IRS Promotes Saver's Credit

The Internal Revenue Service is encouraging more taxpayers to take advantage of the "saver's credit."

The credit enable low- and moderate-income workers to begin to save for their retirement while earning a special tax credit in 2011 and the years ahead, the IRS noted.
The saver’s credit helps offset part of the first $2,000 that workers voluntarily contribute to individual retirement arrangements, 401(k) plans and similar workplace retirement programs. Also known as the retirement savings contributions credit, the saver’s credit is available in addition to any other tax savings that apply.

 

Eligible workers still have time to make qualifying retirement contributions and get the saver’s credit on their 2011 tax return, according to the IRS. Taxpayers have until April 17, 2012, to set up a new individual retirement arrangement or add money to an existing IRA and still get credit for 2011. However, elective deferrals must be made by the end of the year to a 401(k) plan or similar workplace program, such as a 403(b) plan for employees of public schools and certain tax-exempt organizations, a governmental 457 plan for state or local government employees, and the Thrift Savings Plan for federal employees. Employees who are unable to set aside money for this year may want to schedule their 2012 contributions soon so their employer can begin withholding them in January.

 

The saver’s credit can be claimed by:
• Married couples filing jointly with incomes up to $56,500 in 2011 or $57,500 in 2012;
• Heads of households with incomes up to $42,375 in 2011 or $43,125 in 2012; and
• Married individuals filing separately and singles with incomes up to $28,250 in 2011 or $28,750 in 2012.

Like other tax credits, the saver’s credit can increase a taxpayer’s refund or reduce the tax owed. Though the maximum saver’s credit is $1,000, $2,000 for married couples, the IRS cautioned that it is often much less and, due in part to the impact of other deductions and credits, may, in fact, be zero for some taxpayers.
A taxpayer’s credit amount is based on the taxpayer’s filing status, adjusted gross income, tax liability and amount contributed to qualifying retirement programs. Form 8880 is filed to claim the saver’s credit. The form’s instructions provide the details on figuring the credit correctly.

In tax year 2009, the most recent year for which complete figures are available, saver’s credits totaling just over $1 billion were claimed on just over 6.25 million individual income tax returns. The saver’s credits claimed on these returns averaged $202 for joint filers, $159 for heads of household, and $121 for single filers.

The saver’s credit supplements other tax benefits available to people who set money aside for retirement. For example, most workers may deduct their contributions to a traditional IRA. Though Roth IRA contributions are not deductible, qualifying withdrawals, usually after retirement, are tax-free. Normally, contributions to 401(k) and similar workplace plans are not taxed until withdrawn.

Other special rules that apply to the saver’s credit include the following:
• Eligible taxpayers must be at least 18 years of age.
• Anyone claimed as a dependent on someone else’s return cannot take the credit.
• A student cannot take the credit. A person enrolled as a full-time student during any part of 5 calendar months during the year is considered a student.
• Certain retirement plan distributions reduce the contribution amount used to figure the credit.
For 2011, this rule applies to distributions received after 2008 and before the due date, including extensions, of the 2011 return. Form 8880 and its instructions have details on making this computation.
The saver’s credit began in 2002 as a temporary provision. However, it was made a permanent part of the Tax Code in legislation enacted in 2006. To help preserve the value of the credit, income limits are now adjusted annually to keep pace with inflation.

Six Year-End Tips to Reduce 2011 Taxes

The IRS wants to remind all taxpayers that with the New Year fast approaching, there is still time for you to take steps that can lower your 2011 taxes. However, you usually need to take action no later than Dec. 31 in order to claim certain tax benefits.
Here are six tax-saving tips for you to consider before the calendar turns to 2012:
1. Make Charitable Contributions – If you itemize deductions, your donations must be made to qualified charities no later than Dec. 31 to be deductible for 2011. You must have a canceled check, a bank statement, credit card statement or a written statement from the charity, showing the name of the charity and the date and amount of the contribution for all cash donations. Donations charged to a credit card by Dec. 31 are deductible for 2011, even if the bill isn't paid until 2012. If you donate clothing or household items, they must be in good used condition or better to be deductible.
2. Install Energy-Efficient Home Improvements – You still have time this year to make energy-saving and green-energy home improvements and qualify for either of two home energy credits. Installing energy efficient improvements such as insulation, new windows and water heaters to your main home can provide up to $500 in tax savings. Homeowners going green should also check out the Residential Energy Efficient Property Credit, designed to spur investment in alternative energy equipment. The credit equals 30 percent of the cost of qualifying solar, wind, geothermal, or heat pump property. For details see Special Edition Tax Tip 2011-08, Home Energy Credits Still Available for 2011 on the IRS.gov website.
3. Consider a Portfolio Adjustment – Check your investments for gains and losses and consider sales by Dec. 31. You may normally deduct capital losses up to the amount of capital gains, plus $3,000 from other income. If your net capital losses are more than $3,000, the excess can be carried forward and deducted in future years.
4. Contribute the Maximum to Retirement Accounts – Elective deferrals you make to employer-sponsored 401(k) plans or similar workplace retirement programs for 2011 must be made by Dec. 31. However, you have until April 17, 2012, to set up a new IRA or add money to an existing IRA and still have it count for 2011. You normally can contribute up to $5,000 to a traditional or Roth IRA, and up to $6,000 if age 50 or over. The Saver’s Credit, also known as the Retirement Savings Contribution Credit, is also available to low- and moderate-income workers who voluntarily contribute to an IRA or workplace retirement plan. The maximum Saver’s Credit is $1,000, and $2,000 for married couples, but the amount allowed could be reduced or eliminated for some taxpayers in part because of the impact of other deductions and credits.
5. Make a Qualified Charitable Distribution – If you are age 70½ or over, the qualified charitable distribution (QCD) allows you to make a distribution paid directly from your individual retirement account to a qualified charity, and exclude the amount from gross income. The maximum annual exclusion for QCDs is $100,000. The excluded amount can be used to satisfy any required minimum distributions that the individual must otherwise receive from their IRAs in 2011. This benefit is available even if you do not itemize deductions.
6. Don't Overlook the Small Business Health Care Tax Credit – If you are a small employer who pays at least half of your employee health insurance premiums, you may qualify for a tax credit of up to 35 percent of the premiums paid. An employer with fewer than 25 full-time employees who pays an average wage of less than $50,000 a year may qualify. For more information see the Small Business Health Care Tax Credit page on IRS.gov.
And here is one final tip to remember: you should always save receipts and records related to your taxes. Good recordkeeping is a must because you need records to prepare your tax return, and it will help you to file quickly and accurately next year.
For more year-end tax information and to access all IRS forms and publications, visit the IRS website at http://www.irs.gov.
Links:

