2016 Filing Deadlines

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 Tax Tips Filing Deadlines Call our office for more information or for assistance with any required tax filings. Deadline Filing Required January 15, 2016 Due date for the fourth installment of 2015 individual estimated tax. February 1 Employers must furnish W-2 statements to employees. 1099 information statements must be furnished bypayers. (1099-B deadline is February 16.) February 1 Employers must file 2015 federal unemployment tax returns and pay any tax due. February 16 Brokers must furnish Form 1099-B and consolidated statements to customers. February 29 Payers must file information returns (such as 1099s) with the IRS. (Deadline if filing electronically is March 31.) February 29 Employers must send W-2 copies to the Social Security Administration. (Deadline if filing electronically is March 31.) March 1 Farmers and fishermen who did not make 2015 estimated tax payments must file 2015 tax returns and pay taxes in full by March 1. March 15 2015 calendar-year corporation income tax returns are due. March 15 Deadline for calendar-year corporations to elect S corporation status for 2016. April 18* Individual income tax returns for 2015 are due. April 18* 2015 partnership returns are due. April 18* 2015 annual gift tax returns are due. April 18* Deadline for making 2015 IRA contributions. April 18 First installment of 2016 individual estimated tax is due. June 15 Second installment of 2016 individual estimated tax is due. September 15 Third installment of 2016 individual estimated tax is due. September 15 Deadline for filing 2015 calendar-year corporation tax returns with extensions of the March 15 filing deadline. September 15 Deadline for filing 2015 partnership returns with extensions of the April 18 filing deadline. October 17 Deadline for filing your 2015 individual tax return if you received an extension of the April 18 deadline. January 17, 2017 Fourth installment of 2016 individual estimated tax is due. Please call us if you have any questions. 1040 + Quality Tax Preparation & Financial Services Joseph C Becker www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale or purchase of a business property in excess of $5,000.

ESTIMATE YOUR TAX LIABILITY BEFORE YEAR END

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 Tax Tips Estimate your tax liability before year-end Under current pay-as-you-go federal income tax rules, you're generally required to pay taxes as you earn the related income. Failing to pay the correct amount can result in a penalty when you file your tax return. That's a good reason to estimate your 2015 tax liability now, while you can still make corrections. Here's what you need to know. • The rules. Estimated tax underpayment penalties generally do not apply when the balance due on your 2015 return is $1,000 or less. If you end up owing more than $1,000, you can avoid a penalty by paying "safe-harbor" amounts. For example, your tax payments during the year need to equal 90% of your 2015 tax or 100% of the tax on your 2014 return (110% if you file jointly and your income was over $150,000). • Your options. You can pay what you owe by having additional federal income tax withheld from your wages, social security, pensions, and other income. You could also choose to increase your final estimated tax payment or make it early. An important difference between the two is that federal withholding is treated as if you made payments evenly throughout the year. Increasing your withholding, even in December, can help you prevent an underpayment penalty. Checking your tax liability is a simple way to avoid surprises when you file your return. There's another benefit too: If you discover you've paid in more than you're going to owe, you can give yourself an early refund by reducing your payments during the last few weeks of the year. As always please call us if you have any questions. 1040 + Quality Tax Preparation & Financial Services Joseph C Becker www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale or purchase of a business property in excess of $5,000. • Sale or purchase of a residence or other real estate.

Health Insurance will affect your 2016 tax return

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 Tax Tips Health insurance decisions will affect your 2016 tax return December is the midpoint of the 2016 health insurance open enrollment period, which began November 1, 2015, and ends January 31, 2016. As you investigate your options on the government Marketplace, here are two ways the decisions you make could impact your 2016 federal income tax return. Penalty. If you decide not to purchase a health insurance policy for 2016, you'll pay a penalty for any month you don't have coverage and don't qualify for an exemption. You'll pay the penalty, also known as the shared responsibility payment, on your 2016 federal income tax return (the one that's due in April of 2017). The penalty is calculated as a percentage of your income or is based on the number of uninsured people in your household. You'll calculate both numbers and pay the higher of the two. For 2016, the percentage-of-income penalty is 2.5% of your household income, up to a maximum of the total average annual premium of a Bronze plan. The per-person penalty is $695 per adult ($347.50 per child under 18), up to a maximum of $2,085. Premium tax credit. If you purchase a policy on the insurance Marketplace, you may qualify for a federal tax break. The break is in the form of a credit, which reduces your federal income tax dollar for dollar. You can choose to receive the credit monthly in the form of lower premiums on your policy, or claim it on your 2016 federal income tax return. If you get the credit monthly, be sure to update your information with any changes in your family size or income so you receive the correct amount. Also be aware you'll need to file a tax return, even if you might not otherwise have to, in order to reconcile the amount of the credit you've taken with the amount you are eligible for. As always please call us if you have any questions. 1040 + Quality Tax Preparation & Financial Services Joseph C Becker www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale or purchase of a business property in excess of $5,000. • Sale or purchase of a residence or other real estate.

Keep good records for a cash-intensive business

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 Tax Tips Do your business transactions involve a lot of cash? Because cash transactions are, or can be, anonymous, the IRS takes a special interest in "cash intensive" businesses. One indication of this interest is the "Cash Intensive Businesses Audit Techniques Guide" developed by the IRS. The goal of the guide is to assist IRS examiners in identifying specific issues, business practices, and examination techniques for businesses that primarily deal in cash. What does that mean for your business? A cash business is generally not required under tax law to use a specific type of bookkeeping method. Still, the added scrutiny means you'll want to be particularly careful about maintaining books and records that accurately reflect your income and expenses. Here are three suggestions to get you started. • Maintain original source documents. Sales invoices and cash register tapes are records that support the amount of income received. Tie these totals to your bank deposits. Remember to track income from electronic transactions, including digital currency, as well as non-cash activity such as bartering. • Support non-income cash inflows. Document loans you make to the business with written promissory notes. Keep records of amounts you receive in the form of refunds, rebates, and insurance policy payouts. • Practice good internal control. Internal controls are the processes you put in place to maintain the integrity of your accounting information. For example, having more than one person involved in receiving and recording income can help minimize the risk of errors or inadvertent misreporting. Please call us for more recommendations and guidance on establishing and maintaining a bookkeeping system that can help you support the income and deductions you report on your tax return. As always please call us if you have any questions. 1040 + Quality Tax Preparation & Financial Services Joseph C Becker Ten Forty plus Quality Tax Preparation & Financial Services www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale or purchase of a business property in excess of $5,000. • Sale or purchase of a residence or other real estate.

