Casey Neilon Blog

Abowd, Rose Awarded National Specialist Designation

admin — Mon, 14 May 2012 21:45:58 +0000

Eric Abowd and Steve Rose, partners and lead financial advisors at Abowd & Rose Financial Group, were recently awarded with the first nationally recognized mutual fund designation, CFS (Certified Fund Specialist) by The Institute of Business and Finance.

CFS certification requires mastery of portfolio construction, risk management, manager selection, monitoring, income strategies, retirement accounts, titling, taxation and the psychological aspects of finance.

Are Your Employees Financially Fit?

admin — Mon, 30 Apr 2012 20:47:04 +0000

According to the American Savings Education Council’s 2012 Retirement Confidence Survey of Americans 25 and over, only 19% of workers feel that they are doing a good job at preparing financially for retirement and just two-thirds (66%) report that they are saving for retirement. (This does not include Social Security or employer-provided money.)

Furthermore, according to a survey conducted for the AICPA by Harris Interactive, just 2% of the 1,005 U.S. adults who participated in the telephone survey said the one action they most likely would take in a financial pinch would be to stop contributing to their retirement accounts. Twenty-seven percent identified their main concerns as long-range goals, such as paying for education and saving for retirement.

Workplace programs can have a tremendous impact on helping employees improve both their short-term and long-term financial standing. According to Barbara Kontje of American Express, a 2011 Workplace Leader in Financial Educations Award winner, their ongoing workplace financial literacy program has resulted in a 7% increase in 401(K) participation and those deferring 5% or more increased from 72% to 80%. Their tactics include a dedicated website, on-site fairs, one-on-one counseling sessions and employee challenges.

Missed the Income Tax Deadline – IRS Offers Help for Taxpayers

admin — Thu, 26 Apr 2012 16:39:59 +0000

The IRS has some advice for taxpayers who missed the tax filing deadline.

• Don’t panic but file as soon as possible. If you owe money the quicker you file your return, the less penalties and interest you will have to pay. Even if you have to mail us your return, the sooner we receive it, the better.

• E-file is still your best option. IRS e-file programs are available for most taxpayers through the extension deadline – October 15, 2012.

• Free File is still available. Check out IRS Free File. Taxpayers whose income is $57,000 or less will qualify to file their return for free through IRS Free File. For people who make more than $57,000 and who are comfortable preparing their own tax return, the IRS offers Free File Fillable Forms. There is no software assistance with Free File Fillable Forms, but it does the basic math calculations for you.

• Pay as much as you are able. Taxpayers who owe tax should pay as much as they can when they file their tax return, even if it isn’t the total amount due, and then apply for an installment agreement to pay the remaining balance.

• Installment Agreements are available. Request a payment agreement with the IRS. File Form 9465, Installment Agreement Request or apply online using the IRS Online Payment Agreement Application.

• Penalties and interest may be due. Taxpayers who missed the filing deadline may be charged a penalty for filing after the due date. Filing as soon as possible will keep this penalty to a minimum. And, taxpayers who did not pay their entire tax bill by the due date may be charged a late payment penalty. The best way to keep this penalty to a minimum is to pay as much as possible, as soon as possible.

Although it cannot waive interest charges, the IRS will consider reductions in these penalties if you can establish a reasonable cause for the late filing and payment. Information about penalties and interest can be found at Avoiding Penalties and the Tax Gap.

• Refunds may be waiting. Taxpayers should file as soon as possible to get their refunds. Even if your income is below the normal filing requirement, you may be entitled to a refund of taxes that were withheld from your wages, quarterly estimated payments or other special credits. You will not be charged any penalties or interest for filing after the due date, but if your return is not filed within three years you could forfeit your right to the refund.

Tax breaks for underwater homeowners

admin — Mon, 23 Apr 2012 17:54:20 +0000

About 11 million homeowners owe more than their homes are worth, according to real estate data firm CoreLogic, and while taxes may not be the first thing they think about in deciding what to do, all the various options have tax consequences.

Until the end of this year, at least, there is a tax break for homeowners who negotiate debt reduction with their lenders.

Some of these “underwater” owners may qualify for principal reduction through the massive mortgage foreclosure settlement announced in February. Others may pursue short sales, in which the home is sold for less than the bank is owed, or wind up in foreclosure.

