Questions regarding dependency exemptions are common. Figuring out the rules for who can be claimed as a dependent can quickly become confusing for a person who is supporting an extended family member or elderly parent, or who has a non-related individual living with them.

In general, you may always claim your child (including a step-child, foster child, adopted child, a child placed with you legally for the purposes of adoption, your brother or sister, or a descendant of any of these). The tax code calls these “Qualifying Children” (please note that there are age, residency and financial support tests that must be met to claim a dependent as a qualifying child).

However, the tax code provides for dependency exemptions for additional persons under special circumstances. The tax code refers to these individuals as “Qualifying Relatives”. These individuals are the subject of this article.

There are two general rules and four additional tests that must be met in order to claim someone as your qualifying relative.

General Rules:

1.The person in question must have been a U.S. citizen, U.S. resident alien, U.S. national or a resident of Canada or Mexico for some part of the year, and

2.They must not file a joint return with someone else (unless it’s only to claim a refund of the taxes they had withheld)

Additional Tests:

1.The person must be one of the following:

a.Your child, stepchild, foster child or a descendant of any of these

b.Your brother, sister, niece or nephew

c.Your father, mother, grandfather, grandmother, aunt or uncle

d.Your step-brother, -sister, -father, -mother

e.One of your in-laws (brother, sister, father, mother, son or daughter in-law), or

f.Any other person who lived with you for the entire year

2.The person cannot be claimed as someone else’s qualifying child (e.g. – if your child lived with your parents and was supported by them, then they are your parents’ qualifying child)

3.The person must have made less than $3,700 of gross income for the year

4.You must have provided more than one-half of the person’s financial support for the year

In short, the “Qualifying Relative” category can cover a number of special situations. If you financially support a parent (or child, sibling, step-sibling, in-law, etc.) financially, you may be able to claim a dependency exemption for them even if they do not live with you, as long as they do not have more than $3,700 of gross income for the year. Please note that tax-exempt income, such as certain social security benefits, is not included in gross income.

It is also important to note that unlike a qualifying child, a qualifying relative can be any age.

Lastly, in certain situations you may be able to claim a person who lives with you and whom you support, regardless of their relationship to you, as long as they do not make more than $3,700 during the year.

For more information, please give us a call or see the section entitled “Exemptions for Dependents” found in IRS Publication 501. This publication is available online at www.irs.gov.

There are some exceptions to this 10% penalty that many people may not be aware of.  If the money is used for any of the reasons below you could avoid the 10% penalty.  Some of these exceptions only apply to IRA’s and some only apply to qualified accounts, so be sure to consult with your tax advisor regarding your specific situation.  You will also need to notify your tax preparer that you used the money for one of the reasons listed below as that information will not be reported on the 1099-R tax form you will receive in the year of distribution.

Exceptions:

• Distribution made to an employee who has attained age 55 and separated from service
• Distribution is part of a scheduled series of substantially equal periodic payments made over the life expectancy of the participant or joint lives of participant and his beneficiary
• Distribution made due to total and permanent disability
• Distribution made due to death of the employee or account owner
• Distribution to the extent the individual’s unreimbursed medical expenses exceed 7.5% of his AGI
• Distribution made to an alternate payee pursuant to a qualified domestic relations order (QDRO)
• Distribution to pay for health insurance premiums for certain unemployed individuals
• Distribution to the extent of the qualified higher education expenses for the year of the taxpayer, spouse, child or grandchild
• Distribution for first-time home purchases (no home ownership in prior two years). This distribution is limited to $10,000 (lifetime)
• Distribution due to an IRS levy on the qualified plan or IRA.  This exception will not apply if funds are withdrawn to avoid a levy or to satisfy a levy on other property
• Distribution to reservists while serving on active duty for at least 180 days

Local Provo Bookkeeping Services Cook Martin

Cook Martin has opened many firms across the state of Utah because there is such a high demand for professional accounting services in the area that we are able to keep many locations open to serve you. In addition to our Provo bookkeeping services we offer many other types such as payroll, taxes, and standard accounting for your business. When tax season rolls around you might as well speak with us since we already have all your financial records on file and it’s much easier to have us take a look at your taxes than go to someone else. We are all about convenience here at Cook Martin and like to keep our bookkeeping Salt Lake City customers in the know so that they feel that we care, because we truly do.