2015 Is Ending

Ten Forty Plus Quality Tax Preparation & Financial Services, inc 281-397-7777 Fax 281-397-7443 Tax Tip Tax season 2015 is just around the corner Take steps before year-end to cut your 2015 taxes The end of 2015 is rapidly approaching. Do you have everything in order so you can finalize this year's tax planning? If not, that's okay. Given the frequency of tax law changes, there is no perfect time to begin planning. There's no need to wait for certainty on laws that are in limbo either. This year, basic old-fashioned tax planning techniques can go a long way. Here are some suggestions. ● Convert to a Roth Despite the fact that you'll pay federal income tax when you convert your traditional IRA to a Roth, making the switch can be a wise part of multi-year planning. For example, if the value of the investments in your traditional IRA is at a low point, you might consider using a partial conversion to “fill” a tax bracket. As you know, brackets are based on taxable income. By watching the breakpoints, you can manage the rate you'll pay on the conversion. The idea is to pay tax at the lowest possible marginal rate. The future benefit of making a conversion comes from the removal of assets from your traditional IRA. That can help reduce taxable income in a later year when you're required to take withdrawals. ● Get your basis right Basis affects the amount of gain you report and pay tax on whenever you sell or exchange assets, so getting it right can mean tax savings. While your broker is required to track and report your basis for many securities, you are ultimately responsible for putting the correct numbers on your return. And, for tax planning to be effective, you have to be sure your basis is accurate before you decide which investment to sell. You already know basis in investments such as stock is what you paid plus costs of buying and selling such as commissions. But you'll want to keep a record of other changes to the stock too, including splits, which can affect your basis per share. Those records are especially useful if you're not selling your entire investment. For mutual funds, add reinvested dividends and capital gain distributions to your cost. Because you pay tax on those items in the year of distribution, they increase basis and reduce your overall gain. Accurate basis information can also save you money if you funded a traditional IRA with nondeductible contributions in prior years. Those contributions reduce the taxable amount of withdrawals. Maintain an up-to-date list of home improvements and renovations too. You can currently exclude up to $500,000 of gain from the sale of your home when you're married ($250,000 when you're single). But you have to meet the requirements to qualify, such as the rule that says you can claim the full exclusion only once every two years. Otherwise, you may be eligible for a partial exclusion or none at all. ● Check retirement contributions Contributions to your 401(k) plan made before year-end will reduce your adjusted gross income and may preserve credits and other tax benefits. Check now to make sure you're on track to contribute the maximum for 2015. Why? In addition to being able to spread an increased contribution over remaining paychecks, you may have to give your employer time to make the payroll change. You might also consider whether you can request that your employer put part or all of a year-end bonus into your 401(k). Just verify you're making the most of your employer's matching contributions. For 2015, the maximum 401(k) contribution when you're under age 50 is $18,000. You can add an additional $6,000 when you're 50 or older. ● Benefit from your home Consider whether accelerating real estate tax and mortgage payments can help boost your itemized deductions for the year. One caution: Be aware of your exposure to the alternative minimum tax, as some itemized deductions are not allowed under the AMT calculation. Another suggestion: Document home office use and expenses. While you have the option of choosing a simpler safe-harbor method for claiming the home office deduction, the only way to make sure you're getting the most benefit is to compare the results from both methods. ● Get your business expenses in order When calculating your business income as part of your tax planning, take time to make sure you'll be able to deduct all your expenses. For example, business expenses must be common in your field, and helpful and appropriate for your business - otherwise known as the “ordinary and necessary” rule. Remember, you'll need enhanced records such as logbooks and receipts to deduct vehicle mileage and travel and entertainment expenses. Schedule recurring bills for payment before the end of the year, and learn what expenses you can prepay and deduct on your 2015 return. Separate personal and business expenses and reimburse yourself from the company checking account for any costs you paid with your own funds. ● Plan how you'll pay what you owe Even the best planning generally can't eliminate all tax liability. If your review shows you owe more tax than you've already paid in, look into tax-smart ways of paying. You want to be careful you don't create more taxable income. That could happen if you sell stock or take distributions from retirement accounts to generate funds to pay your tax. Also be aware of the penalty rules for underpayment of federal income tax. If you receive income not subject to withholding such as alimony or rent, increasing the amount withheld from your paycheck between now and the end of the year can help avoid a penalty. If you're married and both working, remember to account for the 0.9% Medicare surtax when your joint income exceeds $250,000. For more tax planning ideas, give us a call soon to schedule your year-end review. Include Affordable Care Act provisions in your planning In June, a U.S. Supreme Court ruling allowed the Affordable Care Act to continue in its present form. That means you'll need to consider the law's provisions in your year-end planning. Here's a review. ● Premium credit for individuals This federal tax credit provides a subsidy to help pay health insurance premiums. The amount you can claim depends on income and family size. Planning tip: Adding a dependent or getting a raise can affect the amount of your credit. Run the numbers before year-end to avoid an April 15 surprise. ● Individual penalty The penalty applies when you or your dependents do not have health insurance during the year and don't qualify for an exemption. Planning tip: If you were uninsured for no more than two months during 2015, the penalty doesn't apply. ● Net investment income surtax The 3.8% surtax applies to net investment income when your adjusted gross income (AGI) exceeds $250,000 when you're married filing jointly ($200,000 when you're single or filing as head of household). Planning tip: Net investment income includes dividends, interest, and capital gains (minus related expenses). Consider tax-efficient moves such as rebalancing assets between taxable and tax-deferred accounts. ● Medicare surtax on wages The 0.9% surtax applies to wages, compensation, and self-employment income when your AGI exceeds $250,000 and you're married filing jointly ($200,000 when you're single or filing as head of household). Planning tip: Your employer is not required to withhold for the surtax unless your wages exceed $200,000. If you're married and your joint income exceeds the threshold, revise 2015 estimates or withholding to avoid penalties. ● Employer penalties These penalties apply when you don't provide health insurance and/or affordable health insurance to employees. For 2015, the penalties can apply when 100 or more full-time employees work in your business. The penalties begin in 2016 when your business employs 50 or more full-time workers. When you employ fewer than 50 workers, you're not subject to the penalties. Planning tip: Make sure workers are classified correctly as employees or independent contractors. If you have questions about the Affordable Care Act and 2015 tax planning, please call. Joseph C Becker Ten Forty plus Quality Tax Preparation & Financial Services www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale or purchase of a business property in excess of $5,000. • Sale or purchase of a residence or other real estate.

Watch for scams

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 Tax Tips Be generous and wary: Protect yourself from these tax scams As the traditional season of giving begins, scam artists are stepping up efforts to take advantage of your generosity and compassion. Here are two schemes the IRS has recently issued warnings about. • IRS impersonators. The scam: Your phone rings and a caller says, "I'm from the IRS, you owe us money, and we're going to throw you in jail if you don't pay immediately with a pre-paid debit card or wire transfer." The truth: The IRS will not make initial contact about your tax return over the phone, and will never require you to pay your taxes via debit or credit card or wire transfer. Defense: Hang up immediately. Report the scam attempt to the Treasury Inspector General for Tax Administration, the Federal Trade Commission, and the IRS. • Fake charities. The scam: You're approached via telephone call, social media, email, or in-person solicitation, and asked to donate to a newly established charity to help "educate the public" about victims of the floods in South Carolina or other major disaster. The truth: Scammers want both your money and to lure you into revealing personal information so they can compromise your financial identity. Defense: Find out if the charity is registered in your state by visiting the website of the National Association of State Charity Officials. Also check with the Better Business Bureau, Charity Navigator, GuideStar, or similar watchdog groups. Please call us if you have any questions. 1040 + Quality Tax Preparation & Financial Services Joseph C Becker Ten Forty plus Quality Tax Preparation & Financial Services www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale or purchase of a business property in excess of $5,000. • Sale or purchase of a residence or other real estate.

Estimated taxes

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 Tax Tips Individual Estimated Tax Payments for 2016 Start Soon Our tax system is a “pay-as-you-go” system, and if your pre-paid amount is not enough, you become liable for non-deductible interest penalties. To facilitate that concept, the government has provided several means of assisting taxpayers in meeting the “pay-as-you-go” requirement. The primary among these include: • Payroll withholding for employees; • Pension withholding for retirees; and • Estimated tax payments for self-employed individuals and those with other sources of income not covered by withholding. Determining how much tax to pre-pay through withholding and estimated tax payments has always been difficult, and thanks to Congress’ constant tinkering with the tax laws, ensuring there are no underpayment penalties or tax surprises when the tax return is prepared next year can be challenging. Recently, several new tax laws and changes took effect that add complexity to estimating one’s tax liability, including: higher ordinary tax rates, higher capital gains tax rates, the phase out of exemptions and itemized deductions for higher income taxpayers, the 3.8% tax on net investment income, and .9% increase in self-employment tax for upper-income self-employed individuals, not to mention a myriad of sun setting tax provisions. When a taxpayer fails to prepay a safe harbor (minimum) amount, he or she can be subject to the underpayment of estimated tax penalty. This penalty is the short-term federal rate plus 3 percentage points, and the penalty is computed on a quarter-by-quarter basis. So, even if you pre-pay the correct amount for the year, if the amounts are not paid evenly, you could be subject to a penalty. Interestingly enough, withholding amounts are treated as paid ratably throughout the year, so taxpayers who are underpaid in the earlier part of the year can compensate by bumping up their withholding in the later part of the year. Federal tax law does provide ways to avoid the underpayment penalty. If the underpayment is less than $1,000 (referred to as the de minimis amount), no penalty is assessed. In addition, the law provides “safe harbor” prepayments. There are two safe harbors: 1. The first safe harbor is based on the tax owed in the current year. If your payments equal or exceed 90% of what is owed in the current year, you can escape a penalty. 2. The second safe harbor is based on the tax owed in the immediately preceding tax year. This safe harbor is generally 100% of the prior year’s tax liability. However, for a higher income taxpayer who has AGI exceeding $150,000 ($75,000 for married taxpayers filing separately), the prior year’s safe harbor is 110%. Example: Suppose your tax for the year is $10,000 and your prepayments total $5,600. The result is that you owe an additional $4,400 on your tax return. To find out if you owe a penalty, see if you meet the first safe harbor exception. As 90% of $10,000 is $9,000, your prepayments fell short of the mark. You can’t avoid the penalty under this exception. However, in the above example, the safe harbor may still apply. Assume your prior year’s tax was $5,000. As you prepaid $5,600, which is greater than 110% of the prior year’s tax (110% = $5,500), you qualify for this safe harbor and can escape the penalty. If your state has a state tax, the state’s de minimis amount and safe-harbor percentage and amount may be different. This example underscores the importance of making sure your prepayments are adequate, especially if you have a large increase in income. This is common when there is a large gain from the sale of stocks, sale of property, when large bonuses are paid, or when a taxpayer retires. If you have questions regarding your pre-payments or would like to review and adjust your W-4 payroll withholding, W-4P pension withholding, and estimated tax payments to provide the desired tax result for 2016, please give this office a call. As always please call us if you have any questions. 1040 + Quality Tax Preparation & Financial Services Joseph C Becker Ten Forty plus Quality Tax Preparation & Financial Services www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale or purchase of a business property in excess of $5,000. • Sale or purchase of a residence or other real estate.

