Newsletter 2013/2014 CPA Letter to Clients Dear Clients, In the past, returns of some clients were prepared and presented to the Internal Revenue Service (IRS) with deductions /credits that you did not provide to me in the preparation of your federal tax return. As a result I have been accused by the Internal Revenue Service (IRS) of willfully aiding and assisting in the preparation and presentation of false income tax returns via the U.S. Department of Justice (U.S.D.J). After carefully considering all the facts and circumstances of the accusation, I have agreed to enter into a guilty plea agreement with the United States Department of Justice; which includes restitution to the IRS for tax revenue lost by the government. Per the agreement, I accept the guilty judgment on one count of willfully aiding and assisting in the preparation and presentation of false income tax returns for tax years 2007-2012. With immediate effect Fraser CPA/Taxko will be moving in a new direction. Carlos Fraser, EA will be the new CEO who will head the company in its new direction and endeavors. This new direction is centered on efficiency functions and the use of technology to retain client records, to meet opportunities, and any challenges ahead. We implemented a new document management system immediately after we learned of the IRS allegation. With the high level of professional skepticism, there will be more questioning and critical assessment of documents to fully avoid any of the practices that were done in the past. We have revised our worksheets for clients to submit their deductions for Schedule A, C, D and E. This is an emotional and difficult thing for me to do. I take this step in the best interests of the company I love; it is the thing outside of my family and closest friends that matters to me most. If my past actions have affected you in any way I would like to take this time to say I am truly remorseful and sorry. As the principal of this company I have created steps to help any client, free of charge, who believe they have been affected by my actions from 2007-2012. This company has all its best days ahead. Please know you are part of a company in the tax industry that has the right technological assets and your best interest in mind. We cannot and will not miss a beat in this transition. This public declaration of my acceptance is my way of showing our integrity. Sincerely, Carlyle Fraser, CPA Keeping In Touch With Our Clients Client Development As we migrate our clients’ source documents and worksheets, it’s important to maintain a human element to tax preparation. For 2014 and beyond, we will increase our function to our clients. With today’s technology of emailing documents to us, it’s entirely possible to process a return without having to come in to the office. Unfortunately, you miss opportunities to spot things and, over time, we become a commodity provider rather than a value provider. During the tax season, our time is limited and our goal is to use our time as efficiently and effectively as possible. We urge our clients to make use of all of the applicable worksheets located on our website. Review your entries carefully to avoid miscalculations or omitted deductions. We at Fraser CPA/ Taxko inc. recommend the following to build value: We want our clients to take advantage of our professional knowledge. This will be achieved by doing the following: 1. Call us before you make important financial decisions: Important financial decisions can affect your taxes in a positive and negative way. It is best to be aware of the cause and effects of your actions beforehand to avoid any surprises. 2. Do not be afraid to consult us regarding your financial problems: With today’s economic environment, financial problems have increased. Most clients wait until tax season to discuss prior financial problems. For example, early distribution of retirement accounts should be communicated at date of distribution to project your tax liability. 1. Early booking of a 30-60 minute in-person meeting. Be fully prepared for the meeting with your questions and concerns. This is not a tax preparation meeting, it is the free consultation before tax preparation. 2. Schedule a 30 minute phone call to go over faxed, emailed, and dropped off documents. Also have a list of questions and concerns. “The hardest thing to understand in the world is the income tax” -Albert Einstein Facer CPA/Taxko, Inc Newsletter 2013/2014 2013/2014 Tax Rate Changes Other Changes for 2013/2014 For 2013, federal tax rates took a rollercoaster ride. The Bush tax cuts of 2001, which had been extended for two years, were to expire on December 31, 2012. However, on January 1, 2013 the American taxpayer relief act of 2012 was enacted to avoid fiscal cliff. The following are the main changes: 1. The tax rates on ordinary income and shortterm capital gains stayed the same from 2012 to 2013; except for joint/ (Single) taxpayer(s) with income over $450,001/ ($400,001). Their new rates are 39.6% rather than 35%. 