• Publication 526, Charitable Contributions
• Special Edition Tax Tip 2011-08, Home Energy Credits Still Available for 2011
• Publication 590, Individual Retirement Arrangements (IRAs) 
• Publication 550, Investment Income and Expenses
• Retirement Topics, 401(k) and Profit-Sharing Plan Contribution Limits
• Small Business Health Care Tax Credit for Small Employers

YouTube Videos:
Year-End Tax Tips - December 2011 English | Spanish | ASL

The Adoption Tax Credit helps you with qualified adoption expenses

If you adopted a child in 2011, you may be eligible for the Adoption Tax Credit. The Affordable Care Act
raised the maximum adoption credit to $13,360 per child in 2011. The credit is refundable, meaning
that, if eligible, you can get it even if you don’t owe tax for the year.
The Adoption Tax Credit is based on the reasonable and necessary expenses related to a legal
adoption, including adoption fees, court costs, attorney’s fees and travel expenses. If your modified
adjusted gross income was more than $185,210 in 2011, you may not qualify for the full amount. The
credit phases out completely if you earned more than $225,210.
If you adopted a special needs child, you may qualify for the full amount of the adoption tax credit even
if you paid few or no adoption-related expenses.
How to claim the Adoption Tax CreditIf you are claiming the Adoption Tax Credit, you must:
• File a paper tax return, not one filed electronically.• Complete and attach a Form 8839, Qualified Adoption Expenses, to your return.
See the instructions for Form 8839to learn more. Remember, if you are claiming the credit, you will
have to file a paper tax return.
Don’t delay your adoption tax credit. Attach the required documents and Form 8839 when you
file your paper tax return.The adoption credit, at up to $13,360 per child, is the largest refundable tax credit available to individual
taxpayers. Don’t delay your adoption credit refund by failing to include your required adoption related
documents and Form 8839 with your tax return.
It is necessary for the IRS to review your documents submitted with your Form 8839, therefore, it could
take approximately six to eight weeks to get a refund claimed on a complete and accurate paper return
where all required documents are attached.
The IRS appreciates your assistance in providing the documentation needed to protect this important
credit to ensure only those who qualify receive it.
__________________________________________________________________________________NOTE TO EDITORwww.irs.govfor more information about the Adoption Tax Credit • Video: Adoption Credit: English | Spanish |ASL • Adoption Benefits Frequently Asked Questions and Answers • Six Things to Know About the Expanded Adoption Tax Credit • Seven Facts about the Expanded Adoption Credit • Legal guidance • Tax Topic 607, Adoption Credit • Adoptive Parents: Don’t Delay Your Adoption Credit Refund : Below are links to

Time Running out for Home Energy Credits

The Internal Revenue Service reminded homeowners Monday that they still have some time left this year to make energy-saving and green energy home improvements and qualify for either of two home energy credits, but at least one of them needs to be placed in service before the end of the year to qualify for this year’s tax return.

The Nonbusiness Energy Property Credit is aimed at homeowners who install energy efficient improvements such as insulation, new windows and furnaces. The credit is more limited than in the past years, the IRS noted, but can still provide substantial tax savings.
The 2011 credit rate is 10 percent of the cost of qualified energy efficiency improvements. Energy efficiency improvements include adding insulation, energy-efficient exterior windows and doors and certain roofs. The cost of installing these items does not count. The credit can also be claimed for the cost of residential energy property, including cost of labor for installation. Residential energy property includes certain high-efficiency heating and air conditioning systems, water heaters and stoves that burn biomass fuel.

