Tax Tips Newsline - October 2017

1

TAX TIPS NEWSLINE Proudly Published in the USA

OCTOBER 2017

Produced monthly for Clients & Friends of the Advisory Group Associates.

Our Mission. Sharing Solutions that deliver real value.

This “TAX TIPS NEWSLINE” is compiled by the founder of the Tax & Advisory firms, Frank

L. Zerjav, CPA and team of Professional Tax Associates, and then it is sent by email each month

because all taxpayers need tax and compliance knowledge. It‟s a big part of your life and the

entities that you operate.

The CPA firm engages in proactive Strategic Tax Planning for family-owned or privately-held

businesses and their owners, professionals, investors and individuals. Our clients minimize their

tax burden by appropriate proven strategies, which help them to keep more of what they earn.

Advisory Group‟s Tax Resolution Experts also engage in resolving tax problems with either

Federal or State tax agencies for clients who need these specialized, proven solutions and

options. Our devoted team of Professional Tax Advisors and Tax Resolution Experts do

care; their primary objective is the well-being of clients, their family and their survivors, as

well as their satisfaction with the work we do, while our goal is to be the premier choice of

Tax & Advisory firms, not the biggest firm by sharing solutions that deliver real value.

REMINDER, the October 16, 2017 (individual) deadline is very quickly approaching. You

must deliver data and information for preparation of an accurate tax return immediately. As a

reminder, the law allows the IRS to assert a late-filing penalty for Individual (Form 1040) tax

returns not filed by their deadline. Please use the 2016 TAX ORGANIZER that was emailed

January 22, 2017 for processing your tax information more efficiently (or call for an additional

copy of your 2016 TAX ORGANIZER).

Inside this Month’s Issue

Contact Us

Year-End Procedures – Best Practices

Reimbursement Of Home Office/Storage Costs

Claim Tax Credit When Sending Child To Camp

Hire Your Children To Work In Your Business

Planning: 100% Business Meals Vs. Usual 50% Allowance For Meals

IRS Audit Defense: Using Court Decisions As Valuable Authority

Strategies For An IRS Audit (Tried-And-True)

Avoid Filing Partnership Returns With Little-Known Elections

Retirement Plan Options

Replacement Cost Vs. Actual Cash Value Option

Tax And Accounting Issues For Business Owners

Taxes For Self-Employed & Partnership Owners

Wide Range of Services Offered

2

Contact Us - There are many events that occur during the year that can affect your tax situation.

Preparation of your tax return involves summarizing transactions and events that occurred during

the prior year. In most situations, treatment is firmly established at the time the transaction

occurs. However, negative tax effects can be avoided by proper planning. Please contact us in

advance if you have questions about the tax effects of a transaction or event, including the

following:

• Pension or IRA distributions. • Sale or purchase of a residence or • Self-employment.

• Significant change in income or deductions. other real estate. • Charitable contributions of

• Job change. • Retirement. property in excess of $5,000.

• Marriage. • Notice from IRS or other revenue • Gifts (over $14,000 to an

• Attainment of age 59½ or 70½. department. individual).

• Sale or purchase of a business. • Divorce or separation. • Starting new business.

******

YEAR-END PROCEDURES – BEST PRACTICES

Are your year-end accounting procedures a mess? If you answered, "What year end accounting

procedures?" You may need more help than you realize! You may find the answer to easier

year-end accounting with electronic accounting software or outsourced accounting for your

business.

Does a visit to your tax professional's office result in frustration for you, your accountant, and

your in house bookkeeper and a hefty tax bill? Were there a lot of surprises on your books? The

year-end trip to your tax accountant's office should be a stress free review of your company's

books, a time to catch up with a trusted tax & business advisor, and maybe even discuss some

new ideas for your business. It should not be a nail-biting time, with lots of head shaking and

sorting through records and paperwork. No one, not you, your bookkeeper, or your tax

professional, should be hearing financial information or learning about the financial state of the

company for the first time in this meeting. It should be just another opportunity to review the

books to make sure everything is in order.

If your quarterly tax filings were accurate, your balance for taxes come next April, 2018, should

be close to zero refunds from the government, no payments to the IRS. But, if you do have to

pay (or are getting money back), and if your bookkeeper followed accounting best practices, you

should already be able to estimate the amount.

