Tax Planning for 2017

Want to talk to a CPA about how to handle a big windfall in 2017?  Estimate what you’ll pay in taxes if you exercise those stock options? Do normal, intelligent tax planning?

Unhappily, 2017 is not a normal year.  Donald Trump and the Republican party campaigned on the promise to make major changes in the tax policy.

The victors in the election campaigned on the promise that they would cut the top tax rates.

They wanted to simplify the tax code, too. What “simply” means is not certain, but Mr. Trump’s proposal included the idea of limiting some long-cherished deductions.  Charitable deductions would be capped at $100,000 per person, for example.

Man stares into a crystal ball to see the futureUnfortunately for planning purposes, we do not know yet if cutting the tax rates and adoption of the other plans put forth by Mr. Trump will be done all in 2017. Moreover, the campaign promises of the Republicans in Congress differ from what Mr. Trump said he wanted to do.

Which changes will pass? When? What other ideas will be implemented?

Our crystal ball is cloudy!

Realistically, the answers to these questions will develop during 2017.

Unfortunately, actions that Congress takes in December will affect the financial actions you had to take in January.

What we — and all other tax professionals — can do now is:

  1. Advise you what the tax consequences of your actions would be if the 2016 laws remain in place.
  2. Advise you what the tax consequences of your actions will be as individual changes are made to the tax laws in 2017.
  3. Speculate along with you about what other tax law changes may be made and what the effects of those changes will be.

Speculating is not a comforting alternative to solid, professional planning.  But, it is all we all can do until the ultimate shape and scope of tax law changes is known for sure.

American Flag with What's Next

We suggest that if you can postpone making major financial decisions that might be impacted by new tax rules, do put off taking any action until Congress acts!  Unless you have need for the cash generated by the exercising of stock options, for example, consider delaying exercising the options for a while.

Most years we suggest that you contact us early in the year to talk about potential major financial decisions.

In 2017, we will still be happy to talk with you and give you general advice. As the year progresses, it’s likely that we will be able to give tax planning advice with increasing certainty.

Probably!

Posted in Taxes | Tagged , , , | Leave a comment

2017 Opens a New Portal

One of the services we have updated in preparation for Tax Season is our client Portal.

Portal is a free client service that lets them exchange sensitive information with us over the Internet safely.

Secure safe portal

CCH Axcess Portal is the service we use.  CCH is one of the top makers of software for accountants. Their Portal service provides a way to exchange encrypted information via a secure data center. The clients’ information is stored locked up in a spot where physical access is tightly restricted, and the duplicate remote storage guards against loss from nature disasters like earthquakes and local tragedies like theft and building fires.

Why don’t we just email clients their tax returns?

Email is NOT secure!  Email is typically sent through the Internet without encryption. Someone with a monitor on the Internet could capture the stream of the email and rip off your information. In addition, most people don’t safeguard their email accounts that well. They keep the email program open when they are at lunch, and coworkers wandering by can “accidently” see confidential documents and messages open in email.

Of course we still love doing business face-to-face.  You can bring by your sensitive documents and drop them off in person. If you have the time!

But, if you sometimes need to exchange information instantly, let us set you up on Portal.

Posted in Firm Information | Tagged , , , | Leave a comment

How Trump’s Election Changes Your Tax Planning

Donald Trump has promised to drastically lower taxes next year, and with Republicans controlling Congress, he’s likely able to get some or all of the tax changes he wants passed.

Most of the proposals call for individuals and businesses to pay less, maybe much less, in 2017 (or 2018, if Congress is slow to act) than they would under current law.  Independent analysis of many of the proposed changes show that well-off individuals will benefit significantly from the lower rates proposed. NPR reports that, according to Lily Batchelder, a law professor at New York University and a visiting fellow at the Tax Policy Center, people earning a million dollars will get an average tax cut of $317,000.

Tax deduction - word cloud conceptThe plan also lowers the business tax rate to 15% from 35%.  US-based manufacturers may elect full expensing of plant and equipment costs, although selecting this approach means they will give up their ability to deduct interest expense. (See Donald Trump’s campaign website press release.)