Corporate Minutes

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 Tax Tips Keep good corporate minutes An employee who is required to communicate with board members, take notes at board meetings, and compile corporate minutes may cringe at such a tedious and often thankless assignment. But carefully prepared corporate minutes are valuable, even essential, in many circumstances. They can be used to convince state regulators that directors performed their fiduciary responsibilities with due care. During an audit, favorable tax treatment — including the deductibility of officer compensation and travel-related expenses — may hinge on unequivocal documentation in the board minutes. If a company's corporate status is called into question, shareholders may become personally liable. Accurate board minutes can be used to demonstrate that the corporation has maintained its legal status and acted in the best interest of its shareholders. And by documenting the basis for board decisions, meeting minutes may provide insight to managers who must implement corporate policies and procedures. When should meeting minutes be kept? Of course, every routine discussion doesn't need to be documented. But at a minimum, a record should be made when the board selects new corporate officers, implements significant new policies, establishes new retirement plans, borrows significant amounts, or sells major assets. In fact, minutes should be taken at any official meeting in which significant discussions are held and corporate decisions made. What information should be included? Without necessarily identifying the individuals who spoke, the minutes should document the scope of the discussion. The goal should be to summarize the major points that support the final decision or resolution. The minutes might also indicate, in general terms, the time spent reaching a decision. This type of language — "the board then discussed the matter at length" — may serve to show that agenda items were not passed over lightly. Should the company's position ever be questioned in court, such verbiage may provide support for the board's decisions. In addition, the minutes should record any documents considered (though such documents may be incorporated by reference only). If board members relied on the advice of attorneys, accountants, or other professionals, this information should be included as well. What should be left out? In general, it's a good idea to omit a record of the detailed discussions that led to final decisions. Such "he said/she said" transcripts may later provide fuel to those who want to question the firm's actions. In a court of law, the minutes speak for the corporation. Discuss your minute taking process with your attorney. As always please call us if you have any questions. 1040 + Quality Tax Preparation & Financial Services Joseph C Becker Ten Forty plus Quality Tax Preparation & Financial Services www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale or purchase of a business property in excess of $5,000. • Sale or purchase of a residence or other real estate.

Tax Preparation Tips - Being Audited

IRS

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 IRS If you receive a letter from the IRS, do not contact them direct. Don’t try to prepare or submit the documents they request. Don’t call to discuss the items in the letter. Depending on who you talk to (not everyone at the IRS will do the following, but some may not have your best interest and we never want you to lie to the IRS), the IRS might just try to take advantage of you, by tricking you into saying things incriminating, misquoting what the tax law states, or arbitrarily denying the information you gave them. It is really important that you never want to lie to the IRS. You can severely hurt your position by saying things to the IRS. We have been helping and working with clients and fighting for their rights since 1975. Whether you have an IRS audit, IRS Problem Resolution, IRS offer & Compromise, IRS payment plans, or filing amended returns prior year misstatements, we can help. Please call us whenever you get a letter from the IRS or if you have any questions. 1040 + Quality Tax Preparation & Financial Services Joseph C Becker Ten Forty plus Quality Tax Preparation & Financial Services www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale or purchase of a business property in excess of $5,000. • Sale or purchase of a residence or other real estate.

Starting a new business is hard.

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 Business Tips Pay attention to money management basics Launching a small company can be exhilarating, like entering an extreme sports competition with huge risks and prodigious rewards. But keeping a business profitable year after year may not always generate such exuberance, especially if you're the one responsible for balancing priorities and covering day-to-day expenses. Like it or not, monitoring such mundane matters as cash flow, inventory, collections, and taxes often distinguishes winners from losers in the business arena. Conscientious owners who keep a close eye on their financial resources may still be in the fight five years after opening their doors. Entrepreneurs who neglect their accounts may find themselves posting "going out of business" placards after a year or two of frustration and dashed dreams. Unfortunately, some owners never discover what went wrong. Even if you've hired a top-notch accountant or bookkeeper, it's wise to acquire at least a basic understanding of the following business fundamentals: • Cash flow. Liquidity is the lifeblood of your business. Like a doctor assessing the health of a patient, gaining insight into cash — how much money is in the bank, how much is coming in, how much is going out, where the cash is being spent — can help you reach a proper diagnosis. Even if the firm seems healthy, knowing where your cash is flowing can inform crucial decisions, prompting adjustments that may stave off disaster before it strikes. • Assets and liabilities. The listing of balance sheet accounts lets you know how much is tied up in inventory, how much you owe and how much is owed to you, how much equity you've contributed to the business, and other factors that may affect your company's health. For example, a balance sheet that's heavy in accounts receivable may indicate a problem with too-lenient credit policies. A large cash balance may signal missed investment opportunities or sluggish payment of outstanding loans. • Business versus personal accounts. Of course, if the line between the company's books and your personal finances becomes blurred, your diagnosis may become distorted. Keeping personal and business budgets separate makes it easier to manage taxes and track financial transactions. Setting up discrete bank accounts — including a separate payroll account for employee social security, income taxes, and Medicare — is also crucial. We at 1040+ are you small business experts. We specialize in helping you set up your business and answering all the questions you have about the record keeping and things to do and not do in reference to your small business. As always please call us if you have any questions. 1040 + Quality Tax Preparation & Financial Services Joseph C Becker Ten Forty plus Quality Tax Preparation & Financial Services www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale or purchase of a business property in excess of $5,000. • Sale or purchase of a residence or other real estate.

Save Taxes with Depreciation Deductions for your business

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 Tax Tips Save taxes with depreciation deductions As you know, you can claim a depreciation deduction for the "exhaustion" and "wear and tear" of property you use in your trade or business. Determining the most favorable method of depreciating business property is an important part of tax planning. Here are three depreciation rules to remember as you begin a year-end review of your asset acquisitions. • Proof of purchase. To protect your depreciation deduction, you must establish the asset's depreciable basis by showing the cost, useful life or recovery period, and previously allowable depreciation. • Electing to expense. You may elect to treat the cost of certain assets used in your active trade or business as a current expense in the year the asset is placed in service. One way to do this is Section 179 expensing. For 2015, the Section 179 expensing deduction is $25,000, with a spending cap of $200,000. The cap is the maximum you can spend on eligible assets before your Section 179 deduction is reduced. When deciding whether to elect Section 179 expensing, be aware of the "predominant use requirement." This rule will affect you if you use assets for both business and other purposes. In that case, you can claim Section 179 on the business portion only if more than 50% of the use is for business purposes. Note: As in the past, Congress may reinstate a more generous Section 179 deduction before the end of the year. We'll keep you updated. • Extra requirements for "listed property." Listed property includes vehicles; certain entertainment, recreation, or amusement property; and computers and related equipment not used at your regular place of business. To prove the business use of these assets, you need to maintain additional substantiation that establishes the amount, time, place, and business purpose. Typically, this "substantiation" takes the form of written logs detailing your use of the asset. If you purchased business assets during 2015, or are contemplating making a purchase before year-end, please give us a call. We're here to help you get the most tax savings possible. As always please call us if you have any questions. 1040 + Quality Tax Preparation & Financial Services Joseph C Becker Ten Forty plus Quality Tax Preparation & Financial Services www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale or purchase of a business property in excess of $5,000. • Sale or purchase of a residence or other real estate.

