Archive for the ‘Tax Tips’ Category

Keys to Effective Budgeting

Tuesday, December 2nd, 2014

Authored by: John Kane, CPA. John is a Junior Manager in the Logan office of Cook Martin Poulson, P.C. John primarily works with tax issues affecting small businesses and individuals. John is a CPA licensed in Utah.

There are a variety of reasons why a business may struggle.  When working with a business that is struggling, one consistent theme we see in the business is they don’t have a functional budget in place.  Whether you’re struggling to keep the doors open or are trying to keep up with rapid growth, effective budgeting is a valuable, often overlooked tool.

Take Time to set the Initial Budget

Frequently when businesses go through a budgeting exercise, they will use last year’s numbers as their budget, walk away and wonder why they ended up spending more than they had hoped to spend.  Taking time to set a meaningful budget will give you ownership in the finished product and increase the chances of you achieving your end target.  Using last year’s numbers as a guide is ok, but don’t let past performance dictate your future success.

Review & Be Diligent

Budgeting isn’t a once-a-year activity.  Though the annual budget is the most time consuming part of the process, investing time into the initial budget will prove ineffective without appropriate follow-up.  Review the budget as part of your weekly management meetings.  Discuss what has happened and what is coming up that will affect the budget.  Make plans to address any deviations from your budget.  You may not see immediate results, but diligence will pay huge dividends in the long run.

Be Flexible

Look back in your business at one year ago.  Are you where you thought you’d be?  Most would answer ‘no’.  Something will inevitably come up and you’ll spend more in an area.  This is where flexibility becomes important.  Perhaps a piece of equipment needed an unexpected major repair, or the market has driven up the price of raw goods you purchase.  When one area is over budget, another area must be under budget in order to achieve your target at the end of the year.

Have a Target

Having a target and reason behind that target will give meaning to your budget.  This answers the ‘why’ in the exercise.  Are you trying to fund growth, make more money, or spend in line with industry standards?  Asking these questions and others can drive your line item numbers and give your budget the meaning it needs.

While budgeting won’t guarantee success, it will help avoid failure.  Taking time, reviewing, being flexible, and having a target will ensure your budget will provide you with the useful information you need.  Feel free to contact one of the professionals at Cook Martin & Poulson, PC for more information and budgeting tips.

Social Security Benefits – Do You Understand the Basics?

Wednesday, September 17th, 2014

Authored by Sheri Lewis, a tax accountant in the Salt Lake office of Cook Martin Poulson, PC. Sheri joined the Cook Martin Poulson team in November 2011 after completing her Master of Accounting degree with a tax emphasis at the University of Utah.

Listed below are five basic questions that everyone should know about Social Security Benefits.

1. What is your Full Retirement Age (FRA)? Your FRA doesn’t mean age 65. It depends on when you were born.

* 1943-1954 Age 66
* 1955-1959 Age 66 + 2 months for every year after 1954
* 1960 & After Age 67

2. Does everyone receive Social Security Benefits? The answer is no. You have to work to earn the benefits. Once you qualify for benefits, your family can also receive benefits based on your earnings. To qualify for Social Security Benefits you must earn 40 credits.

* 1 credit $1200 in wages or self-employment income per quarter (based on 2014 figures)
* 4 credits Maximum earned per year
* 10 years Minimum requirement to qualify

3. Does the age you start receiving benefits affect how much you will receive? Yes, you can start receiving benefits before your FRA, at your FRA and after your FRA. Assuming your FRA is 67, the below table outlines benefits at various ages.

