Fleming Financial Solutions Inc.

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  • IRS Announces Tax Filing Delays!

    Out of a limb

    The Christmas Gift of Extended Tax Benefits may turn out to be a New Year’s Headache for both Tax filers and Tax Preparers.

    The IRS announced on Thursday, December 23, 2010 that their systems will need to be reprogrammed and they would not be ready to accept tax filings for certain forms until at least mid-February, 2011.

    Those affected include:

    • Taxpayers who claim itemized deductions on Schedule A. Itemized deductions include mortgage interest, charitable deductions, medical and dental expenses, state and local taxes.

    • Taxpayers who claim a deduction for tuition and fees. This is a so-called “above-the-line” deduction, which means taxpayers don’t have to itemize to claim it.

    Parents and students who claim other education credits, including the American Opportunity Tax Credit and Lifetime Learning Credit, will not have to wait to file, the IRS said, assuming they don’t itemize.

    • Taxpayers who claim the educator expense deduction. This deduction, which is also an above-the-line deduction, allows teachers to deduct up to $250 in out-of-pocket costs for classroom materials.

    “The majority of taxpayers will be able to fill out their tax returns and file them as they normally do,” IRS Commissioner Doug Shulman said. “We will do everything we can to minimize the impact of recent tax law changes on other taxpayers. The IRS will work through the holidays and into the New Year to get our systems reprogrammed and ensure taxpayers have a smooth tax season.”

    If you will have to itemize for 2010 or have tuitions and fees to be deducted, plan your finances now to anticipate the delay in possibly receiving a refund.

    If you have any questions, please feel free to call me at 240-356-5050 or if you have any relevant comments on this blog, please feel to comment.

  • Early Christmas Gift from Congress – Tax Cuts Extended!

    What's Hot

    The President and Congress have given the country an early Christmas gift. They have passed an extension of the 2001-2003 Bush era tax cuts.

    What this means is that your income tax bill won’t automatically increase, at least not for the next 2 years. Congress will have to revisit this issue again in 2012. They are hoping, however, that by then the economy will be much stronger as a result of the decisions made today.

    Had this extension not been made, you could have seen your tax rate increase anywhere from 3% to as much as 5% depending upon your tax bracket. You also would have lost the teacher expenses deduction and had a return of the “Marriage” penalty in the tax rates.

    Instead you keep these items for the next 2 years and also get a boost in your paycheck for 2011. Effective January 1, 2011, there will be a 2% reduction in the Social Security withholding tax. This reduction could mean as much as $2,136 back into your net paycheck during 2011. To offset the revenue lost on the Social Security change, Congress has removed the $400 Making Work Pay tax credit.

    I believe that this tax extension is a good move regardless of any political reasoning behind. It will help the economy somewhat but until there is a move on either jobs creation or freeing up loans for small business, we still have a long road ahead.

    Either way, enjoy your gift and if you have questions, please feel free to give me a call at 240-356-5050. Also, feel free to make relevent comments on this post.

    To Your Financial Health.

  • How to Survive an Audit – More Info!

    After my last post, I decided there was a little more information you might need regarding how an IRS audit might be triggered.

    The IRS has 3 databases – The Individual Master File, the Individual Return Master File and the Automated Under Reporting System. By combining data from these three systems, the IRS is able to trigger audits specifically for you.

    The Individual Master File (IMF) contains your personal information and all income information reported each year for you – your w2’s, interest income, 1099’s, etc. – are all captured in this one file.

    The Individual Return Master File (IRMF) contains the information for your completed tax returns for each year you have filed. It even notes what returns you have not filed.

    The Automated Under Reporting System (AUR) is created by combining the information in the IMF and the IRMF. The AUR compares the information reported on you with your tax return details for each year.

    If there are any significant differences – for example, you didn’t report $1,000 in Unemployment Compensation – you may get a letter saying the IRS has amended your return. Worse, yet you may get a letter inviting you to visit them and bring your last 3 years returns and supporting documents.

    Nervous Business Man

    Recently, one of my client had missed reporting a significant amount of interest income on her tax return. (She had not received the 1099-INT for the interest income). The AUR System caught the error and she was called in for an audit. This also triggered an audit of her small business as well. The examiner requested that she bring her 2008 and 2009 tax returns and supporting documents for review.

    As a result, my client probably spent 8 hours getting ready for the audit and another 3 hours at the audit plus 4 hours of my time to help them review their returns and attend the audit with them. This caused her time, money and aggravation all because of a missed Interest income statement.