Ten forty plus bookkeeping houston

2015 is almost over time to start planning

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 Tax Tips Year End Planing Tax time is approaching and it's time to start planning for taxes that will be paid next year. Businesses and individuals are gathering receipts, completing reports, and overall gearing up for the mayhem that is tax season. The goal is to pay in as little tax as possible, however, this can seem difficult to do. The primary way to do this is to make changes at year-end that will have an effect on lowering adjusted gross income. Since many of these strategies can take time to implement, procrastination is your enemy. The earlier you get on board with tax planning strategies, the easier the process becomes. Get started with these 6 smart year-end tax planning tips, so tax season can go much more smoothly for you or your business. 1. Make Adjustments to Your Tax Withholding If you are employed, you have the option every year to choose how much money you want withheld from your paycheck to go towards your taxes. If you have too much withheld from your check, not only could you have more financial difficulties throughout the year with lower paychecks, you are also providing the government with a tax free loan. If you have too little withheld from your paycheck, you stand the chance of owing a significant amount of tax to the government. Most people attempt to go middle-of-the-road where withholding is concerned. You may still have the opportunity to make adjustments to your withholding, even though it is close to the end of the year. It is preferable that your actual withholding get as close to your tax liability as possible. Review your pay stubs or income reports and determine how much has been withheld thus far. Calculate your income, and use this information to determine what your estimated tax liability will be. If you fall short, increase your withholdings for the remainder of the year. If you exceed your tax liability, reduce your withholdings to help even things out. Since doing so can have a significant impact on your paychecks for the rest of the year, doing this earlier rather than later will give you more pay periods to help buffer these changes. 2. Make a Holiday Donation to Charity Do you itemize your deductions? If so, making a significant donation to a charity of your choice may be a great way to adjust your tax liability for the year. Evaluate your income to determine if you are able make a monetary donation to a charity, and if so, in what amount. You can also look around your home for big-ticket items that you no longer use and could potentially be donated to a charity like the American Red Cross or Goodwill. An old sofa that you no longer use or electronics that you have replaced with newer versions could be donated and provide you with an ample tax write-off opportunity. Just remember to get receipts for everything you donate, monetary or otherwise, and not just those donations that exceed $250. Any charitable donation that you have made this year can be included in your itemized deductions and can help decrease your tax liability for the entire year. 3. Expedite Your Deductions If you have tax bills that are due at the beginning of next year, consider making payments towards them or paying them off at the end of this year instead. For example, if you have property tax bills that are due in January, or you make estimated tax payments towards your local or state taxes at the beginning of the year, send in those payments now in order to accelerate your deductions. Another way you might expedite your deductions is to purchase items that you need for work, especially if you are an entrepreneur. Have you been waiting to purchase a new computer system or a new work vehicle? Buy these items now and use them as deductions for this year's taxes instead of next. 4. Contribute Towards Your Retirement One of the smartest tax planning strategies is to make large contributions to your tax-advantaged retirement accounts, such as an IRA or 401(k). In addition to helping you reach your overall retirement goal more quickly, contributing to tax-advantaged retirement accounts reduces your taxable income for the year. Additionally, your contributions will be able to grow on a tax-deferred basis. Evaluate your finances to determine how much you might be able to contribute to your retirement accounts between now and the end of the year, and keep diligent records of what you contributed to and when. 5. Maximize Your Gift Taxes You have the ability to give $14,000 per year, per beneficiary yourself, or if you are married, you and your spouse can both give $14,000, totaling $28,000 per year, per beneficiary. These gifts reduce your taxable income and are gift tax free, making this a powerful end-of-year tax planning strategy. 6. Buying Back Stocks That You Sold at a Loss If you sold stocks at a loss earlier in the year planning to utilize the loss as tax write off you need to be careful not to buy them back too quickly. Doing so could invoke the “wash sale” rules wiping out your expected loss. The “wash sale” rules prevent taxpayers from selling stocks in their portfolio to generate losses and then repurchase the stock. If you do, the basis is adjusted and the loss is not allowed. To avoid the wash sale rules, you cannot buy the stock back within a 61-day period beginning 30 days before and ending 30 days after the date of the sale. The Importance of Planning Ahead Tax planning can seem overwhelming, especially if you're looking at owing a lot of tax for next year. However, with these smart end-of-year tax planning strategies, you can minimize your taxable income, accelerate your deductions, and get involved in worthwhile things like starting or maintaining your retirement accounts and donating to charity. If you have questions about your tax liability or how you can decrease your adjusted gross income for the year, don't hesitate to discuss your unique situation with a tax planning professional. A professional can evaluate where you stand and what the possibilities are for you, individually, and can help you take tax planning steps that will be beneficial to you in the year to come. As always please call us if you have any questions. 1040 + Quality Tax Preparation & Financial Services Joseph C Becker Ten Forty plus Quality Tax Preparation & Financial Services www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale or purchase of a business property in excess of $5,000. • Sale or purchase of a residence or other real estate.

