Filing Taxes: Together or Not Together?

One of the more common strategies married couples consider when thinking of ways to reduce taxes is whether or not they should file their tax returns separately, rather than jointly. While this strategy may be a common consideration, it is not as common for this strategy to actually be implemented. Following are a few reasons why “together” is usually the best option for most married couples when filing their taxes.

​First, taxpayers filing separately are subject to the higher tax brackets earlier than taxpayers filing their returns as single. For example, in 2014, a taxpayer filing as single can earn up to $186,350 before being subject to the 33% tax bracket. However, a married filing separately taxpayer can only earn up to $113,425 before being subject to this tax bracket.


​Also, filing separately eliminates the flexibility of deductions that taxpayers would have if they were to file their returns jointly. With a joint filing, taxpayers can decide to use either itemized deductions or the standard deduction, based on which method offers the most benefit. Even though taxpayers filing separately are still able to choose which deduction they take, the method that one spouse uses also becomes the method the other spouse must use. This means that if one spouse uses itemized deductions, the other spouse must also use itemized deductions, even if the standard deduction would have been more beneficial. Additionally, filing separately eliminates the opportunity for taxpayers to take various other deductions and credits. These include adoption expenses, child and dependent-care costs, educational tax credits, and interest paid on student loans.

​While filing jointly is often the best option for married couples, there are some cases in which filing separately can be more beneficial. As a result, it is important to keep organized records and send all necessary documents to your tax advisor so that a proper analysis of your situation can be made.

By: Ruben Becerra, Staff Accountant

Creating a Winning Succession Plan

Few business owners plan their exits from their businesses with as much care as they planned their entries. Just as every owner starting out needs a business plan, every owner looking to retire needs a succession plan to help transfer ownership and to achieve his or her retirement goals.

The Four Goals of a Succession Plan

While situations vary from business to business, most well-thought-out plans are designed with some or all of these objectives in mind:

  • Protecting the company’s value and ability to compete
  • Minimizing conflicts among family members
  • Reducing gift and estate taxes
  • Achieving the owner’s retirement goals.

Start Early

succession-planningStarting work early on a succession plan may help ensure a smooth change of ownership. An early start helps those family members who are active in the business to grow into their new roles and responsibilities over time. Moreover, starting early provides the opportunity to make changes to the plan, if necessary, before the actual transfer of control.

As a business owner, you should be careful not to attach provisions to the transfer of ownership that could limit the ability of the business to grow and compete in the future. Some business owners have included provisions in their wills or in the company bylaws that, for example, limit the level of debt the business can carry or restrict the types of opportunities the company can pursue.

A succession plan is also an effective tool for minimizing your estate taxes. You can capitalize on the $14,000 federal gift-tax annual exclusion by giving your children company stock over time. However, it’s important that you determine the fair market value of the shares you transfer so that you don’t run afoul of the IRS.

Letting go of the business you have spent a lifetime building is a huge decision. That’s all the more reason why you should take the time to do it correctly. We can help you put together an effective and workable succession plan. Please give us a call.

Tools of the Trade: Financial Statements

Some “tools of the trade” are specific. Carpenters need hammers. Programmers need computers. Financial statements, however, are critical tools for all businesses. They allow you to monitor profitability, improve financial management, and provide banks and other lenders with vital information.

Primary Tools

There are several financial statements. The two most well-known are:

  • The Balance Sheet shows the assets of your business and the amounts it owes (liabilities) on a particular date. The difference in the two numbers is the amount of owners’ equity.
  • The Income Statement is a summary of your business’ revenue and expenses over a certain period of time. It reveals your income (or loss) from core operations and then incorporates other income and costs and any extraordinary items to arrive at a net income figure.

Level of Services

financial-statementA CPA can provide different levels of service when it comes to financial statements. How you plan to use the statements will determine the level of review or verification required.

Compilation. If you want reports mainly for internal use, a CPA will simply compile the figures you provide and prepare the appropriate statements. No assurances are made about whether the statements are presented fairly.

Review. Potential lenders will generally require more than a simple compilation. The CPA will need to provide limited assurance that, based on limited procedures, nothing came to the accountant’s attention that would indicate that material changes to your financial statements are necessary. That requires looking at your accounting policies and practices, how your business operates, the actions of your board of directors, recent changes in your business, and so forth.