Year-end accounting procedures aren't easy. But your bookkeeping staff should be able to

simplify the year-end tax accounting process and make it as easy as possible. If that wasn't the

situation this year or worse, and it has never been that way for your business, it may be time to

consider outsource accounting now. It's never too late to get your books in order.

3

Year-End Best Practices: Your year-end tax filings should be preceded by a meeting with

your staff to make sure everything is in order for your tax professional.

Be systematic about keeping records. The key reason taxpayers lose out on deductions is they

don't keep the proper records or their records are in disarray when presented to their tax

professional. You cannot scramble around at the last minute looking for records and you cannot

expect the tax professional to manufacture records to support what you know to be deductible

expenses.

You Have to Present Some Proof. Get into the habit of making, organizing and keeping these

records on a systematic basis. The sooner you start, the more likely you will benefit.

Provide actual records to the preparer. Many tax professional preparers use a questionnaire

or other worksheet to gather the information needed to complete the return. However, many

people fail to complete their questionnaire fully or properly or do not understand all the

questions. For this reason, you should be proactive in requesting that the tax pro actually review

your documents or at least those you are unsure of, to determine whether you have overlooked

something important that could save you money.

Talk with your tax pro. To provide the most thorough preparation service possible, the tax pro

should know about you, your business and a bit about your lifestyle. This way, he knows better

what to look for in the way of deductible expenses.

Stay involved with your tax pro. If you have bad teeth, you can't blame a dentist if you either

failed to follow his advice or failed to consult him for advice in the first place. The same is true

of a tax pro. You have to stay involved with the tax preparer by consulting him for advice in the

first place, and as issues arise.

Look for a tax pro who educates you on the law. It's a lot easier to comply with record

keeping and reporting obligations if you understand the law you're trying to comply with. The

more you understand, the better you'll be able to provide relevant information and interact with

your preparer. Your tax pro should be willing to spend time briefing you or providing written

guidance on the areas of law that are relevant to you so you can better comply. This will help

you tremendously to save time and money in the long run. This monthly TAX TIPS NEWSLINE

intends to help educate you on the law.

Be aware of changing circumstances. The circumstances of your business and personal life

change often. You buy or sell a house. A child is born or one moves away from home. You

get married or divorced. You buy a business or dispose of one. You move to a new town or

get a new job in the same town. The list goes on. Do not carry out these substantial changes in

a tax vacuum. Be aware of your changing circumstances and get guidance from your pro -

preferably before the changes are final - as to the impact on your tax bill. Very often, a tax pro

can help arrange your affairs to reduce the tax bite or increase the tax breaks incident to the

change.

4

Go over your return before signing it. You are ultimately responsible for what is in the

return, regardless of who prepares it. You should ask questions about it and make sure you

understand what the tax professional did before signing and mailing it. If you're uncomfortable,

don't file the return.

******

REIMBURSEMENT OF HOME OFFICE/STORAGE COSTS

The related-party matching rule places your privately-held or family-owned business on the cash

method for deducting payments to related cash-method payees. You need to know this rule to

avoid unexpected tax results.

Here’s an example of unexpected results:

ABC is a calendar-year accrual-method corporation. Sam is the sole shareholder and thus related

under the matching rule. On December 30, 2017, ABC accrues $5,000 in rent payable to Sam

and pays it on January 15, 2018. ABC deducts the occupancy costs when it is included in Sam‟s

income, and that delays the ABC deduction until 2018, creating a mismatch and accounting

trouble for the 2017 accrual of the rent expense.

When Are Parties Related?

In an income tax context, related parties include the following:

1. An individual and his or her spouse, sibling, parent, child, grandparent, or grandchild.

2. A C corporation and an individual who owns more than 50 percent in value of the

outstanding stock.

3. An S corporation and a person who owns any stock in the corporation.

4. A partnership and a person who owns any capital or profit interest in the partnership.

5. A personal service corporation and any employee-owner, regardless of the amount of

stock owned.

6. A corporation and a partnership, if the same persons own more than 50 percent of the

value of the corporation‟s stock and the capital or profit interest in the partnership.