Record Keeping

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 Tax Tip Record Keeping When it comes to your taxes, good records are the best protection you can have if the government decides to audit your returns. But just as important as your effective recordkeeping are the measures you take to make certain that your records are kept safe. While it may cause a chuckle to picture a mythical taxpayer confessing to an IRS auditor that tax records were destroyed by the family pet, it probably wouldn’t be nearly as funny to give a similar response in a real audit of your own. The Advantage of Good Records: • A good set of records can help you cut your taxes. Detailed records reduce the chance that you will overlook deductible expenses when your tax return is prepared. After all, how many people remember the exact details of their expenditures months after the fact? Nothing is more frustrating than knowing you incurred deductions yet not being able to prove them. The ultimate consequence of poor recordkeeping is enforced payment of more tax than the law requires. • Explicit records provide the best assurance of a favorable outcome if you are audited. Oral testimony alone is seldom enough to prove the deductions you claim on your tax return—auditors want to see a paper trail of receipts, logs, etc. • When you’re missing adequate backup records, it can cost a great deal in time and effort to get duplicates. The unfortunate fact is that many businesses balk at hunting down receipts for past sales (you can’t really blame them since it raises their expenses). Your ongoing recordkeeping effort is your best remedy to counteract this problem. • Good records help others who might have to handle your financial affairs in an emergency — e.g., an illness. The better your records are, the easier it could be for someone else to temporarily “step into your shoes” to handle your monetary transactions. Tracking Income How you track your income is largely dependent on the type of income you are receiving. For certain kinds of income, you will receive statements from the income payers to tell you the amount. These statements are called “information returns” by the IRS. Examples include: Type of Income Type of Information Return Wages Pensions/IRAs Interest Dividends Stock Sales Real Property Sales Miscellaneous Income (e.g., rent, prizes, non-employee payments) Gambling Winnings Unemployment Comp Tax Refund Canceled Debts Form W-2 Form 1099-R Form 1099-INT Form 1099-DIV Form 1099-B Form 1099-S Form 1099-MISC Form W-2G Form 1099-G Form 1099-G Forms 1099-A, -C When you receive an information return, you should compare it to your own records, and if there is a discrepancy in the amount of income reported, you should determine whether your records or the payer’s are in error. If you find your records are accurate, contact the payer to issue a corrected information return or explain to you how they determined the amount they have reported. Be sure to keep information returns you receive in a safe place so that the amounts reported on them can be shown accurately on your tax return. Payers must submit the data to the government as well as to you. The IRS will compare what they have received with your return to see that your reporting and their data match. If there’s a mismatch, you will get a letter asking ‘Why?’ or assessing additional tax. Since the IRS may misinterpret return reporting, check carefully before paying any extra tax they try to assess! Income from Other Sources Income not traceable to information returns also needs to be reported on your tax return. It could include such items as: • Receipts from a self-employed business, • Rental income, • Interest income on a personal loan. Taxpayers who receive income from sources like these have a more complicated job in tracking it. It’s recommended that you record it in a separate ledger or through a computer spreadsheet program. In addition, you may want to deposit the funds in a separate bank account earmarked for that income alone. Getting Organized No one method is the only way to maintain your records. What’s important is to develop a system that is the most convenient and comprehensive for your situation, and then to stick to it. The IRS estimates that a non-business taxpayer who files a 1040 return will spend about eight hours doing recordkeeping. For a more complex return, such as one with rental properties or self-employment income, add at least another five hours. The following suggestions may help you organize your records, and also reduce the time you spend doing so. Decide first if you will maintain your records manually or by computer. • Bookkeeping software - Some taxpayers, even though they aren’t operating a business, choose computerized “bookkeeping” software that uses their check register data to track their income and expenses by category. Monthly and yearly reports conveniently recap the income and expenses, especially if the accounts (income and expense categories) are consistent with how the information is reported for tax purposes. • Spreadsheet method - In lieu of purchasing bookkeeping software, a spreadsheet file (for example, in Excel) may be set up where you record your yearly income and expenses by tax return category. If you normally itemize your deductions, set up a separate sheet for each of the major deduction categories – medical, taxes, contributions, etc. – as found on Schedule A . For medical expenses, for example, record each expense by provider’s name, type, date, amount paid, and payment method. Note medically related auto mileage at the same time. At year’s end, sort income and expenses of the same type together to get a yearly total. For income items, a cross-check from the spreadsheet to the 1099 forms for all bank interest or other income sources is an accurate way to verify that all needed 1099s have been received. If your tax advisor gives you a “tax organizer” to help you prepare for your appointment, you can quickly transfer the totals from your spreadsheet to the organizer, or, instead, you can provide your advisor with a copy of the spreadsheet. • Manual lists - If you keep track of your records manually, the same type of system applies as for a spreadsheet, except you’ll set up a paper sheet for each category of income and expense that you normally have on your tax return. Write each payment you receive or expense you incur on the applicable list. At the end of the year, each list is ready to be totaled. If you make your entries no less frequently than monthly, you’ll find that the overall time you spend will be less, and the accuracy of the information will be greater, than if you wait until just before your tax appointment to put together the year’s lists. • Methods for retaining source documents - In addition to your lists of income and expenses, the receipts, canceled checks, credit card slips, income statements, etc., that back up the amounts need to be retained in case your tax return is audited. This is true whether you computerize or manually summarize your data. Choose from the following methods the one, or combination of methods, that suits you best: • Envelopes – Using several blank envelopes, write the tax year and names of the income and expense categories that correspond to your spreadsheet or manual list of accounts. After you’ve recorded an item on your list, insert the corresponding receipt, canceled check, etc., into the envelope. By storing the source documents by category throughout the year, instead of throwing all of them in a box to get to “later,” you’ll not only save time but considerable frustration if you must search for a particular item. There is also less likelihood that a receipt or other document will be lost. Store the envelopes in a larger master envelope or box. • File folders – Some taxpayers prefer to use file folders labeled by income and expense categories. These work well for manually maintained records, as the lists can go right in the folders along with the substantiating receipts, checks, credit card slips, etc. Small-sized receipts should be taped or stapled to a letter-sized sheet of paper to prevent them from falling out of the folder. • Binders – A binder, set up with dividers labeled by income and expense categories, is also useful for keeping your lists and paper records. Three-hole plastic sheet protectors are convenient for keeping source documents together by category in the binder(s). Binders are especially useful for filing monthly or quarterly brokerage or bank account statements. Start now – If you aren’t already in the habit of keeping your records organized and maintaining them contemporaneously, start now! The effort will be worth it in time saved when you prepare for your next tax return preparation appointment. And most likely your records will be more accurate than they’ve ever been before. Knowing When to Discard Records Taxpayers often question how long records must be kept and how long the IRS has to audit a return after it is filed. ANSWER: It all depends on the circumstances! In many cases, the federal statute of limitations can be used to help you determine how long to keep records. With certain exceptions, the statute for assessing additional tax is three years from the return due date or the date the return was filed, whichever is later. However, the statute of limitations for many states is one year longer than the federal. The reason for this is that the IRS provides state taxing authorities with federal audit results. The extra time on the state statute gives states adequate time to assess tax based on any federal tax adjustments. In addition to lengthened state statutes clouding the recordkeeping issue, the federal three-year rule has a number of exceptions: • The assessment period is extended to six years instead of three if a taxpayer omits from gross income an amount that is more than 25 percent of the income reported on a tax return. • The IRS can assess additional tax with no time limit if a taxpayer: (a) doesn’t file a return; (b) files a false or fraudulent return in order to evade tax, or (c) deliberately tries to evade tax in any other manner. • The IRS gets an unlimited time to assess additional tax when a taxpayer files an unsigned return. If no exception applies to you, for Federal purposes, you can probably discard most of your tax records that are more than three years old; add a year or so to that if you live in a state with a longer statute. Examples: Sue filed her 2012 tax return before the due date of April 15, 2013. She will be able to safely dispose of most of her records after April 15, 2016. On the other hand, Don filed his 2012 return on June 2, 2013. He needs to keep his records at least until June 2, 2016. In both cases, the taxpayers may opt to keep their records a year or two longer if their states have a statute of limitations longer than three years. Note: If a due date falls on a Saturday, Sunday or holiday the due date becomes the next business day. Important note: Even if you discard backup records, never throw away your file copy of any tax return (including W- 2 s ). Often, the return itself provides data that can be used in future return calculations or to prove amounts related to property transactions, social security benefits, etc. Records to Keep Longer than Three Years You should keep certain records for longer than three years. These records include: • Stock acquisition data. If you own stock in a corporation, keep the purchase records for at least four years after the year you sell the stock. This data will be needed in order to prove the amount of profit (or loss) you had on the sale. • Stock and mutual fund statements where you reinvest dividends. Many taxpayers use the dividends they receive from a stock or mutual fund to buy more shares of the same stock or fund. The reinvested amounts add to basis in the property and reduce gain when it is finally sold. Keep statements at least four years after final sale. • Tangible property purchase and improvement records. Keep records of home, investment, rental property, or business property acquisitions AND related capital improvements for at least four years after the underlying property is sold. As always please call us if you have any questions. 1040 + Quality Tax Preparation & Financial Services Joseph C Becker Ten Forty plus Quality Tax Preparation & Financial Services www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale or purchase of a business property in excess of $5,000. • Sale or purchase of a residence or other real estate.

W-4 Employee Withholding Certificate

Ten Forty + Quality Tax Preparation & Financial Services 281-397-7777 Fax 281-397-7443 Tax Tips Form W-4, Employee’s Withholding Allowance Certificate Starting a new job can be exciting, but it can also be stressful. One of the documents you’re likely to see on your first day of work is IRS Form W-4, which tells your employer how much income tax to withhold from your paycheck so you don’t owe a bundle when you file your tax return. The form has complicated instructions in small print, several worksheets, and can be intimidating at first glance. We trying to provide some basic information about what Form W-4 is, how to fill it out properly, and what is done with the information when the form is handed in to the employer. Purpose of Form W-4 Law requires every new employee to fill out Form W-4 so the employer can withhold the proper amount of federal income tax from the employee’s pay. Form W-4 is not filed with the IRS, but is kept in the employee file. A new Form W-4 may be filed with the employer if the employee’s situation changes. It is recommended that employees complete a new W-4 once a year. The employer may also use the information from IRS Form W-4 to determine how much to withhold for state income tax. Note that withholding for Social Security and Medicare tax (FICA) is a set percentage and is not affected by Form W-4. How Withholding is Computed When preparing payroll, the employer refers to an IRS chart that states an amount to withhold based on whether the employee is single or married, how many personal allowances are indicated, and how much the employee earned during the pay period. The amounts on the withholding chart are an attempt to withhold the proper amount so the employee will have paid the tax liability through withholding when he or she files Form 1040 for the tax year. If tax liability on the return is more than the amount withheld, there will be a balance due on the tax return. If the underpayment is substantial, penalties may apply. If tax liability on the return is less than the amount withheld, the difference is refunded to the taxpayer. There is no penalty for having too much tax withheld. Keep in mind that big refunds are generally viewed as a bad tax planning strategy since they amount to giving an interest-free loan to the government and getting your own money back next year. However some people look at filing Single and zero and getting a big refund is a forced savings that if you received in your pay check you would spend the money on non necessary things. Single or Married The employee checks a box on Form W-4 stating whether he or she is single or married. An employee who is single will have tax withheld at a higher rate than an employee who is married. Note that there is also an option to check a box indicating, “Married, but withhold at higher single rate.” An employee may want a higher rate of withholding if he or she has a significant source of other taxable income, or if he or she works more than one job. Personal Allowances Personal allowances reported on Form W-4 take into consideration personal exemptions that will be reported on the employee’s tax return. Personal allowances can also apply for other items that can reduce tax such as a non-working spouse, head of household filing status, expected credits on the tax return, itemized deductions, or other tax-reduction items. The higher the number of personal exemptions on Form W-4, the lower the withholding will be. The worksheets that accompany Form W-4 will help the employee determine the proper number of personal exemptions to report. Example #1: Melissa earned $52,000 as an employee in 2014. She is single and uses the standard deduction on her tax return. Melissa’s Form W-4 shows “Single – 1.” Melissa’s federal tax liability on Form 1040 is $6,325. Her federal withholding based on “Single – 1” is $7,280. Melissa is due a refund of $955 when she files her tax return. Example #2: Assume the same facts as Example #1, except Melissa claimed “Single – 3” on Form W-4 so her take-home pay would be higher. Instead of having $7,280 withheld, at “Single – 3” she had only $5,408 withheld. Melissa has a balance due of $917 on her tax return. Danger Zones Filling out Form W-4 is fairly straight-forward for a single taxpayer with one job claiming the standard deduction on his or her tax return. “Single-1” will cover the taxes and generally result in a small refund. Likewise with a married couple where only one spouse works, “Married – 2” will generally cover the tax bill. However, the withholding tables do not account for every situation. Many but not all of the following items can be taken into consideration on the worksheets on Form W-4. If there are significant additional sources of income, or other factors that create a more complicated tax situation, it is best to consult your tax advisor for assistance in what to claim for withholding. Be especially careful filling out Form W-4 with: • Both spouses working. • Working more than one job. • Additional non-wage income, especially self-employ-ment income. • High-income earners subject to alternative minimum tax, net investment income tax, or additional Medicare tax. • Married filing separately filing status. • Dependents earning wages. See IRS Publication 505, Exemptions, Standard Deduction, and Filing Information, for more information about withholding and filling out Form W-4 or as always feel free to give us a call. 1040 + Quality Tax Preparation & Financial Services Joseph C Becker Ten Forty plus Quality Tax Preparation & Financial Services www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale or purchase of a business property in excess of $5,000. • Sale or purchase of a residence or other real estate.

