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.

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The Tax Extenders Bill has been extended!

The Senate finally passed the Tax Extenders Act for 2014…. so you have 13 days left to do it.

Although President Obama has yet to sign it into law, he is expected to by the end of this week.

Here are some of the provisions the team at Hauk Kruse & Associates believe may be important to you:

  1. Tax-free distributions from individual retirement plan for charitable purposes: IRA owners age 70-1/2 or older may exclude up to $100,000 per year from gross income if IRA funds were paid directly to most public charities.
  2. Tax deduction for state and local general sales taxes in lieu of state and local income taxes: Taxpayers may deduct state and local general sales taxes paid rather than state and local income taxes paid.
  3. Section 179 expense increase: Small and mid-size business owners can immediately deduct up to $500,000 of qualifying assets rather than over time according to depreciation schedules.
  4. Bonus depreciation: The depreciation expense on new business equipment is 50% in the first year, plus regular depreciation on the other 50%.
  5. Mortgage debt forgiveness: If the bank forgives all or a portion of your qualified personal residence, you do not have to claim it as income through the end of 2014.
  6. Tax credit for residential energy efficiency improvements (including certain appliances): Homeowners can claim a one-time only energy-efficient home improvement tax credit of up to $500 for the installation of qualified insulation, windows, doors, roofs, water heaters, and heating and air conditioning systems.
  7. Tuition and fees deduction: Qualifying taxpayers are allowed to claim up to $4,000 in education expenses (tuition, enrollment expenses, attendance expenses, student-activity fees, and books/supplies fees).
  8. Research and Development credit: The R&D credit has been extended through the end of 2014.
  9. Deduction for mortgage insurance premiums: Congress allows for a tax deduction for the cost of PMI for homes and vacation homes through the end of 2014.
  10. Educator expense: Eligible educators will receive a deduction of up to $250 for unreimbursed expenses paid for supplies and equipment used in the classroom.

While the passing of this bill is excellent, it should be noted that this could once again mean a delayed tax season.

For a full list, read the full bill summary at Congress.gov.

If you have any questions, feel free to call us at 314-993-4285 or e-mail us at office@hkaglobal.com

Tax Return Forget Me Nots

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Before you submit your tax documents to your accountant for completion of your tax return, take a look at the top 5 most commonly overlooked items below to make sure you’ve included everything:

1. Long term care insurance:  Missouri allows for a deduction from taxable income for a portion of your long term care insurance. Many other states allow a deduction or sometimes a tax credit for these premiums.  Although this is one of the questions in the full version of the organizer, because we are so conditioned that medical expense is limited to 10 % of AGI, we forget that the state may allow for some benefit of these itemized deductions. Long term care insurance should be included on your return to take full advantage of this opportunity.

2. Electronic 1099s:  Many brokerage firms now have the option of sending your 1099s directly to your CPA.  All firms are different, but you may be able to save our email address as your CPA in your brokerage online account and have the 1099s securely emailed to us when they are ready.

3. Business expenses and AMT:  The top marginal tax rate is now 39.6%.  This could mean you are out of the Alternative Minimum Tax (AMT) now or will be in the near future.  While you were not deducting any unreimbursed business expenses while in AMT, now you could deduct them.  If you do not track and send them to us, you will not deduct them.  Remember to send us all business expenses (including mileage driven) with your tax documents so you are not missing out on these deductions.  Also, although there are a few states that do, most states do not have AMT so your expenses would be deductible on the state side even if you are still in AMT so go ahead and send everything to us even if you think you will be in AMT.

4. Non Cash Charitable Donations:  Donating items to charities such as the Salvation Army or Goodwill can save you substantial tax.  Websites such as www.itsdeductible.com and www.satruck.org/valueguide give the approximate values of used furniture, clothing, or appliances.  They make what used to be a difficult process, tracking values of donated items, easy and it will save you real money.  Many times, the values these websites give for items in good condition are higher then you may expect.