7. Two corporations, if the same persons own more than 50 percent in value of the

outstanding stock of each.

You likely noted in 2, 3, and 5 above that there is no minimum ownership threshold for S

corporations, personal service corporations, and partnerships (including LLCs taxed as

partnerships). But a “more than 50 percent” threshold does apply to C corporations and to

commonly controlled entities.

5

Planning Around the Matching Rule

You can dodge the matching rule by

• ensuring that the parties are not related,

• timing payments, and/or

• changing the type of payment.

Remember, your in-laws, aunts, nieces, nephews, and cousins, as well as officers and employees

of the business, don‟t count as related parties.

Regarding the 50 percent threshold: Assume that you own 56 of the 100 outstanding shares of

MNO Inc., a C Corporation. You give a niece and a son-in-law three shares each. Since neither is

included when applying the constructive ownership rules, you now own 50 percent of MNO. For

C corporations, the matching rule kicks in when a person owns more than 50 percent of the

stock.

If you have concerns about this rule, do not hesitate to make a reservation for a

consultation with one of our Professional Tax Advisors to review your concerns and make

sure you know how to avoid unwanted surprises.

******

CLAIM TAX CREDIT WHEN SENDING CHILD TO CAMP

You may be able to claim the child and dependent care credit if you pay expenses for the care of

your under-age 13 child or other qualifying person to enable you (and your spouse, if filing a

joint return) to work or look for work. Tax credits are the best because they give you a

dollar-for-dollar tax benefit.

The credit is a percentage of the work-related expenses you paid during the year for the care of a

qualifying person, such as your child under age 13.

The cost of camps and before- and after-school programs qualifies for the credit if the camps

are primarily for the protection and well-being of your child. On the other hand, the cost of

overnight camps, summer school, and tutoring programs does not qualify.

Although the credit is not large, it‟s free money. You would, and likely did, spend this money

without regard to the credit. This means you have likely done all you need to do to claim the

credit when it comes time for to prepare your tax return.

******

6

HIRE YOUR CHILDREN TO WORK IN YOUR BUSINESS

You can pay your child to work in your business and get paid for paying your child.

The basic mechanics of this are (a) you deduct the wages and (b) your child pays zero or very

little in income taxes. The three points below elaborate on this:

1. The child (a single taxpayer) pays zero taxes on earnings up to the $6,350 standard

deduction amount. Say you pay tax-deductible wages of $6,350. This reduces your taxes

or gives you tax refunds. And the child pays no taxes. The government is the only player

who is out any money.

2. The child can use the traditional IRA to avoid taxes on $5,500, for a total of $11,850 on

which he or she can avoid taxes. You can pay this amount and reduce your taxes.

3. The child can use the 10 percent tax bracket, standard deduction, and traditional IRA so

as to pay itty-bitty taxes on earnings up to $21,175 while you reap the tax benefits of

paying your child this much larger amount.

To get this right, you need to pay the child on a W-2, have the child keep a time sheet, and create

proof of a reasonable wage.

And you will be happy to know that the IRS has approved employing children as young as seven

years old.

Here‟s another benefit: If the child working for a parent is under age 18, both the child and the

parent or parents are exempt from payroll taxes. In these cases, the parent operates a Schedule C

business, or both parents are the sole owners of a partnership.

Corporations are not parents. They do not qualify for this exemption from payroll taxes. Even so,

corporate hires of the owner‟s children usually produce good tax benefits.

In summary, all business owners can achieve tax benefits by hiring their children, regardless of

the type of business entity. But parents who are Schedule C owners or in spousal partnerships

achieve more benefit because neither they nor their under-age 18 children are subject to payroll

taxes.

If the hiring-your-child tax strategy is right for your situation, one of our Professional Tax

Advisors can help you get this plan in place in an audit-proof manner, call 314-205-9595 to

make a reservation for a consultation.

******

7

PLANNING: 100% BUSINESS MEALS VS.

USUAL 50% ALLOWANCE FOR MEALS

Thanks to a recent decision by the Tax Court, we may be able to find new opportunities for you

to make certain business meals 100 percent deductible, versus their current 50 percent deductible

status.

