Posted tagged ‘tax preparer’

IRS Not Suited for Certifying Tax Software Privacy, Accuracy, ETAAC Says

June 25, 2010

The Internal Revenue Service should not be forced into the “ill suited” role of certifying and enforcing privacy and accuracy standards for tax software providers, but should turn instead to established outside providers for those services, members of an Electronic Tax Administration Advisory Committee (ETAAC) said June 16.

Industry advisers presented their 2010 ETAAC recommendations to Congress to IRS officials, and also made a special report on a new subcommittee formed to address e-file security and tax software policies and programs. The report is expected to be released June 17.

This year’s annual recommendations focus on tax preparer e-filing, business systems modernization, the IRS return preparer review, and new information reporting requirements.

The push to certify that tax software is accurate is coming from a number of different directions, ETAAC Chairman Phillip Poirier, a vice president in Intuit’s consumer tax group, said. The Government Accountability Office has recommended that IRS do a risk assessment of the reliability, security, accuracy, and privacy of tax software.

“Software is a term that is too narrow,” he said. “It’s really all the pipes to get the return from the preparer or the taxpayer to the IRS e-file system.” To that end, IRS has included software in its return preparer review, commenced a tax software risk assessment, and formed an ETAAC subcommittee.

That subcommittee’s principal spokesman, Dave Olsen, said tax software certifications should not be left up to the IRS. “Effective and efficient oversight should not be attempted by trying to force the IRS into what may be ill-suited roles, by making them the direct certifier or enforcer of some of these requirements; but rather it would make sense to rely on third-party certification processes and standards-setting that can be applied in that broader context across the different portions of the industry,” Olsen, director of product management with CCH Small Firm Services, said.

Olsen told BNA that IRS has an interest in making sure standards are put in place for oversight and verification of IRS electronic systems that deal with transfer of tax data. These controls would deal with security and privacy. Oversight and verification of tax software will be necessary to address accuracy and reliability, he said. However, IRS is not the appropriate agent to create these measures, he said. “It does not have the resources or the expertise.”

The standards should be established by a self-regulatory organization with third parties being brought in to review the controls that have been put in place, he said.

Olsen also said there needs to be a full understanding of the differences between professional and self-preparer software. “Professionals do things differently than a self-preparer does,” he said.

Information Reporting

Some stakeholders have recommended accelerating Form 1099 information return reporting, but ETAAC said it has some concerns with that.

The IRS needs to consider the full impact of accelerated information reporting on both businesses and taxpayers, especially small- and medium-sized businesses, said Grant DeMeritte, tax compliance manager with Howard Hughes Medical Institute.

Beginning in 2012, businesses will be required to use Form 1099 to report to the IRS all payments to corporations in excess of $600 for goods or services, not just services and supplies, which had previously been the case, he said.

“We want to make sure the IRS is ready to handle the significant increase in the number of e-filed information returns—and not just the number of e-filed returns, but the potential for an increase in the number of e-filers,” he said. Many businesses may exceed the 250-form threshold for having to file in this category due to the new legislation, which was an offset to a portion of the Patient Protection and Affordable Care Act ( Pub. L. No. 111-148)—a requirement from which corporations were previously exempt.

IRS Response

An IRS official responded to the ETAAC recommendations by saying she heard a consistent theme—that more and better communication is needed. “It’s so important but difficult to do well,” said Norma Brudwick, IRS deputy director for electronic tax administration and refundable credits. She also said IRS recognizes the importance of partnering with the industry, in part because of IRS’s limited resources.

Brudwick also said she was glad to hear that industry understands that IRS is willing to make allowances for taxpayers that do not want to e-file. “We need to really always keep in mind the taxpayer,” she said.

Gustavo A Viera CPA

CPA in Miami Since 1983

www.vieracpa.com

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Say Goodbye to Checks – Peer-to Peer Payments Gain Momentum

June 25, 2010

Small business owners and their customers no longer have to rely on checks to make and accept payments thanks to new peer-to-peer payment services cropping up.