5. Charitable Mileage and Supplies:  If you use your vehicle for charitable organizations, you can deduct these miles as charitable donations.  If you purchase supplies on behalf of a charitable organization to use at an event, these are charitable donations.  There is a place on your organize for each of these items so remember to include them if they apply to you.

Thanks for allowing the HKA family to work with you again this year on your 2013 tax returns.  If you are not currently a client and wish to learn more about us and what we can do for you, please click here.

Purchase Real Estate with A Self-Directed IRA

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It is a known fact that you cannot use your Individual Retirement Account (IRA) to invest in real estate.  Although this is true with a traditional 401(k) or traditional IRA, you can invest in real estate through the use of a self-directed IRA.

A self-directed IRA is an IRA like any other under IRS guidelines in terms of annual contributions, required minimum distributions, and types such as Traditional, ROTH, Simple, and SEP.  While most traditional IRAs limit your investments to publicly traded securities, self-directed IRAs are open to almost any investment, except for life insurance, collectibles, and S-Corporations.

Below are some key points you should review before you decide to use your self-directed IRA to purchase real estate:

  1. The property must be a new purchase directly into the IRA and cannot be a property you already own or a personal residence.
  2. You must have enough cash to purchase the property.  You cannot take out a mortgage in your IRA to finance the purchase.
  3. You cannot borrow money from the property or use it as security for a loan.
  4. You and your relatives are barred from occupying or working on the property.  If you are considering renting the property, you need a property manager to find tenants and all expenses for repairs and improvements must come out of the IRA.

While it is possible to use a self-directed IRA to purchase real estate it may become more complicated to manage its use than if it were purchased and operated outside of the IRA.

Feel free to give us a call if you have any questions or want to discuss this further.

Are you ready for tax season? The IRS is not….

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The IRS has delayed the start of the 2013 tax return processing year.  The original date the IRS would begin processing income tax returns was January 21. The earliest tax returns will be processed is January 28, but they have the option of beginning as late as February 4.

What does this mean?  Normally when the Service delays the beginning of the tax season it goes glove and hand with a delay in the approval of tax forms.  If they won’t accept a return to process until January 28, it’s a good bet that the forms won’t be approved until then also.  This avoids any issue with someone filing a tax return too early. 

This delay will indeed trickle down to corporate and partnership returns.  Forms for those returns were not approved until the end of February 2013 for the 2012 tax return filing season.

 These backlogs create problems for the IRS as they will normally get a tremendous flow of returns in the remaining days of the tax season (the start date has been delayed, not the due date, that is still April 15 for 1040 filers).  This return flow outstrips their ability to process returns and historically leads to e-filing and paper filing delays and outages in their systems.

What should you do?  Get you information into us as soon as possible.  We can have your information loaded and ready to process for when the forms are approved and get your e-file refund back to you as soon as possible.

The New IRS and Contracted Employees

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The new IRS and Contract Employees!

2012 is a new year. The same technology which has aided each of us in accomplishing amazing personal and business goals in 2011 is no longer the same in 2012, it continues to change. Technology is more interactive, capable of intuitive manipulation and interwoven into the very framework of our personal and business lives.

As we consider these grand marches, please do not believe the Internal Revenue Service (IRS) has stayed connected with the past. The IRS continues to progress in a massive installation and upgrade of it’s technology and the people who use it. No longer a cost center, the IRS is now a profit center for “the people”.

Small business should prepare itself to be more diligent with filing informational and tax forms. The most important area of consideration is in employment taxes. The IRS is increasing their technological scrutiny of forms and their interconnectivity. Payroll forms 940, 941, and W2 should all tie together, but often enough they do not.

This scrutiny involves all aspects of employment, including and of special interest, contract employees. If you or your business rely on contract labor, check your facts of employment against the contractor test to make sure you are claiming them appropriately.

Do not believe the IRS is the same entity of 2011 or 2010. The Service is faster, smarter, and better equiped to do their job than ever before. The newer smarter IRS has a voracious appetite to assess penalty and interest and is reluctant to abate after assessment.

Comparing the IRS of today with that of five years ago would be like comparing my first Radio Shack computer in 1984 to my son’s Xbox-Live.