Under the court‟s criteria, you can qualify for the 100 percent deduction if:

1. you own or lease an eating facility for your employees (this could be for a meeting you

hold in a hotel),

2. you operate the eating facility for your employees (you also can meet this requirement in

a hotel),

3. the eating facility is located on or near the business premises (the hotel could be your

business premises for this purpose),

4. you provide the meals during, or immediately before or after, your employee‟s workday,

5. you can exclude the value of the meals provided to the employees under Section 119,

which means that you provide the meals described above for your convenience, and

6. you provide the meals in a non-discriminatory manner with respect to highly

compensated employees.

Often a business gathers their employees in remote locations for legitimate business

purposes for meetings, conferences and training events. You should review those events to

see if the meals served qualify for the 100 percent deduction, as well as, of your other

activities as possibilities for 100 percent meal deductions such as “sales presentations” with

new or potential customers or clients.

******

IRS AUDIT DEFENSE: USING COURT DECISIONS AS

VALUABLE AUTHORITY

On the surface, your tax return looks neat and tidy. Numbers in the right slots, and typefaces fit

nicely into the IRS tax forms.

But when you and the IRS disagree about an item on your tax return, you need more than

numbers in pretty fonts in the right slots. You need authority on your side to either win your case

or avoid a penalty.

8

This is where our team of Professional Tax Advisors and Tax Problem Resolution Experts come

in. They first look to the Internal Revenue Code, IRS regulations, and IRS pronouncements.

Often, finding what is needed in the situation.

But if not, the team then turns to court decisions, because those court decisions often contains

valuable authority to convince the IRS that your tax position is correct. There are many courts at

different levels. What court gives you the best ammunition in a fight with the IRS?

A rough listing, in order:

1. U.S. Supreme Court

2. U.S. Circuit Court of Appeals (in your circuit)

3. U.S. Tax Court, U.S. Court of Claims, or U.S. District Court (in your district)

4. Circuit Court of Appeals or U.S. District Court outside of your jurisdiction

If the team can find your situation in a positive outcome from one of these courts, they have a

huge leg up convincing the IRS that your deduction is correct.

If the team does not find a case with true authority that contains your facts which the IRS would

have to follow then the second choice is any case in which the taxpayer won with facts like your

situation, because such a case also gives strong arguments that can usually be used to obtain a

satisfactory resolution for you.

******

STRATEGIES FOR AN IRS AUDIT (TRIED-AND-TRUE)

If you are like most people, the scariest words in the English language are “IRS audit.” Not

“grim reaper,” not “root canal,” but “IRS audit.” You can just imagine this menacing IRS agent

knocking on your door and handing you a tax bill for thousands of dollars.

You feel so helpless. You tell yourself, “Who am I to take on the big, mean IRS?” Well, you‟re

not helpless, because we are in your corner. Not only does our team of Professional Tax

Resolution Experts take on the IRS for you, but they can also beat them - provided you have the

proof.

As you grow your business and make more money, your chances of an IRS audit increase. For

example, on an individual tax return, here are your chances of audit:

• one in 38 with $200,000 or more in income

• one in 10 with over $1,000,000 in income

• one in three with over $10,000,000 in income

9

Also, you always have exposure to random IRS audits.

Let‟s assume you were not in the “lucky” category and the IRS sends you that ugly audit notice.

What do you do now? First, you contact us right away.

What will I do? This depends on whom you will face in the audit: a tax auditor or a revenue

agent.

If the IRS wants you to come to its offices, you likely will meet with a tax auditor. With just a

little time with us, you may be able to handle this by yourself, because tax auditors are not tax

experts. Or if you simply don‟t want to talk to the IRS, we can represent you with or without

your presence.

On the other hand, if the IRS wants to come to your offices, expect a revenue agent. In this type

of examination, you generally want one of our Experts with you who will speak the same

technical language as the revenue agent, and this helps ensure that you don‟t lose your rightful

deductions.

We hope that you never have to face the IRS, but when you are growing your business, that

increases your odds. Our team is always here to help you.