President-elect Trump and Republicans in Congress also want fewer people to have to itemize deductions.  They plan on raising the standard deduction rate to $15,000/$30,000 for a single person/married couple (Trump’s plan).  At the same time, they would cap deductions at $100,000-single/$200,000-married (Trump’s plan).  In addition, some Republicans have suggested eliminating the deduction for state and local taxes, and the mortgage interest deduction may be scrutinized.  (Read the Wall Street Journal for more details.)

Of course, unless you have a fully-functional crystal ball, there is no certainty that all/any of the changes will occur. But, IF you believe that significant changes will be made to the tax code, then you should take action based on what you think is likely to change.

We don’t have any fortune-telling ability, but here’s what we think is reasonably likely.  If you agree, consider accepting our recommendations!

Assumptions: The 2017 tax rates will be lower than the 2016 rates for both business and businesses.   Some change to deductions will be implemented that will increase the standard deduction amount and limit itemized deductions.

man wearing a suit pointing the finger to the word taxes written in the foregroundRecommendations:

  • Postpone the recognition of as much income as possible until after December 31st.  If possible push off the closing dates of profitable sales, receipt of bonuses, and all other activities that create income.  You’re likely to be taxed at a higher rate this year than you will next year.
  • If you are a US-based manufacturer, postpone plant and equipment purchases and upgrades into 2017 when you’ll be able to expense them in a single year.
  • Give to charity and pay your property taxes in full in 2016.  Many of our clients will run into the $100k/$200k talked-about limit for itemized deductions.  If you’re close to that amount, give everything you can in 2016 where you’ll get full credit for your gifts and payments.  Even if your itemized deductions are much smaller, give and pay in 2016 when you’ll get credit for each dollar.  In 2017 you may not want to itemize and instead you’ll benefit from the new, higher standard deduction rates.

You have only until December 31st to take action to take action to lower your 2016 tax bill and to plan for 2017.  Do it!

Please contact us if you’d like help.  Maybe all you need is a check-in phone call.  Or, maybe your situation is complicated and you’ll want a full tax projection.  We are happy to find out what you need and work with you so that you pay the lowest amount of taxes legally possible.

And, of course, all of this speculation.  Who knows what President Trump and the new Congress will really do?!!

Posted in Taxes | Tagged , , , | Leave a comment

Upgrading Our Technology to Serve You Better

Bionic Woman of the FutureOur office is moving to a secure, cloud-based server this week.

We have contracted with Xcentric, a service that only works with accounting firms, to host our applications and store our data.

Xcentric uses best practices to safeguard all information.

The American Institute of Certified Public Accountants has given Xcentric a Service Organization Control report that provides independent validation that Xcentric’s security controls are in accordance with the applicable Trust Service Principles and Criteria (SOC2). This means that our data — and your data — will be safe.

Actually, with a cloud-based approach your information will be better defended against crooks or loss than it has been on our local systems. Xcentric has two secure, geographically distant, US-based, data centers that provide top protection against theft, fire, and natural disasters.

Our partners also believe that the move to the cloud will let our professional staff spend more time doing accounting work and less time being ersatz IT managers.

We are excited!

During the switch over, the firm’s IP addresses will be changing and connections will be disrupted.  There will be times when our email and phones won’t work or won’t work correctly.  We ask that you be patient and try us again in a few minutes, if you encounter any problems.

If you have an urgent need to reach us when our systems are in transition, send us a message at [email protected].  We will monitor that address during this week of change!

Posted in Firm Information | Tagged , , , | Leave a comment

They’re Not from the Government, and They’re Not Here to Help

Sometimes people don’t file their taxes and ignore the tax collector’s notices. To get your attention, the government will create a wildly high estimated tax bill and put a lien on your property.

When we are contacted by clients who have had liens put against them, they are horrified. They were busy, their finances were too complicated that year, or they were worried about the size of what they might owe and they just couldn’t get themselves to deal with the problem.

We — and most reputable accounting firms – can resolve the non-filing complaint, adjust the tax bill, and, if needed, work out a payment plan for the taxes.  The steps to resolution are low-key, routine, and straight forward.

  • First, we help you file your taxes for the year in question.
  • The lien against your assets will be lifted when you pay the new, and probably much lower, tax bill.