 

The credit has a lifetime limit of $500, of which only $200 may be used for windows. If the total of nonbusiness energy property credits taken in prior years since 2005 is more than $500, the credit may not be claimed in 2011, however.
Qualifying improvements must be placed into service to the taxpayer’s principal residence located in the United States before Jan. 1, 2012, in order to qualify.
Homeowners who are going green should also check out the Residential Energy Efficient Property Credit, which is designed to spur investment in alternative energy equipment.
The credit equals 30 percent of what a homeowner spends on qualifying property such as solar electric systems, solar hot water heaters, geothermal heat pumps, wind turbines, and fuel cell property. There is no cap on the amount of the credit available, except for fuel cell property. Generally, labor costs are included when calculating this credit.

Not all energy-efficient improvements qualify for these tax credits, the IRS cautioned, so homeowners should check the manufacturer’s tax credit certification statement before they purchase any equipment. Taxpayers can normally rely on this certification statement which can usually be found on the manufacturer’s Web site or with the product packaging.
Eligible homeowners can claim both of these credits on Form 5695, Residential Energy Credits, when they file their 2011 federal income tax return. Because these are credits and not deductions, they reduce the amount of tax owed dollar for dollar. An eligible taxpayer can claim these credits regardless of whether he or she itemizes deductions on Schedule A. For more information, the IRS has created a YouTube video.

Three Tips for Employers Outsourcing Their Payroll

Outsourcing payroll duties to third-party service providers can streamline business operations, but the IRS reminds employers that they are ultimately responsible for paying federal tax liabilities.
Recent prosecutions of individuals and companies who - acting under the guise of a payroll service provider - have stolen funds intended for payment of employment taxes makes it important that employers who outsource payroll are aware of the following three tips from the IRS:

1. Employer Responsibility The employer is ultimately responsible for the deposit and payment of federal tax liabilities. Even though you forward the tax payments to the third party to make the tax deposits, you - the employer - are the responsible party.
   
   If the third party fails to make the federal tax payments, the IRS may assess penalties and interest. The employer is liable for all taxes, penalties and interest due. The IRS can also hold you personally liable for certain unpaid federal taxes.
   
2. Correspondence If there are any issues with an account, the IRS will send correspondence to the address of record. The IRS strongly suggests you do not change the address of record to that of the payroll service provider. That could limit your ability to stay informed of tax matters involving your business.
   
3. EFTPS Choose a payroll service provider that uses the Electronic Federal Tax Payment System. You can register on the EFTPS system to get your own PIN to verify the payments.

The IRS web site – www.irs.gov has more information on the responsibilities of employers outsourcing payroll, payroll service providers and EFTPS.

Links:
Outsourcing Payroll and Third Party Payers
Outsourcing Payroll Duties
EFTPS: The Electronic Federal Tax Payment System
Publication 966 - The Secure Way to Pay Your Federal Taxes for Businesses and Individuals

Maximize your Retirement Savings in 2012

Does your employer’s retirement plan allow you to make contributions from your salary? If so, you are likely being asked to complete a salary deferral form (salary reduction agreement) now to indicate the amount you want to contribute to the plan from your salary in 2012.

To maximize your retirement savings, contribute up to the 2012 allowed limits. The 2012 limits are:

1. $17,000 to 401(k) or 403(b) plans
2. $11,500 to SIMPLE plans

If

1. $5,500 to 401(k) or 403(b) plans
2. $2,500 to SIMPLE plans

　

Remember, in addition to saving more for your retirement, there are other benefits in making salary deferral contributions to a plan. For example:

1. you may reduce your taxable income by making pre-tax contributions;
2. your employer may match your contributions to the plan (
3. you may qualify for the retirement savings contribution credit of up to $1,000 (up to $2,000 if filing jointly) for contributing to the plan, which may reduce your federal income tax liability.

　

If you decide to contribute less than the maximum allowed amount from your salary at this time, you may be able to increase your contributions by completing a new salary deferral form during 2012.

Contact your employer for details about the retirement plan, including how much you can contribute from your salary, whether the employer also makes contributions on your behalf and whether you can change the amount of your contributions to the plan in 2012.

_______________________________________________________________________________

you are 50 or older by the end of 2012, your plan may allow you to make additional (catch-up) contributions of: for instance, your employer may contribute 50 cents for each dollar that you contribute to the plan, up to a certain amount); and

NOTE TO EDITOR:

1. Tax Information for Plan Participant/Employee
2. Types of Plans
3. Retirement Plan FAQs: Contributions
4. Publication 4703
, – resources and information on life events that can affect retirement savings and definitions.

Below are links to helpful retirement information on IRS.gov. – information about common types of retirement plans. – information about retirement plan contributions. Retirement Savings Contributions Credit – details about the

Year- End Reminders for IRA Owners

Here are a few reminders about individual retirement arrangements (IRAs) that may be useful to know before the end of 2011.

Contribution Limits

If you have not retired, you may want to review the 2011 IRA contribution and deduction limits to ensure you are taking full advantage of the opportunity to save for your retirement. Remember, you can make 2011 IRA contributions until April 17, 2012.

Excess Contributions

If you have exceeded the 2011 IRA contribution limit, you may withdraw excess contributions from your account by the due date of your tax return (including extensions). Otherwise, you must pay a six percent tax each year on the excess amounts left in your account.

Required Minimum Distributions

If you are 70½ or older this year, you must take a 2011 Required Minimum Distribution (RMD) from your traditional IRA by December 31, 2011 (April 1, 2012, if you turned 70½ in 2011). You can calculate the amount of your RMD by using the RMD worksheets. You must calculate the RMD separately for each traditional IRA that you own, but can withdraw the total amount from one or more of the traditional IRAs. Remember that you face a fifty percent excise tax on any amount of a RMD that you fail to take on time. If you own only Roth IRAs, you don’t have to worry about RMDs because you are not required to take RMDs from Roth IRAs.