******

AVOID FILING PARTNERSHIP RETURNS WITH

LITTLE-KNOWN ELECTIONS

As you know, running a business often means filing a separate business tax return.

But you may not be aware that for certain partnerships, you can avoid the separate return and

report the activity directly on your individual tax return, such as for the three activities below:

1. The qualified joint venture election is available if you and your spouse are the only

partners. Under this election, you file no partnership returns and simply report the income

and expenses on Form 1040, Schedule C. This does not work for spouse LLCs taxed as

partnerships, except for those LLCs in community property states.

2. The Section 761(a) election is available for non-related owners, but for a limited set of

activities, such as investment partnerships.

3. Rental properties aren‟t partnerships for federal tax purposes if you and the other co-

owners have only to keep the property maintained, in repair, and rented or leased. This

means you and your co-owners can report ownership interests on your personal tax

returns without making a special tax election.

10

By reporting separately, you dramatically simplify your tax return filings and compliance

requirements. But keep in mind that the IRS examines more individual returns than

partnership returns, so a higher chance of an audit is one potential downside to moving

your activities to the individual return.

******

RETIREMENT PLAN OPTIONS

There are plenty of good retirement options out there but sticking to a single plan won‟t help you

achieve your goals. Here are the best options for your retirement plan:

Pensions. Pensions are the easiest retirement plans because little is required of you. The

employer contributes all the money and the funds are professionally managed. All you have

to do is stay on the job long enough to qualify, then retire and collect. But not everyone has

this option.

While pension plans are still common for municipal and government workers, they are be-

coming less and less popular in a corporate environment.

Many pension plans have become less generous. Most don‟t offer a cost-of-living ad-

justment, so the monthly payment you get when you first retire is the same amount you‟ll get

at 85 or 90 years old.

Defined Contribution Plans. With defined contribution plans such as a a 403b or 401k,

you‟re in control of your future.

You choose whether to participate, which plan options suit you, when to change those

options and how much to contribute. Many financial advisors consider these the best retire-

ment plans after pensions because most employers who offer them match a certain portion of

your contributions. In many cases, it‟s a dollar-for-dollar match, and that‟s an immediate

100% return on your money.

Your contributions are automatically deducted from your paycheck, so you don‟t have to

make an ongoing effort to invest. But there are contribution limits. In 2017, people under age

50 could contribute up to $18,000. People over 50 could add an additional $6,000 in catch-up

contributions. Some employers offer Roth 401k options, which tax the funds you contribute

upfront. Most 401ks are traditional, where you pay taxes on your withdrawals.

Roth IRAs. A Roth IRA is an individual retirement account funded with taxed dollars. You

enjoy the benefits of tax-free growth and tax-free withdrawals.

Roth IRAs are also highly recommended for young retirement savers, whether or not they

have access to employer sponsored plans.

11

A Roth IRA isn‟t an option that‟s open to everyone. Eligibility and contribution limits

depend on your modified adjusted gross income and tax filing status, but in 2017 people who

were eligible could contribute up to $5,500 per year, or up to $6,500 if they were over age

50. With Roth IRAs you don‟t have to withdraw the money if you don‟t need it, and you can

keep contributing long after you‟ve retired. And if you need the money before age 59 ½

there‟s no penalty for withdrawing your contributions, though there‟s a 10% federal penalty

for withdrawing earnings.

Traditional IRAs. Traditional IRAs have the same annual contribution limits as Roth

IRAs, but they are not subject to income restrictions so anyone can contribute. The

contributions are tax deductible and you enjoy tax-deferred growth, meaning you don‟t pay

capital gains tax but you have to pay tax on your contributions and earnings when you make

withdrawals. Traditional IRAs are subject to required numerous distributions at age 70 ½ and

you can‟t make contributions to the plan after that point.

Still, the traditional IRA is often the better option for people with a shorter time frame to re-

tirement, such as those retiring in five or 10 years. It can be very advantageous for these

contributors to get the combined benefit of the upfront tax deductions and tax deferral.

SEP IRAs. There are several types of retirement plans for self-employed people and it

really comes down to how much you want to spend administering the simplified employee

pension plan (SEP).