Clearing up the problem isn’t painless.  You’ll have to pay for the taxes owed on your actual income, penalties, interest, and for the tax preparation. Ouch! But, the path to fixing the problem is clear and relatively drama free.

Unfortunately, we have discovered a vulture industry that goes after taxpayers who have trouble with the IRS or state tax collectors.  A client shared with us the blizzard of come-ons he received once the tax lien against him was recorded and made part of the public record.

Scam Notice Square Collage

Sample of Notices Received. Click to see more.

These notices mimic official government notices — they’re not!  

They are designed to get scared taxpayers to call a phone number without thinking about who they will be talking to.

The language and style they all use is designed to trick you into believing you’ll be talking directly to the government.

The language each of these companies use is remarkably similar. Everything is URGENT, or FINAL.  Several of the notices give a made-up case or file number… a number that has nothing to do with what the real tax collectors are using.  One company says that they’ll get the $377,548 tax bill reduced to $79,509.60… another suggests if you work with them the final bill will be $18,499.85. The warn, if you don’t respond to their notice, your wages will be garnished and bank accounts seized.  (See a larger photo of the frightening notices this one client received.)

A couple letters say that they are from government-sounding organizations such as “The Taxing Authority” or “Tax Group”.  Others don’t tell you who the letter is from… you’re supposed to assume that it’s from the government. A couple even came in envelopes with the official-sounding warning:

$2,000 Fine or 5 Yrs. imprisonment or both for any person who interferes with or obstructs the delivery of this letter or otherwise violates Sec. 18 United States Code 1702.

Doesn’t this warning apply to all mail tampering?!

Some — but not all — of the letters say that they are NOT from an official government agency.  But, those disclaimers are in small type and designed to be overlooked.

We don’t know how any of the companies who send the breathless, fear-mongering notices plan to help solve the taxpayers problem.  But, we really don’t like the attempt to trick people into thinking that they are dealing with a government agency when they are not.

Our advice to people who receive tax notices or who have tax liens placed against their assets: call us or another professional tax preparer who doesn’t try to get new clients by tricking them or making them crazy frightened!

 

 

Posted in Frauds, Taxes | Tagged , , , | Leave a comment

California LLC Payments

California has a confusing number of LLC payment vouchers… Here is a quick guide that  we’re passing around the office.

  • Form 3522 (Prior Year) – to be used to pay last year’s $800 payment if it was not made (regardless of when paid)
  • Form 3522 – to be used for the current year’s $800  due in April
  • Form 3536 – to be used for the estimated gross receipts fee due in June
  • Form 3537 – this is called the payment voucher for automatic extensions but should only be used if LLC is going on extension AND there is nonconsenting nonresident members’ tax owed.  (Extra credit if you need to file this one!)
  • Form 3588 – Payment Voucher for LLC electronically filed returns – This is only used if the LLC is e-filing and has a balance due based on the gross receipts fee.  (This would be when no 3536 payment was made)
Franchise Tax Board Website top screen scrape

Visit the Franchise Tax Board’s site for
More Information on LLCs and Taxes

California LLC extensions are automatic.  There is nothing to file and therefore nothing to be e-filed.  Instead, make the payments on the voucher for the type of payment you are making.

So to recap… for most small LLC’s, you only need to worry about the current and prior year 3522’s at extension time.  It looks to me like the extension transmittal letter is now including reference to both forms appropriately.  (Good news!)

Posted in Taxes | Leave a comment

Tell Me What I Did Wrong on TurboTax!

I filed my taxes at the end of January but later received another W2. I have received my federal refund already and state is scheduled for this week according to the website. In any case, I went into TurboTax to amend my return, and it said I now was going to owe close to $4K. This is very alarming since that’s almost all of what I received, so I wonder if I am doing something wrong. Is this something you can assist me with?

The message above is real and a typical example of an increasing number of requests we are receiving. People want help with part of their tax return.  They see a number that looks funny on a particular line or don’t understand how to complete a particular section.  They want to come in for a consultation on that one item.

Our firm is ready to prepare complete tax returns, but our partners are not comfortable dealing with just a portion of a return or helping with a specific line item.  The tax laws are so complex! One line item effects another, and various deductions and credits phase in and out depending on factors recorded in a different part of the form.  We worry about missing some nuance if we gave advice on a portion of a return or reviewed someone else’s calculations.

