Friday, February 10, 2012

What kind of accounting program?

Q.  Since it's still relatively early in the year, I've decided to bite the bullit and purchase an accounting program. Is one better than the other, and do I need a very comprehensive one, or will a simple program suffice?  I should add that I do consulting work, and occasionally bill for out-of-pocket expenses.

A.  Happy to hear that you've made the commitment to organize your business life. For the vast majority of people, the simplest accounting program will do. Most don't want to get involved with payroll and fixed assets. Let your tax preparer handle the depreciation.

The best advice I can offer is this. Most professionals don't care what type of program you have as long as you use it consistently! So often clients wait until the end of March & early April to send us their "stuff," and at that point, unless you are exceptionally organized, it is almost impossible to get out an accurate return by April 15.  So whether you use a simple spreadsheet, or one of the many off-the-shelf software accounting programs, start with the simplest one (and the least expensive!) program and go from there. Many programs now offer trial programs on line free of charge.

Thursday, February 9, 2012

Minimum Required Distributions

Q.  My wife just reminded me I will be turning 70 1/2 later this year, which means I will be required to withdraw from my IRA. For tax planning purposes, is there an easy way to figure out the actual amount I will be required to withdraw?

A.  Fortunately IRS Pub. 590 has all the information you need; and if you put your mouse over the link I provided, it will take you right there. It's a rather lengthy publication, but has loads of useful information. Note that for married persons with spouses 10 years or more younger, there are separate tables. Please be certain to choose the right table for your situation

Basically you find your age, read the factor on the right and divide the 12/31/xx balance of your IRA by the factor. As an example: Your age is 70 1/2 and the 12/31/11 balance of your IRA is $82,000. The factor is 17. Divide $82,000 by 17 and the answer is $4,823.53. That would be your minimum required distribution. Of course you can take more. The good news is banks and brokerage houses acting as the trustee of your IRA account will more than likely send you a notice of required distribution well in advance of the deadline.

Whatever you do, don't forget. The penalty for non-withdrawal is 50%!!!

Wednesday, February 8, 2012

IRS App Revisited

Tax Tip:  My many emails from the IRS included this link for the IRS2Go App. If you have a smart phone, it may be handy to have. One word of interest, if you sign up for emails and notices, expect to receive several on a daily basis throughout the year. The volume can be somewhat overwhelming!

Tuesday, February 7, 2012

Too much Information!

Q.  I noticed, when reading the instructions for one of the forms I was attempting to fill out, the instructions from the IRS said to also refer to 3 other publications. Why do the instructions refer you to yet more instructions?

A.  Good question! Our tax laws have become so complex, many answers aren't "black and white." There are many conflicting issues, and the IRS tries to point you in the right direction by suggesting you read more related material. This is one reason I have a loyal and (hopefully) grateful clientele! If you're dealing with a real complex issue, I suggest you find a competent professional to help guide you. Many tax returns definitely do not fit the do it yourself category. Even as a professional with 32 years experience, when the issues get really tough, I seek the opinion of my colleagues. I find their fees to be cheap insurance.

Monday, February 6, 2012

Unreimbursed Business Expenses

Q.  Someone told me I can deduct my out of pocket expenses that are unreimbursed by my employer. Quite often I take business contacts to lunch or pick up postage, etc. to take to the office. Is this true?

A.  Unreimbursed business expenses as you mentioned may be deductible if you itemize your deductions. The catch is it must be a requirement of your employment, be ordinary and necessary, and be substantiated on a contemporaneous basis. Other restrictions may apply, so seek competent advice as this is an area known for abuses, which the IRS just loves to audit.