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What Is Bitcoin And Why Should I Care?

bitcoin-gold

First, some things you never heard of before bitcoin.

The internet, the democratization of communication. No longer do you need a printing press, trucks, or paper boys in order to make your voice heard. Now all you need is a computer and a good story someone in the world is willing to read. Matt Drudge, editor of the Drudge Report, has revolutionized political reporting. His influence is at times stronger than the New York Times. And it’s just him and an assistant and a very simple website.

3D printing, or “additive manufacturing”. It is the democratization of manufacturing and its in full swing today. You no longer need a factory to make a product. You can manufacture your product in plastic from your desk.

Bitcoin is the democratization of money. Right now, the money you worked for, saved, and earn gets bank fees charged for holding it in a safe place. Governments control the currency and have the ability to confiscate it wants (remember Cyprus?). If you want to move it, there are restrictions as to how much and when. If you want to deposit or spend large amounts of money, you must report it. Enters Bitcoin.

Bitcoin is a currency based on complex encryption problems. It is distributed in a “trusted distributed public transaction ledger”.  Another words, it is public and widespread. Here is an example that might help understand it.

Imagine a hotel register. Guests sign in.  A entry on a transaction ledger has just been created. The register is distributed by machines that process that ledger, and are spread throughout the world threw many different ownership hands so that it is very difficult to change the registration. Data is logged by computers all over the world. To change the information, a person must own more than fifty percent of registration computers around the world in order to corrupt it. No government, person, or machine has control of the currency.  Without control, it is the Wild West once again.

All transactions are anonymous and controlled by two encryption keys, one public and one private. Fees are very small to non existence (that has the banks spooked I’m sure). With Bitcoin there are no borders, regulations, or police. Once the shot is fired, there is no getting it back. Truly the Wild West of currency.

Recently, the Internal Revenue Service has ruled bitcoin is NOT a currency but property. Hence, gain or loss is recognized based on holding periods as apposed to currency which is translated at receipt.

There is evidence Wall Street has taken noticed. Historically, gold has been used as a hedge against currencies for years. Lately there has been evidence that Wall Street is moving from gold to Bitcoin as a hedge.

Should you care, probably not. Warren Buffet doesn’t care. I care because I believe Bitcoin is here to stay. Just like Paypal (Buffett didn’t understand that one either), I believe this is big and bitcoin is here to stay. I own Bitcoin mining rigs (that is a story for a later date), and to “coin” a Vegas term,  I am letting my mining profits ride.

2013 YEAR-END PAYROLL PLANNING GUIDE AND CHECKLIST

 

It is hard to believe it is that time of year again. The end of the year always  brings  with it the need for some  additional payroll and payroll  tax planning considerations and preparations.  In an effort  to help your 2013 year-end  process run smoothly, we have prepared  this guide  to help you in your planning.  The information will discuss the following year-end issues and concerns:
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•         Federal and State tax identification rates
•         W-2 information
•         Year-end  bonus runs and adjustment payrolls
•         Fringe Benefits
•         Third Party Sick Pay
•         Employer HSA contributions
•         Reporting Employer Sponsored Health on W2 (Required for 250+    employees)

 2013 FUTA Credit Reduction

Federal law provides for a reduction in the FUTA tax credit when a state has outstanding federal loans for two years that have not been repaid by November 10,2013. The reduction in the FUTA tax credit is 0.3% for the first year and an additional 0.3% for each succeeding year until the loan is repaid.  There are 15 states that have outstanding  loans from the federal government and will now be subject to a reduction in the credit for unemployment taxes that can be applied to their annual IRS Form 940. Delaware has a 0.6 percent credit reduction.  States with a 0.9 percent credit reduction are  Arkansas, California, Connecticut,  Georgia, Kentucky,  Missouri,  New  York, North  Carolina,  Ohio, Rhode Island and Wisconsin.   Indiana  now has a 1.2 percent  reduction  that  will require  employers  to pay an additional $84 in FUTA costs per employee for 2013.

