Annual Letter

David Gitel CPA, EA
Certified Public Accountant
1560 Broadway, Suite 1210 New York, NY 10036
Phone: (212) 840-2797,  Fax: (212) 840-2817,   E-Mail: dgitel@aol.com

New York State Society of Certified Public Accountants
IRS Licensed in All States

December 17, 2013

Dear Client,

TIME AGAIN FOR THE ANNUAL DRILL.

THE IRS IS GETTING MORE AGGRESSIVE WITH PENALTIES
Most states are also deep in debt and they are also going to be very aggressive with higher taxes and penalties. They will from time to time send out incorrect bills. If you get a bill, call me.

DO YOU HAVE A PARTNERSHIP OR A SUB S CORPORATION?
It is really important that all returns are filed on time or have valid extensions. Late penalties for partnerships and Sub S Corporations are very large.

NEW YORK LICENSED PROFESSIONALS
New York is going to be very diligent about making sure that any New Yorker with a state professional license has filed their returns or has a proper extension.

DO YOU NEED TO ISSUE 1099s TO PAYEES?
If you have a business or freelance income of any sort and there are people to whom you paid $600 or more to for the year, you have to send them a 1099 by Jan 31 and a set of matching documents to the IRS by Feb 28. You will need the payee’s name, address, social security number, and the amount paid. Not only individuals get 1099s. An LLC gets a 1099 as does a non-LLC partnership, or any kind of law firm. Corporations do not get 1099s. People who, because of their conditions of employment, qualify to be treated as employees need proper payroll filing, withholding, insurances, and are issued W-2s. A 1099 is only for people you pay of whom you are a client i.e., website maintenance, carpentry for business, legal, accounting, consulting, etc..

DO YOU HAVE A NY LLC?
Either as an individual or as a partnership. There is a New York filing requirement for all LLCs. Form IT-204LL. The amount of tax is based on your 2012 gross income and the form is due Feb 28, 2013. The form is also due for non LLC partnerships that have a million dollars or more in gross income. Give me a call if you need to do the form.

SAME SEX MARRIAGE
We are pretty much there. If you were same sex married in any state that allows same sex marriage, then we file a joint federal. If you live in a state that allows same sex married then we can also file a joint state return. Or we can file married filing separate returns. No more single returns. For some the tax might be lower than if you were still single, for some the tax might be higher.

RETIREMENT PLANS
Once a year has ended, there’s not much you can do to affect your taxes except for opening either an IRA or a SEP retirement account. You have until April 15th to open an IRA or a SEP. If you file an extension, it extends the time for opening and depositing into a SEP but does not extend the time for opening or depositing into an IRA. There are all sorts of income restrictions if you are already covered by an employer or union pension plan. So, if you are opening a new IRA give me a call. Rolling an untaxed IRA into a Roth IRA creates a taxable event. I generally recommend it only when you’ve had a horrible year financially and are in a very low tax bracket or maybe no tax bracket at all. In that case you can rollover some IRA money into a Roth almost tax free. Otherwise paying tax at a high rate now so that you save tax at a low rate (in retirement) may not be the best move.

FOREIGN ISSUES
Penalties for improper filing or non-filing are spectacular.
Let me know:

  • If you have a foreign bank or brokerage account, if you earned any interest or dividends, or made sales.
  • If you have an interest in a foreign business.
  • If you were given a gift or got an inheritance from overseas.
  • If you sold any property overseas.
  • If you have an insurance policy of any sort in another country.

SALES TAX
If you live in a no income tax state TX, FL, WA, NV, AK, TN, NH, WY, we should deduct the sales tax you paid over the year. There is a table based on income, but if you had some large purchases it might pay to make a list and a total of the tax paid. This deduction goes away in 2014.

NEW YORK STATE SALES TAX ON INTERNET PURCHASES
If you have a lot of internet purchases of what would normally be sales taxable and have the merchandise shipped to NY, NY wants the sales tax on those purchases sent in as part of your tax return. So, add them up and let’s tell NY. Don’t count sales where you paid sales tax to the other state.

EXTENSIONS
NOW THIS IS IMPORTANT
You don’t have to pay with the Federal extension. You will avoid the 5% per month late filing penalty. However if you owe tax with the eventual federal return you will still be charged a combined late payment penalty and interest of about 1% per month of the amount owed. So if you know you are going to owe to the Feds pay what you can.

The states however require at least 90% of the tax to be paid with the extension. If you expect a refund there is no problem. Otherwise, if you expect to owe money to the states it is necessary to send payment in with the extension. A New York resident that does a lot of work in a non-tax state, or a low tax state, or gets other untaxed income will probably owe tax to NY. New York wants the extension payment paid electronically. We will need your bank routing and account numbers.

A return, Federal or State, filed late without an extension will be charged a penalty of 5% per month of the balance due on the tax return.

EXTENSION DEADLINES
The personal extensions are due April 15, 2014, extended until October 15, 2014
The Partnership extensions are due April 15, 2014, extended until Sept 15, 2014
The Corporate extensions are due March 17, 2014, extended until Sept 15, 2014

PLEASE HAVE ALL YOUR INFORMATION TO ME NO LATER THAN APRIL 3, 2014
The earlier the better. Otherwise, an extension is necessary. The IRS asks no questions as to why an extension is requested. It is automatically granted and causes no eyebrows to raise. Please call me if we need to do an extension.