Since we are real people who live and work in Utah it is important to us that services such as our Provo bookkeeping will work for you personally and on a larger scale for business owners. Contact us to set up an appointment in the near future and start to plan your financial future.

Your Local Accountant Provo Offers Keeps You Financially Stable

Keeping our clients out of the dark and in the know when it comes to what is going on with their finances is what we strive to accomplish each day. There are many clients who count on our expertise and many years of experience to take care of their accountant Provo needs so that they do not have to worry about it. Often times this means that we will be the firm to try and save your business if you are experiencing financial ruin or a less than perfect situation. Our accountant Provo team offers some of the best tax advice in the business and we are glad to help you prepare your business taxes as well when that time of the year rolls around.

Get in touch with a CPA at the nearest Cook Martin office and you will be guided along the road to financial success. Since we have many convenient account locations other than Provo to serve you there will always be an office in Utah you can rely on, even if you happen to move your business or yourself to a new home.

Significant changes to accounting standards for lease accounting are on the horizon as part of a convergence project between accounting standards setting bodies in the United States and internationally.  Potential changes to lessee accounting would do away with current accounting requirements, which provide a bright line test to determine whether a lease is an operating lease or a capital lease for the lessee.  Operating lease payments are currently expensed as rent and lease payments while capital leases require the recording of an asset and a liability, as if the asset were being purchased.  Based on current discussions, changes to lease accounting would require recording assets and accompanying liabilities for all leases, and would require adjusting lease accounting for leases already in place.  The proposed changes are currently still in the discussion stage, but if finalized, would require analysis by companies and their accountants to determine the effects of the changes and what adjustments may be necessary.

Preparing for tax season can be a scary and intimidating task for many people for different reasons.   However, by following a few easy steps, it can dramatically decrease the panic attacks, headaches, and stress leading up to your tax preparation appointment in the coming months.

1)      Use the tax organizer.   The basic tax organizer sheet is sent out in January to help you start organizing your tax information.  If you have not received a tax organizer, you can download one from our website, www.cookmartin.com/resources.  This handy tool outlines what items should be collected and are necessary to complete a tax filing.   Once gathered, these items should be brought to your initial tax preparation meeting.  If you are coming in for a tax appointment, we encourage all of you to get your tax information into us a few days early so that we can begin working on your tax returns.  By doing this, it allows us to identify any information we think may be missing, and then spend the majority of the appointment communicating with you about potential tax planning tips, instead of just having you watch us type in your numbers.

2)    What to bring.  Whether or not you have used an accountant before, there are still standard items that you will need to gather each year:

a)    All of your income and expenses from all sources (business income, Social Security income, interest income, investment expenses), preferably organized and totaled into categories.  It is your responsibility to maintain accurate records, receipts, and documentation in the chance of being audited in the future, but your accountant just needs the totals.  It is a good practice to refer to your previous years’ tax return and verify the income and expenses you had and where they came from.   Double check that you have not forgotten any taxable income items or expenses that you had last year that you accidentally overlooked this year and forgot to write down.

b)    Collect income forms. If you or your spouse has income from another employer, you will need completed W-2 or 1099 forms from each employer.  Any correspondence that you receive in the mail that says “Tax Information Enclosed” or something of that nature, needs to be brought in.  We need the actual tax documents because some forms have to be sent into the IRS and different tax agencies while all forms ensure that we report the correct amounts.

3)    Missing Information?  After you review the materials in your organizer, make a list of missing items.  Are there questions that you cannot readily answer?  Write any questions you have down and we can discuss them with you during the appointment. 

4)    Admit to delays and deal with them.  Rather than waiting until April 14^th to frantically call your accountant and beg for an extension, it is better to file the extension early and continue to work on whatever gaps exist in your tax documentation.  You will have peace of mind knowing that you have extra time to file and your accountant will thank you for the advance notice.  However, it is important to remember that by filing an extension, it only extends the deadline for the completion of the tax return six months, but if there is any tax due on your return, it needs to be paid in by April 15^th.  The best advice would be to get your stuff in early and do not wait until the end.