Employer Sponsored Group Health

The Affordable Care Act (ACA) requires employers to report the cost of coverage under an employer-sponsored group health plan.  Reporting the cost of health care coverage  on the W2 does NOT mean that the coverage  is taxable.  This reporting  is for informational purposes only and will provide employees useful and comparable consumer information  on the cost of their health care coverage.

Reporting is required for all employers who file 250 or more W2’s and is optional for those with less than 250 (transition relief).

The value of the health care coverage will be reported in Box 12 of the W2, with code DD to identify the amount. There is no reporting of these amounts on the W3.

Third Party Sick Pay

If a  third  party  (your  insurance  carrier)  has been  making  third  party  sick  payments to any  of  your  employees, the insurance company  should  provide  a listing to you by January  2, 2014 indicating all payments made during  the 2013 calendar year.

The  third party sick pay amounts  must  be reported  on your  tax returns.   It has been  our experience that clients  report these amounts through  the year, but discover  at year-end  they may not have reported  all  payments to us.

Subchapter S Health Insurance

When an S-corporation pays health and accident  insurance  premiums on behalf of the 2% shareholder, these amounts need to be reported for W2 purposes.   If the premiums are paid under a plan that does not discriminate (offered to all employees) the premiums are exempt from FICA.   If the premiums arc available only to the 2% shareholders, they will be treated like normal compensation and as such are subject  to FICA.

 Group Term  Life

When premiums are paid for group term life insurance for an employee, premiums for coverage in excess of $50,000 arc subject to FICA.

Personal Usc of Auto

The personal use of an employer-provided auto is subject to FICA.

Changes 2014 Payroll Year

The FICA rates effective January  1, 2014 are as follows:

Social Security portion is 6.2% on wages up to $117,000

Medicare portion is 1.45% on all wages. (Additional 0.9% on wages greater than $200,000 for employee)

In addition, the following contribution limits have been announced for 2014.

2014 Limits
Account Type

Regular Limit

Catch-up Amount Catch-up Limit
401(k)

$17,500

$5,500

$23,000
SIMPLE

$12,000

$2,500

$14,500
Roth IRA

$5,500

$1,000

$6,500
HSA (single/family)

$3,300/$6,550

$1,000

$4,300/$7,550

 

Mandated EFTPS Filers

If a business exceeds $200,000 in aggregate deposits in a calendar year, the business is required to use EFTPS starting January 1 of the second succeeding year.  The threshold is determined by aggregate deposits; therefore, businesses must consider all types of federal taxes deposited during the year to determine if they are required to use EFTPS.  If mandated, failure to comply  with EFTPS regulations  will result in a non-compliance penalty.

As always, any questions or issues please feel free to contact us. May 2014 be a prosperous year for you.

The View From The Cliff

I thought it my be helpful to give some hypothetical tax examples in order to get a clearer picture of the view from the cliff top we face January 1.

Jason  is single and has an adjusted gross income of $60,000 a year. As is the case among two-thirds of the tax-paying population, Joe claims the standard deduction.  After subtracting the projected 2013 personal exemption of $3,850 and standard deduction of $6,050 for a single taxpayer, Jason’s taxable income comes to $50,100.

If the current tax laws are extended beyond 2012, that would mean $8,900 of Jason’s income would be taxed at only 10 percent, and his top tax rate would be 25 percent. This would leave him with a tax liability of $8,465.  If the current rates expire, however, Jason’s tax bill would be $863 higher.

The reason? There would no longer be a 10 percent rate, making more of Jason’s earnings taxed at 15 percent, and his top tax rate would be 28 percent instead of 25 percent.

Lois and Tim have two kids: 10-year-old Jimmy and 8-year-old Shea. Both parents work, bringing home a combined adjusted gross income of $175,000. They don’t yet own a home, so without mortgage interest to deduct, they’re still claiming the standard deduction. If the current tax laws stay in place, their four personal exemptions totaling $15,400 plus the $12,100 standard deduction will get them to $147,500 in taxable income, resulting in a tax liability of $28,803. But Lois and Tim wouldn’t have to send the Internal Revenue Service that much. Thanks to the $1,000 per-child tax credit, their final tax bill would be $26,803.