_____________________________________________________________________________________

NOTE TO EDITOR:

1. IRA Resources
2. Frequently asked Questions: IRAs
3. Frequently asked Questions: Required Minimum Distributions
4. Publication 590
, – explain various RMD rules and requirements. – explain various IRA rules and requirements. – information for IRA owners including contribution and deduction limits, required minimum distribution worksheets, types of distributions, rollovers and more.

Below are helpful resources on retirement topics found on IRS.gov. Individual Retirement Arrangements (IRAs) – explains different types of IRAs, tax on IRA distributions and more.

Should I buy software or pay an accountant to prepare my taxes?

Finding an Accountant Can Lead to Big Tax Savings

If you’re like most Americans you probably have a good handle on completing your taxes on your own. Over the years it has become incredibly easy for anyone with a computer thanks to TurboTax and H&R Block At Home to sit down and go through their tax documents, enter information as the software asks questions, and then even file your return instantly online. For those of you with relatively simple tax circumstances, this is the ideal way to go. The software is inexpensive, most of the questions asked can be easily answered in an hour or two, and there’s very little opportunity for error. It sure beats the days of sitting down with paper forms and spending a few days doing your taxes by hand!
But what about those with slightly more complex financial situations? Sure, there are more robust versions of tax software available such as TurboTax’s Home & Business, Property Manager, and so on. These solutions go into greater depth to help you account for less traditional sources of income and expenses. With more complex finances comes more time and money required to get through the tax filing process, not to mention more room for error. So, at what point does it become cost-effective to make the move from doing your own taxes with the help of software to hiring an accountant?

When Should You Consider Hiring an Accountant For Your Taxes?

There is a difference between an accountant and just a tax preparer. As tax season kicks into gear you’ll begin to see advertisements pop up with tax preparers in your area who will do your taxes for you at a cost. Keep in mind that when dealing with one of these places you probably aren’t going to get a full-blown accountant or CPA. Instead, you’ll likely have someone who is qualified to handle returns, but they will likely do little more than ask you the same questions that software you buy on your own does and then plug in the numbers. While it’s nice to get some one-on-one time with someone, you also want to keep in mind that this person is more or less just trying to get your taxes done, not assess your financial situation and help you put together tax strategies going forward.  So remember, there are accountants that do taxes, and there are people who do taxes that aren’t accountants.
Here are a few scenarios when it might make sense to start looking for professional tax help:

1. You own a business.

Self-employed individuals stand to see the greatest return when hiring an accountant. Running a business presents a lot of unique situations that can have a significant impact on your taxes. Being self-employed also opens the door for a new world of deductions, credits, and retirement account planning that you may not be used to. While you can certainly find this information online, having someone who does this for a living will save you time and maybe even some money. In addition to just helping you find all the available deductions and paying the IRS as little as possible an accountant can be tremendously helpful in working with you to structure your business as best as possible, putting together a plan for the future to help you take advantage of tax breaks in the coming year, and being there for you if you encounter problems down the road.

2. Going through a major life change.

If you’ve been plugging alone for the past few years with basically the same financial situation there’s obviously little need to pay someone to do what you’re already comfortable doing. But when you encounter a major life-changing event in the middle of a tax year it could lead to an unpleasant surprise come tax time. Getting married, divorced, changing jobs, having children, receiving an inheritance, preparing to retire, etc. These are the things that can change your financial situation in a heartbeat and if you aren’t prepared it could end up costing you dearly.

3. Real estate or taxable investment dealings.

Do you own a rental property? If so, an accountant will be your best friend. Owning a rental opens up a lot of special tax situations that you’ll surely want to take advantage of and make sure you aren’t making any mistakes. The same thing can go for just buying and selling a home or other real estate. While the laws are pretty straightforward, it’s usually a large transaction in terms of dollars so you want to make sure you’re doing everything properly. Finally, let’s not forget tracking gains and losses on taxable investments. If you buy and sell stocks, bonds, mutual funds, or anything else throughout the year in a taxable account you’re going to have a lot of things to consider. Long-term vs. short-term gains and losses, dividends taxed at a different rate, cost basis, the wash rule, and so on. Sure, you can do this on your own, but how much time will it take and are you sure you’ll catch everything? The time saved by hiring a professional alone may pay for itself.

Don’t Be Afraid to Get Help

For people who like to and are proud of doing things themselves it can be difficult to make the decision to seek outside help. Don’t let that get in the way of doing what’s best for your finances. Sure, the majority of people will be just fine doing their own taxes. If that’s you, grab the latest edition of TurboTax or H&R Block At Home. It’s still the easiest and cheapest way to do your taxes. But for those of you who may have finances that are a little more complex, are self-employed, or would otherwise just like to outsource your tax preparation don’t be afraid to get a professional to help. At most it will probably only cost a couple hundred dollars compared to buying software and e-filing yourself, and chances are you save that much or more on deductions and tax strategies you overlooked by doing it on your own. Whatever you do, make sure you get an early start so you don’t miss the tax filing deadline!

http://genxfinance.com/do-i-need-an-accountant-or-cpa-knowing-when-to-outsource-your-taxes/

How to Choose Business Accounting Software

From QuickBooks to NetSuite, there's plenty of accounting software out there to choose from. Here's how to pick the best one to serve your company's needs.