Peer-to-peer payment services, which are being offered from a slew of banks, lets business owners transfer money to a customers’ accounts or vice versa using just an e-mail address or mobile phone number.

Users can conduct the transaction from their existing bank account, which means they won’t have to visit a different Web site to access the service.

“Billions of dollars are transferred back and forth from one business to another via check,” said Steve Shaw, Internet banking and electronic payments group director at Brookfield, Wisc.-based Fiserv (FISV), which later this month will launch ZashPay, its P2P transfer service.

Shaw said more consumers and businesses are looking for ways to make payments sans the check as their comfort level with conducting financial transactions online grows.  “Either the check is put in the mail or handed to someone. It takes time and effort [to cash the check].”

According to Javelin Research, nearly 44% or 38 million of the 86 million online households made at least one online P2P fund transfer in 2009, up from 27% in 2008. Javelin is forecasting 60 million American households will use P2P transfers by 2014. The oldest and most popular form of P2P payments comes via PayPal. With the new services, however, the customer will be able to make the payment through an existing bank account.

Fiserv’s product, dubbed ZashPay, will launch in late June with 100 banks committed to offering the service with more being added each week.

If a bank is offering the service, the business owner would login to the bank account, input an email address and send a message to the recipient and transfer the money. The service lets you make transfers online or via a browser-enabled mobile phone.

The recipient would then login to claim the money, which would automatically be deposited into the account as soon as the next day.

If the banks for the payee and the person receiving the money don’t offer the service, Fiserv is launching a public web site atwww.zashpay.com where after signing up, people can transfer money back and forth. The banks determine the fee the sender of the money has to pay with a suggested fee of 50 cents. ZashPay.com will charge $0.75 for each payment initiated at the site.

The service is just as secure as the existing bill pay service offered by Fiserv thanks to fraud tools built in to ensure the payment is coming from a valid e-mail address and going to a verified location. If a red flag arises, the payment won’t be sent.

For small business owners and their customers P2P lending may be attractive because they will no longer have to write a check, buy a stamp, mail it and then wait for the check to clear.  Shaw noted small businesses can use it as a way to manage and reconcile invoices.

“It helps from a convenience and speed perspective because they can reconcile more accounts,” said Shaw.

Fiserv with ZashPay isn’t the only financial company launching P2P payment services. CashEdge of New York has its Popmoney P2P payment service and in May announced Bank of the West is using the service.

Like ZashPay, Popmoney lets bank customers send money from their bank account using a recipients email address, mobile phone number or bank account information.  Intuit has its PaymentNetwork service that charges small businesses 50 cents per payment received. Like the other services with PaymentNetwork the small business would receive payments from anyone with an email address with the funds directly transferred into the small businesses bank account.  Among the banks offering P2P payment services are PNC (PNC)  and Wells Fargo (WFC), to name a couple.

Gustavo A Viera CPA

CPA in Miami Since 1983

www.vieracpa.com

Certified Public Accountants, the Preferred Financial Planner

June 25, 2010

The time has come to take stock of the options that Certified Public Accountants (CPAs) have for their clients’ financial planning needs. Whether it is incorporating a financial-planning practice in a firm, partnering with a Miami CPA financial planner or referring business to a Miami CPA financial planner, never has there been a greater number of resources and guidance to help the Miami CPA firm develop an additional service line, the sole practitioner to develop a new practice for the benefit of clients and colleagues or for CPAs to cultivate relationships with CPA financial planners to work with the CPA, PFS to help ensure that their client is well cared for.

Many thousands of Miami CPA’s and across the United States practice financial planning, a profession with many facets. For years, members of the accounting profession have taken tepid steps forward only to step back to evaluate what may be appropriate for the firm and for their suite of services provided. Recognition of barriers is the important first step to the integration of financial planning into an additional practice line within the firm. A greater focus should be examined on what is making CPAs overwhelmingly successful with their clients; the holistic approach that CPAs across America take when engaging with clients. The anecdotal evidence points to the clients of CPAs being in far better shape than most as it applies to their clients’ finances. When it comes to barriers, one key obstacle is a lingering discomfort with the misinformed notion that CPAs would recommend specific product. Others are more fundamental. There may be a cultural clash within firms between the profession of financial planning and the more traditional services. During the ramp-up years, there is a feeling that the financial-planning practice is being subsidized due to the revenue streams achieving insufficient results when compared to traditional lines of the practice; usually for the first five years. When the building of the practice is complete, the CPA financial planner enjoys a significantly greater revenue stream and the work hours may not match the other areas of traditional practice.