* VERY IMPORTANT *
The most common problems that hold up completion of tax returns:

  1. If you sold stocks or mutual funds, we don’t have the purchase date and cost info. Call your broker to see if they have the information. Ask for a schedule of realized gains and losses.
  2. We don’t have social security numbers for newborns or ID#’s for babysitters/child-care centers. We also need the names, addresses, and amounts paid to the babysitters/child-care centers.
  3. We don’t have the square footage info for business use of home office.
  4. We don’t have mileage info for business use of cars.
  5. We don’t have the dates for out of town business travel.

COLLEGE EXPENSES
Let me know if you paid for college tuition and expenses for kids or for yourself. Did you go to grad school? If the courses are graduate courses and related to your current profession the tuition may be deductible.

RECEIPTS AND LETTERS ARE NEEDED FOR CHARITY DEDUCTIONS
If you gave cash, put money into the plate in church, dropped a couple of dollars in the Salvation Army kettle, you will need to get a receipt. No more just writing it down in your diary or a heartfelt say so. If you gave $250 or more at one time it is necessary to get and keep letters from the charity. The IRS is strict about the letter. It has to say that you received no goods or services, or actually give a value for the goods and services received. The letter must be dated before the date the return is filed.

WHAT TO BRING TO THE APPOINTMENT
W-2s, 1099s, records of stock sales, interest and dividends. There is no rule about how you organize your expenses but the best way is by category, not by date or project. You don’t have to bring all the receipts for expenses, just a list. Bring anything you are not sure about.

THE FEDS ARE DOING MORE AUDITS
Especially for the higher income brackets. So, make sure you keep all your cancelled checks, credit card receipts and statements, out of town contracts, and other info in good order for at least three years after the due date of the tax return. The IRS can ask for your QuickBooks and other electronic record keeping data.

The IRS has three years to audit a return. The normal due date for a personal return is April 15 unless extended to October 15. If filed by April 15, 2011 the 2010 return cannot be audited after April 15, 2014. If extended, the 2010 return filed by Oct 15, 2011 cannot be audited after Oct. 15, 2014. The IRS is doing a lot of correspondence audits from Memphis and Cincinnati. Having experienced a few, I can tell you that they don’t understand the New York lifestyle and the process is lengthy. It usually winds up with no problems but be prepared to a lot of photocopying. If you get a letter let me know. New York State is doing a lot more audits than they did in the past. They are all correspondence.

THE HEALTH CARE ACT
The health care act kicks in for 2014. You should go to healthcare.gov and NYStateofhealth.NY.GOV (or similar site for your state) and browse around. Make sure your doctors and hospitals take the insurance. You need to be covered for nine months to avoid a penalty. If you are single with $45,960 or less income, or married filing jointly with less than $62,040 (increasing with greater number of kids) you will qualify for some tax credits to help pay the premiums. The credit is based on the Silver level insurance. The penalty for not having insurance in 2014 is $95 or 1% of income, after exclusions, whichever is greater. It goes to 2% of income for 2015 and 2½% for 2016. The IRS will take the penalty from your refund. They can’t place levies or liens.

EMPLOYER REQUIREMENTS
The employer requirements under the health care act kick in 2015. Any employer with 50 or more employees has to cover them with acceptable insurance. The employees cannot Contribute more than 9.5% of their income. The penalties for not having proper coverage is $3,000 per employee above the first 30 employees. It is a government penalty. It passes through the corporate or LLC shield and bankruptcy does not eliminate it. An employee who works less than 30 hours per week does not need to be covered, nor an employee who works less than 120 days.

ELECTRONIC FILING
This year, as last year, we are required to do electronic filing. Refunds come a lot faster if they are directly deposited into your bank account. When you get your tax return packet, review the return and make sure you send us the signed E-File allowance forms. We can’t file without the E-File forms.

OFFERS IN COMPROMISE
If you owe a spectacular amount to the IRS it might be possible to do an offer in compromise. The offer is based on your current assets and your after tax cash flow. The IRS has instituted more reasonable guidelines. However, if you don’t need an offer they won’t accept one. If you listen to those middle of the night advertisements for tax help, you should listen closely to the quick speak —“if you qualify.” Most don’t qualify. But if you do, it could be a great savings.

IRS Pfishing Scams
If you ever get an e-mail saying something like you have $145.62 in a refund coming, it’s fake. It is a pfishing scam trying to get your personal information. Neither the IRS nor the State will ever e-mail you about anything. If you get a call from a particularly harsh IRS collection agent it may be fake, it may not be fake. If they threaten you with jail it is fake. If you are not satisfied with their legitimacy don’t give them any information. Take their phone number and tell them that you will give their number to your accountant who will have a power of attorney. I will call them the next day. You could call the IRS (800) 829-1040.

PRIVACY POLICY
I am required to tell you about my privacy policy. I don’t tell anybody anything to do with your return, your finances, or any personal information, except where required by law. There are a few issues that arise, like mortgage applications, but that is done on an individual basis and always initiated by you. I will need your approval in writing before any information is given out.

If you have any questions about what’s deductible, recordkeeping, new tax laws, the healthcare bill, please feel free to call.

I hope all is well with you, and I look forward to seeing you.

If you are sending me the material, please review the attached worksheets.

David Gitel, CPA