Kevin McCoy, CPA

The NY Times recently ran this column by Thomas Friedman who suggested that President Obama recapture the excitement of his Presidential campaign by fostering innovation and entrepreneurship.  I think most people agree small business is the key to America’s success economically – both here and globally.

How can a CPA help you launch your business? We are uniquely positioned to see a variety of industries and what works well, and sometimes not so well in each. Here are a few services we can provide so entrepreneurs can focus on the important tasks like growing revenue and pleasing customers.

Pre-formation

1. Name selection – is the name you want available, how do you register it?
2. Entity selection – Would a corporate structure be best, what about an “S” Corp or LLC?
3. Information system – how will you set up your files – paper or paperless?  What about an accounting software package?
4. Funding – will you self-fund the venture, seek a bank loan or need investors?
5. Write a business plan

Ongoing support

1. Tax planning, consulting and compliance – tax time should not be the only time you see a CPA, it should be an ongoing conversation
2. Financial support – from budgeting to financial statement preparation
3. Asset protection
4. Fringe benefit planning

The above is a chip off the block of what a CPA can do to streamline business operations.  If you are interested in talking more about these items or have a question, please contact me at kmccoy (at) cdnscpa (dot) com or leave a comment. Thanks for reading.

Organization and structure is important in any business – large and small. Whether your company has 5 employees or 5,000 it should have a system of internal control in place to monitor and protect company resources.  Running a business is hard enough, without having to worry about a rogue employee taking off with cash or inventory. Or worse, ruining a company’s reputation.

A recent article put out by the AICPA compares 2 companies and stresses the importance of starting off right.  Just because your business may be run out of your home or garage doesn’t mean you’re too small to worry about such matters.

A side benefit of internal controls is potentially automating non-valuable tasks or pushing them down the organization structure, thus allowing the business owner to focus on other tasks – whether it might strategic planning, following up on sales leads or exploring potential new products or services.

As a CPA, I get to see how multiple types of businesses have set up their organization.  I’d be happy to work with your company as well. Please contact me with any questions or leave a comment below.

Roth IRAs are usually out of the question for those taxpayers with Adjusted Gross Income (AGI) exceeding certain limits. For 2009 if you make over $120,000 as a single taxpayer or $176,000 as married, filing joint you are ineligible to contribute to a Roth IRA.  Similarly, anyone with over $100,000 in Modified AGI cannot convert a traditional IRA to a Roth*.

*As with tax law, there is usually an exception.  For 2010, the Modified AGI limitation is removed.  Anyone can convert to a Roth IRA this year.

But what if you don’t have an IRA to convert?  No problem, contribute now and then immediately convert it to a Roth.  Even taxpayers making over the above mentioned limits can take advantage of this.

Here’s the to-do list:

1) Contribute to a traditional (nondeductible) IRA. If done before April 15th you can even contribute double the maximum $5,000 annual limit ($6,000 if 50+).  Just make sure your IRA custodian specifies one $5k for 2009 and the other for 2010.

2) Convert it to a Roth IRA – your custodian will likely have a form for this.

Another great benefit to this one-year loophole is the ability to spread the tax hit over 2 years – in 2011 and 2012.  If any of your contributions have been non-deductible (as in the example above), that amount is not taxed (since it was never deducted on a previous tax return).

Of course, every situation is different, so consider this tactic along with your other retirement plan components.  Here’s an interesting article on the pros and cons of conversion.

Are you taking advantage of this 2010 Roth conversion provision?  Have a question about if this will work for you?  I’d love to hear your thoughts in the comments.

As an employee, the taxpayer has Federal (and State, if applicable) taxes withheld from their paycheck using IRS created tax tables.  However, if one has significant income other than wages – such as freelancing, pension income, investment income, capital gains, etc. – withholding may not be sufficient.

For freelancers/self-employed workers, no one is there to collect and remit the tax to the government, therefore the responsibility falls to them personally.  Rather than pay withholding, these taxpayers must pay quarterly estimated tax payments using Form 1040-ES.

If tax is underpaid, the taxpayer may be subject to an estimated tax penalty (line 76 of Form 1040).  How does one avoid this?