In addition, others may find it difficult to distinguish the profession of CPA financial planning from the financial services industry. In fact, the very possibility of a loss in a portfolio increases trepidation. While many non-CPA financial planners have a primary focus on investments, there are key aspects that separate CPAs from the financial services industry, including the deep tax knowledge they bring to the table, the holistic approach of covering all elements of a client’s financial plan as well as a high standard of care. There has been talk of how the fiduciary standards may not be applied to certain financial planners and exempting some relationships from fiduciary standards that focus on one or two areas of financial planning. The discussion among CPA, PFS financial planners is not how to escape fiduciary responsibilities with their client, but rather questioning the appropriateness of escaping fiduciary responsibility in financial planning, even if only a couple of the elements of the financial planning process are engaged.

Regardless of how we feel about the investment side of planning, the reality is that markets rise and fall and that most money is made in a down market, which is counterintuitive. If we lose a fraction of what the S&P 500 loses, then we don’t have to come back nearly as much and can give significant benefits to our clients on the rebound. The 58 percent market drop this last time around requires a greater than 100 percent return to get back to even. CPAs in financial planning understand what risk is, how to explain it to clients and help clients assess their risk and position assets that are consistent with their risk tolerance.

Make no mistake about it. There are plenty of balanced portfolios that have similar risk characteristics to being fully invested in the stock market. I would suggest that any CPA who does not currently have a professional relationship with a CPA, PFS (Personal Financial Specialist) to pick up the phone and have a CPA, PFS financial planner explain why financial planning is based on the very powerful questions identifying what the client’s mission, values and goals are before they recommend specific strategies and products in all aspects of planning. To find a PFS in your neighborhood, go to http://www.findapfs.com. For investments, spend some time with a CPA, PFS to discuss risk, portfolio volatility and the steps the CPA, PFS goes through to ensure that clients are well positioned to weather any economic storm. Any perception of similarity between CPA financial planners and the financial services industry is not only incongruent with reality, it could very well invalidate in excess of 100 percent of the benefit clients derive from your tax-and-accounting expertise. The comparison is similar to CPA tax preparers and enrolled agents. While we would all agree that enrolled agents provide important and valuable services to society and recognize that some enrolled agents can stand shoulder to shoulder with CPAs preparing taxes, generally there is a significant additional benefit that CPA tax preparers bring to their clients.

Given the markets that have always been volatile throughout American history (Table 2), clients cannot afford to risk working with those who consistently demonstrate a heavy bias toward firm products that vanish into the haze after they post inferior results. While it is recognized that across America firms provide some very important products, CPAs apply analytical tools and due diligence to evaluate specific investment options to ensure that the client receives service in an unbiased and objective environment. As I travel across America, I have borne witness to CPA, PFS after CPA, PFS who delivered dynamically different results from their non-CPA peers. This is not to say that there aren’t any extraordinary non-CPA financial planning practitioners, because there are. However, on the whole, the CPA, PFS has a background and experience that is significantly more beneficial to clients than the non-CPA financial planners.

CPAs tend to focus on a variety of issues and take time to explain the most critical areas of investment planning. Just three technical areas discussed involve risk and the specific dollar impact that ups and downs can have on a portfolio with 95 percent confidence, what makes a good long-term investment and set the table on how money grows over time (the power of compounding) This is a brief sample of just one area of financial planning.

If firms recalibrate their perspective toward financial planning, it will come with the recognition that it is a terrific time for accounting firms to evaluate and add financial services as an additional service line for clients or when a conflict arises, to work with other CPA firms to work together in an environment to deliver superior planning services to their clients.