In 2017, up to $54,000 in pre-tax contributions are allowed to be put in a SEP IRA. If you

have a really good income year, or you don‟t have a lot of tax deductions, you can shelter a

large amount money to cut your tax bill. And in years when you don‟t do so well, you don‟t

have to contribute anything.

Nonqualified Deferred Contribution Plans. If you want to invest in a ROTH-like

structure, but you‟re barred by income restrictions or you‟ve maxed out your contributions in

other retirement plans, consider a nonqualified deferred compensation plan (NQDC), often

referred to as “the rich man‟s Roth.”

It‟s an option commonly used by upper management and executives who don‟t benefit from

defined contribution plans or IRAs as much as lower income workers, because of the

contribution limits. In essence, these plans allow you to defer a portion of your income until

some time in the future. You don‟t have to pay income tax on the money in the year you

become entitled to it, and it will grow tax deferred and come out tax free. There are no

income or contribution limits and the investment options are vast.

Guaranteed Income Annuities. An annuity is an insurance product that allows you to

invest today and get a guaranteed income stream when you retire. You can get payments

issued monthly, quarterly, annually or in a lump sum.

12

There are different types of annuities. With the single-premium immediate annuity (SPIA),

you invest and have to trigger the income right away, which isn‟t an attractive option now

that interest rates are low. The deferred-income annuity (DIA) with a cash-refund option is

more popular, because you control when you trigger the income stream and you don‟t ever

have to annuitize, if you don‟t need the money.

With annuities, the safety of the company you invest with is paramount. You‟re betting on

their solvency, liquidity and investment strategy.

Cash-Value Life Insurance Plan. With a cash-value life insurance plan, you pay for a

policy that develops cash value. Once you‟ve accumulated that cash value, you can take a

loan against your death benefit to serve as income during retirement. This isn‟t like a

traditional bank loan where you have to qualify. As long as you‟ve built the cash value you

can take the loan.

For example, if you have a $1 million dollar policy, and you borrow $500,000 during retire-

ment (which can be set up as periodic withdrawals or withdrawn in a lump sum) the loan is

repaid from your benefits at death, and your beneficiary gets the remaining $500,000. The

great thing about it is that you can tap into the funds anytime you like, at any age. And the

money has already been taxed, so you don‟t pay tax on any of the distributions you get. This

is a great retirement plan for stay-at-home spouses.

Social Security. Nine out of 10 people over age 65 receive Social Security, and those

benefits account for 39% of older Americans‟ income, according to the Social Security

Administration. Despite all the hoopla about what might happen to Social Security, it‟s still

an extremely important part of retirement planning.

Real Estate. Real estate is a retirement-planning option you shouldn‟t overlook, especially

if you‟re 55 or 60 years old and you either didn‟t save or didn‟t save enough. Real estate is

one of the options that can produce income. Real estate can create a decent income stream.

It‟s best to purchase property with a lump sum if you can, so you don‟t bring debt into your

retirement. And you want to set aside money for contingencies, such as taxes and repairs. But

realize this isn‟t a passive income stream. Managing a property is work and there‟s real risk

involved.

******

REPLACEMENT COST VS. ACTUAL CASH VALUE OPTION

The distinction between „Actual Cash Value‟ (ACV) and „Replacement Cost‟ is one of the most

important concepts in homeowners insurance. Do you know what the difference is? If you have

home insurance, you should. Let us break it down for you.

13

“Replacement Cost” Explained. Replacement cost is the amount it would cost to replace your

destroyed, damaged or stolen items with the exact same item, or similar ones, after a loss. The

replacement cost is often calculated as the initial amount you paid for the item. If the item you

bought is no longer available, replacement cost policies will pay you the initial price of the item

you bought in order to find one similar. If the item you purchased is still available but at a

reduced price, your claim may reflect this change in value.

A replacement claim may sometimes be paid out in two installments. Often, the insurer will send

one payment for the ACV of the item/component or half of its total replacement cost. Once you

have performed repairs or bought a replacement, you can send the documentation to your insurer

to recover the remaining reimbursement.

Actual Cash Value (ACV) Explained. Actual cash value (ACV) refers to a policy that covers

your home and possessions for market value at the time they are lost or stolen. Since your items

are used, “market value” means that depreciation will be factored in when your insurance

company pays you for your claim.