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It used to be that keeping "the books" for a business was literally a paper-based process, involving a ledger, lots of columns, and a pencil to record a business' essential financial data. In the digital age, however, even the smallest business can benefit from a wide variety of small business accounting software products on the market. Accounting software can not only help you reduce human errors in your calculations, but it can help you gain insights into your business that you couldn't see in paper form -- such as generating sales forecasts for the next quarter, determining which items are overstocked, and pinpointing your least profitable service.

Business accounting software can be the source of all this information. But finding the best accounting software program for your business can be a challenge, with an explosion of shrink-wrapped software products and online application offerings. In order to choose a business accounting software program, you need to understand some business accounting basics, take a good look at your business and its accounting needs, and assess the products available today.

Types of accounting products available
The range of accounting software products available for small and mid-sized businesses has been growing steadily. Right now, there are a few general categories to choose from: small business payroll and accounting packages, more full-service business management programs, online Web-hosted applications, and free programs. Here is a run-down of each category and some of the popular products available for small to mid-sized firms:

• Small business payroll and accounting. There are several top-selling accounting software programs you can buy off the shelf, or over the Web, that will meet most small business needs by providing the accounting tools and reports you need to use your financial data. These include the best-selling QuickBooks series by Intuit, which is available in a variety of tiered editions and for which there are add-ons, such as a cash-flow calculator. Other popular products include the easy-to-learn drag-and-drop formatted Simply Accounting by Sage Software, which is available in up to 20-seat licenses. Sage also makes Peachtree Complete Accounting Software, which comes in tiered offerings serving from 1 to 40 users and has targeted modules for construction, distribution, and manufacturing businesses. Other popular options include Cougar Mountain Software and MYOB Accounting.
• Business management software programs. These are higher-priced and more full-features accounting programs that may also include other financial functions you need to track in your business, such as point of sale, inventory control, customer relationship management (CRM), billing, purchasing and even enterprise resource management (ERP). Some popular picks in this category include Everest's Business Management Software, which integrates all business processes into one solution, and NetSuite -- the latter of which boasts that it's "everything you need in one powerful solution."
• Web-hosted accounting applications. A new breed of online financial management applications has emerged in the last few years, taking advantage of the growing confidence that businesses are developing in the Web as a safe business environment. Now that entrepreneurs are indeed becoming comfortable with the “software in the cloud' model and the inherent benefits it offers, they are in growing numbers starting to look beyond e-mail or office productivity to more sophisticated and sensitive applications like financials. The heavyweight of small business accounting, Intuit, has launched an online alternative called Quickbooks Online. Peachtree also has debuted a well featured online version. Some vendors offer online-only accounting packages, including Clarity Accounting, Less Accounting, NetBooks, and NetSuite, which has a more comprehensive business management package online.
• Free accounting software programs. Most small businesses need to be skeptical of "free" programs, particularly when it deals with the financial data of your business. But a free version of QuickBooks lets you create invoices, print checks, handle payroll, and manage up to 20 customer accounts. There are plenty of free bookkeeping tools on the market, but QuickBooks is the best option for growing companies, because it's easy to step up to the paid version, which lets users track more than 10,000 customers.

How to Choose Business Accounting Software: Understand Your Accounting Needs

The first step you need to take in choosing accounting software for your business is to undertake a good needs analysis, which will address both managerial and financial needs. It should be broad, exploring both obvious questions and ones that really make you think. Take your time with this important step, since the last thing you want is to have to repeat this process within the next two years. If you experience unexpected growth that forces an upgrade, terrific, but good planning at this stage can help you avoid having to change software too soon. Get some help before you buy anything.

What you need to know about your business
The first step you need to take before deciding on accounting software is to make sure that you are somewhat financially literate. "One of the mistakes businesses make when they buy accounting software is in believing that they don't need to know anything at all about financial accounting because the software will just take care of it for you," says Linda Pinson, author of Keeping the Books: Basic Recordkeeping and Accounting for the Successful Small Business (Kaplan Business 2007). "They need to understand small business accounting."

There are several ways that an entrepreneur or small business executive can become proficient in understanding what data their business needs to keep (in order to make better business decisions) and what reports they need to generate (for the Internal Revenue Service and state tax authorities). You can read books. You can take classes. You can do research on the Internet. "You can't use any accounting software if it's like garbage in and garbage out," Pinson says. That's what the result is "if you don't understand what you're putting in."

Another consideration is the type of business you operate. Several different sectors have specialized modules or add-on packages because they need to keep specialized data. If you are a manufacturer, for instance, then you may need to have an understanding of inventory and handling of parts and labor. If you are a retailer, you may also need to have an understanding of your inventory through a point-of-sale program. A doctor's office needs specialized programs for billing insurance companies, although many may farm this function out to middleman and/or consultants.

Talk to your accountant and staff
If your business has an accountant -- either an outside consultant or an in-house accountant -- you would be wise to consult that expert before you take the plunge into accounting software. Your accountant may be able to recommend software that works with programs they have. In fact, Pinson says, some accountants may help you set up your accounting software so that it gathers the data that they need to help you file your taxes, as well. "They know what kind of business you have and what you need," Pinson says. "Most accountants work with a particular software. Frequently it's QuickBooks. They'll want you to use that same accounting software."