Audit. In some instances, you may need to have audited financial statements prepared. This is the highest level of service and requires the CPA to thoroughly examine your books and records and all of your financial policies and procedures. Then, the CPA can provide an opinion about your statements.

When Marriage Ends in Divorce or Separation

The end of a marriage is also the beginning of a new financial life. Reconsidering your financial arrangements — whether or not your income will be reduced — should be a priority as you adjust to your new circumstances. The major issues demanding attention and resolution include the following.

Retirement Issues

  • The QDRO. A divorce settlement often determines how any anticipated future pension and/or retirement plan benefits will be divided. You may receive part of your ex-spouse’s retirement benefits, or your ex-spouse may receive part of yours. However, an employer may distribute retirement plan benefits to a former spouse only after receiving a court-issued document that meets the requirements for a Qualified Domestic Relations Order (QDRO). If you are to receive benefits from your ex-spouse’s plan, you must follow through on obtaining the QDRO and ensuring that the plan’s administrator receives it.
  • Change of beneficiary. The individual you have named as the beneficiary of your retirement plan account will automatically receive all the funds in your account after your death. A divorce or other agreement generally has no effect on a beneficiary designation. Therefore, you must formally amend the appropriate plan documents to name someone other than your ex-spouse. As soon as your divorce becomes final, you should give your plan administrator a new beneficiary’s name. Also, be sure to change the beneficiary on any IRAs you may have.
  • Adjusting retirement plans. Your financial future may look very different without your spouse. You may be able to improve your lifestyle after retirement by taking advantage of additional current contributions to your 401(k) or other tax-deferred retirement plan. You might also consider contributing to a Roth or other IRA to supplement your employer’s retirement plan.
  • Social Security. Your ex-spouse’s work record may entitle you to receive a benefit once you are at least 62 years old and meet the law’s conditions. So, after a divorce, it is a good idea to call the Social Security Administration to inquire about any benefits you can expect to receive.


Le divorceYour new marital status may mean a shift in your investment goals and, therefore, in your investment strategy. Your present assets may be more or less risky than you will want in the future. You should also examine your new living costs to make sure your arrangements are realistic for your income and needs, and to decide how much and how often to invest for the future.

Financial Documents

 After a divorce or separation, a general review of all your financial documents is advisable. In light of your new situation, be sure to examine the following.

  • Estate plan. If your spouse is your heir, you need to revise your will to name another beneficiary(ies). Also, marital status is often a key factor in planning an estate. You should review your present plan with your professional advisor to update it for your new situation.
  • Life insurance. The change in your marital status most likely will require a reevaluation of your life insurance policies and, at the least, a change in your beneficiary designations.
  • Credit records. It is important to separate your credit history from your spouse’s history so that future reports will be based only on your own credit use. That will involve notifying credit bureaus of your divorce and removing your spouse’s name from any joint credit accounts.It is important to separate your credit history from your spouse’s history so that future reports will be based only on your own credit use. That will involve notifying credit bureaus of your divorce and removing your spouse’s name from any joint credit accounts.It is important to separate your credit history from your spouse’s history so that future reports will be based only on your own credit use. That will involve notifying credit bureaus of your divorce and removing your spouse’s name from any joint credit accounts.

Get Professional Assistance

A divorce or separation may give rise to numerous tax issues, and a settlement agreement that reduces taxes may benefit both sides. Professional legal and tax advice is essential as your agreement is being negotiated.

Most Common Tax Return Mistakes

A majority of tax returns are e-filed to the IRS, making your return on your refund much faster … unless, you do one of these common mistakes that can delay your return from being processed.

Double check not only your social security number, but also your spouse and children’s social security numbers. Transposing these numbers are very common.

Another common error is misspelling your name or having the wrong name. If your name has changed due to marriage or divorce, make sure you do a change of name with the Social Security Administration before you file your tax return. Just changing it with your employer on your paycheck does not change it in the IRS system. The IRS recommends you change it with Social SecurityAdministration even before you ask your employer to change it for paychecks and W-2’s.

Many people are confused with their filing status when it comes to head of household, mainly when you are divorced with kids. If both parents claim head of household and both claim the kids … there will be delays.

Errors in figuring credits or deductions, such as the child and dependent care credit, or the earned income tax credit, or if you are over 65 and/or blind will also delay processing.