2. Ordinary and qualified dividends income tax rates for joint/ (single) taxpayer(s) have a two part increase. a. The maximum ordinary dividend tax rate increase from 35% to 39.6%. And the maximum qualified dividend rate increased from 15% to 20%. b. There is an additional 3.8% rate increase if the joint/ (single) taxpayer income is over $250,000/($200,000). Taxpayers will face some limitations on deductions based on their income, and an increase in deductions due to inflation. The main limitations and increases are: 3. The tax rates on long-term capital gains stayed the same from 2012 to 2013; except for joint/ (Single) taxpayer(s) with income over $450,001/ ($400,001). Their new rates are 20% rather than 15%. Most taxpayers will not be affected by the tax rate changes but if you can, use the tax rates to your benefit. By increasing your deduction, the taxpayer in the higher tax bracket will save more money. A taxpayer in the 28% tax bracket, for example, will save 28% on every dollar spent on a tax-deduction expenses, such as charity and mortgage interest. 1. Your total itemized deductions will be reduced by 3% if your income is over $300,000/ ($250,000) for joint/(single) taxpayer(s). The head of household limit will start at $275,000. 2. In 2013/2014 the maximum social security tax on wages is at 6.2% {$7,049.40}. However, the Medicare tax on wages of 1.45% has no maximum, in addition, joint/ (single) taxpayers with income above $250,000/ ($200,000) will incur an additional .09% on income over the $250k/$200k, creating a 2.35% Medicare tax. 3. Personal exemptions for yourself and dependents will phase out for joint/(single) taxpayer(s) if your income is over $300,000/($250,000).The head of household limit will start at $275,000. 4. Mileage rates have increased to: a. Business- $0.565 per mile. b. Charitable-$0.14 per mile. c. Medical & Moving- $0.24 per mile. 5. Medical Expenses deduction floor increase from 7.5% of your adjusted gross income to 10%. The 7.5% will remain if you are 65 years or older. 6. The standard deduction increases: a. Single/Married filing separate-$6,100 b. Married/(Head household)- $12,200/($8,950). 7. For small business owners, the main tax change is the reduction of the so called 179 deduction that allows you to expense the purchase of equipment and other business assets. The maximum allowable for expenses will drop from $139,000 to $25,000. In addition, computer software cannot be expensed for 2014. The government shutdown in October of 2013 has affected the start date of the tax season in 2014. The IRS website projects that they would start accepting and processing 2013 individual tax returns no earlier than Jan. 28 and no later than Feb. 4, 2014. Organize Your Tax Paperwork 1733 Springfield Avenue Maplewood, NJ 07040 Phone: (973)762-7299 Fax: (973)762-7292 E-Mail: [email protected] “We do taxes right” We’re on the Web! Visit us at: www.frasercpa.com 1733 Springfield Avenue Maplewood, NJ 07040 With 2014 ahead of us and 2013 coming to an end, this is the best time to get organized for the tax season. The following is our guideline about what to gather: 1. Individuals – We recommend collecting all “important tax documents” in a folder; keep your last paystub to compare to your W2 and annual social security statement. Gather all the related documents required to complete the Schedule A worksheet we have available online under FORMS. Keep the source documents for 3 years in a safe place. 2. Rental Property Owners – We recommend that you also gather documents to support the deductions listed on the Schedule E worksheet. This includes utility bills, cancelled checks, credit card/cash receipts, and other documents that support the deductions on your return. Keep the source documents for 3 years in a safe place. 3. Small Business Owners- Business owners have the daunting task of compiling their income and expenses for the year. If you have not yet started, do so now. Review the Schedule C worksheet carefully. Look back at your calendar and create travel logs of your business miles. If you do not use an accounting software, focus on purchases over $75 on your bank statements. Include those totals on the worksheet you provide our office. Keep the source documents for 3 years in a safe place.