Frustrated man trying to do his taxes at homeWe also worry about frustrating people who are confident that they’ve nailed their return, but just cannot figure out why they are getting an odd result when they enter one particular number.  When we look at their work, we are liable to uncover that the reason for the numbers they don’t expect is a mistake they made somewhere else.  Fixing the unexpected numbers could involve substantial work, significantly beyond the hour of consultation the person signed up for.

What are we supposed to do?  Not tell the client of our concern?  Explain that their costs to correct the issue are several times what they expected? Neither are good choices.

Besides, accountants tend to be control freaks.  We want to know everything,  just in case there’s a rarely encountered rule that would apply to your return. We are not good putting blinders on and answering Yes/No questions.

Tax FormWe do think that TurboTax and its competitors are good, credible ways for people with relatively simple returns to prepare their own taxes. Hiring a CPA to do your W2-income tax return would be like going to the emergency room for a scraped knee.  The ER doctors would do a great job, but there are excellent, more cost-effective solutions.

We also believe that most people who have asked for our help are bright, computer savvy people who sincerely believe that they just need a small bit of knowledge to complete their own return.

But, really! Our firm — and other accounting firms and tax preparation services — are not good choices for someone looking for help to prepare their own taxes.

What to Do?

TurboTax’s website says it offers tax advice to people using their software.  Other software vendors probably have similar services.  You can try them out.

On the other hand, if your taxes have grown in complexity to the point that you’re spending time researching and worrying about the forms, maybe you’d like us to prepare your taxes for you!

If we can help, please call us at 415.433.4500 or contact us via the web.

Posted in Taxes | Tagged , , , , | 1 Comment

How Much Will it Cost?

We are very happy when people find us on Yelp! Find Us on Yelp We are grateful for the positive comments people have written about us there, and we receive a good number of calls and emails from Yelpers who are looking for accountant.

But recently, without telling us, Yelp added a “Request a Quote” button on the page with our reviews.  Ugh!

We always want clients to know what the cost of our work is going to be before we start doing it.  That’s not the problem.

Yelp's Request a Quote ButtonThe problem is “Request a Quote” results in people following directions and writing in asking, “How much do you charge to prepare taxes?” or, “What’s your price for doing an audit?”

We — like most accounting firms — don’t have a price list for services like this because there is no such thing as a generic tax return or one-size audit.  Billionaire Warren Buffet submits a tax return just as you do… only his is a bit more complicated and costs more to prepare than yours does!

What we do when you are considering our services is to invite you in for a  free introductory meeting in our office.  You’ll talk with one of our partners, see if you like us, and tell us about your situation.

We ask that you  bring in information that will let the partner know the scope of the work you need.  For tax clients, that would a copy of last year’s tax return and the current year’s financial information.  For a bookkeeping client, it might be a copy of the financial reports you are getting now or a list of the reports that you want to see.  The information we ask you to bring varies according to help you’re looking for.

The partner will explain what services our firm offers and how we can help you.  Usually that’s straight-forward: you come looking for tax preparation help, and the partner will tell you we prepare taxes!  Sometimes, with complex financial situations, the partner’s explanation will be more expansive, unexpected, and show a path that you hadn’t anticipated.

Whatever your situation, at the end of the meeting the partner will have a good idea of how much of what type of work we need to do to meet your needs. This will let the partner give you an estimated cost for the engagement.

I wish it could be quicker to get quote.  Unfortunately, for professional services there are three choices:

Reading fine print with a magnifying glass

  1. Have a price list with services set so high that even convoluted examples of the generic service are profitable. This method gives you a fixed, assured price, but it’s a price higher than almost everyone would pay if they were charged for assistance by the hour.
  2. Have a price list with fine print that basically makes the list useless for our target clients, people with complex financial situations.   For a tax return, the fine print would be something like “* good for tax returns using the standard deduction with only a single state W-2 income“.
  3. Learn exactly what the client wants, customize a response, and provide an estimate for the exact work needed by the client.

