Last Date to Open IRA, SEP, and Keogh Retirement Plans

 Keogh plans must be opened up by December 31 of the year for which you plan to make contributions. Once the account is open, you can contribute up until the deadline, including extensions.

The rules are different for other retirement accounts. For the 2012 tax year, you can open up and make a deductible contribution to a traditional IRA (assuming you meet the qualifications) right up until April 16, 2013.

Small business owners can set up and contribute to a Simplified Employee Pension (SEP) plan up until the due date for their returns, including extensions.

Contact us for help with retirement accounts and other tax matters.

IRS Reminds Small Business Owners about Lucrative Tax Breaks

Small business owners should check out two key tax credits and a special relief program that could provide significant tax benefits during 2012.

The expanded credit for hiring veterans and the credit for employer-provided health care coverage can provide tax savings to eligible small businesses when they file their 2012 federal income tax returns. In addition, substantial relief from past payroll tax obligations is available to eligible employers who agree to reclassify their workers from independent contractors to employees in the future.

Here are details on each of these items from the IRS. 

- Expanded Tax Credit for Hiring Veterans

A tax law change enacted late last year now provides an expanded Work Opportunity Tax Credit (WOTC) to employers that hire eligible unemployed veterans. The credit can be as high as $9,600 per veteran for for-profit employers or up to $6,240 for tax-exempt organizations. The amount of the credit depends on a number of factors, including:

• The length of the veteran's unemployment before hire;
• The hours a veteran works; and
• The amount of first-year wages paid.

Employers who hire veterans with service-related disabilities may be eligible for the maximum credit.

Certification requirements apply to these new hires. Normally, an eligible employer must file Form 8850 with the state workforce agency within 28 days after the eligible worker begins work. But under a special rule, employers have until June 19, 2012, to complete and file this form for veterans hired on or after November 22, 2011, and before May 22, 2012. The 28-day rule will again apply to eligible veterans hired on or after May 22. This form can be faxed or electronically transmitted to the state workforce agency, as long as the agency is able to receive the certification forms that way.

- Small Employers' Health Care Coverage Tax Credit

Small employers that pay at least half of the premiums for employee health insurance coverage under a qualifying arrangement may be eligible for the small business health care tax credit. Enacted two years ago, the credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have.

Eligible small employers can claim the credit for 2010 through 2013 and for two additional years beginning in 2014. Targeted to small employers that primarily employ low and moderate-income workers, the maximum credit in tax-years 2010 through 2013 is 35 percent of premiums paid by small businesses and 25 percent of premiums paid by tax-exempt organizations, increasing to 50 percent and 35 percent, respectively, in 2014.

If you have questions about the veterans' tax credit or the small employers health care coverage tax credit, contact your tax adviser. 

- Payroll Tax Relief for Some Businesses

Many businesses can now resolve past worker classification issues by voluntarily reclassifying their workers at a relatively low tax cost.

Already, the IRS reports, 540 employers have been approved to participate in the new IRS Voluntary Classification Settlement Program (VCSP) since it was launched last September.

The VCSP is available to many businesses, tax-exempt organizations and government entities that currently treat their workers or a class or group of workers as non-employees or independent contractors, and now want to treat these workers as employees in the future. To be eligible, an employer must:

• Consistently have treated the workers in the past as nonemployees.
• Have filed all required Forms 1099 for the workers for the previous three years.
• Not currently be under audit by the IRS or the Department of Labor or a state agency concerning the classification of these workers.

Here are the results for employers accepted into the program:

• They will pay 10 percent of the amount of employment taxes that would otherwise have been due on compensation paid for the most recent tax year to the workers, calculated under the reduced rates of section 3509 of the Internal Revenue Code.
• No interest or penalties will be due.
• The employers will not be audited on payroll taxes related to these workers for prior years.
• Participating employers will, for the first three years under the program, be subject to a special six-year statute of limitations, rather than the usual three years that generally applies to payroll taxes.

If you are interested in participating in the IRS program, contact your tax adviser. It may not make sense in some situations.

Here are some of the potential risks.

• There are other routes to take with the IRS that might result in better outcomes for some employers.
• Participation in the voluntary program with the IRS might open an employer to audits and penalties by state agencies that view participation as an admission of wrongdoing.
• Employees themselves may react against the employer. An independent contractor worker whose status is changed to employee may consider making a claim against the employer for a variety of benefits, such as previously unreimbursed health insurance benefits, for inclusion in an employer's pension plan, and for unreimbursed business-related expenses.
• Reclassifying an independent contractor as an employee might expose the employer to state legal liabilities. For example, an independent contractor injured while performing work for the employer would not be eligible for workers' compensation benefits. Suppose then that two months after incurring an injury, a worker is reclassified as an employee. That person now has an opportunity to claim workers' compensation benefits.

Warning: These risks highlight how imperative it is for an employer to first consult with an adviser familiar with tax law, worker classification law and labor law before acting to pursue the VCSP program with the IRS.

Is This Your Situation — Getting a Divorce?