Your IT department is just as important as your accountant. You also need to understand your hardware situation. Business accounting software packages use big databases, usually consisting of many different data tables all working together, so take a good look at your disk space. As your accounting data grows, which happens quickly, the more room it will need. This is the most important item to review, but not the only one. You will need to evaluate the age of your system, as well as your back-up procedures and storage media.

How to Choose Business Accounting Software: What to Know Before You Start Shopping
Know your budget limitations
A key consideration is your budget. Off-the-shelf software, such as QuickBooks, Peachtree, and MYOB, are all very affordable. However, when you start focusing on industry-specific accounting software, also referred to as vertical software, the costs go up and up and up.

Most vertical business accounting software is sold through a value-added reseller (VAR), so they can demonstrate the program and assist you with the installation, set-up, and training. The software has a higher price tag since it has a smaller market than generic accounting software, and annual maintenance fee are required for you to receive updates and upgrades as they are produced. You also have to pay for the VAR's services. These costs need to be factored into your budget, if you go that route.

Reach out to other businesses and software consultants
Find out what everyone else is using in your industry. Okay, maybe not everyone else, but a least a few of your competitors. Business association meetings are a great place to chat about this, and you can also ask your accountant, since they should have at least one other client in your industry.

There are also consultants and/or services that will help you narrow down your options for the best financial accounting software for your business. FindAccountingSoftware.com operates independently of any software vendors but will help match your business needs with suitable software programs after you fill out an online questionnaire. The site promises to get back to you within days with appropriate selections. "We work with about 1,500 different companies in the U.S. and Canada. They are sometimes software resellers or software developers," Budiac says. "What we try to do is be the grease between the wheels."

You may also want to check software product review websites, such as CNET and PC Magazine.

Create your wish list
Now that you have gotten a lot of input, it's time to sit down and document what you want the business accounting software to do for you. Of course you probably won't find a business accounting software that meets every item on your list, so you should also decide which ones you can live without.

It is important to balance the information you have received from everyone you have spoken to with some factual information and objective views. Software vendor websites, such as QuickBooks.com or Cougarmtn.com, will include detailed lists of features and functionality, and objective reviews can be found at trusted sites such as Inc.com.

Some business accounting software can be used on a trial basis, giving you a feel for the interface and the functionality. Some of them are full programs that either allow a limited number of uses or a limited number of days of use. Other programs offer limited functionality in their trial versions. In either case, it's great to be able to try before you buy. But Budiac points out that it can involve a lot of work to test out an accounting product so be sure to only trial products that have made your final cut.

Make your business accounting software decision
Now it's up to you. The journey ends here. You've talked to many people, inside your organization and out, and you've read vendor literature and third-party reviews. You have used a few of the programs, or a least had a tour of the screens. So what is the deciding factor? That's up to you. Prioritize your needs analysis and make sure the software you choose meets most, if not all, of the features that are important to you. There is no “best' business accounting software package, but there is one that's best for your business.

http://www.inc.com/guides/choosing-accounting-software.html

Ever wondered how much the IRS charges for late payments?

If you owe taxes, the Internal Revenue Service will calculate penalties and interest on the amount owed. If you have a refund, the IRS may pay you interest on the delayed refund. (Note the difference between "will" and "may" – the IRS generally pays interest on refunds that have been delayed because of slow processing by the IRS. Since most late tax returns take longer to process, the IRS "may" pay you interest on based on the extra amount of time it takes them to process your return.) If you have a refund, there is no penalty for filing late. Penalties are calculated on the amount due. Since there is no amount due, there is no penalty.

If you have a balance due on a late tax return, the IRS will calculate additional penalties and interest. There are three separate penalties:

• Failure to File Penalty
• Failure to Pay Penalty
• Interest

Each is calculated differently. Let's take a look at each one.

Failure to File Penalty

The failure-to-file penalty is calculated based on the time from the deadline of your tax return (including extensions) to the date you actually filed your tax return. The penalty is 5% for each month the tax return is late, up to a total maximum penalty of 25%. The percentage is of the tax due as shown on the tax return. If your tax return is more than five months late, simply multiply your balance due by 25% to calculate your failure to file penalty.

Failure to Pay Penalty

The failure-to-pay penalty is calculated based on the amount of tax you owe. The penalty is 0.5% for each month the tax is not paid in full. There is no maximum limit to the failure-to-pay penalty. The penalty is calculated from the original payment deadline (the original April 15th filing deadline) until the balance due is paid in full.

Interest

Interest is calculated based on how much tax you owe. Interest rates change every three months. Currently, the IRS interest rate for underpayment of tax is 4% per year. The interest is calculated for each day your balance due is not paid in full. IRS interest rates are variable and are set quarterly. For historical IRS interest rates, see this chart at TaxAlmanac.org.

Action Plan Items

There's a lesson to be learned by looking at the penalties. If you owe, it is better to file sooner rather than later. Also, if it looks like you are going to be a few months late on your next tax return, file an extension. By filing an extension you may reduce or eliminate the Failure to File Penalty.

http://taxes.about.com/od/backtaxes/qt/irs_tax_penalty.htm

Need Tax Help?

