David Kirkpatrick

February 8, 2010

No estate tax this year

Filed under: Business, Politics — Tags: , , , , , — David Kirkpatrick @ 4:41 pm

Well, so far at least. Congress let the estate tax lapse for 2010 meaning anyone lucky (unlucky? since you’re dead) enough to leave an estate this year will leave a larger estate since the Federal government isn’t taking its cut. Of course that might change in the future with some sort of retroactive tax. All in all it’s a confusing situation all around.

From the link:

More than a month into 2010, the Internal Revenue Service is not collecting estate tax on the money that wealthy people, including small business owners, leave to their heirs after they die. The unusual situation results because the U.S.Senate did not pass legislation late last year to remedy the scheduled expiration of the estate tax.The situation is confusing and unfair, and particularly hurts entrepreneurs doing succession planning, says Jonathan M.Bergman, a certified financial planner and vice-president of Palisades Hudson Financial Group, a fee-only financial planning firm in Scarsdale, N.Y. He spoke recently to Smart Answers columnist Karen E. Klein. Edited excerpts of their conversation follow.

Also from the link, here’s the bottom-line impact of this Congressional blunder:

How much tax revenue is lost when there’s no estate tax?

Around 1% of total Internal Revenue Service collections come from estate taxes.

January 11, 2010

Taxes and the self-employed

As a freelance writer for many years I’ve been dealing with the ins-and-outs of filing taxes through the Schedule C self-employment form. With the state of the economy many more taxpayers are newly minted self-employers and get to wrestle with all the tax implications that status brings. Here’s a nice, quick overview of self-employment and federal income tax with some strategic advice thrown in for good measure.

My best advice? Obtain the services of a certified CPA, preferably an individual you can sit down with sometime in the next six weeks or so — do not wait until the last minute — to discuss your particular situation and how to take advantage of every tax opportunity available to you. After trying both ways (on my own or with tax software, and using a professional) the amount spent on CPA services is almost always easily covered by the saving the professional finds with your return.

I’m getting this post up this early in the year because if your employment status changed last year there is no time to procrastinate or delay getting everything in order well in advance of the ides of April.

From the link:

It used to be that the vast majority of people worked in staff jobs.

But in a tough economy, the number of independent contractors, temps, part-timers, and freelancers expands.

If you become a contingent worker, you’ll need to rethink your taxes. For someone used to being on staff, “It’s a mindset shift,” says Eddie Gershman, a partner in Deloitte Tax’s private client group. The common perception is that you’ll pay more tax if you work for yourself, since you’ll cover the employer portion of Social Security and Medicare taxes. While you will be on the hook for that self-employment tax, the tax advantages to working for yourself can soften the blow. Here’s how to get the most out of deductions:

August 20, 2009

CPAs becoming optimistic

Doesn’t mean a whole lot in terms of real world affect, but it is interesting to see how financial execs see the current state of the economy. (Hint: their sector has a huge influence on who’s wearing rose-tinted glasses and who isn’t.) I have a suspicion some of those optimists are feeling better in order to fight off the fatigue of this recessionary beatdown.

From the link:

 Heightened optimism among CPA financial executives seems to indicate the worst of the recession is in the past, but the consensus is growing that the U.S. economy is still a ways off from achieving a full recovery. While optimism about the economy continued to improve and spread across most industries in the third quarter, the percentage of executives who don’t see a recovery beginning until at least the second half of 2010 increased substantially (27% vs. 43%) from the previous quarter, according to a survey released Wednesday.

 When asked about the economic outlook for their own organizations, optimists outnumbered pessimists for the first time since the third quarter of 2008, according to results from the Business & Industry Economic Outlook Survey Q3 2009, conducted by the AICPA and the University of North Carolina’s Kenan-Flagler Business School. About 38% of respondents were optimistic or very optimistic about the economic prospects for their organization over the next 12 months, while 29% were very pessimistic or pessimistic. Thirty-three percent were neutral. Respondents also were more optimistic about their own organizations than about the U.S. economy as a whole (38% vs. 26%), continuing the trend seen over the past two years.

 Although optimism was more widespread than in previous surveys, it was not evenly distributed across all industries. Respondents from professional services and technology organizations see a brighter outlook for the upcoming year, with 49% and 61%, respectively, reporting they’re optimistic, compared with their colleagues in real estate and construction, who were 29% and 28% optimistic, respectively.

March 17, 2009

Taxpayers worried about mistakes

There is a simple solution. Hire a qualified tax preparer, or better yet a licenced CPA to prepare your taxes. Unless your tax forms are kindergarten-level simple, a professional will save you more money than the expense.

From the link:

Taxpayers’ Fears of Errors and Oversights May Be Well Founded, CCH Survey Finds
RIVERWOODS, Ill.–(BUSINESS WIRE)– Most taxpayers are concerned they may be making costly mistakes or overlooking tax breaks that could save them money, according to findings from a nationwide CCH CompleteTax(R)survey.

