Timothy W. Tuttle &
Volume 15 Edition 05
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Major Events This Month:
For May 2019
May 12: Mother's Day
May 15: Exempt
organization tax returns due
May 27: Memorial Day
With tax season in the rear
view mirror, it's full speed ahead into tax planning season. While it's
important for everyone to have a tax roadmap, there are key situations that
require extra attention so you can avoid a major tax pothole. This issue
includes lessons to learn from some high-profile tax scandals, sneaky vacation
costs that can ruin your vacation, and an inside look at some key
characteristics of a great bookkeeping system.
Call if you would like to
discuss how any of this information relates to you. If you know someone that can
benefit from this newsletter, feel free to send it to them.
You Know You Need Tax Planning
Effective tax planning helps
you make smart decisions now to get the future outcome you desire - but you need
to make sure you don't miss anything. Forget to account for one of these
situations and your tax plans will go off the rails in a hurry:
- Getting married or
divorced. One plus one does not always equal two in the tax world.
Marriage means a new tax status, new deduction amounts and income limits, and
a potential marriage penalty. The same is true for divorce, but with added
complexity. Untangling assets, alimony, child support and dependents are all
considerations worthy of discussion.
- Growing your family.
While bringing home a new child adds expenses to your budget, it also comes
with some tax breaks. With a properly executed plan, you can take home the
savings now to help offset some of those new costs. If you are adopting, you
get an additional tax credit to help with the adoption expenses.
- Changing jobs or
getting a raise. Earning more money is great, but if you're not careful,
you might be surprised by the tax hit. Each additional dollar you earn gets
taxed at your highest tax rate, and might even bump you to the next tax
bracket. If you are switching jobs, the change also includes things like new
benefit packages to consider.
- Buying or selling a
house. Whether you're a first-time homebuyer, you're moving to your next
house, or you're selling a house, there will be tax implications resulting
from the move. Knowing how your taxes will be affected ahead of time will help
you make solid financial decisions and avoid surprises. If you're looking to
buy or sell investment property, even more tax issues come into play.
- Saving or paying for
college. There are so many different college tax breaks, it can be tricky
to determine which ones might make the most sense for your situation. These
include the American Opportunity Tax Credit, the Lifetime Learning Credit, the
Coverdell Education Savings Account, 529 plans and student loan interest
- Planning for
retirement. Everyone needs to plan for retirement, but each situation is
different. Some of the factors to keep in mind include employment status,
current income, available cash, future earnings and tax rates, retirement age
and Social Security. Putting all of these variables into one analysis will
paint a clearer picture of your retirement strategy and provide a way forward.
Don't make the mistake of
omitting key details from your tax plan. Call now to schedule a tax-planning
Al Capone, Aunt Becky, Tax
Fraud and You!
How you can learn from high-profile tax
The recent college admission
scandal involving Lori Loughlin (who played Aunt Becky in the Full House
TV series) and others is shedding light on just one way people allegedly cheat
on their taxes. Here are examples of some famous people in tax trouble with the
IRS and helpful hints to make sure it doesn't happen to you:
- Lori Loughlin and
questionable charitable donations. In this case, the IRS would investigate
whether payments deducted as charitable contributions on her tax return were
really charitable contributions. Regardless of how the legal charges shake
out, Loughlin is looking at a large tax bill if the charity she contributed to
is stripped of their non-profit status.
Helpful hint: Charitable giving must be to legitimate
charitable organizations, for legitimate purposes, and must be reduced by any
value received in return.
- Al Capone and his
illegal earnings. After years of bribing and wriggling his way out of
violent crime charges, Capone was charged with 22 counts of tax evasion for
not reporting income on illegal activities. He was sentenced to 11 years in
prison - some of which were served at Alcatraz Federal Penitentiary in San
Helpful hint: ALL income - even if obtained illegally - is
- Wesley Snipes decided
not to file his taxes. In 2008, actor Snipes was convicted for not filing
tax returns from 1999 to 2001. Among his many arguments, Snipes used the tax
protester theory claiming domestic income is not taxable. After jail time,
Snipes' offer in compromise to lower his $23 million tax bill request was shot
down by the IRS.
Helpful hint: Exotic tax schemes are actively monitored by
the IRS. If it seems to good to be true, it probably is too good to be true
and requires a second opinion.
- Leona Helmsley faked
her business expenses. Helmsley, A famous real estate mogul in the 1980s,
had more than $8 million of renovations to her private home billed to one of
her hotels so she could deduct the expense on her taxes. After being
convicted, Helmsey had to pay back the $8 million and served 18 months in
Helpful hint: Separate business expenses from personal
expenses. Open separate bank accounts and never intermingle expenses. The IRS
is quick to disallow deductions when personal expenses and business expenses
are mixed together.
- Pete Rose hid his
"likeness" income. Many famous athletes go on to sell autographs,
memorabilia and get paid for appearances after they retire from their sport.
Rose was no different, but he opted not to report the $354,968 he earned over
a four-year period. The result was five months in prison and a $50,000 fine in
addition to having to pay back the taxes he tried to avoid.