Gustavo A Viera CPA

CPA in Miami Since 1983

www.vieracpa.com

Making Estimated Tax Payments – A 101 for the Small Business Owner

June 23, 2010

What are Estimated Taxes?

Uncle Sam requires that individuals and businesses pay taxes almost as quickly as they earn income. This means you have to pay taxes over the course of the year instead of waiting until April 15. If your taxes are not withheld by an employer then you will likely need to pay estimated tax payments each quarter.

Estimated tax payments include both your income tax obligations as well as your self-employment tax (Social Security and Medicare) obligations – which, by the way, will increase the total federal taxes you owe.

Who Pays Estimated Taxes?

Generally, if you carry on a trade or business as a sole proprietor, an independent contractor, a member of a partnership, or are otherwise in business for yourself, then you are considered aself-employed individual. According to the IRS, If your tax withholdings don’t cover 90% of your tax liability then you must pay estimated taxes on income that is not withheld (use Form 1040-ES).

If you operate a corporation, you generally have to make estimated tax payments if you expect to owe tax of $500 or more when you file (use Form 1120-W).

You don’t have to make federal estimated tax payments if your tax due, after taking withholdings into account, is less than $1,000 or if your withholding and credits add up to at least as much as your prior year’s tax.

How Much Should You Pay in Estimated Taxes?

The IRS recommends that you calculate your quarterly estimated tax payment using Form 1040-ES (the same form used to pay estimated taxes) which comes with a worksheet that helps you estimate how much you owe for the current year. Corporations can use Form 1120-W to calculate estimated taxes.

You are not obligated to use this calculation method and can instead refer to the estimated tax calculation on your previous year’s tax return (most online tax tools will calculate this figure for you when you complete your return).

If you are an independent contractor, and face fluctuating periods of income, you might prefer to calculate your estimated taxes on a quarterly basis based on the income and deductions for the quarter owed.

If you still feel that you are essentially guessing what your estimated payment should be, take a look at this guide* from Fairmark.com which includes pointers on how to best calculate your estimated payments.

When are Payments Due?

For estimated tax purposes, the year is divided into four payment periods. Payments for each year are due on the 15th day of April, June, September and the following January. You should endeavor to pay at least the minimum owed by the due date (with the remainder paid on April 15), or risk incurring penalties from the IRS or your state.

How to Pay Estimated Taxes

Paying your estimated taxes is actually an easy process and the best thing is that you don’t have to explain to the IRS how you reached your estimated sum (any reconciliation is done during tax return season).

If you are filing as a self-employed individual you should use Form 1040-ES which includes quarterly payment vouchers to submit with your payment. Corporations can deposit the payments by using EFTPS for deposit coupons (Forms 8109).

Once you are in the system, the IRS will send you payment vouchers at the end of each tax year so that you don’t have to worry about downloading the latest forms.

What about Estimated State Income Taxes?

You need to pay your estimated state income taxes at the same time as you pay your federal taxes. Find links to your state’s tax office for the appropriate forms here.

Call our Miami CPA

At the end of the day, it’s worth spending an hour with a tax specialist to help you understand what the best calculation methods are, how to appropriately track and deduct expenses, and maintain good records. Many will provide this initial consultation for free – simply because they hope you will return and use them come filing season. So don’t be afraid to shop around for the right kind of advice that your budget can afford.

Gustavo A Viera CPA

CPA in Miami Since 1983

www.vieracpa.com

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Desperately seeking COBRA subsidy

June 23, 2010

If you lose your job after June 1, you’ll see more than just your paycheck disappear. You also won’t get the 65% federal subsidy to cover your COBRA health insurance premium.

That’s because House Democrats last week opted not to extend the subsidy in order to bring down the cost of a jobs and tax bill winding its way through Congress. Continuing the provision through Dec. 31 would run $7.8 billion.

The loss of the 15-month subsidy leaves hundreds of thousands of newly jobless Americans to shoulder the burden of health insurance coverage on their own. On average, the monthly premium alone eats up 84% of a person’s unemployment check, according to Families USA, a consumer advocacy group.