The survey of more than 1,000 U.S. adults, commissioned by CCH and conducted by GfK Roper, found that nearly two in three (66 percent) taxpayers fear they may overlook tax breaks or make mistakes that could cost them in fines or penalties. At the same time, most taxpayers also were unable to determine which tax breaks may be most beneficial, indicating their concerns about costly oversights or mistakes may be well founded.

“It’s always important for taxpayers to understand what they can do to minimize their tax obligation, but it’s even more crucial in tough economic times when people are watching every penny,” said David Bergstein, CPA, a tax analyst for CCH CompleteTax, an online tax preparation and e-filing service for the do-it-yourself taxpayer. “Yet, many people are simply not up-to-speed on tax rules, which may mean they are paying more in taxes than required.”

Specifically, the CCH CompleteTax survey, also discussed in a podcast today, asked taxpayers about basic tax breaks. In each instance less than one-half of taxpayers were able to identify the most beneficial. For example:

  • Less than one-fourth could identify that tax credits are generally more advantageous than deductions;
  • Only about one-third identified the child-related tax break offering the greatest savings; and
  • Less than one-half identified the education-related tax break offering the greatest savings.

In addition, only about one-half of taxpayers report they are planning to contribute to tax-advantaged retirement plans in 2009, and the vast majority of taxpayers still perceive that getting a tax refund is better than owing taxes on April 15.

Take Credits When Eligible

Fewer than one in four individuals (22 percent) were able to answer correctly that a tax credit is generally more advantageous than a tax deduction of the same value, according to the survey.

“Tax credits save you more than tax deductions because they reduce your tax bill dollar for dollar,” said Bergstein.

A taxpayer in the 25-percent tax bracket, for example, claiming a $2,000 credit will reduce his tax bill by $2,000. However, if he claimed a $2,000 deduction, he will only reduce his tax bill by $500.

Know About Other Tax Breaks

Taxpayers also were generally unable to identify the most beneficial tax breaks tied to various life events.

Child-related tax breaks

When asked to identify which child-related tax break offers the typical taxpayer the greatest savings, about one-third (36 percent) identified the child credit, which generally is most likely to yield the greatest tax break to most taxpayers. One in four (24 percent) selected the dependent and child care credit and 23 percent selected the personal exemption. The remainder of those surveyed said they did not know the correct answer.

Exemptions are similar to deductions in that they remove a certain amount of a taxpayer’s income from being taxed. However, unlike credits, they are not a dollar-for-dollar reduction in a person’s tax bill. So even though the personal exemption for a parent with a child under 19 or a full-time student under 24 is $3,500 for 2008, the tax savings for someone in the 15-percent tax bracket, for example, would amount to only $525 ($3,500 x 15%).

The dependent and child care tax credit ranges from 20 percent to 35 percent of expenses for the first $3,000 in care for a child up to age 13 or an older child who is physically or mentally challenged. This can result in a tax savings of $600 to as much as $1,050 for someone with a very low income.

The $1,000 child credit is available to taxpayers with a child under age 17. Income restrictions apply to each.

“Raising children is expensive. But it’s significantly more costly if you are not aware of or taking advantage of the tax breaks for which you may be eligible,” said Bergstein.

Higher education tax breaks

The survey found that people overwhelmingly leaned toward the education deduction over the credits as offering the most tax savings. Specifically, two in five respondents (41 percent) said a deduction for higher education will save a qualifying taxpayer the most compared to only 16 percent choosing the Hope Credit and 14 percent the Lifetime Learning Credit as the bigger tax breaks. The remaining 29 percent said they did not know.

However, the Lifetime Learning Credit or the Hope Credit would likely offer a qualifying taxpayer a bigger tax break than the higher education deduction. The Lifetime Learning Credit is $2,000 per return based on expenses for post-secondary education and the Hope Credit is up to $1,800 per student based on expenses in the first two years of post-secondary undergraduate education. The deduction for higher education is up to $4,000 for qualifying taxpayers. Income restrictions apply to both the deduction and credits.

As a result, if a taxpayer in the 15 percent tax bracket, for example, takes a $4,000 tuition and fees deduction, it would be a $600 savings. In comparison a Lifetime Learning Credit of only $2,000 would reduce a qualifying taxpayer’s tax bill by the full $2,000. The benefit of a credit is a dollar-for-dollar offset rather than the percentage reduction in tax that a deduction provides.

“Tax rules also change so it’s important to keep current. For example, for 2009 and 2010, the Hope Credit is being renamed to American Opportunity Tax Credit; the credit amount is increasing and the coverage expanding,” said Bergstein. “So, it’s important to stay current so that you can maximize your tax savings.”