    Your takeaway on this is to create a system for gathering all of your tax documents in 1 place each year and to be consistent with it. Also take time to compare the documents from your previous years tax return to the items you’ve received or should receive for the current year. This will help you make sure you haven’t missed anything as you go to have your tax return prepared.

    Hopefully this gives you a better understanding of how some audits come about and how you can avoid being singled out specifically.

    If you have any questions, please feel free to give me a call at 240-356-5050 and also feel free to make relevant comments to the blog.

    To Your Financial Health

  • How to Survive an IRS Audit!

    Tax Time

    Imagine you go to your mailbox and surprise, surprise you find a letter from THE IRS! They are asking you to visit them for a few hours and oh, by the way, bring your last 3 years of tax returns and every receipt or document that supports the deductions that you made. Now you’re breaking into a cold sweat.

    Recently, for one of my clients, this was not imaginery, it was for real.

    No one knows who’ll be audited. Your chances of being audited are very low. However, if you are audited, be prepared to defend yourself. The keys to surviving an IRS audit are 1) having an excellent bookkeeping system, 2) being able to “follow the money” and 3) understanding your return.

    Bookkeeping System

    Whether individual, family or business owner, you need to have some sort of bookkeeping system in place. It can be a formal software package, a spreadsheet or a notebook. No matter what you use, you must have a system that allows you to prove and support any income or deductions that appear on your tax return. In my opinion, the ideal system allows you to track your income and expenses in detail on a month to month basis. This allows you to build consistency in your reporting and also to see income or expense trends.

    Follow the Money

    You must also have a retrieval system for all the supporting documents in your bookkeeping system. It is not enough to have a cancelled check. You must also have the invoice or receipt that provides the reason you made that payment. In case of an audit, you will be asked to provide the receipts, so set up a system that allows you to present the receipt to the examiner.

    (Yes, I know receipts can fade and be unreadable. Consider scanning them into your computer and then backing up the files. Consider the program, “NeatReceipts” for this purpose.)

    Understand Your Return

    Finally, remember your return is your return, not the tax preparer’s. You will be the person audited and not the tax preparer. You must understand the numbers on your return and how and why they are there. Spend some time with your prepaper and have him/her review any item you have questions about and be sure you understand it. Don’t let anything go by that you can’t support. Remember you will be the one who has to pay!

    Some specific areas that the IRS will look at are –

      Charitable contributions
      Non-Cash donations
      Cellphone Usage
      Excessive Medical Expenses
      Unreimbursed Employee Expenses
      Business Use of Automobile – Mileage or Actual Expenses
      Schedule C- Profit and Loss from Business
      Rental Income and Expenses

    Unfortunately, these three keys – Excellent Bookkeeping System, Follow the Money and Understanding Your Return, won’t keep you from getting audited. However, they will make your chances of having to pay additional taxes much smaller.

    If you have questions, please feel free to contact me at 240-356-5050 and also feel free to add your comments to this blog. (Now go find those receipts and get them filed!)

  • How to Save on Your 2010 Taxes – Year End Tax Tip #1

    Here are 3 Ideas that you can use to save on your taxes this upcoming tax season.

      1. Consult your investment advisor regarding selling any stocks that have lost money this year. You can use the losses to reduce your tax liability.

      2. Purchase qualifying energy-star compliant doors, windows and appliances to take advantage of the Residential Energy Tax Credit and

      3. Make your contributions or non-cash donations to your favorite church or charity before January 1st, 2010 and remember to get your receipt.

    I’ll be sharing more on these and other tax saving ideas over the next few weeks. If you have any questions or need assistance, please feel free to give me a call at 240-356-5050.

  • Business As Golf – Part 5: Take the Shot!

    We’ve been talking about the golf concept of the Pre-Shot Routine. The Pre-Shot Routine is a 4-step process that good golfers follow at each hole. The 4 Steps are:

    1. Analyze Your Shot.
    2. Visualize Your Shot.
    3. Get into Alignment.
    4. Take the Shot.

    The 4th and final Step, Take the Shot, is for the money. It’s all up to you now. Only you can ruin the shot (See Video above.)

    Follow these 3 simple steps about the golf swing and improve instantly.