Helpful hint: Don't attempt to hide income. With less and
less businesses using cash payments, the IRS now can use matching programs to
quickly find underreporting problems.
While seeing well-known
celebrities in the press for tax trouble makes for interesting reading, there
are useful tax lessons for all of us. It provides an opportunity to see how IRS
employees think and what they are reviewing.
Watch Out! 7 Vacation Costs
That Sneak Up on You
Going on vacation is a time
to get away, relax and enjoy new experiences. But if you don't pay close
attention, extra costs can sneak up on you like tiny money-stealing ninjas. Here
are seven sneaky vacation costs to watch out for:
- Covert airfare
increases. Airline pricing algorithms are programmed to store your
browsing history to see if you've been looking at flights. If you have, they
will bump up the price. Before searching, clear your internet history and
switch to private (or incognito) mode on your web browser. When you are
finally ready to book the flight, do so using a different computer from a new
location to be sure that you're avoiding this artificial price increase.
- Stealthy resort fees.
The nightly base rate for a fancy resort will often compare favorably to a
standard hotel in the same location. This is an intentional pricing tactic
used by resorts to get their rooms on the initial search results page. Don't
be fooled! These same resorts will add a daily resort fee on the back end of
your bill to cover the extra amenities they offer. The extra fee might be
worth it to you, but it's better to understand the full cost of the stay
before making your reservation.
- Useless rental car
insurance. Rental car companies will try to sell you insurance to cover
damages you may cause during the rental period. Often, the auto insurance you
already have will extend to the rental car. In these cases, the extra
insurance isn't necessary. Before renting a car, check with your insurance
company to see if a rental will be covered.
- Bloated baggage fees.
You probably already know that airlines may charge for checking a bag, but do
you know they will charge extra if a bag is too heavy? Exact weight can vary
by airline or location, so check the weight limits before you go and weigh any
heavy bags using a bathroom scale.
- Crafty parking costs.
Downtown hotels in big cities charge as high as $75 per night for parking!
Research alternative parking options near your hotel or compare the cost of
using rideshare options before committing to the hotel rate.
- Sly extra driver
charges. Rental car companies will charge an extra daily fee to have a
second driver listed on the rental. If possible, commit to one person to
handle all the driving on your vacation.
- Tricky foreign
transaction fees. Traveling abroad and paying an extra fee for every
purchase will add up in a hurry. Before you go, check your credit cards and
bank accounts to see if they charge foreign transaction fees. If they do,
shopping for another card or account that doesn't charge fees might make
Some vacation fees can't be
avoided, but many of them can if you know where to look. Implement a plan to
navigate the fees in the planning stages of your trip to avoid dealing with them
during your vacation.
4 Key Elements of Great
Your bookkeeping system is
the financial heart and lifeblood of your business. When set up and operating
properly, your books help you make smart decisions and seamlessly turn your
financial data into useful information. Here are four key characteristics to
build and maintain a healthy bookkeeping system:
- Select the proper
There are two different methods for recording transactions: cash-basis and
accrual-basis. In general, cash-basis records a transaction when payment is
made where accrual-basis books the transaction upon delivery of the good or
service. Cash-basis is easier to track and a useful option for smaller
businesses and sole-proprietors. Where as larger businesses who buy from
vendors on account (accounts payable) generally use accrual-basis accounting.
Selecting the proper method affects any related financial transactions and how
your financial statements are displayed. A correct approach will also include
consideration of outside factors, including: IRS rules (businesses with more
than $25 million in gross receipts must use accrual-basis), bank covenants,
and industry standards. Once a choice is made, it can be changed but it must
be properly reported to the IRS.
- Create an account
structure that fits the company
Every business has a chart of accounts included in their bookkeeping system.
These accounts sort the business's transaction data into six meaningful
groups. They are assets, liabilities, equity, income, cost of goods sold and
other expenses. Each group will often have numerous accounts and sub-accounts
associated with them.
Having the right mix of accounts created and grouped in an organized fashion
will help you properly classify transactions and prepare usable financial
statements. The proper account structure for your company will mesh with your
specific information needs.
- Enter accurate and
The value your data provides is dependent on each transaction being recorded
correctly and on time. Entering transactions in the wrong account can cause
major issues down the road. Financial reporting that is delayed can hide
problems that need immediate attention. Some transactions are relatively
straightforward, and some are more complex (like payroll, accruals and
It's important to have someone who understands both your business and the
accounting rules enter your transactions in a timely fashion. In addition, a
good month-end close process that involves reviewing each account, will find
mistakes from the initial entries.
- Establish financial
statements for decision-making
The main financial statements are the income statement (income - expenses =
gross profit), the balance sheet (assets = liabilities + equity) and statement
of cash flow. Each statement has a specific purpose:
- Income statement.
The income statement shows company performance for a select period of time;
typically monthly with a full year summary. At the end of each year the
income statement restarts.
- Balance sheet.
The balance sheet displays a company's overall health as of a certain date.
It is perpetual. This means it doesn't end until the business is closed or
sold. It includes one line that summarizes the current year and prior year
results from the income statement.