Taxpayers Who Receive an IRS NOTICE

Ten Forty + Quality Tax Preparation & Financial Services, Inc 281-397-7777 Fax 281-397-7443 Taxpayers Who Receive an IRS NOTICE Receiving a notice from the Internal Revenue Service is usually no cause for alarm. Every year the IRS sends millions of letters and notices to taxpayers. In the event one shows up in the mailbox, here are ten things you should know. 1) Don’t panic. Many of these letters can be dealt with very simply. 2) Don’t ignore it. Most of these letters have a “reply by” date. Inaction can lead to additional interest and penalties or more aggressive action from the IRS. 3) Call your tax professional. Your tax professional is available to help you, is familiar with your situation, and has experience dealing with the IRS. Utilize his or her expertise. He or she will generally want to see a copy of the letter to determine the next course of action. Some letters can be resolved simply by having you contact the IRS directly. Other, more complicated issues may require you to sign Form 2848, Power of Attorney and Declaration of Representative, to allow your tax professional to deal with the IRS on your behalf. 4) There are a number of reasons the IRS sends notices to taxpayers. The notice may request payment of taxes, notify you of a change to your account, or request additional information. The notice you receive normally covers a very specific issue about your account. 5) Each letter and notice offers specific instructions on what you need to do to satisfy the inquiry. 6) If you receive a notice about a correction to your tax return, you should review the correspondence and compare it with the information on your return. 7) If you agree with the correction to your account, usually no reply is necessary unless a payment is due. 8) If you do not agree with the correction the IRS made, it is important that you respond as requested. Respond to information you wish the IRS to consider, along with the bottom tear-off portion of the notice. Mail the information to the IRS address shown in the lower left corner of the notice. Allow at least 30 days for a response from the IRS. Most correspondence can be handled without calling or visiting an IRS office. 9) However, if you have questions, we recommend you call us or another tax professional to deal with the IRS for you Keep copies of any correspondence with your tax records. As with any tax issue, contact your tax professional to help you navigate your own unique situation. Avoid Future Problems You can minimize the likelihood of encountering future problems with the IRS by: • Keeping accurate and complete records, • Waiting to file your tax return until you receive all your income statements, • Checking the records you receive from your employer, mortgage company, bank, or other sources of income (W-2s, 1098s, 1099s, etc.) to make sure they are accurate, • Including all your income on your tax return, • Following the instructions on how to report income, expenses, and deductions, and Consider filing your taxes electronically. Filing online can help you avoid mistakes and find credits and deductions that you may qualify for. Find a tax preparer whom you trust to prepare and e-file your return. An experienced tax preparer who is familiar with your personal situation is in a position to help you file a complete and accurate return. In addition, he or she will be able to advise you on the best course of action for responding to a notice should you receive one. Professional and Courteous Service If you believe that an IRS employee has not treated you in a professional, fair, and courteous manner, you should tell that employee’s supervisor. If the supervisor’s response is not satisfactory, you should write to the IRS director for your area or the center where you file your return. Representation You may either represent yourself or, with proper written authorization, have someone else represent you in your place. Your representative must be a person allowed to practice before the IRS, such as an attorney, certified public accountant, or enrolled agent. If you are in an interview and ask to consult such a person, then in most cases, the IRS agent must stop and reschedule the interview. You can have someone accompany you to an interview. You may make sound recordings of any meetings with the IRS’ examination, appeal, or collection personnel, provided you tell them in writing 10 days before the meeting. Payment of Only the Correct Amount of Tax You are responsible for paying only the correct amount of tax due under the law—no more, no less. If you cannot pay all of your tax when it is due, you may be able to make monthly installment payments. Help With Unresolved Tax Problems The Taxpayer Advocate Service can help you if you have tried unsuccessfully to resolve a problem with the IRS. Your local Taxpayer Advocate can offer you special help if you have a significant hardship as a result of a tax problem. Appeals and Judicial Review If you disagree with the IRS about the amount of your tax liability or certain collection actions, you have the right to ask the Appeals Office to review your case. You may also ask a court to review your case. As always please call us if you have any questions. 1040 + Quality Tax Preparation & Financial Services Joseph C Becker Ten Forty plus Quality Tax Preparation & Financial Services www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale or purchase of a business property in excess of $5,000. • Sale or purchase of a residence or other real estate.

Tenforty Plus Quality Tax Preparation & Financial Services testimoniol

Repair or Improvement

Ten Forty + Quality Tax Preparation & Financial Services,Inc 281-397-7777 Fax 281-397-7443 Tax Tip When determining is a deduction is a current business expense or should be capitalized and depreciation care should be taken. Internal Revenue Code 162 generally allows a current deduction for the cost of repairs and maintenance incurred during the year. On the other had Internal Revenue Code 263 requires capitalization of amounts paid to acquire, produce, or improve tangible property. Since repairs and improvements have similar characteristics, it can be tricky to classify these expenditures. However, correct classification is important because the cost of repairs can generally be deducted in the year paid, while Improvements must be capitalized and the deduction taken over several years through depreciation. An improvement requiring capitalization occurs with an addition to or partial replacement of property that results in a betterment of the unit of property, restores the unit of property, or adapts the unit of property to a new use. The cost of an improvement must be capitalized and depreciated over a certain number of years as if the improvement were separate property. Repairs Improvements Costs that: • Keep the property in good operating condition. • Do not materially add value to the property. • Do not substantially prolong the property’s life. Costs that: • Improve or better the property. • Restore the property. • Adapt the property to new or different uses. Deductible as a current expense. Must be capitalized and depreciated.* Examples: • Repainting inside or out. • Fixing gutters. • Fixing damaged carpet. • Fixing leaks. • Plastering. • Replacing broken windows. • Servicing office equipment. • Cleaning and lubricating machinery. Examples: • Room additions. • Remodeling. • Landscaping. • New roof or flooring/carpeting. • Wiring upgrades. • New heating/cooling and plumbing systems. • Installing a security system. • Replacing gravel driveway with concrete. * The cost of an improvement is depreciated according to a prescribed class and recovery period of the underlying property. Most non-real estate assets such as computers or machinery are depreciated over five or seven years, with residential real estate depreciated over 27½ years, and nonresidential business property over 39 years. Business Use Requirement Repairs are deductible only on business-use or rental property. A homeowner with no business use of the home does not benefit when an expenditure is classified as a repair rather than an improvement. Repairs are nondeductible personal expenses, while an improvement increases the basis of the home and reduces any potential gain on the sale of the home. Recordkeeping Keep good records and ask contractors to provide an Itemized list showing repairs and separately stated improvements and costs. If repairs and improvements are All completed at the same time, the IRS may classify the Entire cost as improvement, even if some of the expenses were for repairs. Court Case: The taxpayer incurred expenses to add a lunch area, restrooms, and a loading and unloading ramp to his existing manufacturing plants. In addition, the interior of the plants were painted and ‘fixed-up.’ The taxpayer claimed a repairs and maintenance deduction for all of the expenses. The IRS disallowed the deduction, explaining that the additions/improvements were made under a proposal and were required to be capitalized. The court agreed with the IRS, noting that the additions of the lunch room, restrooms and ramps constitute nondeductible capital expenditures that were more than merely keeping the property in an ordinarily efficient operating condition. The additions and improvements not only increased the value of the plants, but also aided in adapting them to a different use. The painting of the facility would qualify as a deductible repair if those expenses were standing alone, however, when made as part of an entire capital investment in the improved property, as they were in this case, they must be treated as a capital expenditure. In addition, the court noted that it was not possible to determine from the evidence submitted what portion, if any, was attributable to deductible repairs. Without a segregation of expenses, the deduction cannot be allowed and all expenditures must be capitalized. (Rutter, T.C. Memo 1986-407, August 28, 1986) As always please call us if you have any questions. 1040 + Quality Tax Preparation & Financial Services Joseph C Becker Ten Forty plus Quality Tax Preparation & Financial Services www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale or purchase of a business property in excess of $5,000. • Sale or purchase of a residence or other real estate.

