Tax law and tax rates vary by year, with change a constant. Another constant is our nation’s ever increasing debt. Our nation’s current debt is approximately $21,868,000,000,000. That is a lot of zeros and not a good thing!
In the brief few minutes it took to prepare this blog post our nation’s debt increased another $2,000,000. It really is incredible and something most do not give any thought to.
Current individual income tax rates, in comparison to historic rates, are quite low. Take a look at the 1954 individual income tax rate table:
It is hard to believe but the top individual income tax rate in 1954 was 91%! The top individual income tax rate for 2018 is 37%.
With uncontrolled spending, it is a certainty our nation’s debt will continue to increase. How will this be addressed and resolved?
The IRS has released a draft of the new Form 1040. It is a step in the right direction. The higher standard deduction for 2018 ($12,000 for single filers and $24,000 for those married filing jointly) will also result in a significant number of return filers not itemizing their deductions. It is hard to believe but we are headed in the direction of simplification.
There will be supplemental forms for return filing and in some cases individual returns may be more complex. (The details are still being worked out regarding the new 20% qualified business income deduction.)
The current 1040 draft of page 1 and page 2, as provided by the IRS:
There are some really cool federal individual income tax credit and production incentives for the purchase of solar electricity generating equipment. The attached article provides a general summary, applicable to residential purchases, of some of these benefits. In the right individual circumstances, a fairly quick payback period can be obtained.
Once a system cost has been recouped, you will have the on-going benefit of a significantly reduced electricity bill. In certain cases, with the use of net metering, your annual residential electricity cost may be $0.
It is worth a look! Please let us know if you should have any questions or want to complete some personalized tax planning.
Res Solar Panel Purch Incentives 0818
Final regulations for 2015 tax (primarily regarding the extenders) was signed into law on December 18th. This brings a entire new meaning to tax planning! Provided Below are brief details of some of this legislation along with a few recommendations we offer to protect yourself against ID theft. As you gather records for income tax return preparation you will want to take precautions to protect yourself from ID theft.
Protecting Americans from Tax Hikes Act of 2015 – Signed 12/18/15
This tax act is projected to cost $622 billion over the next 10 years. This additional expense will likely add to our current federal deficit, which totals nearly $19 trillion.
Congress has been very taxpayer friendly over the last several years (in spite of a significantly growing federal deficit). Penalties (the alternative new taxes?) are a different story. There are currently over 150 civil penalties related to federal taxes, some downright absurd. For example, if you reimburse your employees for medical insurance you subject your business to a fine of $100 per day, per employee with reimbursed medical insurance!
Most items in the extenders were fixed for some period of time and some law extensions include phaseouts and indexing for inflation. The following items were renewed in this legislation:
• State sales tax
• Bonus depreciation (now including vines and fruit trees)
• Section 179 depreciation
• IRA donations directly made to charities
• Child tax credit
• Educator’s deduction
• American Opportunity tax credit (for education)
• Research & Development tax credit
ID Theft & Fraud Protection – Recommended Action
• The IRS will not contact you by email. Disregard any email purporting to be from the IRS
• Never pay the IRS with a prepaid debit card nor fall for any type of pressure tactics for payment without first contacting your firm CPA (the IRS oddly issues refunds this way and it is a significant problem)
• We consider email (even with encryption) a potentially insecure method of transferring information and recommend use of our client portals for electronic transfer of documents
• Physically secure your sensitive personal & financial information
• Shred documents no longer needed that may contain sensitive personal or financial information
• Filing your income tax return early may protect you from fraudulent return filing
• Only give out your Social Security number when it is absolutely required. Do not share your personal information on Social Media (no birthdays on Facebook)
• If you have indication you have become a victim of ID theft, act quickly to resolve any issues
• Consider freezing you credit reports (this can be a very effective tool to avoid ID theft)
• Review your credit reports annually
• Review your Social Security earnings history annually
• Encrypt all sensitive personal and financial information stored on computers and other devices
• Use secure passwords and long usernames and do not use the same passwords and usernames
• If you are using online financial accounts confirm you are complying with each financial institution’s user responsibilities
These are a few of the recommendations that can help to protect you from ID theft. There is risk regardless of actions taken but we, as your CPA firm, take many precautions to protect your data. From an internally developed multi-stage backup procedure to external security reviews, the protection of your data is one of our firm’s top priorities.
If you file a tax return for a business, the IRS is changing when you need to file your return. For tax years beginning after December 31, 2015, the changes are as follows
- Corporation – Form 1120
Previously due March 15, changing to April 15
- S Corporation – Form 1120S
Due date will continue to be March 15
- Partnership – Form 1065
Previously due April 15, changing to March 15
- The due date for all of these returns that file extensions will continue to be September 15.
