Tips For Stacking Your Retirement Plans

twojobsIf you receive side income from a second job, now is the time to start adding to your retirement nest egg! Of course, this can get a bit tricky: based on the type of side work you perform, you need to evaluate which plan you need to open (if any) and how much money you can put into it.

The team at Hauk Kruse & Associates is here to give you a few pointers.

Types of retirement plans:

If both of your jobs are through employers that sponsor 401(k)s, you probably don’t need to open another retirement account, but it is important to check that you’re coordinating your contributions to the two plans.

If you receive side income from a consulting job or self-employment, you can either fund a solo 401(k) or a SEP-IRA. *It is important to know that just because a solo 401(k) is the best option for one year, it does not necessarily mean it is the best option for the next year.

How to determine how much money you can put into each of your plans:

For your 401(k) offered by your day-job or for a solo 401(k), you can put away $18,000 (or $24,000 if you are 50+ years old) in 2015, with a maximum of $53,000 for 2015.

The SEP-IRA is typically the best option for someone who has already maxed out a 401(k). For a SEP-IRA, you can put up to 20% of your net earnings, after subtracting the 1/2 of your Social Security and Medicare taxes that are deductible, with a maximum of $53,000 in 2015.


This marks the last Retirement Tuesday post! Please feel free to  please contact our office at 314-993-4285 and talk to one of our CPAs if you have any questions on retirement!

 

Why Are We Afraid of Gift Tax Returns?

gift-taxGift tax returns are required when your gifts to family members, friends, and other non-qualified charities exceed your annual gift exclusion.  The annual exclusion for both 2014 and 2015 is $14,000.  There are a number of ways to give more by combining spousal gifts and making gifts within a family unit.  Beginning with 2015, the tax on a gift tax is not triggered until your combined lifetime gifts exceed $5.43 million.

So why are people reticent to file the return?  There are three primary reasons:

  1. Alerting the IRS to a gift
  2. A confusion about a penalty or tax if the annual exclusion is greater than the limit
  3. Filing another form.

Let’s consider each of these individually:

  1. Better to alert them now while you know exactly what and how much you gave than shift this to your heirs upon your death.
  2. There is no tax or penalty just because you gave more than $14,000 unless you hit the lifetime limit.  We should all aspire to hit the lifetime limit!
  3. The form can be detailed, but is normally not complex to complete.

So, lets get these filed and make sure the IRS doesn’t make your heirs do so!  Waiting until then could cause problems with your estate planning and cost lots of money.

If you have any questions or concerns regarding gift tax returns, please don’t hesitate to give us a call at 314-993-4285 or email us at office@hkaglobal.com

Renting Your Vacation Home

renting-vacation-home

A vacation home can be a house, apartment, condominium, mobile home or boat. If you own a vacation home that you rent to others, you generally must report the rental income on your federal income tax return. But you may not have to report that income if the rental period is short.

In most cases, you can deduct expenses of renting your property. Your deduction may be limited if you also use the home as a residence.

Here are some tips from the IRS about this type of rental property.

• You usually report rental income and deductible rental expenses on Schedule E, Supplemental Income and Loss.

You may also be subject to paying Net Investment Income Tax on your rental income.

• If you personally use your property and sometimes rent it to others, special rules apply. You must divide your expenses between the rental use and the personal use. The number of days used for each purpose determines how to divide your costs.

Report deductible expenses for personal use on Schedule A, Itemized Deductions. These may include costs such as mortgage interest, property taxes and casualty losses.

• If the property is “used as a home,” your rental expense deduction is limited. This means your deduction for rental expenses can’t be more than the rent you received. For more about this rule, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes).

• If the property is “used as a home” and you rent it out fewer than 15 days per year, you do not have to report the rental income.

If you are renting your vacation property and want to discuss the tax benefits and/or liabilities give us a call at 314-993-4285 or email us at office@hkaglobal.com

Cost Accounting: What Is It and Why Is It Important?

cost-accountingIf you are a small business owner, chances are that you depend on a timely set of financial statements (a balance sheet, income statement, and cash flow statement) prepared using generally accepted accounting principles, or GAAP, to provide you with a multidimensional view of the company’s financial health. That being said, there are most likely a series of other improvised reports that you run (probably on a spreadsheet) because the financial statements are not as useful when it comes to the day-to-day running of the business. By design, GAAP is continually being molded into a set of rules to report transactions in a way that fairly represent an entity’s business performance.  Lenders and investors have come to rely on this form of presentation so this has become the standard.  While there is no question of the value of financial statements prepared under GAAP, to more effectively manage your business you need different information to supplement those financial statements. That is where cost accounting comes in.