If the tax laws expire, however, Lois and Tim’s tax bill will go up by $6,304 to $33,107. That takes into account that the child tax credit would return to its pre-tax cut level of just $500 per kid.

One reason for the increased tax bill is the return of the marriage tax penalty. This is where a couple pays more taxes by filing one joint return than they would if they filed two returns as single taxpayers. Wider tax brackets and a larger standard deduction for married couples now help ease the penalty. Instead of facing a top tax rate of 28 percent, Lois and Tim would be in the 31 percent tax bracket if the tax cuts expire.

Suzie is a divorced working mom of 7-year-old Jacob. She makes $75,000 a year via her salary and alimony payments. By filing as head of household, Suzie’s standard deduction of $8,900 and personal exemptions totaling $7,700 for herself and her son get her to $58,400 in taxable income. Taxes on that amount are currently collected at the 10 percent, 15 percent and 25 percent rates, giving Suzie a tax bill of $9,125. She knocks $1,000 off that thanks to the child tax credit.

But if the tax cuts expire, Suzie’s tax liability will be $1,435 more, totaling $9,560 in 2013. The bigger bill comes from losing the expired 10 percent and 25 percent tax rates, putting more of her income into the 15 percent and 28 percent tax brackets. And just like all parents, married or single, Suzie will only get a $500 child tax credit for her son starting in 2013.

If any of our hypothetical 2013 taxpayers have investments in a taxable brokerage account, their tax bills next year will be higher.

Long-term capital gains and certain dividend payments are taxed at lower rates than the regular, ordinary income rates, which now top out at 35 percent. Most taxpayers pay capital gains taxes at the 15 percent rate. Taxpayers in the 10 percent and 15 percent brackets don’t owe any taxes on their gains.

But if today ‘s lower rates expire, the capital gains rates will go to 20 percent for most investors and 10 percent for those in the 15 percent tax bracket.

And dividends will lose their favorable tax treatment entirely. These payments will return to being taxed as ordinary income, meaning that taxpayers making enough to put them into the highest income tax bracket in 2013 would pay taxes on dividends at the top 39.6 percent income tax rate.

In addition, a provision in the health care reform law, often referred to as Obamacare, will kick in next year. This new 3.8 percent surtax will apply to capital gains, dividend and interest income of more than $250,000 for married couples filing jointly or $200,000 for other taxpayers.

In addition to income taxes, both federal and where applicable state, payments toward Social Security and Medicare, known as FICA taxes, are collected via withholding. So that workers would have more money to spend and give the economy a boost, Congress enacted a 2 percent cut in the Social Security taxes paid by workers. This so-called payroll tax holiday has been in effect since 2011 but is scheduled to expire Jan. 1, 2013.

That means every worker will pay more taxes in 2013. The increase could be substantial for high-income earners. Individuals who make up to the Social Security wage base of $113,700 next year will pay $7,049.40 in taxes for the retirement system. That’s $2,425 more than this year because the wage base was slightly smaller ($110,100), and workers paid just 4.2 percent of their income toward Social Security instead of the regular 6.2 percent level that returns in 2013.

While the possibility of higher tax rates gets most of the attention as taxpayers near the fiscal cliff, many other provisions could cause higher taxes if they are allowed to end Jan. 1, 2013.

In addition to losing half of the current child tax credit, parents would get reduced savings from the child care tax credit. Students looking for the $2,500 American opportunity education tax credit would find instead its predecessor the Hope credit, which maxes out at $1,800.

The estate tax would apply to more property left at death, affecting estates worth more than $1 million instead of the current $5.12 million exclusion amount. The tax rate also would rise from the current 35 percent to 55 percent.

Higher-income taxpayers who itemize would again see their overall Schedule A claims reduced by 3 percent. A similar reduction also would apply to personal exemption amounts for wealthier filers.