Dozens of people currently benefiting from the subsidy wrote to CNNMoney.com in recent days to say how crucial it is. Without the extra help, they said they could not afford to pay for their coverage and their treatments for diabetes, cancer, high blood pressure and other ailments.

“I’m unemployed. I don’t have money to pay for medical bills,” said Stephanie Kohnke, a St. Paul, Minn. resident who lost her job in May and is waiting to be approved for the subsidy. “This is the worst time to lose that safety net.”

House Speaker Nancy Pelosi, D-Calif., said Tuesday that she plans to revisit the COBRA subsidy. However, she noted, it is a controversial provision that could be difficult to pass.

Stimulus subsidy

The subsidy was created in February 2009 as part of the Obama Administration’s $787 billion stimulus program. It was among a number of measures meant to aid Americans suffering during the Great Recession.

Those who lost their jobs between September 1, 2008 and May 31, 2010 were eligible to have the federal government pick up 65% of the monthly premium’s cost if they continued their employer-sponsored insurance under COBRA. Originally scheduled to last 9 months, it was later extended to 15 months.

Just how many people are filing for the subsidy isn’t known. But a recent Treasury Department survey found that between 25% and 33% of eligible jobless New Jersey residents were participating and most of them were middle class.

For a typical family, the subsidy reduced the annual cost of COBRA to about $4,725, down from about $13,500.

Gustavo A Viera CPA

CPA in Miami Since 1983

www.vieracpa.com

The IRS Scrutinizes 401(k) Cash for Small Business

June 23, 2010

As the credit crisis has made it tougher for small businesses to get funding, some would-be entrepreneurs have exploited a loophole that lets them finance a startup with 401(k) retirement funds without facing any taxes or penalties. Now the technique is catching the attention of the IRS, which plans to step up audits of such transactions. “We are seeing problems,” says Monika Templeman, acting director of employee plans at the IRS. “It is open to abuse.”

The transactions typically require an entrepreneur to create a new corporation, establish a 401(k) plan for it, and move existing 401(k) funds into the plan. Money from the new 401(k) is used to buy shares in the new company, and that provides the business with capital while retaining the tax advantages of the 401(k). Without such a rollover, funds withdrawn from a 401(k) are subject to income taxes. A 10 percent penalty applies if the funds are withdrawn by a person under the age of 59 1/2. Templeman says the IRS has seen questionable valuations for the new stock, and in a few cases the money was used to buy recreational vehicles and other personal assets.

While financial advisers began promoting such rollovers in the early 1990s, the credit crisis has made them more attractive. This year at least 4,000 people are likely to use the strategy, an increase over previous years, according to companies that help craft the plans. The typical transaction involves between $100,000 and $200,000 in retirement funds. Advisers charge about $5,000 for the paperwork, plus annual fees of at least $800 to run the new 401(k) plan. “When you start comparing it with a 15 to 20 percent interest rate on a loan…people are saying ‘I’d rather be my own investor,’ ” says Jeremy Ames, chief executive of Guidant Financial Group, a Seattle company that helps business owners roll over 401(k)s.

Ames and other advocates of the rollovers say their transactions are legal. That doesn’t mean the IRS will see it that way. Stephen Dobrow, president of benefits consultancy Primark Benefits, says even plans the IRS has examined may face renewed scrutiny. The IRS, he says, “can still blow up those plans even though they’ve passed on them once.”

The bottom line: Using 401(k) funds to finance startups got more popular during the recession, but some of the transactions may violate tax law.

Gustavo A Viera CPA

CPA in Miami Since 1983

www.vieracpa.com

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Worried About Retirement? Not so Much…

June 22, 2010

While there is no shortage of research on preparing for retirement, Rappaport maintains “actuaries are the people that have focused on post-retirement, what happens when you actually retire.”

Actuaries focus on things like, how to protect yourself from outliving your assets and how what happens if you need long-term care. Rappaport refers to these as “life risks,” adding, “It’s easy to not think about them until they happen to you.”