Divorce is a painful emotional experience -- and without proper planning, it can also be a disastrous financial event. Take a look at some of the most important considerations: 

• How much will it cost to live after the divorce? Will you be able to financially survive?
• Will alimony be paid and for how long? (Keep in mind that alimony is deductible by the spouse paying it and taxable to the spouse receiving it.) What about child support?
•  Which parent will get to claim the dependency exemption for the children?
• What about financing the children's college educations?
• Should one spouse keep the house?
• How will your retirement accounts be split? (It is critical to discuss a "Qualified Domestic Relations Order," which establishes a legal right to a portion of a retirement plan and ensures that your ex-spouse is responsible for paying the income taxes on any distributions that he or she receives. Without a QDRO, you could wind up paying the tax bill.)
• Are there potential hidden assets?
• If you or your spouse owns a closely-held business, how will it be valued?
• What are the tax consequences of property settlements?

These are only some of the questions that need to be answered. Keep in mind that once a divorce settlement is final, you will be unable to change many of the provisions.

Contact our firm. We can help ensure you get the most equitable divorce settlement possible. Now is the time to get expert advice

Is This Your Situation — Overpaid Sales and Use Taxes?

There are several situations that may cause overpayments of sales and use taxes. For example, in many states, field auditors have become more aggressive about assessing taxes, penalties and interest -- which, in turn, has caused retailers and suppliers to be aggressive about charging sales tax to avoid audit deficiencies.

In some cases, sales tax may be charged even when a sale is exempt. Or the tax may have been inappropriately charged because no exemption claim was made or an invalid exemption certificate was submitted. Either way, the purchaser ends up paying tax that was not legally due.

To make matters worse, many organizations operate across state lines, which multiplies their tax compliance responsibilities. Your company may have internal compliance controls, but they may not be able to keep up with the changing landscape due employee turnover, expansion, or other factors.

To remedy these shortcomings, your company could benefit from a "reverse sales and use tax audit." Don't confuse this with the audits performed by state revenue auditors looking to see if sales or use taxes were underpaid. In a "reverse audit," a tax professional looks to identify and recover tax overpayments.

Contact our firm for information about conducting a "reverse audit." We can take a comprehensive look at your organization's activities and transactions. We look for refund opportunities, identify weaknesses in your sales and use tax compliance system, and offer recommendations on how to improve it.

Hidden Profits — How to Find Them?

In good economic times or bad, it's often difficult for companies to grow their way to bigger profits. So there's much to be gained by learning how to be more profitable without getting bigger. We help clients achieve profit enhancement -- regardless of their size and no matter what business they're in. 

Consider a Profit Audit

It's amazing how many companies have marketing plans,and perhaps business plans that they can show to bankers. But very few have taken the extra step of developing profit plans that can explain to the bankers what their real profit potential is down the road.

 

Important: Traditional profit projections, based on a previous quarter's or the previous year's performance, are very limiting. When a company or a salesperson reaches those budgeted goals or exceeds them slightly, there's an inclination to sit back and do nothing more.

 

Much better: A profit plan that incorporates a continuous incentive to improve. Think of it as reaching for the stars -- you may never get there, but you'll get a lot farther than if you failed to try.

 

To come up with new profit ideas for clients, we examine each of the five areas of the business -- sales and marketing, personnel, financial matters, operations, and issues of organization. It is not unusual to find hidden profit potential in all of these areas. But we find most companies are strong in some areas and weak in others.

Our job is to build up the weak areas so that instead of dragging down profits, they can contribute and even become profit centers. Here are just a few ideas:

- People Potential. You may think an obvious way businesses can save money and improve profits is to lay off employees. We find, however, that layoffs are often ineffective and usually aren't necessary.

With most companies, the problem is not too many people, but too much unnecessary work. One of our favorite rules of thumb: There's nothing more unprofitable than doing unnecessary work more efficiently.

- Pricing Opportunities. In today's low-inflation economy, many companies are complaining about their inability to boost profits by raising prices. But there are often ways to do this when a company knows which products or services its customers value most

Another idea: Have you performed in-depth customer research? In our experience, surveys result in adding or dropping products or services, as well as re-pricing them.

"Barbara Walters" Questions

One effective technique for discovering hidden profit opportunities is to answer a series of "Barbara Walters" questions. They are tough to dodge and force you to be honest. For example:

• What does our company do best? If no one knows, there's an obvious problem. Working toward a good answer, though, usually results in strategies that boost clients' core operations and thus increase profits.
• What products or services should we eliminate? Everyone in management probably has an answer, but no one has asked for it. When the tough answers come out, unprofitable activities can be eliminated and profits can soar.
• Exactly who are our customers? Money is often wasted on efforts to reach the wrong people. Analyzing customers in terms of profitability is a powerful way to cut marketing waste and again, increase profits.

Are you maximizing your company' financial performance? If not, try the ideas listed here. These are only a few of many we can assist you with. Please feel free to contact our firm to help revive or jump start your bottom line.