This change was included in the highway bill that was recently passed by Congress and signed into law by President Obama. We believe this provision was added to this bill to have all entities that provide information to owners (partnerships and S corporations) on a Schedule K-1 filing on the same date. It also allows corporate entities filing Form 1120 an additional month before paying tax owing with a return.
For most taxpayers, this change will take effect with their calendar year 2016 returns. 2015 returns will continue to use the due dates from previous years.
We’re happy to discuss these changes with you. Please let us know if you have questions.
My family recently took a trip to Europe to celebrate our 25th wedding anniversary.
We found credit cards were widely accepted in our foreign travels with two significant differences in their use, as compared to use in the U.S.
The built in credit card chip was common-place in Europe and waiters & waitresses would bring their charge card reader to you and not take your credit card.
It appears the U.S. is behind in the adoption of both practices, chip use and card reader use. This may be changing with recent announcements and would be steps in the right direction. Charge card fraud is a significant problem in the U.S. with AP apparently reporting 50% of all credit card fraud in the world occurs in the U.S.
Everyone, including retailers and credit card companies, must become more proactive in their efforts to protect against ID theft and credit card fraud.
Technology is changing by the minute how we work and play! Our firm has spent a lot of time and energy studying and using technology to improve our services.
We believe time is one of the most important commodities we all have (we just do not know how much we have). Well implemented technology can save you time in the services we provide for you.
We are working with the Microsoft videoconferencing Lync product. Using Lync, we can meet by videoconference and share information on our screens with you such as a tax plan. No travel time and you can meet with us from anywhere there is a web connection.
Web-based client portals allow the transfer of information to us and our clients to access reports and returns prepared for them, 24 hours a day, in a secure manner.
This is our third year working with web-based organizers allowing our clients to complete their organizers online (in their own secure portal) and send their completed organizer and other documents to us electronically. No more trips to our office to drop off those amended brokerage statements.
Our firm now has nearly 15 years experience with a less-paper office. We have been working with the Thomson Reuters document management system, File Cabinet. This product works seamlessly with our client portals.
We will continue to make improvements to our services and work with new technology. Making things easier for our clients and saving our clients time are part of this process.
There are so many demands on a business owner and it is easy to get into a reactionary mode just dealing with issues as they come up.
There are a number of ways to become proactive with your business. One method is to consider the use of benchmarking. In general, benchmarking is a process for comparing your business metrics with the metrics of other businesses. Benchmarking can be a very valuable tool in your business owner toolkit.
Our firm provides the Profit Cents benchmarking services of Sageworks. We provide the basic service, free to our existing clients.
You utilize Profit Cents services by providing your business metrics (no business name is provided when the data is entered into their databases) and obtaining a summary report comparing your business with similar businesses. You can also obtain industry summary reports for businesses similar to yours if you prefer not to share your financial data.
See below for sample report clips and our website for full Profit Cents reports. Please let us know if you should have any questions regarding Profit Cents and business benchmarking.
Click here for a sample report Benchmark
Details of a significant web security problem were released in a number of stories on the evening of April 8th. This potential security problem involves OpenSSL which is used to protect and secure communications between users and websites. It is likely you use this security in some form or another. (For example, those that have online banking may be using this security among many others.)
It may be possible for those exploiting the vulnerabilities of this specific bug, known as Heartbleed, to gain access to user names and passwords.
If you are a business using the web, we would encourage you to speak with your IT provider and to ensure all possible steps have been taken to protect your business against Heartbleed. There are a number of articles describing this bug that you can read by Googling the name.
Individuals who use HTTPS secured sites (most sites with logins) may want to consider changing critical passwords after evaluating whether the websites they use are affected by the OpenSSL bug, and determine if these websites have been patched.
While it is difficult to determine the extent of the problems caused by Heartbleed, understanding your potential risks and taking action to protect yourself and your business, is important.
It is extremely important to backup your business and personal computer data on a regular basis and have more than one backup. Everyone knows this but few are adequately prepared.
A computer virus making the rounds serves as a stark reminder of how important data backup is. This particular virus encrypts the data on your computer and then demands payment, through Bitcoin or other difficult to trace payment methods, to obtain a key to unlock your data.
The virus is evidently spread by the opening of an e-mail attachment which looks like a FedEx tracking number. The locking and encryption apparently produces the following screen message as detailed in a feature story from the Business Insider:
In a really nasty turn of events, apparently some of the servers facilitating payments and return of the key to unlock your data, have been seized by authorities. While it is great that some of the equipment used by these cyber-thieves has been confiscated it could also mean you might not be able to get a key to unlock your data.
Remember to backup regularly using more than one source! We have spent a significant amount of time developing data backup procedures and processes. Please let us know if you should have any questions.