How Insurers Calculate Depreciation. Different insurance carriers will have different ways of

calculating depreciation. One of the most common methods is to calculate the item‟s value as a

portion of its life expectancy.

For instance, a roof predicted to last 30 years will be assumed to have zero value at the end of

that timespan. So, if the roof is somehow destroyed 15 years after installation, the ACV will be

half of the original cost of the roof.

Another way to look at the “lifespan” model is to divide one by the life expectancy of your item

to find the annual depreciation rate. An item with a 10 year lifespan will depreciate by 10 percent

or .1 percent a year. Use this figure multiplied by the years you used your item to calculate its

depreciation.

Aside from life expectancy, your insurer may use market data to determine the how much it

would cost to replace your home. For example, if your twenty year old bay window assembly

was destroyed by a storm, your carrier may try to find a wholesaler who offers twenty year old

bay window assemblies and ask how they would price them.

This method requires more effort, but insurers may have access to a pricing network or

depreciation estimation software that accomplishes the same task. Either way, you are able to

take into account the condition of the item rather than assuming that all of your belongings have

the same useful life.

Replacement Cost Would Be Best. For almost every home owner, a replacement cost policy

would be preferable. Coverage like this will pay the true retail cost of replacing lost, ruined or

stolen possessions. Replacement cost will always save you in the long run.

14

With expensive electronics, actual cash value usually just will not suffice when you are trying to

replace what you have lost. For example, a laptop purchased for $2,000 three or four years ago

would actually be worth far less than that now. An insurer will likely write you a check for $700

or so to cover the actual cash value of the item. Finding another comparable laptop at that price

would prove challenging, if not impossible.

The truth is that after a disaster or major loss, you are looking to replace your items. Since you

are almost never likely to find a store or market that sells the exact same TV and couch that you

used to own, in the exact same condition at the ACV price, replacement cost coverage just makes

more sense.

One reason that many people opt for ACV policies over replacement cost policies is that the

price of the policy will reflect this coverage difference. In most situations, the better coverage of

replacement cost policies can make homeowners much happier with their policy after a loss

occurs. Depending on how many valuables you have, paying a little extra to get the upgrade

might be worth the money. You could also usually offset the extra cost by raising your

deductible. After all, home insurance is there for most people to protect them from major

catastrophes, not everyday accidents.

Valuable, Antique or Collectible Items. Even with a replacement policy, your most valuable

belongings will only be covered for a portion of their value. Items like jewelry or electronics

typically have a $1,000 cap on per-item claims. With art, antiques or collectibles, this amount

could be as little as $2,500 for your whole collection.

Another problem is that with certain rare items, the true replacement cost may have actually gone

up since your initial purchase. Insurers will rarely accommodate this appreciation in value,

instead opting to pay for your initial purchase value. Thus, an autographed jersey by an athlete

who recently died may only be worth the $50 to $100 you paid for the jersey itself and the

person to sign it at after meeting them. In actuality, this item could be worth thousands of dollars

and be nearly impossible to replace.

For items like these, you can purchase special “floaters” or riders to cover your most valuable or

irreplaceable possessions. Other times, you can purchase a separate policy especially made to

cover rare and valuable collections.

Make Sure Your Insurance Coverage Work for You. When speaking to an agent, you must

be absolutely clear about the kind of policy they are offering you. Make sure that you get every

cent of coverage you need to prepare for common and likely catastrophes.

Obviously, the most important thing home insurance covers is your actual home or rental

property. In many cases, opting for limited coverage of your possessions paired with complete

coverage of your dwelling could possibly make the most sense. Take an inventory of your

possessions and decide what is right for you, your family and your situation.

******

15

TAX AND ACCOUNTING ISSUES FOR BUSINESS OWNERS

Entrepreneurs usually aren‟t surprised by the amount of work it takes to get a business up

and-running and become successful. But these same business owners are often blindsided by the

time and effort required for tax and accounting issues. It‟s an important aspect that is often

overlooked.

Specifically, the followings issues are critical to business owners and might even “make or

break” their operation.