    Backswing – The backswing should be equally focused on the body rotation and club and arm extension. The backswing is a fluid and one-piece motion with a straight front elbow, although this can be hard to do in the beginning. The back elbow should be bent at around 90 degrees if possible. If you do all these things then your backswing will be smooth and consistent.

    (In business, as Dan Kennedy teaches, are you approaching the right market?)

    Downswing – A lot of golfers make the mistake to think the downswing begins with the arms. It should actually start with your legs. You should move your knees, then thighs and hips forward to transfer your weight from back to front. By doing this, you will increase the distance you hit the ball. Remember, this movement is supposed to be smooth and fast, just like a snake when it uncoils.

    (Again, from Dan Kennedy, are you sending the right message?)

    Impact and follow-through – Now this is the action part, which is the impact with the ball. Your club shaft has to form a straight line with the left, which is the forward arm. Your weight needs to be on your forward heel to the outside and on the inside of the back foot. Your hands and wrist should turn so that the grip of the club points at the target where you want to hit the ball. Then the wrists should rotate over and elbows bend, with the head of the club behind you. This will give you the distance and control you desire in your golf swing.

    (Finally, as Dan teaches, are you using the right medium – email, direct mail, post cards, flyers- to get your message out?)

    The ball is now in flight. If you’ve done everything right, you’ve got your game (and business) on track. Sometimes, however, even when you’ve done everything right, the weather (market) may not be the best at the moment. However, keep doing the right things – the right Pre-Shot routine and you’ll soon succeed.

    Guess what your next step will be after you’ve taken the shot. Yes, that’s right. Use the Pre-Shot Routine to plan your next shot. The game is never over.

    (Thanks to Staffan Morritz for his article – 3 Steps to Swing a Golf Club like a Pro.)

    Looking to improve your golf game? – check out the following links Swing Man Golf and Breakthrough Putting Secrets Revealed.

    Looking to improve your business? – Give me a call. Let’s talk about your Tax Planning and Business Planning.

  • Business Owners – Let the IRS Help Pay for Private School!

    Putting Your Child to Work!

    Did you know that the tax laws could help you pay for Private School?

    Well, not directly, but almost.

    Last week, we talked about tax planning and how, if properly done, could save you, the business owner, thousands of dollars. We also talked about choosing the right business entity from which to operate.

    As I promised, I’ll share with you how the IRS laws can help you pay a portion of your child’s college tuition or private school tution through a legal business deduction. You’ll be surprised how easy it is when done right.

    One of the best known and least used tax planning techniques is to properly hire your family including children into your business. Children as young as 7 years old can work legally in your business. The key is that the job must be real, hours are tracked and salary is paid to the child through his/her own bank account.

    How this helps is that up to $5,700 can be paid without the child owning any federal taxes and the next $8,375 is taxed at 10%. This would equal a salary of $14,075 with federal and social security taxes owed of only $1,915. You’d lose out on the $1,000 tax credit but the business deductions would be more than worth it.

    The money earned could then be used to pay for private school tuition curtesy of the IRS code and your business. How’s that for “higher education”?

    This tax technique can also extend to your spouse. Next week I’ll talk about how hiring your spouse can reduce your health insurance costs.

    Through Tax Planning you can get ahead of the IRS and use the immense tax code to your advantage, but you must do your planning during the tax year and not when your returns are being prepared.

    Remember, pass this blog post along to help your fellow business owners.

    As usual, if I can help you keep more of what you make, give me a call at 301-773-7060.

    To Your Financial Health!

  • Business as Golf – Part 4: Get into Alignment

    In June, I introduced the golf concept of the Pre-Shot Routine. The Pre-Shot Routine is a 4-step process that good golfers follow at each hole. The 4 Steps are:

    1. Analyze Your Shot.
    2. Visualize Your Shot.
    3. Get into Alignment.
    4. Take the Shot.

    The 3rd Step, Get into Alignment sets you up to get the maximum return on your swing. Getting into alignment sets the final stage before the swing.

    Getting into Alignment has 4 steps –

    Set a sight line – Set a short range goal or sight line from the ball to your target. Look for a short range goal that lines up directly with your long range goal. This helps put you on course for your goal. (If I call 10 prospects, I should get at least 3 appointments….)

    Tee Up the Ball – How high or low do you set your tee and the golf ball in order to hit it properly? This could be the total number of prospects your targeting for a mailing.

    Choose the Right Club – Which club will you use to send the ball on its way? Are you using the right medium – direct mail, email, newspaper, radio, etc. to “drive” your message home?