And legislation to increase the alternative minimum tax income exclusion amount must be approved retroactively for 2012 as well as for 2013, or tens of millions more taxpayers will face higher tax bills because of this parallel tax.

Now, with all that said, Congress usually does the right thing. It will be late and makes tax planning a little challenging. Call today we can help you figure the impact upon your family budget. Personally I’m not much for surprises. Call me today if you have any questions. We can manage together.

Why a Virtual CPA?

I am going to upset a lot of my fellow accountants with this statement. But the plain and simple truth is most companies do not need a forty hour a week CPA. Most companies require about forty hours of services per month. Technology has made it possible to outsource your company’s accounting needs. The “Cloud” has opened doors for small business that were not possible five years ago.

Some the advantages of the cloud are:

Quick implementation of the process
Applications can be up and running in just a matter of minutes because there is no installation process. Regular upgrades occur automatically without interruptions to your business.

Internet access
You can access your financial information anywhere.

Lower costs
You may not have to pay for the cost of hardware and the IT personnel to support the software. Vendors can offer their products at a lower cost since there are more customers sharing in the infrastructure. The vendor fronts the cost since it is responsible for maintaining the servers and software.

Backup capabilities
Vendors have backup systems in a separate data center. You don’t have to remember to backup your data or hire an outside contractor to provide this service.

Some of us are old enough to remember “Dumb Terminals.” It looks like they are making a comeback with the cloud applications. No offense Google, but the Chromebook is nothing more than a portable dumb terminal. All you need is an internet connection. My clients have real on-time access to their financial information. Immediate access to customer balances, inventory levels, and vendor balances. In today’s competitive marketplace, business owners need this extra advantage.

With a virtual CPA, the business owner has access to document sharing and the ability to store scanned documents. Here is how it works.

  • You scan your invoices and all source documents.
  • These documents are uploaded to your document management system.
  • Your Virtual CPA takes it from there.
  • The business owner writes checks and makes deposits.
  • Monthly, weekly, or daily financial reports are generated.

In addition, cloud computing has leveled the playing field in payroll processing. A new breed of cloud-based payroll solutions eliminates all the headaches associated with payroll processing – tax payments, compliance forms, direct deposit and even printing and mailing of paycheck and reports. Innovative cloud-based payroll solutions do all of these functions for you.

  • Send payroll data to the document center.
  • Our payroll system performs direct deposit, deposits all required taxes, and electronically files all compliance forms.
  • PDF of the paychecks are created. You can log in anytime to download the paychecks and print them.
  • Similarly, all reports are automatically stored in our secure document center for easy access 24×7. There is no hassle of printing and mailing paycheck and reports.

In a nutshell, the Virtual CPA gives you corporate-quality accounting services for a fraction of the cost of hiring a new employee (or a bricks & mortar accounting firm). We can meet on the phone, on the Internet or in person, depending on your needs. Complete financial confidentiality from employees of your company. Your business is between us and stays with us.

It is a tough business environment out there, and today’s virtual accountant can help.

 

Fraudulent Tax Returns Up 181%

The number of taxpayers trying to bamboozle the IRS and collect bigger refunds has shot up this filing season.

The IRS identified 335,341 tax returns claiming $1.9 billion in fraudulent refunds as of March 4, 2011, according to the findings of an audit conducted by the Treasury Inspector General for Tax Administration. That’s a whopping 181% increase from the same period last year.

While the IRS has become more effective in its screening process, a weak economy has also driven more people to cut corners, said Tim Gagnon, assistant academic specialist of Accounting at Northeastern University.

“When the economy gets really bad, people get more touchy about how much they’re paying in taxes and look at where they think they can push the envelope a little more,” said Gagnon. “100 extra dollars really makes a difference to people now.”

Many taxpayers tried to boost their refunds or reduce their tax liability by claiming deductions and credits they didn’t qualify for, TIGTA found.

For example, the Earned Income Tax Credit, aimed at helping lower-income taxpayers, has been a large source of fraud, with people falsely lowering their income to qualify or claiming children they don’t have. The IRS estimates that 23% to 28% of EITC credits are wrongfully paid to Americans every year, totaling $11 to $13 billion.