As in 2007, the latest SOA poll found the top three concerns about retirement, shared by pre-retirees and retirees alike- remain: inflation, paying for health care and running out of money. The main difference in the 2010 survey is inflation bumped health care to claim the No. 1 spot.

What is more worrisome, the survey shows we’re not making use of strategies and tools to reduce these risks.

According to the SOA survey, the most common steps we’re taking to protect ourselves from retirement worries No.1 (inflation) and No.3 (depleting our resources) are: paying down consumer debt, saving more, and reducing our spending. While all are worthwhile goals, they boil down to the same thing: increasing the size of our retirement nest egg.

Not one takes into consideration the possibility that a major expense such as a long-term illness, could seriously deplete that nest egg, leaving the retiree in dire financial straits.

Buying an annuity or purchasing long-term care insurance don’t even make it onto the radar screens of half of us, although those still in the workforce are much more likely to say they are at least thinking about these options.

Rappaport has an additional suggestion to pad your retirement fund: work a few years longer. “If you can retire three years later… you could be considerably better off,” she says. Those extra years for your pension, 401(k) and Social Security benefits are less years of income you have to provide for yourself. You’ll also save money if you receive health insurance through your employer during that time.

Widowhood, especially for women, is another issue Rappaport feels people aren’t giving enough attention. The latest SOA survey asked participants if they thought they’d be better or worse off financially if their spouse died. About 60% of both pre-retirees and retirees responded their situation would be “about the same.”

But Rappaport points out, in reality, “women are the ones who are usually the survivors and a lot really are worse off.”

A potential solution: second-to-die life insurance.

The latest survey  also found a drop in the number of individuals who are “very worried” about paying for long-term care. Although Medicare covers some of the costs of hospitalization, there is no government insurance to help pay for an extended stay in a nursing home, a situation that goes hand-in-hand with our increased longevity.

“I don’t know why people are not more concerned about long-term care than health care,” says Rappaport.

A potential solution: long-term care insurance.

Last, but certainly not least, Rappaport worries about people’s lack of long-term planning.

When making important financial decisions, most retirees say they look just five years into the future. For pre-retirees it’s 10 years. Both ignore the fact that retirement can easily last 30 or more years.

Perhaps the scariest finding of the SOA research is that the majority of both pre-retirees (64%) and retirees (54%) believe that if someone manages their finances well during the first three years of retirement, they’ll never run out of money!  On the one hand, this suggests that we recognize the devastating impact a bear market can have if it coincides with the start of your retirement withdrawals.

However, if the past decade is any indication, over a 30-year retirement you’re likely to run into six bear markets.  Should one bad market cycle coincide with large out-of-pocket medical expenses, it can drastically reduce your standard of living- and increase the chances you will exhaust your savings- if your primary source of retirement income is your investment portfolio.

But you know who slept like a baby through the gut-wrenching markets of 2008?  The retiree with an annuity that kept paying a steady monthly income, regardless where the S&P 500 stood.And don’t forget the widow who nursed her husband through the three-year illness that nearly wiped out their savings, but was just replenished by his life insurance policy.

You get the point.  been a rough couple of years: the worst bear market since the 1930s, a mortgage meltdown and high unemployment. But they’ve all had little, if any, impact on Americans’ concerns aboutretirement.

The latest survey by the Society of Actuaries [SOA] found no significant change in consumers’ outlook on retirement since the last one was conducted in 2007.

“What surprised us tremendously is that things didn’t change more,” says actuary Anna Rappaport, who chaired the survey.

“We were expecting to see significant changes in risk perception…[that] because of the difficult economy people would tell us they are more concerned about [financial] risks.”

Are we shell-shocked? Numb? In our post-9/11 world, have we simply become inured to unpredictable negative events- be it a terrorist attack, a sharp financial setback, or a natural disaster? Have we reached the point where we hopelessly resign ourselves to fate and conclude, “What will be will be, there’s nothing I can do about it?”

Gustavo A Viera CPA

CPA in Miami Since 1983

www.vieracp.com