Need Tax Help?

Here are some of the services I provide that you can take advantage of:
Notices or letters - Have you received a letter or notice and need face-to-face assistance to understand the next step? I can help.

Payments - Do you need to make payments to the IRS? Be sure you know the tax period and the type of tax for the payment you are making. If you received a notice from the IRS, be sure to bring it with you.

Federal Tax Return Preparation - I can prepare current year or previous year tax returns or let you know if you need to file past returns.

Tax Return and Tax Account Transcripts - Do you need a copy of your tax return for financial aid or to obtain a mortgage? If so, a tax return or tax account transcript generally meet the requirements of these lending institutions. I can help you obtain your transcript immediately online.

Do I Benefit from Itemizing My Deductions? (Or Is the Standard Deduction Sufficient?)

Have you wondered why your tax preparer tells you it doesn’t benefit you to itemize when you have mortgage interest and a tax statement, a statement of charitable contributions and other documents to itemize? If so, here are some things you should know about itemized deductions and the standard deduction.

What is the standard deduction? Standard deduction is a dollar amount that reduces the amount of income on which you are taxed. It is a benefit that eliminates the need for many taxpayers to itemize actual deductions.

The standard deduction differs based on your filing status. For the 2010 tax year, the standard deduction is:

Single or married filing separately	$5,700
Married filing jointly or Qualifying widow(er)	$11,400
Head of household	$8,400

Determine whether you should itemize or take the standard deduction

If you are considering itemizing, you should compare your actual expenses to the standard deduction to determine whether it benefits you to itemize.

Ask yourself these basic questions:  

§         Do I own a home and, if so, how much interest did I pay on the mortgage?

§         Did I purchase any big ticket items – motor vehicle, furniture, etc?

§         Did I incur a casualty loss – theft, fire, etc. How much insurance reimbursement did I receive?

§         Did I make significant contributions to a charitable organization? (Do I contribute regularly to a church? Did I donate a large asset to a charitable organization?).

If the answers to these questions are yes, you may want to consider itemizing your deductions because the amount may exceed the standard deduction.

IRS Marks Small Business Week by Showcasing Tools, Resources; Spotlights Tax Benefits Available in 2011

Small Business Week, May 16-20, the Internal Revenue Service encourages those who are self-employed or own a small business to take advantage of certain tax benefits and learn about IRS resources that can help them meet their federal tax obligations.

“When you’re running a business, you don’t need to be a tax expert, too. But you do need some basics to stay tax compliant so your business can thrive,” said Faris Fink, IRS Commissioner for the Small Business and Self-Employed Division. “There are many tax credits and deductions currently available. So now is a good time to learn about the tools and services the IRS offers.”

Here is a link to some of the most useful tools the IRS offers
http://www.irs.gov/businesses/small/index.html

Online Missouri Sales Tax Filing now available

For those of you who have to file and pay sales tax in MO
You can now do so online!

It's much easier than paper filing, calculates your sales tax, updates city rates and codes
and keeps your filed returns on file.  It truly is a nice feature.

Thank you Department of Revenue for making it easier to take our money. :)

https://dors.mo.gov/tax/busefile/login.jsp

Strategies to improve cash flow

STRATEGIES TO IMPROVE CASH FLOW

Keep a close eye on your books
Too many business owners take a quick look at their books and pronounce their finances fit without truly understanding their cash flow situation. While an increase in sales or a solid bank balance may put you at ease, neither one necessarily translates into healthy cash flow. Take time each month to prepare and review financial reports — especially a cash flow statement that specifically details the funds moving in and out of your business. Many accounting software programs (such as QuickBooks or Peachtree) can create these reports for you. Speak with your accountant or financial advisor to learn more about what to look for in these reports.

Pay bills intelligently
One good way to conserve your cash is to make the most of vendor payment terms, which are essentially interest-free loans from your suppliers. Take the maximum amount of time allotted (often 30 or 60 days) to pay invoices — for example, if an invoice is due on the 15th of the month, don’t pay it on the 1st. Many businesses now use electronic bill payment solutions, which let them set the exact date a bill is paid and money is withdrawn from their accounts. Talk with your bank to find out if this option is available to you.


Take advantage of incentives
The only time you should pay a bill early is if you get a discount. Some suppliers may offer an incentive for paying their bills quickly, typically within a week or two. It may be worth taking them up on the offer. Think of it this way — a 2% discount on a 30-day invoice translates into a 24% annual return if the money was invested. If your vendors don’t offer this, ask for it — they may be willing to do so to speed up their own cash flow.

Organize your receivables schedule
Slow-paying customers are the root of many cash flow problems. Don’t let invoices lag. Put yourself on an invoice tracking schedule using your accounting software. Not only can these programs generate invoices, but they can automatically classify accounts receivable by age — e.g. less than 30 days old, between 30 and 60 days, between 60 and 90 days, etc. Review your accounts receivables aging reports frequently so you can take timely action on overdue invoices.


Control your inventory
Money tied up in inventory can dramatically impact cash flow. Retailers and manufacturers are especially vulnerable in this area. Retailers should regularly gauge their inventory turnover ratio (cost of goods sold divided by the average value of inventory) to make sure it is within industry norms. Old or outdated stock should be cleared out through end-of-season sales to turn stale assets into liquid ones. Manufacturers can use supply-chain management tactics to have just enough inventory on hand to keep product lines running and meet customer commitments without tying up critical cash.