But those whose lenders cancel their debt would ordinarily face the tax man, because cancellation of debt, including mortgage reduction, is generally taxable. That means if you get your mortgage reduced by $100,000 and you’re in the 28 percent tax bracket, you’d owe $28,000 in federal taxes on the “income” you received when your debt was forgiven.

Typically, the only way to avoid those taxes is to declare bankruptcy or to claim insolvency, which does not require a bankruptcy filing but still requires that your debts outweigh your assets. Being foreclosed in a state like California, which has “non-recourse” rules that prohibit lenders from coming after you for extra cash after they’ve taken your house, also exempts one from taxes.

A special federal tax break to help ailing homeowners, put in place in 2007, allows them to exclude up to $2 million in forgiven mortgage debt from their income. To qualify, that debt has to be for your primary home — sorry, no vacation homes or investment properties.

With the tax break slated to expire in nine months, if you’re currently sinking under the weight of your home, there’s a reason to move quickly. No one can accurately foresee whether the provision will be renewed by Congress, and dealing with underwater real estate takes time.

“These problems are now winding their way through the final stages, and that’s where the tax part comes up,” says Larry McKoy, a certified public accountant and partner at Dixon Hughes Goodman, in Glen Allen, Virginia.

COMPLICATIONS

Even for this year, while that special tax break is in effect, there are complications. Most important, only the funds that you spent buying or improving your home count. So if you took extra cash out of your house during a refinancing or with a home-equity loan, spent it on vacations or on your kids’ college educations and then ran into trouble, you’re out of luck. If you put part of the money into your home and spent the rest elsewhere, you’ll need to be able to track those amounts.

Another huge issue: Not all states take their cue from the feds, so even with the federal tax break in effect; you might still owe state income taxes on the canceled debt.

Principal reductions are relatively straightforward for tax purposes. You will receive a 1099-C form, for cancellation of debt, from your lender in the tax year the deal is done. Thus if you renegotiated your debt and got your principal reduced in 2011, you should have received this tax form already.

ON THE HOOK

Foreclosures and short sales can get more complex. Although you may think you’ve finished the deal, if you live in a “recourse” state, in which the bank can come after you for the amount you owe beyond what the asset is worth, you may remain on the hook for years after the fact. In 41 states and the District of Columbia, lenders can sue for the balance of the debt long after the house is gone.

(The website HelocBasics has a list of the non-recourse states: link.reuters.com/dur47s)

In cases like that, whether you gave up your home through a short sale or lost it to foreclosure, there is no official debt cancellation until you get an agreement to that effect or until the statute of limitations runs out, and that can take years.

“People think the short sale will wave a magic wand, and make the bank go away,” says Bill Smith, a managing director in the national tax office of accounting firm CBIZ MHM. “The banks aren’t necessarily pursuing the collection, but they don’t have any real incentive not to keep it. It could hang over your head for 20 years.”

Say, for example, that your home is worth $500,000, and you owe the bank $700,000. You put your house on the market and you get an offer of $500,000. You take that offer to the bank and it’s accepted.

But if you live in a recourse state, before you sign the deal, you’d better negotiate away that $200,000 with the lender.

“There are deals coming together,” says McKoy, the accountant. “The homeowner might say, ‘what if I scrape together $60,000, and you go away?’ Then the lender counters. That’s going on every day. You’re trying to negotiate it away.”

Only after the statute of limitations on collecting a debt runs out is it actually considered canceled for tax purposes. Only then – and it could be years after the fact – would you receive the tax form 1099-C showing the canceled debt, on which you could well owe taxes.

Whether or not you want to think about taxes while you’re struggling to keep your home, McKoy says, “the tax law has a game plan for you.”

(The author is a Reuters contributor. The opinions expressed are her own.)

(Amy Feldman; Editing by Linda Stern and Dan Grebler)

What to do if You Receive an IRS Letter or Notice

admin — Tue, 17 Apr 2012 15:31:21 +0000

Every year the IRS sends millions of letters and notices to taxpayers for a variety of reasons. The first thing to do is not panic, the second is to not ignore the letter. An IRS notice will not go away by itself, but in many circumstances, the issue can be resolved by a simple letter or phone call.

There are a number of reasons why the IRS might send you a notice. Notices may request payment, notify you of account changes, or request additional information. A notice normally covers a very specific issue about your account or tax return and should always be addressed within the timeframe noted on the letter.