We use method #3.  It doesn’t let us give quick answers by phone or email. But, we think it’s more straight-forward, transparent, and cost-effective for the client.

If we can provide you with a no-obligation, customized estimate for your accounting engagement, give us a call!  We are at 415-433-4500.

Posted in Firm Information | Tagged , , , | Leave a comment

Don’t Be [a] Delinquent

Shady businessman

Don’t be a delinquent like this shady guy!

Thursday is the deadline to file 2014 personal income taxes. The almost-automatic extension of the April 15th due date to October 15th is up!

Our firm is still getting calls from people wanting to know if we can do their returns for them. We are happy to talk with potential new clients and see if we can do a quick turn-around… but, really!

We, like most CPA’s, want to be comfortable that we genuinely know the client’s financial situation so that we can prepare an accurate return that results in the lowest legal tax bill.  We want to be able to look over the financial information, think, and ask questions that might uncover a deduction or better approach.  Preparing your taxes is more than just taking the information you have and retyping it into our computer screens.

It’s unlikely during a busy deadline week that any CPA can meet a potential client with a complex financial situation, review the materials, and prepare a return. Still, you have to file a return or you’ll be “delinquent”, and may be assessed significant penalties and interest.

Don’t panic! What you have to do is simple:

  1. File the best possible return you can yourself.  You’ll probably save time and angst if you use a personal computer tax program like TurboTax or a program from H&R Block.  (We don’t have a favorite or recommend an specific program.)  If you have a complex return like most of our clients, you may find yourself making estimates or best guesses at what you’re supposed to do.  Try as best as you can and make notes about the questions you had so you can go over the problem areas with a CPA later.
  2. Pay what you owe!  Niceties aside, the income tax system is meant to deliver money to the government, and that cash is really what the IRS and state care about.  For this last-minute return, don’t make aggressive decisions about deductions or other rule interpretations, You could be penalized and charged interest if the IRS decides that your optimistic assumptions don’t fly.
  3. Make an appointment NOW to see a tax professional next week to file an amended, 100% complete return.  If you made a mistake in filling out the forms and you underpaid, filing an amended return quickly will minimize penalties and interest you’ll owe.  If you overpaid, you’ll get your money back sooner.

Point 4, of course, is swear you won’t wait so long next year!  Pulling together information for your tax return can give you insight into your overall financial situation.  If you bring your financial data to a CPA when it’s not a deadline crunch moment, you can also have a conversation that may lead you to take tax-smart steps for the future.

Posted in Taxes | Tagged , , , , , , | Leave a comment

How Your CPA Has Fun

Young  Business People

A Team Planning the Business’ Future

Too much of the time business owners and key employees are completely busy getting the day’s work done.  Filling orders, talking to customers, selling, ordering, and going to the bank can be all consuming.

In those situations, the business owners are working IN their business.  To be successful, they need to dedicate some time to work ON their business.

By working on their business, I mean that the owners and key personnel should reserve some hours to think strategically about what they want their company to look like in a year and in five years.  They should analyze what’s working in their business, what isn’t working, and what they know about their competition.

Geoffrey and I recently finished a strategic planning session with a business that included all of the key team members.  It was intense, illuminating, and very fun.

The chemistry in the client’s company was good.  That doesn’t mean that the business is perfect or that every employee loves every other employee. But, the key people were all dedicated to the business’ success. They had ideas.  They were invested.  The business is set to change for the better because of the time we spent together.

When we talk about “strategic planning” or “business development” too often we make the process sound like taking medicine.  It’s good for you, but not very pleasant.

But when they are conducted right, strategic planning sessions are meaningful, rewarding, and enjoyable.  Releasing the ideas that have been rattling around the back of your head feels good. Making decisions, creating action schedules, and sharing your vision with the people you work is real progress toward growing your business.

Geoffrey and I like conducting strategic planning sessions, too.  We get to learn about our clients, their motivations and personal goals.   Not that we don’t love spreadsheets and filling in tax forms, but helping people define their own version of financial success and helping make plans to attain it is simply better!

For more information on Sterck Kulik O’Neill’s Business Consulting and Strategic Plan Services, visit our website, or phone us at 415.433.4500.

Posted in Business Development | Tagged , , | Leave a comment