Receiving your refund through electronic direct deposit is the safest and fastest … unless you enter the wrong bank account numbers. Double check the routing and account number to make sure they are correct.

People are 20 times more likely to make errors doing manual pen and paper returns compared to people who use tax software and e-file. Many are errors from either arithmetic or transferring figures from line to line or form to form. Always double check your figures with a calculator.

Should you have received a Misc/Interest/Dividend 1099 Form? If you haven’t received it, check with the company. Your copy may have gotten lost in the mail, while the IRS will still have received their government copies. If you do not claim the income on your return, the IRS will send you a notice asking for the missing tax you owe on the unreported income. This could also result in penalties and interest.

tax-errors-516x325If you are mailing your return, remember to sign and date your return. If you are e-filing, make sure you use the correct Electronic filing pin number that you used the prior year.

If you are unable to file your tax return on-time, make sure to fill out an extension and mail it to the IRS. You will also need to pay in any tax that you might owe, but it gives you an extra 6 months to file the return.

The best way to avoid common mistakes is to not wait until the last minute to work on your taxes. Even giving it to your tax preparer within the last few days before the deadline is an easy way to end up getting a delay in your return being processed due to missed items or mistakes.

By: Sandra Stone, Accountant

Vacation Home Rentals & Taxes

beach rentalIf you rent a home to others, you usually have to report the rental income on your tax return. But you may not have to report the income if the rental period is short and you also use the property as your home. In most cases, you can deduct the costs of renting your property. However, your deduction may be limited if you also use the property as your home.

Here is some basic tax information that you should know if you rent out a vacation home:

Vacation Home – A vacation home can be a house, apartment, condominium, mobile home, boat or similar property.

Schedule E – You usually report rental income and rental expenses on Schedule E, Supplemental Income and Loss. Your rental income may also be subject to Net investment income tax

Used as a home - If the property is “used as a home,” your rental expense deduction is limited. This means your deduction for rental expenses can’t be more than the rent you received.

Divide expenses - If you personally use your property and also rent it to others, special rules apply. You must divide your expenses between the rental use and the personal use.

Personal use – Personal use may include use by your family. It may also include use by any other property owners or their family. Use by anyone who pays less than a fair rental price is also personal use.

Schedule A – Report deductible expenses for personal use on Schedule A, Itemized Deductions. These may include costs such as mortgage interest, property taxes and casualty losses.

Rented Less than 15 days – If the property is “used as a home” and you rent it out fewer than 15 days per year, you do not have to report the rental income.

By: Diane Allman, CPA

Employer Health Insurance Rules Eased for 2015

Health insurance remains a big focus for employers of all sizes as the Affordable Care Act’s provisions are gradually implemented. Starting next year, certain employers will have to offer their full-time employees “affordable” health coverage that provides “minimum value” or pay a penalty if at least one full-time employee enrolls in marketplace coverage and receives a premium tax credit (basically a subsidy for buying the insurance).

The employer shared responsibility rules are applicable only to “large” employers — generally defined in the law as employers that employed on average at least 50 full-time or full-time equivalent employees on business days during the prior calendar year. An employee is a full-time employee for a calendar month if the employee averages at least 30 hours of service per week, and 130 hours of service in a calendar month is treated as the monthly equivalent of at least 30 hours of service per week.

Although the employer shared responsibility rules become effective in 2015, the IRS recently offered certain transition relief for 2015:

Healthcare_BillsEmployers with 50-99 full-time employees. No employer shared responsibility payment will apply during 2015 if an employer has at least 50 but fewer than 100 full-time employees (including full-time equivalents) on business days during 2014 if certain conditions are met. The basic conditions: During the period from February 9, 2014, through December 14, 2014, the employer must not (1) reduce the size of its work force and overall hours of service of its employees in order to qualify for the relief or (2) eliminate or materially reduce the health coverage, if any, it offered as of February 9, 2014.

Counting full-time employees. Employers can determine whether they had at least 100 full-time or full-time equivalent employees in the prior year by reference to a period of at least six consecutive months instead of a full year.

Coverage. Employers that are subject to the employer shared responsibility provisions in 2015 must offer coverage to at least 70% of full-time employees, rather than 95%, as one of the conditions for avoiding shared responsibility payments. Additionally, the policy that employers offer coverage to their full-time employees’ dependents will not apply in 2015 to employers that are taking steps to arrange for dependent coverage to begin in 2016.