The letter or notice will offers specific instructions on what action you need to take. If your return was prepared by a paid preparer, always contact the preparer for advice. The IRS notice can sometimes just be plain wrong, and the preparer should be able to easily identify the issue and whether a correction is necessary. If you did not use a paid preparer, make sure to review the correspondence and compare it with the information on your return.

If you agree with the correction to your account, then usually no reply is necessary unless a payment is due or the notice directs otherwise.

If you do not agree with the correction the IRS made, it is important to respond as requested. You should send a written explanation of why you disagree and include any documents and information you want the IRS to consider along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the upper left of the notice. Allow at least 30 days for a response.

Remember that if you need your preparer to discuss your return with the IRS, you most likely will need to provide a power of attorney. Make sure to keep copies of any correspondence with your records for future reference, and always provide a copy to your preparer in case it impacts future returns.

IRS notices and letters are sent by mail. The IRS does not correspond by e-mail about taxpayer accounts or tax returns. So you do receive an e-mail purporting to be from the IRS it is most likely a scam – do not respond.

If you do receive an IRS notice, don’t panic! Call us immediately and we will walk you through the process to get the issue resolved.

IRS Tips for Estimated Taxes

admin — Tue, 10 Apr 2012 17:24:37 +0000

The IRS reminds taxpayers with self-employment income, interest, dividends, alimony, rent, gains from the sale of assets, prizes or awards they need to make estimated tax payments if (1) they expect to owe at least $1,000 in tax after subtracting withholding and tax credits, and (2) withholding and credits are expected to be less than the smaller of 90% of 2012 taxes or 100% of the tax on the 2011 return. Sole proprietors, partners, and S corporation shareholders should make estimated payments if they expect to owe $1,000 or more in tax. Estimated payments can be made electronically through the Electronic Federal Tax Payment System (EFTPS) at www.irs.gov, by check, money order, debit or credit card. IRS Tax Tip 2012-65.

Can’t Pay Your Taxes by the April Due Date?

admin — Fri, 06 Apr 2012 15:42:49 +0000

The vast majority of Americans get a tax refund from the IRS each spring, but what if you are one of those who end up owing?

The IRS encourages you to pay the full amount of your tax liability on time by imposing significant penalties and interest on late payments if you don’t. So if you are unable to pay the tax you owe, it is generally in your best interest to make other arrangements for paying your taxes rather than be subjected to the government’s penalties and interest. Here are a few options to consider.

Family Loan – Obtaining a loan from a relative or friend may be the best bet because this type of loan is generally the least costly in terms of interest.
Credit Card – Another option is to pay by credit card with one of the service providers that work with the IRS. However, since the IRS will not pay the credit card discount fee, you will have to pay it and pay the higher credit card interest rates.
Installment Agreement – If you owe the IRS $50,000 or less, you may qualify for a streamlined installment agreement where you can make monthly payments for up to six years. You will still be subject to the late payment penalty, but it will be reduced by half. Interest will also be charged at the current rate, and there is a user fee to set up the payment plan. In making the agreement, a taxpayer agrees to keep all future years’ tax obligations current. If the taxpayer does not make payments on time or has an outstanding past due amount in a future year, they will be in default of their agreement and the IRS has the option of taking enforcement actions to collect the entire amount owed. Taxpayers seeking installment agreements exceeding $50,000 will need to validate their financial condition and need for an installment agreement by providing the IRS with a Collection Information Statement (financial statements). Taxpayers may also pay down their balance due to $50,000 or less to take advantage of the streamlined option.
Tap a Retirement Account – This is possibly the worst option for obtaining funds to pay your taxes because you are jeopardizing your retirement and the distributions are generally taxable at your highest bracket, which adds more taxes to your existing problem. In addition, if you are under age
59^½, the withdrawal is also subject to a 10% early withdrawal penalty that compounds the problem even further.

Whatever you decide, don’t just ignore your tax liability because that is the worst thing you can do. Please call this office for assistance.

Taxpayers Get More Time to Contribute to IRAs in 2012

admin — Mon, 02 Apr 2012 15:41:58 +0000

You have two extra days this year to make contributions to your Individual Retirement Arrangements. That’s because April 15 falls on a weekend and Emancipation Day, a legal holiday in the District of Columbia, will be observed on Monday, April 16. That means the due date for filing your tax return and making contributions to your 2011 IRA is Tuesday, April 17.

Here are the top 10 things the IRS wants you to know about setting aside retirementmoney in a traditional IRA.