At the highest level, cost accounting is the branch of accounting that focuses on the assignment of costs. A critical component in the management of any business is developing the true cost of producing a product or delivering a service. By way of multiplication and division, it is relatively easy to assign direct costs (labor and supplies) to a product.  However, it becomes trickier when trying to apply costs that are indirectly related.  For example, what portion of the phone bill or administrative staff salary should be applied to a unit produced?  How do you factor in downtime due to routine maintenance? How should overhead be applied if multiple products use many of the same resources? The ability to properly apply indirect of a product or service creates an opportunity for you to see the true cost of operations as well as to objectively quantify profitability per product or service. Fortunately, methodologies have been developed to address these and countless other issues faced by business owners every day.

Cost accounting can provide you with data to supplement the information you are currently receiving from your financial statements; this allows for more effective budgeting and planning, and will improve your internal control.  If you have not yet implemented a cost accounting system into your business, we encourage you to consider doing so.

If you have any questions regarding cost accounting, please give us a call at 314-993-4285 or email us at office@hkaglobal.com

7 Most Forgotten Items

Don't Forget

As tax season nears a close, it’s important that you remember to send your tax preparers (that’d be us!) all necessary items. Making sure you are giving your CPA all of your information makes the process of preparing and completing your return go smoother and faster, and makes sure that nothing gets left out.

Below we’ve listed the top 7 items that get forgotten most:

  1. Cost basis for stock sales
  2. Estimated payment values and dates of contribution by municipality
  3. Non-cash charitable donation values
    *if you need help deciding the value of an item, head to www.itsdeductible.com
  4. Last pay stub
    *it has important information that your W-2 doesn’t have
  5. Long-term care insurance
  6. 529 plan contributions
  7. Deferred compensation or stock option pay-outs

If you have any questions or you realize that you forgot to give us some important information, please call us at 314-993-4285.

The Truth Behind Extending.

now-laterMost people have the following beliefs about extending the due date for their tax return:

  • The IRS puts people who extend on a list of “people to watch”.
  • Extending is a “red flag” for the IRS.
  • Extending creates a higher risk of an audit.
  • Extending is a bad and scary idea.
  • You must pay a penalty for extending.
  • It is better to file on time with inaccurate or incomplete information and then amend later.

All of these beliefs are false.

The truth is…

  • It is better to extend your tax return than to amend it later, especially if you are getting a refund.
  • Filing your tax return when you do not have all of the information needed and then amending later IS a red flag and puts your under closer scrutiny than if you were to extend.
  • There is no penalty for extending, although there is a penalty for paying late. If you think (or know) that you are going to owe, we can do a calculation for the tax due and you can make an extension payment to mitigate any interest that will occur between April 15th and when you are able to file your return.

If you would like to extend your tax return or you have any questions about extending, please give us a call at 314-993-4285 or email us at office@hkaglobal.com.

Importance of Electronic 1099s

electronic-1099The IRS has now made the electronic filing of 1040s mandatory (except for certain cases). Therefore, electronic tax documentation has become extremely important to tax preparers.

During one year a taxpayer may have bought and sold hundreds of stocks which each produce a transaction on Form 1099-B. This can create a document that easily exceeds 50 pages.

The IRS requires that either:

  • every sale transaction be reported separately on your tax return,
  • or that documentation be attached to the return if summary data is used instead.

Due to this requirement and the requirement to file electronically, we are asking our clients to send your 1099s from your investments to us in PDF form. This will allow us to electronically attach the document to your tax return.


 

If you have any questions regarding electornic 1099s, please don’t hesitate to call us at 314-993-4285 or email us at office@hkaglobal.com.

Sale of Master Limited Partnerships (MLPs)

logoLast year, the master limited partnership Kinder Morgan Energy Partners (KMP) was purchased by the corporation Kinder Morgan, Inc. (KMI). There are tax consequences to this sale.

The proceeds from this sale could have been paid out in three ways: common stock in KMI, cash, or a combination of the two. Regardless of how you received the compensation for your KMP units, the tax implications are the same.

In order to determine the taxability of the sale, you will need to know your basis in the units you owned. Your financial advisor will be able to run a report showing all units purchased. Be sure you include any distributions from KMP that you reinvested.

There will be three components of gain or loss from the sale of KMP units: capital gain, ordinary gain, and ordinary loss. All of these hinge on your basis in the units and how you reported income or loss from KMP on your tax return for each year you owned any units.


 

We would be happy to discuss any question you have on the taxability of the KMP sale or anything else. Place call the office at (314) 993-4285 at any time or email us at office@hkaglobal.com.