Child tax credits have also been abused, with more taxpayers unable to provide legitimate social security numbers for their children.

The adoption credit, which grants qualifying adoptive parents refunds of up to $13,170 for each child, also appears to be attracting fraud. TIGTA has identified 1,081 individuals who claimed the credit in excess of the limit — amounting to $3.9 million in erroneous refunds.

Another problem: returns claiming the first-time home-buyer tax credit which grants new home owners credits of up to $8,000  for home purchases with ineligible purchase dates.

And taxpayers also claimed vehicle credits, like the qualified plug-in electric drive motor vehicle credit, for cars that didn’t qualify.

Another reason for the huge increase is ramped up enforcement efforts on the part of the IRS.

Prisoners were of particular interest this filing season. As of March 4, the IRS had selected 63,501 tax returns filed by prisoners to screen. That’s up 88% from the same period last filing season, TIGTA found.

In a previous review of the IRS, TIGTA reported that most tax returns filed by prisoners were not being screened, making the group a prime target for enforcement, said Gagnon.

“You somewhat have to question what a person in prison has for income and plus, a big question is, what’s their biggest risk when filing their taxes? Fraud? They’re already in jail,” he said.

Gagnon thinks the surge in fraudulent returns mean a surge in audits is also on the way. And following the trend of recent years, he expects most of these audits to be conducted by mail to save the IRS resources.

The IRS is also getting more efficient at reviewing tax returns and identifying errors or false information, thanks to the increase in electronic filing. The number of e-filed returns surged to a record high this year, topping 100 million for the first time in history a nearly 9% increase from last year, according to the IRS.

When taxpayers file their taxes electronically, it’s much easier for the IRS to analyze them, said Gagnon.

Not all of the so-called “fraudulent” returns are a result of taxpayers trying to scam the system, said Gagnon.

Many taxpayers were in such a pinch financially last year that they were less likely to hire a professional to prepare their taxes often resulting in more incorrect claims, outdated deductions and other common errors.

For example, if you were laid off from your job and became self-employed, you were subject to a whole new set of rules you may not know about, and more likely to make a mistake.

Plus, the tax code changed in December and the final touches were agreed upon so late in the year that many taxpayers had already begun preparing their returns and may not have been informed of the new guidelines.

TIGTA plans to publish the final results of its review later this year.

Indiana State Sponsored 529 Plan

Indiana Residents can now save in FDIC-insured Certificates of Deposit as part of their overall college savings strategy

 

Announced in January 2011 by State Treasurer Richard Mourdock, Chairman of the Indiana Education Savings Authority, the CollegeChoice CD 529 Savings Plan (CollegeChoice CD) is now available to college savers in Indiana. College Savings Bank serves as Program Manager to CollegeChoice CD and offers three FDIC-insured* CDs to Indiana families and families nationwide; the CollegeChoice CollegeSure® CD, the CollegeChoice InvestorSure® CD and CollegeChoice Fixed Rate CDs.

CollegeChoice CD is unique to Indiana’s State-sponsored 529 plan in that college savers can enroll through participating local banks and investment advisors as well as on their own online or by mail. CollegeChoice CD will be one of the first 529 college savings programs in the country to offer such broad access and convenience.

“Hoosiers have enjoyed one of the most robust 529 college savings plans in the country,” said Treasurer Mourdock. “Along with the high-quality equity, fixed income, money market and savings investments offered through CollegeChoice Direct and CollegeChoice Advisor, CollegeChoice CD will make up the third leg in a fully comprehensive college savings strategy.”

With CollegeChoice CD, Indiana residents can save for a loved one’s future college education while also enjoying great tax advantages as an added bonus. Contributions to a CollegeChoice CD account are eligible for a state income tax credit of 20%, up to $1,000 credit per year.** Earnings grow tax-free and distributions used to pay for quailed education expenses are tax-free.***

To learn more about CollegeChoice CD visit www.collegechoicecd.com. CollegeChoice CD can also be reached by e-mail at questions@collegechoicecd.com or by phone at 1-888-913-2885 from 9 a.m. to 6 p.m. Eastern time.