1. You may be able to deduct some or all of your contributions to your IRA. You may also be eligible for the Savers Credit, formally known as the Retirement Savings Contributions Credit.

2. Contributions can be made to your traditional IRA at any time during the year or by the due date for filing your return for that year, not including extensions. For most people, this means you must make contributions for 2011 by April 17, 2012. If you contribute between Jan. 1 and April 17, you should designate the year targeted for the contribution.

3. The funds in your IRA are generally not taxed until you receive distributions from it.

4. Use the worksheets in the instructions for either Form 1040A or Form 1040 to figure your deduction for your IRA contributions.　

5. For 2011, the most you can contribute to your traditional IRA is generally the smaller of the following amounts: $5,000 for most taxpayers, $6,000 for taxpayers who were 50 or older at the end of 2011 or the amount of your taxable compensation for the year.

6. Use Form 8880, Credit for Qualified Retirement Savings Contributions, to determine whether you are also eligible for a tax credit equal to a percentage of your contribution.

7. You must use either Form 1040A or Form 1040 to deduct your IRA contribution or claim the Credit for Qualified Retirement Savings Contributions.

8. You must be under age 70 1/2 at the end of the tax year in order to contribute to a traditional IRA.

9. To contribute to an IRA, you must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self-employment. If you file a joint return, generally only one spouse needs to have taxable compensation. However, see Spousal IRA Limits in IRS Publication 590, Individual Retirement Arrangements, for additional rules.

10. Refer to IRS Publication 590 for more information on contributing to your IRA account.

“Fresh Start” initiative

admin — Thu, 15 Mar 2012 21:10:02 +0000

The Internal Revenue Service today announced a major expansion of its “Fresh Start” initiative to help struggling taxpayers by taking steps to provide new penalty relief to the unemployed and making Installment Agreements available to more people.

Under the new Fresh Start provisions, part of a broader effort started at the IRS in 2008, certain taxpayers who have been unemployed for 30 days or longer will be able to avoid failure-to-pay penalties. In addition, the IRS is doubling the dollar threshold for taxpayers eligible for Installment Agreements to help more people qualify for the program.

“We have an obligation to work with taxpayers who are struggling to make ends meet,” said IRS Commissioner Doug Shulman. “This new approach makes sense for taxpayers and for the nation’s tax system, and it’s part of a wider effort we have underway to help struggling taxpayers.”

Reporting Stock Transactions Becomes More Complicated

admin — Tue, 06 Mar 2012 22:52:56 +0000

Beginning with the 2011 tax return, reporting stock transactions has become significantly more complicated because of the new requirement for brokerage firms to track the purchase price of stocks acquired in 2011 and subsequent years and to include that information on the information-reporting document 1099-B.

For several years now, the IRS has required brokerage firms to report the gross proceeds from the sale of stocks and other securities on the Form 1099-B. But just knowing the proceeds from a security sale does not allow the IRS to verify the profit or loss reported by the taxpayer. So beginning with 2011 purchase transactions, brokers are required to track the price paid for the securities and include that information on the 1099-B when that particular security is subsequently sold.

This new system of reporting is not a solve-all solution for the IRS because it does not have the cost or basis information for securities acquired prior to 2011 or for securities acquired by gift or inheritance. Special adjustments are required for wash sales and when sales can be attributed to a prior purchase of the same security. Some brokers also may report on Form 1099-B the cost information, if known, for stocks purchased prior to 2011.

So that the IRS can use the new data to verify taxpayer profit or loss transactions attributable to purchases where the cost information is included on the 1099-B, the year’s transactions must now be broken down into six categories (the last two categories listed do not apply to stock transactions but may apply to sales of other capital assets):

Long-term sales where the broker IS reporting the cost of the security
Short-term sales where the broker IS reporting the cost of the security
Long-term sales where the broker IS NOT reporting the cost of the security
Short-term sales where the broker IS NOT reporting the cost of the security
Long-term sales for which no 1099-B is issued
Short-term sales for which no 1099-B is issued

To accommodate separating the transaction into the six categories, the IRS has provided a new Form 8949. A separate 8949 must be used for each category. This will allow the IRS to match and verify transactions where the brokerage firm supplied the cost basis.

Now that the IRS has profit or loss matching capabilities, it is important to correctly report the transactions as the IRS expects to see them. Failure to do so could lead to correspondence audits or even face-to-face audits.

Please call this office if you have questions relating to reporting your security sales this year.