We appreciate your referrals

Ten Forty + Quality Tax Preparation & Financial Services, Inc 281-397-7777 Fax 281-397-7443 Why We Appreciate Referrals We acquire many of our customers through referrals from satisfied clients. Beyond the benefit of being able to expand our business, there are other reasons why we appreciate referrals. When a client thinks enough of us to recommend our services to a family member, friend, or co-worker, we attain a higher quality clientele than those we acquire from more random marketing efforts. A personal recommendation can help jump start the business relationship, resulting in a more efficient, effective tax engagement. Please consider sharing our information with any individual who you believe might find our services useful. Benefits of Using a Paid Preparer With so many do-it-yourself tax programs available for sale, it’s a legitimate question to ask why you should hire a paid preparer when you can create and file a tax return on a home computer. Keep in mind that entering tax information into a computer program and making adjustments necessary to clear the program’s diagnostic error messages is no substitute for understanding tax law. The Internal Revenue Code and related Treasury Regulations contain over 10,000 pages of complicated provisions. Working with a tax professional who understands how the provisions affect your specific situation and how the rules interact can provide you with the best result on your tax return. Obtaining tax benefits is often a complex process involving properly executed and timely-filed elections. Simply entering amounts into an input program we save new clients more than the cost of our services compared to returns they have prepared themselves. Proper reporting and filing can also help keep you off the IRS radar. Other Benefits Include: • When your information is compiled and we’ve exam-ined and discussed your unique tax situation, we take care of preparing the forms and we file the returns electronically. • We will explain details of how items of income and expense affect your return, and will make recommendations on how to reduce your tax liability. • If you receive any communication from the IRS or state revenue department, we are available to assist you with resolution. • As professional tax preparers, we know the proper means of reporting income and deductions, the proper forms to use, and the proper entries to make. Using a paid preparer makes your return much more likely to be “accepted as filed,” meaning in most cases you will avoid the dreaded letter from the IRS triggered by a box that was not checked or a number entered on the wrong line. • We can discuss with you the tax effects of any chang-es in income anticipated for the coming year, to help eliminate the guesswork involved with figuring out what your tax situation will be in future years. • We can make recommendations for changing with-holding at work to help put you in the position you want to be in when it comes time to file next year’s return. Tax Issues Our clients frequently contact us for assistance in dealing with tax issues such as the following. • Pension or IRA distributions. • Significant change in income or deductions. • Job change. • Marriage. • Start-up or sale of business. • Purchase or sale of a home or other real estate. • Retirement. • Divorce or separation. • Self-employment or contract work. • Large charitable contributions. • Children in college. Confidentiality As professional tax preparers we are bound by rules of ethics to keep all of your information confidential. We take great care in handling your information, including names, addresses, birth dates, and Social Security numbers, and items of income and deductions. We have safeguards in place to protect the security of your physical documents as well as security of electronic information used to process and file your returns with the IRS and state revenue agencies. We adhere to strict rules regarding any disclosure or use of your personal information. We will not disclose or use any of your personal information obtained during the tax engagement for purposes other than preparation and filing of your returns unless we obtain specific written authorization from you in advance. Checklist of Common Errors When Preparing Your Tax Return The IRS created the following checklist based on common filing errors: • Did you choose the correct filing status? • Did you check the appropriate exemption boxes for your personal, spousal and dependency exemptions? • Did you enter the total number of exemptions? • Did you enter the names and Social Security numbers for everyone listed on your return exactly as those names and numbers appear on each person’s Social Security card? If there have been any name changes, be sure to contact the Social Security Administration at ssa.gov or call them at 800-772-1213. • Did you enter your income on the correct lines? • Did you calculate deductions and credits correctly, put them on the right lines and attached the necessary forms or schedules? • Did you figure the tax correctly? • Did you sign and date the return? • If you filed a paper return, did you use the correct mailing address from your tax form instructions? • If you are due a refund and requested direct deposit, did you double-check your routing and account numbers for your financial institution? • Did you make a copy of the signed return and all schedules for your own records? As always please call us if you have any questions. 1040 + Quality Tax Preparation & Financial Services Joseph C Becker Ten Forty plus Quality Tax Preparation & Financial Services www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale or purchase of a business property in excess of $5,000. • Sale or purchase of a residence or other real estate.

BE CAREFUL WITH HOBBY LOSS RULES

Ten Forty + Quality Tax Preparation & Financial Services, Inc 281-397-7777 Fax 281-397-7443 TAX TIPS Hobby or Business When you are a W-2 Wage earning opening a business could help you develop additional adductions while building a business that is 100% your own. However, you have to be careful about about Hobby / Loss Rules. If an individual, partnership, estate, trust, or an S corporation engages in an activity that is not conducted as a for-profit business, deductions are limited to the amount of income from the activity. This rule does not apply to corporations, other than S corporations. If an activity is considered a for-profit business, deductions can exceed income, allowing the resulting loss to offset other income. Determination In determining whether an activity is a hobby or a business, all facts and circumstances are taken into account. No one factor can make the determination. The following list is not intended to be all inclusive. 1) Manner in which the taxpayer carries on the activity. Factors that may indicate a business include maintaining complete and accurate books and records, carrying on the activity substantially similar to other profitable activities of the same nature, and changing operating methods and techniques to improve profitability. 2) The expertise of the taxpayer or his or her advisors. Factors that may indicate a business include knowledge of the taxpayer, or consultation with those who are knowledgeable about a particular industry, then using that knowledge to try and make a profit. 3) The time and effort expended by the taxpayer in carrying on the activity. Factors that may indicate a business include spending a lot of time and effort in the activity, particularly if the activity does not have substantial personal or recreational aspects. Taking time away from another occupation may also indicate a profit motive. Spending little time will not be counted against the taxpayer if qualified employees are hired to carry on the activity. 4) Expectation that assets used in the activity may appreciate in value. Even if no profit is made from operations, if the value of land or other assets in the activity appreciate so that an overall profit is made from a sale, the activity may be considered a business. 5) The success of the taxpayer in carrying on other similar or dissimilar activities. If the taxpayer was successful in the past turning an unprofitable venture into a profitable venture, the current activity may be a business even if it has not yet made a profit. 6) The taxpayer’s history of income or losses with respect to the activity. Early losses during start-up will not count against the taxpayer, but continued losses after the customary start-up stage that are not explainable may indicate a hobby. Losses sustained due to unforeseen circumstances, such as casualty or thefts beyond the taxpayer’s control, will not count against the taxpayer. Any series of profitable years are strong evidence the activity is a business. 7) The amount of occasional profits, if any, which are earned. The amount of profits in relation to the amount of losses, and in relation to the taxpayer’s investment in the activity, may indicate intent. An occasional small profit one year, mixed with large losses in other years or large taxpayer investments, may indicate the activity is a hobby. Substantial occasional profits mixed with frequent small losses or investment may indicate a business. An opportunity to earn substantial ultimate profits in a highly speculative venture also indicates a profit motive. 8) The financial status of the taxpayer. If the taxpayer does not have substantial income or capital from other sources, the taxpayer may have a profit motive. If the taxpayer has substantial income from other sources, and losses from the activity in question generate substantial tax benefits, the taxpayer may not have a profit motive. 9) Elements of personal pleasure or recreation. Where there are recreational or personal elements involved with the activity, a lack of profits may indicate a hobby. On the other hand, a lack of any appeal in the activity other than possible profits indicates a profit motive. It is not necessary that the sole purpose for engaging in an activity is to make a profit. The availability of other investments that might produce a higher rate of return will not count against the taxpayer. The fact that a taxpayer derives personal pleasure in the activity is not sufficient in itself to classify the activity as a hobby if other factors indicate the activity is a business. Presumption of Profit IRS rules state that if an activity is profitable in three of the last five tax years, including the current year, the presumption is it is carried on for profit, and the hobby loss limitations do not apply. If the activity consists primarily of breeding, training, showing, or racing horses, the IRS will presume it is carried on for profit if a profit is produced in at least two of the last seven tax years, including the current year. Reporting Hobby Income and Expenses Occasional profits from hobby activities are not subject to self-employment tax, and losses from hobby activities cannot be used to offset other income. Hobby Income Gross income for the purposes of the hobby loss rules equals gross receipts minus the cost of goods sold deduction. Hobby income may include capital gain, rent, and other income. Hobby Expenses Expenses related to hobby income are reported as itemized deductions on Schedule A. Activities Not Engaged in for Profit IRS examiners consider the following in their analysis to determine whether or not an activity is engaged in for profit. • Are there activities with large expenses and little or no income? • Are losses offsetting other income on the tax return? • Does the activity result in a large tax benefit to the taxpayer? • Does the history of the activity show that it is generat-ing any profit in any years? Examples of possible hobby activities include: – Airplane Charter – Games – Artists – Gardening – Auto Racing – Horse Breeding – Boating – Horse Racing – Bowling – Jewelry Making – Collecting – Knitting – Cooking – Motocross Racing 1040 + Quality Tax Preparation & Financial Services Joseph C Becker Ten Forty plus Quality Tax Preparation & Financial Services www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale or purchase of a business property in excess of $5,000. • Sale or purchase of a residence or other real estate.