* 62 70% of potential benefits
* 67 (Full Retirement Age) 100% of potential benefits
* 70 132% of potential benefits

4. Does everyone receive the same amount of Social Security Benefits? No, the benefits are based on a percentage of your lifetime earnings. There is also a cap or maximum amount of benefits that can be received. The current cap is based on a maximum of $117,000 annual income, which results in annual benefits of $31,338. The amount of benefit you received is based on the following:

• A three part calculation and average of the best 35 years of your earnings
• Can increase based on cost of living adjustments (an average of 2.5% over the last 10 years)
• Can be reduced if you are still working or entitled to a government pension
• Up to 85% of your benefit may be subject to income tax

5. Is my spouse eligible for my benefit? Yes, individual earners can extend benefits to his or her spouse. How much each spouse earned will influence how and when to start receiving Social Security Benefits. See www.socialsecurity.gov for more detailed information.

Understanding how your Social Security Benefits work plays a vital role in planning for your retirement. It is not intended to replace your current earnings but should be a part in your overall strategy. Contact a CPA at Cook Martin Poulson for more information.

CONTRACTOR EMPLOYEE AMENDMENTS

Wednesday, September 10th, 2014

Authored By: Connie Ward in our Logan Bookkeeping Department

During the 2014 annual session of the Utah State Legislature, lawmakers passed Senate Bill 87, “Contractor Employee Amendments,” which enacts the following changes:

1. Clarifies whom a contractor may hire or employ;
2. Requires contractors to provide a paystub to employees and establishes what items must be included in the paystub;
3. Creates penalties for failing to distribute paystubs with the required information.

Most commonly, a contractor is a term used to describe an expert in the construction industry who hires workers to complete a project and a contractor must be licensed by an examining board of the State.

Contractors cannot hire someone to perform work on a project unless the person meets one of two scenarios:

a. The individual is an employee of the contractor licensed for w-2 wages, or
b. The individual is licensed as a contractor or exempt from licensure in accordance with the law.

Utah law now requires contractors to provide paystubs to employees on the day the employee is paid, even if payment is made by cash. The paystubs are required to include the following items: name, base rate of pay, dates of the pay period, number of hours worked and amount and reason for any money withheld (including taxes). Contractors are required to keep a copy of each paystub for at least three years and provide it, upon request, to the Division of Professional Licensing (DOPL).

Contractors that do not provide paystubs in accordance with the law can be subject to penalties, including fines and licensure sanctions, under the new law.
At times the regulations for contractors can seem burdensome but the objective with the new law is to help contractors comply with labor laws.

Scammers Posing as IRS

Tuesday, August 12th, 2014

Authored by: Kirk Eck, Shareholder at CMP.

We get many calls from clients who have been contacted via telephone, email or mail, by someone purporting to be the IRS. Most recently, there has been an uptick in scam calls where individuals are claiming to be IRS employees. By March of this year, the IRS had received over 20,000 reports about the scam and estimated that over $1 million dollars had been stolen.

The crooks are using a couple different techniques when they call. They will present themselves as an IRS or CID agent and may ask for payments for unpaid tax and/or penalties related to the taxpayer’s tax returns. The caller often knows the last 4 digits of the victims Social Security Number and will tell them they must pay immediately with a prepaid credit card or direct wire transfer. Another approach is when they tell the victim that they are due a large refund and request personal information in order to process the refund for them. The crooks then use this information to commit identity theft in many different ways. Some of these scammers become very threatening and abusive, threatening victims with arrest or deportation if they don’t comply at once. They’ve also claimed that they will shut down the victim’s business or revoke their driver’s license if they don’t receive the owed money right away.

If you receive one of these calls, you should refuse to provide any information while on the phone. The scammers often make the caller ID information appear as though it is the IRS calling, so don’t rely on who your phone tells you is calling. You can ask the caller for a number to return their call later, and then confirm with the IRS if the phone number is valid by calling them at 800-829-1040. You should also alert the IRS to the call and provide them with all the details from the conversation with the scammer. We always encourage our clients to forward to us any correspondence from the IRS before responding, allowing us to review the notice and the validity of its claims.

The IRS will never initiate contact with a taxpayer via email, so any such email should be treated as a phishing scam and deleted immediately, regardless of how official it may appear.

