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Solomon & Hoover CPAs, PLLC Blog

Financial Guidance to Help Your Business Succeed

Archive for the ‘Tax Matters’ Category

Please note that the Internal Revenue Service will never send you an email.  A few of our clients have been receiving an email with a subject: NOTICE OF TAX RETURN FOR YEAR 2012.  This email is not legitimate, nor is any other email you may receive from someone claiming to be the Internal Revenue Service.  DO NOT RESPOND to these emails and DO NOT CLICK OR REGISTER links of any kind.

Unfortunately Identity Theft is a growing concern that we must all take precaution against.

If you receive an email or a notice and aren’t sure if action should be taken or you have any questions at all, please call your accountant for advice.  We are happy to help lead you in a safe direction.

Have a safe 2013.  We look forward to doing business with you in the future.

© 2013 Michele M. Hoover, CPA. Alexander & Hoover, P.A., Certified Public Accountants, specializes in providing a wide range of diversified accounting, tax, finance, and consulting services to individuals and businesses. 

To learn more, contact Michele M. Hoover, CPA at 239.481.4114 or visit http://www.alexanderhoover.com

Tax Planning: Recognize Capital Gains This Year

Posted by admin On November 13th

Right now the maximum federal tax rate on LT Capital gains is 15%.  Absent Congressional action, starting next year, the maximum rate on LT capital gains will increase to 20%.  Also starting next year, there will be a new 3.8% Medicare contribution tax that will apply to the lesser of:

  • Net investment income (including capital gains)
  • Modified Adjusted Gross Income (AGI) in excess of $200,000 ($250,000 for MFJ and $125,000 for MFS)

This means that wealthy taxpayers may end up paying 23.8% tax on their garden-variety LT capital gains starting in 2013.

Investment moves should not be made solely to capitalize on the current low capital gains rates. However, if you think that the LT capital gains rates will increase next year and you are planning to sell sometime in the near future anyway, here are some tax planning strategies to consider:

If you own appreciated LT capital gains securities (that you have held for more than a year) that you intend to sell within the next few years, you might consider selling them during the remaining months of 2012 to recognize those gains at a 15% tax rate.  If you think a security will continue to appreciate, you can immediately buy it back.  This will step up your tax basis to the current value at a low 15% tax rate.  Only gains beyond this value will be taxed at the anticipated higher rate.

If the rate increases as scheduled next year, installment sales of certain LT capital gain property (such as a piece of raw land you have held for over a year) provide a number of opportunities to capitalize on the 15% LT capital gain rate for 2012.  In fact, installment sales that originate in 2012 offer a rare chance to use 20/20 hindsight in that you have until the extended due date of the 2012 Form 1040 to decide if you want to report the full gain in 2012 and pay taxes at the current 15% rate or instead report the gain when you receive payments on the installment note and pay taxes at whatever rate applies during that year.

The current low tax rates combined with the current low applicable federal interest rates makes 2012 an especially good year to consider making installment sales of capital assets to family members.

In the case of a pre-2012 installment sale (for which it is too late to elect out of installment treatment) it is still possible to accelerate the remaining gain into 2012 if you take certain actions before the end of the year.

With careful planning, we can help you determine whether you would benefit from putting LT capital gain planning strategies in play this year.  Please give us a call if you have questions or want more information.

© 2012 Thomson Reuters/Practitioners Publishing Company.  All Rights Reserved.

© 2012 Michele M. Hoover, CPA. Alexander & Hoover, P.A., Certified Public Accountants, specializes in providing a wide range of diversified accounting, tax, finance, and consulting services to individuals and businesses.
 
To learn more, contact Michele M. Hoover, CPA at 239.481.4114 or visit http://www.alexanderhoover.com

Recently I was asked to write an article as a guest columnist for Southwest Florida Business Today.  The focus of the article is on surviving a tax audit.  Below is a copy of the article as published in their June 2012 edition.  Your comments are welcome.

One word can make taxpayers cringe…“audit.”  Fortunately, chances are slim that you’ll experience an audit, as the IRS audited only about 1% of tax returns in 2010. However, certain triggers can boost the likelihood of an audit.

Red flags

Your return may be selected because the IRS received information from a third party—for example, your bank—that differs from the information you reported on your return.

In addition, the IRS scores all returns through its Discriminant Inventory Function (DIF) System. While the formula for determining a DIF score is a well-guarded IRS secret, it’s generally understood that certain things are more likely to increase the likelihood of an audit, such as a traditionally cash-oriented businesses, tax shelters or unusually high meals and entertainment expenses.

Finally, some returns are chosen as part of the IRS’s National Research Program to help it improve its audit selection techniques.

The audit process

Should your return be chosen for an audit, implementing a few steps can smooth the process.

Nearly three-quarters of audits are correspondence audits and are completed via mail. For example, the IRS may ask for documentation on your income or the purchase or sale of real estate.

In-person audits can take place at an IRS office, your home or place of business, or at the offices of your CPA, attorney or tax preparer.

If you receive an audit notice, read it carefully. Most will indicate the items to be examined and state a response deadline. A timely response conveys that you’re organized, and thus less likely to overlook important details. It also indicates that you didn’t need excess time to fabricate a story.

Before responding to the notice, however, confer with your CPA or tax professional for help in preparing your response. If the exam will take place in person, he or she can accompany you—or even appear in your place with authorization.

If you’re going to meet in person, ask what documents the auditor is expecting, and what questions will be discussed. Of course, you’ll want to prepare this information and bring copies (not originals) of requested documents. You generally don’t want to bring more to an audit than what’s been requested, as it may prompt more questions. If an auditor asks about something that you didn’t prepare for, simply say that you’ll follow up.

Similarly, answer questions honestly, but don’t volunteer extraneous information that might lead to more inquiries. Talking about a recent, lavish vacation, for example, could suggest that your income is higher than it actually may be. Respond with, “Yes” or “No,” providing brief explanations where necessary.

Finally, always be polite. While you don’t need to become friends with the auditor, a cordial exchange can benefit the process.

Ease the process

While I hope you never hear the dreaded word “audit,” remember you can reduce your stress and anxiety by being organized, timely and professional. Bringing in your CPA can help minimize the long run cost and smooth the process.

© 2012 Michele M. Hoover, CPA. Alexander & Hoover, P.A., Certified Public Accountants, specializes in providing a wide range of diversified accounting, tax, finance, and consulting services to individuals and businesses.

To learn more, contact Michele M. Hoover, CPA at 239.481.4114 or visit http://www.alexanderhoover.com

 

Health Savings Accounts

Posted by admin On July 11th

Health Savings Accounts (HSAs) have become increasingly popular over the last few years. Opening one up is the ultimate expression of taking responsibility for your own healthcare costs instead of relying on an employer or government.

Plus, HSAs have tax advantages. For 2011, you can make a deductible HSA contribution of up to $3,050 if you have qualifying self-only high-deductible health coverage or up to $6,150 if you have qualifying family high-deductible coverage. The contribution ceiling is increased by $1,000 if you are age 55 or older as of year-end. However, no contribution is allowed after you reach the Medicare eligibility age-currently age 65.

© 2012 Michele M. Hoover, CPA. Alexander & Hoover, P.A., Certified Public Accountants, specializes in providing a wide range of diversified accounting, tax, finance, and consulting services to individuals and businesses.

To learn more, contact Michele M. Hoover, CPA at 239.481.4114 or visit http://www.alexanderhoover.com