

For additional complimentary information regarding this item or other questions you may have please call one of dbbmckennon's offices located in Southern California or email us here.

1099 Requirements Repealed and Explained

It’s no surprise that so many people were confused about the proposed changes to 1099 reporting requirements.   Prior to the Healthcare Reform bill being passed in 2010, businesses had to issue 1099’s to any non-corporations for services provided over $600.  Upon the Healthcare Reform bill being passed, new regulations required that businesses issue 1099’s to ANY person OR corporation that provided ANY good or service individually or in aggregate over $600.  As you can imagine, the new regulations created quite a stir with the additional work that would be required.  These changes were to go into effect at the start of 2012. In April 2011, the new requirements were repealed; much to the pleasure of many small businesses that were deterred by the now former increased reporting measures.   So as we stride ahead in 2011 and march toward 2012, fear not, as the infamous 1099 requirement will not be looming and the old requirements are new again.

The 1099 drama to continue?

As previously discussed there are some big changes scheduled to take effect in January 2012 related to Form 1099 reporting. However, based on the Presidents State of the Union address on January 25, 2010, it appears the President has indicated the willingness to potentially repeal the additional Form 1099 reporting requirements. “Now, I've heard rumors that a few of you have some concerns about the new health care law,” stated the President. “So let me be the first to say that anything can be improved. If you have ideas about how to improve this law by making care better or more affordable, I am eager to work with you. We can start right now by correcting a flaw in the legislation that has placed an unnecessary bookkeeping burden on small businesses.”

Based on recent legislation introduced by the Senate Finance Committee Chairmand Max Baucus and the Senate Majority Leader Harry Reid, the new legislation would repeal the requirement for all goods and services to be reported by small businesses on Form 1099 beginning in January 2012. As of right now, the reporting requirement still stands so stay tuned.

Additional Amnesty for Offshore Accounts?

Based on the IRS' announcement on Monday, it appears that there is a 2nd amnesty program in the works for undisclosed offshore bank accounts. The previous amnesty program, which ended on October 15, 2009, was established to encourage individuals/entities in which held offshore bank accounts to come forward and disclose the account. The previous program reduced the penalty for non-disclosure of the bank account. In addition, the tax payer was only charged the penalty for one year. The penalty for non-disclosure can be 20% for each of the six years preceding the account being discovered. Thus, penalties at times can be in excess of the value of the account. See our initial comments on the program here. The IRS requires any U.S. citizen or resident who owns a foreign financial account with a fair market value in excess of $10,000 to be reported annually on Form TDF 90-22.1. If you find that you have a foreign bank account in which has not been reported please contact us so that we may discuss the options in which you have. Over the past couple of years, dbbmckennon has represented various individuals in declaring foreign investment accounts and assisted in the preparation of the required forms.

New IRS Reporting Requirements for Brokers and Transfer Agents

Effective January 1, 2011, brokers and transfer agents will be required to report the costs basis of a security in which was sold during the reporting year on Form 1099-B. Previously, only the sales proceeds received in connection with the sale of a security was included on Form 1099-B. The new requirement is intended to ease the burden on the investor and result in more accurate reporting to the IRS. However, the potential for confusion exists. For instance, assume an individual receives a compensatory grant of stock from an employer. On the date of issuance, the fair market value of the stock is $100 resulting in taxable income to the employee of the same amount. Assuming the individual sells the stock for $200, the broker or transfer agent would most likely report the transaction at a sales price of $200 and a $0 basis. The broker or transfer agent did not take into account the taxable income of $100 already recognized by the individual. Thus, individuals will have to critically review their copy of the 1099-B to ensure completeness.

The IRS has the opinion that the institutions tracking this information are more sophisticated than most investors and thus, the reporting should be more accurate. The IRS has noted in the past, since the investor was responsible for the reporting, there was room for error and interpretation. Accordingly, the IRS believes that they lose out on billions in tax revenue annually due to misreporting.