The IRS’s process is to first try contacting a taxpayers via mail, and will often ask the taxpayer to then initiate contact with the IRS to resolve the problem via return mail or phone call. They will usually only contact a taxpayer via telephone after repeated efforts to contact the taxpayer via mail has failed. And they will never demand immediate payment via debit card, credit card or wire transfer on the telephone.

Taxpayer Bill of Rights – What you Need to Know When Dealing With the IRS

Friday, June 20th, 2014

Authored By: Jared Ripplinger, CPA, MBA, CFP®, CVA. Jared is currently a manager over tax, business valuations, and estate planning work in the Logan office. He works primarily with individuals and small business owners in a variety of industries.

Since 2007, the IRS has had a priority to adopt a Taxpayer Bill of Rights. This has also been a top priority for the Taxpayer Advocate Service in recent years. The wait is finally over. On June 10, 2014 the IRS released the Taxpayer Bill of Rights (Publication 1), which lists ten fundamental rights that each taxpayer has, and which each taxpayer should be aware of when dealing with the IRS. The better a taxpayer understands his/her rights, the better that taxpayer can prepare for and effectively deal with the IRS.

In the IRS’ own wording, the taxpayer rights are as follows:

1. The Right to Be Informed – Taxpayers have the right to know what they need to do to comply with the tax laws. They are entitled to clear explanations of the laws and IRS procedures in all tax forms, instructions, publications, notices, and correspondence. They have the right to be informed of IRS decisions about their tax accounts and to receive clear explanations of the outcomes.

2. The Right to Quality Service – Taxpayers have the right to receive prompt, courteous, and professional assistance in their dealings with the IRS, to be spoken to in a way they can easily understand, to receive clear and easily understandable communications from the IRS, and to speak to a supervisor about inadequate service.
3. The Right to Pay No More than the Correct Amount of Tax – Taxpayers have the right to pay only the amount of tax legally due, including interest and penalties, and to have the IRS apply all tax payments properly.

4. The Right to Challenge the IRS’s Position and Be Heard – Taxpayers have the right to raise objections and provide additional documentation in response to formal IRS actions or proposed actions, to expect that the IRS will consider their timely objections and documentation promptly and fairly, and to receive a response if the IRS does not agree with their position.

5. The Right to Appeal an IRS Decision in an Independent Forum – Taxpayers are entitled to a fair and impartial administrative appeal of most IRS decisions, including many penalties, and have the right to receive a written response regarding the Office of Appeals’ decision. Taxpayers generally have the right to take their cases to court.

6. The Right to Finality – Taxpayers have the right to know the maximum amount of time they have to challenge the IRS’s position as well as the maximum amount of time the IRS has to audit a particular tax year or collect a tax debt. Taxpayers have the right to know when the IRS has finished an audit.

7. The Right to Privacy – Taxpayers have the right to expect that any IRS inquiry, examination, or enforcement action will comply with the law and be no more intrusive than necessary, and will respect all due process rights, including search and seizure protections and will provide, where applicable, a collection due process hearing.

8. The Right to Confidentiality – Taxpayers have the right to expect that any information they provide to the IRS will not be disclosed unless authorized by the taxpayer or by law. Taxpayers have the right to expect appropriate action will be taken against employees, return preparers, and others who wrongfully use or disclose taxpayer return information.

9. The Right to Retain Representation – Taxpayers have the right to retain an authorized representative of their choice to represent them in their dealings with the IRS. Taxpayers have the right to seek assistance from a Low Income Taxpayer Clinic if they cannot afford representation.

10. The Right to a Fair and Just Tax System – Taxpayers have the right to expect the tax system to consider facts and circumstances that might affect their underlying liabilities, ability to pay, or ability to provide information timely. Taxpayers have the right to receive assistance from the Taxpayer Advocate Service if they are experiencing financial difficulty or if the IRS has not resolved their tax issues properly and timely through its normal channels.

 

quoteCook Martin saved us over a hundred thousand dollars in taxes.quote

Paul Merrill
Fat Boy Ice Cream

Utah Accountant and CPA

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