Consider leasing
Over the long run leasing costs more than purchasing, but its cash flow benefits can still make it a prudent choice. Leasing computers, cars, and the like lets you avoid tying up cash or lines of credit that might better be used for running your day-to-day business. Lease payments are also considered a business expense, so the tax benefits are maintained even though the items are not purchased.

Check your prices
Make sure your prices keep pace with rising costs. Many small businesses hesitate to increase their rates because they’re afraid they’ll lose customers. Customers actually expect their suppliers to institute small, regular price hikes. Also, check your competition regularly — if they’re charging higher prices, maybe you should, too.

Always get the best deal
One of the biggest cash drains is spending money needlessly. Avoid this by comparison-shopping for products where service and other value-adds are not critical. Buy in bulk to get price breaks for goods you regularly use in your business. Get quotes from competing suppliers for capital equipment. Also, check deliveries against invoices to be sure you’re getting what you ordered and that you’re being charged the correct price.

Healthy cash flow is really about making every dollar count. Make the time and effort to manage your cash flow effectively, and you’ll be on the way to long-term profitability.

Do you manage your cash well?

Without managing your cash - measuring it, investing it, borrowing it, and collecting it -- you can cheat yourself out of extra profits and end up in trouble with creditors and in bankruptcy.

Keeping track of your cash position is essential, because cash flow is the lifeblood of a small business and is fundamental to its existence.  Financial failure is caused by lack of cash, not lack of profit.

Having "enough" cash means having enough cash available at the right time.
Poor cash flow can mean the loss of attractive opportunities such as the chance to buy inventory at bargain prices or to pay vendors early in exchange for discounts.

Cash flow is truly a flow, like the tide. Being aware of the different factors that affect this flow is important. Here is a list of some of the factors that contribute to the crests and troughs of cash flow:
• Nonregular disbursement items such as debt repayment, equipment purchases, and store furnishings.
• Seasonal sales that cause fluctuations in cash receipts and cash payments.
• Variations in biweekly payrolls; some months have three, while others have only two.
• The placing of large orders in order to obtain volume discounts.
• The payment of sales commissions or bonuses at the end of the year.
• Closing the business for vacations or repairs. Cash Crunch Warning Signs Is a cash crunch ahead? Look out for these potential warning signs:
 Cash on hand has been declining for several months
 Receivables are taking longer to collect
 Payables are increasing
 You’re putting aside bills that you typically pay on time
 You’re unable to pay yourself a regular salary
 You’re getting calls from vendors asking about invoice payments
 Your inventory levels are increasing
 You overdraw your checking account expecting new sales to cover it
 You loan the business personal funds to meet routine expenses

Electing S-Corp status and applying for an EIN is easy

1)Electing S-Corp Status is easy
2)as is applying for an EIN

Total time = 1 hour

Tax season 2011 is over

Well, it's that time of the year again.  The end of tax season.  For most tax preparers it's a time of celebration, for almost all taxpayers it's a time of relief.  It's over.  It's done.  I may have had to pay but it's paid and over with.  The tax cloud hanging over my head has now parted and the sun is shining.

As I reflect on this last tax season, I am proud.  I had the opportunity to serve some new clients and to help my beloved current client base (you know who you are), a brilliant marketing mind, Mark Swanson, helped me to start thinking about marketing now and for the future and aided me in taking steps in that direction, and I grew in my knowledge and experience as a business owner.

It's all very rewarding for me.  I love having new experiences; meeting and helping new people.

Assessment: This tax season was a success and the beginnings of many successful seasons to come.

Thank you all for letting me help you with my services

Sincerely,

Joel Eisleben

A movie influenced me to become a CPA

Why I became a CPA/tax preparer?
One of my favorite movies is The Shawshank Redemption - a story of a banker who spends nearly two decades in Shawshank State Prison wrongly convicted of the murder of his wife and her lover.  It's an inspirational story of survival, freedom, justice and perseverance...and Morgan Freeman is in it. What movie with Morgan Freeman isn't a must-see?  You may know how good of a movie The Shawshank Redemption is, but you probably don't know that it inspired me to become a CPA. 

I admired so many of the attributes of the character Andy Dufresne.  Andy quietly hoped, patiently persevered and compassionately cared for others.  I wanted to possess these same attributes.  In the process of Andy's escape, he advises the Captain of a tax plan that would save him tax money.  His help of the Captain led him to "getting in good" with the warden and the prison guards.  He eventually ends up preparing taxes for the entire prison guard softball team and preparing the books for the warden.  I suppose for me, Andy's special tax skills represented his character and smarts.

So after earning a Masters in Accounting and my license as a Certified Public Accountant, I have finally, like Andy, obtained a special skill that allows me to help those around me.  And while there is no license that certifies character, I hope that I've attained some of Andy's characteristics and continue to do so.
The goal of my services is to benefit you with the special skills and knowledge that I've developed over the years.  I want to help YOU!  The best part of what I do is the satisfaction of knowing that I've saved my clients time, reduced their stress and made them some money.

Official Blog to Launch End of March

My name is Joel Eisleben, CPA.  This blog will officially launch on March 29, 2011.  In it, I hope to offer sage advice on streamlining and protecting your assets.