Retirement tax breaks

Several tax breaks also exist for saving for retirement. Taxpayers were not quizzed on which was the most beneficial, but on whether they plan to contribute to tax-advantaged retirement accounts in 2009. Slightly more than one-half of respondents (51 percent) indicate they will be making contributions; an additional 27 percent of eligible taxpayers will not be contributing at all and 18 percent are not contributing as they’ve already retired; the remainder are not sure of how much, if at all, they will be contributing.

Those planning to contribute include 30 percent who will be contributing about the same amount they did last year, 13 percent who will be contributing more and 8 percent who plan to contribute less than in 2008, the survey found.

“Many people have immediate demands on their finances given the economy, but they should also try to save as much as they can for retirement. Using the available tax benefits offered for IRAs, 401ks and other retirement accounts means more money being set aside for retirement and less being paid in taxes,” said Bergstein.

Refunds Are a Penalty, Not Reward

Finally, taxpayers were asked whether or not they believed it is better to receive a refund or to owe taxes on April 15. Only 7 percent answered correctly that it is better to owe some money, according to the CCH CompleteTax survey.

“Taxpayers still have the misperception that a tax refund is new-found money. It’s not. It’s your money. During the time you’ve left it with the IRS, you have not had it available for your use and you’ve earned no interest on it,” said Bergstein.

For example, rather than receiving a $1,000 refund, had the $1,000 been put in a savings account, even at very low interest rates, a taxpayer could reasonably earn an additional $30 in interest over a year. That may not seem like a lot but even that will cover the cost of using tax software to help prepare and e-file their tax return.

About the Survey Methodology

The nationwide telephone survey was conducted by GfK Roper on behalf of CCH CompleteTax from February 13-25, 2009, among 1,004 adults (age 18 and over). The margin of error on weighted data is +/- 3 percentage points.

About CCH CompleteTax

CCH CompleteTax, an online tax preparation and e-filing service for the do-it-yourself taxpayer, continues to set the standard when it comes to making online tax prep and e-filing easy, efficient and affordable. CCH CompleteTax offers comprehensive support to help taxpayers through each step of preparing and e-filing both federal and state income tax returns.

About CCH, a Wolters Kluwer business

CCH, a Wolters Kluwer business (CCHGroup.com) is a leading provider of tax, accounting and audit information, software and services. It has served tax, accounting and business professionals since 1913. Among its market-leading products are The ProSystem fx(R) Office, CorpSystem(R), CCH(R) TeamMate, CCH(R) Tax ResearchNetWork(TM), Accounting Research Manager(R) and the U.S. Master Tax Guide(R). CCH is based in Riverwoods, Ill.

Wolters Kluwer is a leading global information services and publishing company. The company provides products and services for professionals in the health, tax, accounting, corporate, financial services, legal, and regulatory sectors. Wolters Kluwer had 2008 annual revenues of EUR3.4 billion, employs approximately 20,000 people worldwide, and maintains operations in over 35 countries across Europe, North America, Asia Pacific, and Latin America. Wolters Kluwer is headquartered in Amsterdam, the Netherlands. Its shares are quoted on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. Visit http://www.wolterskluwer.com for information about our market positions, customers, brands, and organization.


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CCH CompleteTax

Source: CCH CompleteTax

February 4, 2009

Tips on finding a tax professional

Filed under: Business — Tags: , , , , , , — David Kirkpatrick @ 2:37 pm

This six-part list from H&R Block is a good place to start if you’re looking for a CPA or a professional to prepare your taxes this year.

Unless your taxes are outrageously straightforward, I heartily recommend employing a professional. Most likely whatever the cost will be offset by the money they save you. And do not count on tax preparation software to maximize your return. Over time, informally, I’ve found competent preparation along with advice beats the software every time.

From the link:

The federal tax code has more than one million words, is several thousand pages long, and in 2008 alone, there were 500 changes to the code, or more than one per day*. More than ever, Americans need the counsel of trusted tax professionals to decipher the complex tax code and apply it to their unique financial situations.

“The tax code is like a thousand-page instruction manual that’s always changing. Reading, interpreting and applying this technical document is no easy feat for the untrained eye,” said Amy McAnarney, executive director of The Tax Institute at H&R Block. “In this tough economic climate, taxpayers can’t afford to leave money on the table. So, they should only work with a tax advisor who’s up-to-date on the latest tax law changes.”

H&R Block (NYSE: HRB) offers six tips to help taxpayers find the right tax professional:

1. Ask about experience. Inquire about the tax preparer’s years of experience and continuing education. Does the preparer have the tax knowledge to accurately represent your interests? Many Americans don’t realize how important up-to-date training is when selecting a tax advisor. A recent survey from The Tax Institute at H&R Block found 76 percent of participants failed to list “knowledge of current tax laws” as an important trait when picking a tax professional**. One of the top traits survey participants chose? Location.

“Convenience is important but when it comes to taxes, knowledge can translate into dollars saved,” said McAnarney. “The tax code is always changing, so it’s critical taxpayers select a tax professional who receives ongoing education and training.”