5)    Any big changes?  Be sure to identify any changes in circumstances (i.e. divorce, home sale/purchase, kids entering college, or the birth of a child).  These life events are often tremendous opportunities to capture additional deductions.

In conclusion, as accountants we enjoy proactively helping you save money on taxes so that you can use that money on things you enjoy.  The more proactive you are in organizing your information and getting it to us timely, the better off everyone will be.

Premier Utah Bookkeeping Services For Your Business

When it comes to your individual finances we also offer many ways to help you succeed and save for the future. Our CPAs, certified public accountants, are here to make sure that you have everything you need to pay your bills and have enough money to save for a rainy day and retirement. Developing plans and helping with your personal Utah bookkeeping needs is what our accountants excel in. Schedule your appointment today to learn more about the personal services we offer and we can even share some success stories with you from real people in the state of Utah who are current customers of ours here at Cook Martin.

Whether it is payroll, bookkeeping, accounting, or some of financial service; here at Cook Martin we are glad to assist you with it! Our many Utah bookkeeping service locations are perfect for both individual and business needs. Don’t wonder how you are going to handle your finances all on your own, you deserve the best; which is why calling Cook Martin is now officially on your to do list!

In Black’s Law Dictionary the definition of fraud includes “all multifarious means…which are resorted to by on individual to get an advantage over another by false suggestions or suppressions of the truth.”  Fraud affects every organization, but may not always be material to the organization.  Taking a pen from the supply closet home is fraud, but is it material?  To most firms, a pen is not material, but it is still fraud. 

A couple things to know is that it’s not possible to prevent all wrongdoing and fraud, and that every instance of fraud is unique.  When fraud occurs in your firm, emotions must be controlled.  Fraud has, and will occur even by the most honest people in the firm.  If it’s the most honest people that can commit fraud, then we should look at why people commit fraud.

There are three things which lead people to commit fraud.  Pressure, rationalization and opportunity make up what is known as the fraud triangle.  Some people feel pressure to commit fraud.  That pressure may come from within the firm, or from an outside source.  Pressures include major medical expenses; trying to catch up to the Jones’s or pressure to meet firm expectations.  Rationalization usually happens when a person feels they need the money more than the company does, or they think they will put the money back in a month or two.  Or a lack of morals will help rationalize the fraud.  Everyone experiences pressure, and rationalization at some point and you cannot control which employees’ experiences pressure and rationalization, but, you can control the opportunity to commit fraud.

What can you do to prevent fraud?  There are hard and soft controls.  Soft controls would be controls such as a firm fraud policy, or an excerpt in the employee handbook about fraud, and tone at the top.  Hard controls are internal controls that dictate who can sign checks, and who reconciles the bank account each month.  It is crucial for management to actively address fraud with both hard and soft controls.  The firms that are effectively deterring fraud have taken a very proactive approach and everyone in the firm knows what is being done to prevent fraud, as well as, what the consequences of committing fraud are. 

What should you do if you suspect fraud?  Keep your emotions in check.  Call a lawyer to help with labor laws, and call us, your accountants.  We can help you make sure that you have addressed possible fraud and have the appropriate hard and soft internal controls in place.

Utah Bookkeeping Services That Really Work

Other financial services we offer include payroll and taxes. Our simple payroll service will allow your business to get checks out to employees quickly and easily without the hassle of an internal person wasting time on such a task. There are many things that need to be done when it comes to Utah bookkeeping and our CPAs know exactly what those things are. Give us a call so we can schedule a meeting to find out exactly what your unique needs are as a business. If you are looking for services regarding your personal finances then we also handle that aspect of financing. As long as we have your financial information you can use us for your tax returns as well.

Schedule a time to meet with one of our Cook Martin Utah bookkeeping specialists and you’ll be amazed the time and money you can save by having our team handle many of your financial needs. We have very competitive rates and our professional team has several decades of combined experience in the financial industry. Whether it’s for business or personal, call us today and arrange a meeting for your Utah bookkeeping needs!