*The Federal Deposit Insurance Corporation (FDIC) generally insures, with respect to each FDIC-insured institution, deposit accounts that are held in the same right and capacity up to the maximum amount set by federal law, currently $250,000. An account owner’s interest in the insurable balance of a CollegeChoice CD account is insured by the FDIC on a pass-through basis, together with any other deposit accounts the account owner holds at College Savings Bank, up to the maximum amount. Please see the Enrollment Kit for further information. The CollegeChoice CD 529 Savings Plan is not insured by the State of Indiana. Neither the principal invested nor the investment return is guaranteed by the State of Indiana.

**This credit may be subject to recapture from the account owner (not the contributor) in certain circumstances, such as a rollover to another state’s qualified tuition program or a non-qualified withdrawal. The credit does not apply to rollovers from another state’s qualified tuition program.

See the Enrollment Kit for more details.

*** Earnings on non-qualified withdrawals are subject to federal income tax and may be subject to a 10% federal penalty tax, state and local income taxes, and CD early withdrawal penalties. The availability of tax or other benefits may be contingent on meeting other requirements. See the Enrollment Kit for more details.

© 2011 Indiana Education Savings Authority and College Savings Bank, a Pacific LifeCorp Company. Member FDIC. All rights reserved. CollegeSure and InvestorSure are registered trademarks of College Savings Bank. S&P 500 is a registered trademark, used with permission, of The McGraw-Hill Companies, Inc.

IRS Versus The Wealthy

IRS Push Against the Wealthy Is All Talk, Little Action

The Transactional Records Access Clearinghouse at Syracuse University has released a report, IRS Global High Wealth Taxpayer Program Lags:

A year and a half ago, in the fall of 2009, the IRS created a special new unit to examine “high wealth individuals” and the extent to which they were complying with the tax laws.

In an October 2009 speech announcing the new program, IRS Commissioner Douglas Shulman said that the purpose of the Global High Wealth Industry Group (GHWIG) was to “centralize and focus the IRS compliance expertise” on “high wealth individuals and their related entities.” To give prominence to this program direction, the new agency organization was established as an entire “industry” group. The five other industry groups cover large businesses in vast areas such as all of the financial sector, or all industries within heavy manufacturing and transportation, or everything within healthcare, pharmaceuticals, food and retailing.

While the creation of this new group appeared to signal that the IRS was going to launch an aggressive effort to single out high wealth individuals for special attention, very timely agency data shows that so far this has not been the case. In fact, through the end of March 2011, the information obtained by the Transactional Records Access Clearinghouse (TRAC) under the Freedom of Information Act (FOIA) shows that GHWIG has only managed to audit a handful of tax returns in its first 18 months: two (2) in fiscal year 2010 and only eleven (11) during the first six months of FY 2011 (see Table 1).

Table 1. Global High Wealth Audits of Returns*
Returns Audited All LB&I Number Global High Wealth
Number Percent
FY 2010 42,835 2 0.0%
FY 2011 (first six months) 29,688 11 0.0%

 

* The number of returns audited differs from the number of individuals audited since the same GHW individual may file a variety of different returns as a result of the way their business affairs are structured. “LB&I” is the IRS Large Business and International Division of which GHWIG is a part.

 

By comparison, all of the groups located in the Large Business & International (LB&I) Division — generally responsible for large businesses with assets of $10 million or more — examined 42,835 returns in FY 2010 and by the end of last month so far had audited 29,688 returns during the current fiscal year.

It is also clear that despite the agency’s somewhat assertive rhetoric, the IRS has very modest hopes for this new unit in FY 2011. This conclusion is based on an examination of two factors: first the number of revenue agents it has allocated to the unit compared with the rest of the LB&I Division and second, the administrative goals it has set for returns it expects the unit to examine.