- Statement of cash
flow. This statement summarizes the inflow and outflow of cash. It
ensures you know whether you have enough cash and the pattern of your cash
position over time.
If properly executed, your
bookkeeping system will turn out accurate financial statements that can be used
for several tasks - financial reporting, budgeting, forecasting, raising
capital, applying for a loan, tax reporting and decision making. Feel free to
call with any questions or to discuss bookkeeping solutions for your business.
The Casualty Loss Problem
What you can do to help
Tax laws severely limit who
can deduct losses on their tax return caused by a catastrophic event. Now unless
a loss is in a presidentially declared disaster area, victims are on their own
to pick up the pieces. This is creating problems for those on the fringe of a
major disaster and those who have a local casualty loss like a local flood or
With tax savings no longer
available to help cover some of the damages, victims need to find relief in
other areas. Here are some ways that you can help fill this void:
- Send a gift. While
direct gifts are not tax-deductible, the IRS allows gifts of cash or property
to any one person valued up to $15,000 each year without having to report it
on a gift tax return. Check with the victim to see if they have any specific
needs. Maybe you have an extra car or some furniture that you can spare.
- Start a crowd funding
campaign. Organizing a fundraiser on websites like GoFundMe or Fundly is a
great way to raise money for someone suffering a disaster. Once created, you
can share on social media to raise awareness and ask others to join you in
support. This approach can take the form of many small donations adding up to
a large gift for the victim. Be aware that donations to individuals, even
through crowd funding, are also considered gifts.
- Offer your time.
Volunteering your time is often more valuable than a financial gift. After
experiencing a loss, victims will feel pulled in multiple directions. Helping
with cleanup or repairs, organizing meals, watching children, or offering your
expertise are some examples of how you can reduce their burden. Try to
coordinate your efforts with local charities as they will be better able to
use your talents where they are needed.
- Donate to charity.
There are many reputable charities and local churches that are ready to help
when disaster strikes. These organizations rely on donations to continue to
provide for people in need. Just make sure the charity is legitimate before
you give them your money. Websites like CharityWatch and Charity Navigator are
good resources for identifying trustworthy charities. Remember, charitable
donations to qualified charities are tax-deductible as an itemized deduction,
so keep good records and save receipts.
watchdog for scams
Opportunists and scammers
come from every direction when losses occur. Their goal is to exploit the
victim's suffering and inexperience with the situation to benefit themselves.
Fraudsters may set up fake charity funds or pose as inspectors, building
contractors or even government agents. With so many things to handle and
emotions to process, the victim may be too overwhelmed to see through a scam.
Here is where you can help. Take a skeptical approach to anyone soliciting
business from the disaster and don't trust anyone who asks for money.
Thankfully, victims living in
presidentially declared disaster areas can still deduct casualty losses on their
taxes, but people suffering localized losses cannot. Any assistance you can
provide will help ease their suffering during a difficult time.
Digital Marketing Mistakes to
The keys to successful
digital marketing practices are often learned through failure. But this doesn't
have to be you! The wise business owner learns from the travails experienced by
others. Here are some digital marketing mistakes to know so you can keep them
from unraveling your strategy:
- Overlooking directory
listings. Now more than ever, people turn to the internet for answers to
their questions - what restaurant serves the best seafood? Which bands are in
town tonight? Where can I get my taxes prepared? Directory listings such as
Google My Business, Facebook and Yelp group local businesses by niche and list
them as the top options to answer these questions. Not having your business
prominently displayed in these results drops your listing below your
competitor's and puts you at a clear disadvantage when looking to add new
- Ignoring negative
customer reviews. A non-response to a disgruntled customer in a public
space gives the false impression that you don't care about customer
satisfaction. Don't let the impression sink in - use it as an opportunity to
turn a potentially damaging review into a positive example of your relentless
customer service. A sincere response that provides a reasonable solution will
show potential customers that you can be trusted to fully take care of their
- Posting pointless
content on social media. Too often, businesses lack a social media
marketing strategy and post things just to have a presence. Over-posting or
posting irrelevant information can diminish your brand and make you look out
of touch. Whether it's a newsworthy item to prompt customer questions or it's
designed to drive traffic to your website, every post should stimulate action
or positive feelings from the reader.
- Neglecting your
website. Your website is often the first, and maybe last, impression a
potential customer has of your business. Don't blow it with a stale
presentation and outdated information. Old news stories and content will give
the appearance that your business is not up to speed on the most recent
developments in your industry. Keeping your website looking fresh and stocked
with current topics will show your customers you are engaged and ready to give
them the best service possible.
- Deploying an
inconsistent approach. Marketing doesn't have a season - it needs to have
a consistent presence year-round. Inconsistent marketing fails to communicate
the benefits your products and services provide. Every customer touch point
should be part of a greater strategy that seeks to build confidence in your
brand. Scattered pieces of content may provide value here and there, but the
power of consistency directly connects your marketing content to the value of
As always, should you have
any questions or concerns regarding your situation please feel free to call.
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Timothy W. Tuttle & Associates