    Align Your Body and the Ball – Are all the pieces in place? You’ve analyzed and visualized the shot. You’ve got your sight line and picked the right club. Are you now ready to make the committment? Body and mind are in order to make that final swing!

    To improve your game (business or golf), you’ve got to know what you want to accomplish and why. Once you’ve analyzed your shot, you must see it clearly and get your final preparations done. Now you’re ready to take the shot.

    Looking to improve your golf game? – check out the following links Swing Man Golf and Master Your Putt!

  • Do you own an LLC? Good Legal Move…Bad Tax Move?

    Do you own or operate an LLC?
    Good move legally but it may cost you at tax time!

    Let me explain…

    Did you know that an LLC is not recognized by the IRS?

    An LLC is a state created entity and as such is a disregarded entity by the IRS.  The IRS only recognizes Sole Proprietorships, Partnerships, S Corporations and C Corporations.

    Once you’ve setup your LLC, you’re not done yet.  In addition to creating your Operating Agreement, you have to choose how you want to be taxed.

    Consider this…..most single member LLC’s will file a Schedule C Sole Proprietor Profit and Loss form.  This is all well and good if you believe you will be losing money for the first few years.  However, if you are going to be making money, you’ve just created a heavy tax burden for yourself.  Here’s why…

    Even if you have enough personal deductions and end up not owing Federal or State income taxes, you can’t get around the Self-Employment Tax.  This is the business owners’ version of Social Security taxes.  As long as there is taxable income, there is Self-Employment taxes.  The Self-Employment tax rate is 15.3%

    For example, suppose your net business income is $30,000.  You will owe, in addition to any Federal and State taxes, $4,590 in self-employment taxes.

    Okay, I hear you saying..”I’ll just write-off all my income”

    Well, can you “legally”?  Are you willing to risk an audit?  And if you can write it all off and if you do so year after year, the IRS may consider you are operating a “hobby” and disallow any deductions that are more than your earnings.

    Now I hear you saying..”Well, James, what do you suggest?”

    That’s a good question.  Let me ask you one before I answer.

    When you rather know you have a tax problem?  Before January 1st when you might be able to fix it or after December 31st when it’s too late.  The correct answer is “before January 1st”.   And the key to all of this is …….(drumroll, please)….TAX PLANNING.

    You know the old adage- “Most people don’t plan to fail.  They just fail to plan.”

    It’s the same with your business and your taxes.  Most owners don’t think about taxes again until it’s time to gather their receipts or it’s time to file.  And in most cases they’ve missed an opportunity to reduce their tax burden.

    Don't Let It Get Away!
    		 The best any tax preparer can do is know the code and take your receipts and get the income and deductions in the proper place based on what you did during the year.

    Through Tax Planning you can get ahead of the IRS and use the immense tax code to your advantage..but you must do your planning during the tax year and not when your returns are being prepared.

    I’ve identified at least 4 tax mistakes that most business owners make.  I’m willing to share these with you if you will share this with other business owners.  Forward this link and help save some other owners.  Deal?

    Next week, I’ll share with you how the IRS laws can help you pay a portion of your child’s college tuition or private school tution through a legal business deduction. You’ll be surprised how easy it is when done right.

    As usual, if I can help you keep more of what you make, give me a call at 240-356-5050.

    To Your Financial Health!

  • Debt Collectors – What you can do!

    It’s 7am on a Saturday – the one day you get to sleep-in late. You’re in a blissful and sound sleep, but an annoying yet familiar buzz is slowing invading your dream. You slowly realize it’s your telephone.  Who would dare disturb you from your sleep?

    Reluctantly you drag yourself to the phone.   In your deepest voice you say, “Hello”.   An unfamiliar voice, says, “is this…..?” Rubbing sleep from your eyes, you answer, “Yes” and they begin that dreaded dialog…”This is the Dreaded Collection Agency.  We are calling regarding a debt and this call may be recorded”.   You hear someone go, “Arghhhhh” and realize its you!

    What you may not know is that the “Dreaded Collection Agency” may have just broken the law and furthermore, their conversation with you may break other laws.  Do you know your rights regarding debt collection?

    The Federal Trade Commission has created a video that will help you understand your rights and what a collection agency can and can’t do. Check it out below.

    The FTC has several videos at its site that could help you avoid scams involving advertising, business, identity theft and telemarkeing – click this link -> FTC Video Library for more information and get back to a sound sleep.