EARLY RETIREMENTS

Ten Forty Plus Quality Tax Preparation & Financial Services, Inc 281-397-7777 Fax 281-397-7443 TAX TIP Early Retirement Distributions A taxpayer may choose, or be forced into choosing, early retirement. A retirement before age 59½ creates income challenges for the retiree. The retiree is not yet eligible to receive retirement benefits from Social Security. The retiree may or may not have a monthly pension to generate income. In many situations, the retiree will need to generate income from his or her assets. Often, the retiree has most of his or her assets in a retirement plan through a 401(k) plan at his or her employer or in an individual retirement arrangement (IRA). Withdrawals of earnings and pre-tax contributions are subject to ordinary income tax. In addition, taxpayers may be subject to the 10% early withdrawal penalty tax on distributions taken before the taxpayer reaches age 59½. Tax Summary • Withdrawals of earnings and pre-tax contributions from an IRA are subject to ordinary income tax. • Unless an exception applies, taxable withdrawals from an IRA prior to age 59½ are subject to a 10% early withdrawal penalty. • Taxpayers who take a series of substantially equal periodic payments from an IRA are not subject to the 10% additional tax. Tax Planning Strategy One strategy to generate income from retirement accounts for taxpayers under age 59½ is to take periodic distributions from those accounts. If structured properly, the 10% additional tax will not be assessed on the distributions. Taxpayers can take distributions from various retirement accounts such as 401(k) plans, 403(b) plans, and IRAs. Substantially Equal Periodic Payments (SEPP) The Internal Revenue Code allows taxpayers to take withdrawals from retirement accounts without incurring the 10% penalty. To do so, very specific rules need to be followed. • The payments made to the taxpayer from the IRA are based on one of three calculation methods. • The payments must be made to the taxpayer at least annually during the payment years. Payments can be made more frequently, such as monthly, but the total for each year during the SEPP period must meet the payment calculation result for the year or years during the SEPP. • Payments must be made for a period of at least five years or until the taxpayer reaches age 59½, whichever is later. Example: Fred, age 52, establishes a SEPP from his IRA. He must continue to take withdrawals until he reaches age 59½. If he discontinues or changes his SEPP withdrawals at any time before he reaches age 59½, the current year withdrawal is subject to the additional 10% tax. In addition, the SEPP withdrawals for previous years are retroactively subject to the additional 10% tax. If, however, Fred begins SEPP withdrawals at age 58, he must continue the withdrawals to age 63 to comply with the 5-year withdrawal requirement. Calculation Method Payments are considered to be substantially equal periodic payments if they are made in accordance with one of the three calculation methods allowed. Early Retirement Distributions 1) Required minimum distribution method. Under this method, the account balance, the number from the life expectancy table, and the resulting annual payment amount is re-determined each year. 2) Fixed amortization method. The annual payment for each year is determined by amortizing in level amounts the account balance over a specified number of years determined using a life expectancy table and a chosen interest rate. Under this method, the annual payment is determined once for the first distribution year and the annual payment is the same in each succeeding year. 3) Fixed annuitization method. The annual payment for each year is determined by dividing the account balance by an annuity factor that is the present value of an annuity of $1 per year beginning at the taxpayer’s age and continuing for the life of the taxpayer. The annuity factor is derived from a mortality table and a chosen interest rate. Under this method, the annual payment is determined once for the first distribution year and the annual payment is the same amount in each succeeding year. One-Time Change to Required Amount A taxpayer who begins distributions in a year using either the amortization method or the annuitization method may in any subsequent year switch to the required minimum distribution method to determine the payment for the year of the switch and all subsequent years. The change in method will not be treated as a modification. Once a change is made, the required minimum distribution method must be followed in all subsequent years until the required number of years under the plan have been met. Changes to Account Balance No other contributions or distributions can be taken from the account being distributed from during the SEPP period. This includes nontaxable transfers in or out of the account. Example: Susan establishes a SEPP distribution from her IRA. Two years later, at age 53, she takes on a new job and wants to make contributions to an IRA with her newly earned income. Susan cannot contribute to the IRA that is making her SEPP distribution. Susan can establish a new, separate IRA account that she can make contributions to. Depletion of Account Value If, as a result of following an accepted method of determining SEPP withdrawals, a taxpayer’s IRA assets are exhausted, the taxpayer will not be subject to the additional income tax of 10%. The resulting cessation of payments will not be treated as a modification of the series of payments. Example: Dick established a SEPP distribution plan at age 54 that required him to take a distribution amount of $25,000 each year. He invested aggressively in his SEPP account and, due to distributions and declines in the stock market, the value of his account was down to $15,000 when Dick took his distribution at age 58. Because the account has been depleted, none of the amounts distributed through the SEPP plan in prior years is subject to the 10% additional tax. In addition, the $15,000 distribution at age 58 is not subject to 10% additional tax. Also, because the account has been depleted, he will face no tax consequences for not being able to take a distribution at age 59. Possible Risks • The rules for distributions using the Internal Revenue Code provide very little flexibility. Once the distribution begins, taxpayers need to exert extreme caution in making any changes to the distribution amount and frequency. • Taxpayers need to document the calculations used to determine the distribution, as well as any change in distribution. Tax courts have consistently assessed the 10% additional tax for taxpayers who could not substantiate the distributions were, in fact, based on SEPP calculations. 1040 + Quality Tax Preparation & Financial Services Joseph C Becker Ten Forty plus Quality Tax Preparation & Financial Services www.tenfortyplus.com 281-397-7777, Fax 281-397-7443 joeb@tenfortyplus.com Contact Us There are many events that occur during the year that can affect your tax situation. Preparation of your tax return involves summarizing transactions and events that occurred during the prior year. In most situations, treatment is firmly established at the time the transaction occurs. However, negative tax effects can be avoided by proper planning. Please contact us in advance if you have questions about the tax effects of a transaction or event, including the following: • Pension or IRA distributions. • Retirement. • Significant change in income or • Notice from IRS or other deductions. Revenue department. • Job change. • Divorce or separation. • Marriage. • Self-employment. • Attainment of age 59½ or 70½. • Charitable contributions • Sale or purchase of a business property in excess of $5,000. • Sale or purchase of a residence or other real estate.