Total withholding and estimated payments must equal at least:

1) 90% of the tax shown on the 2009 return (see this post on estimated tax liability)

2) 100% of the tax shown on your 2008 return, or 110% of your 2008 AGI was over $150,000 ($75,000 for married, filing separate)

There are also several other exceptions, most notably:

• tax due after subtracting withholding is less than $1,000
• the taxpayer was a US citizen or resident and had no tax liability the prior year
• also see Form 2210 for other situations

Why discuss this now?

• The final estimated tax payment for 2009 is due January 15, 2010.
• A new tax year has begun and it is never too early to start planning ahead.

Please leave a comment or send me an email with any questions or issues you have experienced dealing with this, or any subject.

It’s that time of year – when all the personal finance magazines, newspapers and blogs compile their tax tips.  But are they really as smart as they seem?

Let’s take this list for example.

The first topic is the first-time home-buyer credit (now expanded to include non-first timers).  Now, I completely agree this is a great benefit if you qualify.  But, don’t rush out and buy a home just to take advantage of this.  Buying a home is probably the largest financial transaction anyone will make and it should be given great thought.  The personal finance blog Get Rich Slowly has a column about this very topic.

(Same goes for their “new car purchases” advice.  Don’t just rush out and buy a car, like so many did under Cash for Clunkers, to take advantage of a

Next on the agenda is the ever popular capital loss harvesting.  Every tax tip column I’ve ever read includes this gem.  However, it’s not always the right thing to do.  Here’s a couple examples:

War N. Buffet has a stock that isn’t doing so great, he’s down about $5,000 from his original purchase a few years ago.  If he sells, he can deduct $3,000 of that loss against his other income – wages, interest, dividends, etc. assuming he has no other capital gains/losses.  Great deal, right?

Not so fast.  What if good ol’ War only makes $30k this year (maybe due to a layoff), but expects to double that next year?  If he takes the loss in 2009, he’ll save 15% in federal tax.  But if he waits another 2 months and sells in 2010, he’ll jump up another 10% since the higher income puts him in the 25% marginal bracket.

What if he has other capital gains?  The loss would then offset those first, then he could deduct up to $3,000 against other income.  So if he had $2,000 gain elsewhere, he could deduct the full $5,000.  But – it might be better to go ahead and pay tax on the gain at the lower long-term rates (currently 0% and 15% depending on your income), then take the loss next year.

It’s complicated right?  That’s why it’s important to take this advice with a grain of salt and make sure it applies to your situation rather than just diving in and potentially costing yourself hundreds or thousands in overpaid tax.  Get a CPA involved if it’s too overwhelming, a hour long consultation probably won’t cost you over $100 (my rate is $85/hr) but could save much more than that.

Procrastinators beware!

Extended individual tax returns are due in about a week – October 15th.

In a rare, proactive set of new rulings, the IRS has provided a few initiatives to encourage retirement savings.  Here is a brief synopsis, with a link to each:

Notice 2009-65 – provides employers with 2 sample 401(k) plan amendments to allow for automatic enrollment to the employer’s plan.  Why is this important?  Studies have shown that automatic enrollment increases the likelihood employees will save for retirement.  (See the blue box on this page for statistics on automatic enrollment.)

Notice 2009-66 and Notice 2009-67 – similar to the previous notice, but includes sample amendments for SIMPLE IRAs.

Notice 2009-68 – simplifies the presentation of employee’s options when he is eligible to rollover a retirement plan distribution.  These rules can be complicated and if not done correctly can subject the employee to penalty, so this is a good guide for both employers and employees.

A final interesting provision allows taxpayers to have all or part of their 2009 federal income tax refund to be invested in Series I U.S. Bonds.  See this FAQ page for more on this change.

Has your Company adopted automatic enrollment?  Have you seen an increase in participation due to this?

Contact me for more information about any of these provisions.

The $8,000, first-time homebuyer tax credit expires November 30, 2009.

Given that it usually takes a month or so to close on a home, there is only short window left to take advantage of this fabulous incentive.  If you’re a renter, check out this rent vs. buy comparison to see if it might make sense to buy your first home now.

I would expect a flood of business for real estate agents, mortgage companies, title companies, for the month of November leading up to the deadline.