Form of business: The business may be formed as a C corporation, a pass through entity

like an S Corporation, limited liability company (LLC) or partnership, or a sole

proprietorship. Generally, C corps provide great asset protection from creditors.

Estimated taxes: As with individual taxpayers, businesses must take a “pay-as-you-go”

approach with tax liability, reporting and paying taxes on a quarterly basis. This applies

regardless of the form of business ownership,

Ordinary and necessary expenses: The tax law provides current deductions for numerous

“ordinary and necessary” business expenses ranging from paper clips to office furniture.

But the law is also riddled with numerous special rules and requirements.

Independent contractors: Employers must pay payroll taxes on employee wages, but not

on amounts paid to independent contractors, such as most outside workers hired for

specified projects. The IRS often contests the employment status of workers.

Inventory valuation: The company must value the items included in its inventory.

Initially, the value is the cost, but these figures are being constantly updated as items gets

sold and restocked, with accompanying tax results.

Section 179/ depreciation: Under Section 179 of the tax code, a company can claim a

generous current deduction for the cost of business assets. Alternatively, assets are

“depreciated” over time according to specified schedules and rules.

Cash flow: Too much money going out, and not enough coming in, can sink a business.

It‟s important to regularly monitor accounts receivable and payable to provide a clear

picture.

Bad debts: Even a profitable business may have difficulty collecting amounts it is owed.

Take steps to bolster collections and keep records to prove “worthlessness” of receivables

for tax purposes.

Payroll: Handling payroll, including issuing proper forms and imposing withholding, can

prove to be a real headache. To reduce the stress, a small business may utilize outside

resources.

16

Recordkeeping: Good recordkeeping goes hand-in-hand with minimizing problems and

maximizing the available tax benefits. It is essential at virtually every twist and turn.

******

TAXES FOR SELF-EMPLOYED & PARTNERSHIP OWNERS

If you are not an employee and work on your own, you will pay taxes a little differently than

employees do.

Considered Self-Employed and Not an Employee?

Whether you are considered an employee or self-employed (business owner, Partner or

independent contractor) depends on these three factors:

Behavioral Control: How does the company or organization for which you work direct

and control what work you do and how your work is done (using instructions, training, or

other methods)?

Financial Control: Who has the right to direct and control the business and financial

aspects of your job?

Type of Relationship: How do you and the business relate based on your work or job?

Are there contracts that describe the working relationship between you and the company?

How do these documents characterize your role in the business?

When Am I Considered Self-Employed?

You are considered self-employed if you carry on a trade or business.

You are also considered a business owner if any of the following statements are true:

• You filed an 1120-S business tax return via Schedule K-1.

• You are the sole proprietor of a business.

• You are a member of a business partnership.

• You are otherwise in business for yourself (whether full-time or part-time).

What Is an Independent Contractor?

Generally, you are considered an independent contractor if the person or organization that pays

you has the right to direct and control only the result of the work and not what work will be done

nor how it will be done.

What Are Examples of Independent Contractors?

Self-employed independent contractors include (but are not limited to): doctors, dentists,

veterinarians, lawyers, accountants, public notaries, carpenters, electricians, plumbers,

mechanics, stonemasons, home remodelers, housecleaners, lawn care providers, babysitters,

newscarriers, software developers, web designers, graphic artists, entertainers, guest speakers,

truckers, cab drivers, farm workers, interpreters, project managers, hairstylists, salespeople,

freelance writers, etc.

17

What Is Considered Independent Contractor Income?

Independent contractor income is compensation you receive for doing work or providing services

as a self-employed individual, not as an employee. If you are self-employed and an independent

contractor, your compensation is reported on Form 1099-MISC (along with rents, royalties, and

other types of income). If you received a 1099-MISC instead of a W-2, the payer of your income

did not consider you an employee and did not withhold federal income tax or Social Security and

Medicare tax. A 1099-MISC means that you are classified as an independent contractor, and

independent contractors are considered to be self-employed.

Am I Engaged In a Hobby?

A hobby is not a trade or business. If you carry on an activity that occasionally produces income,

but your main purpose for pursuing the activity is not for profit, then you may be engaged in a

hobby. Hobby income should be reported as “other income” on your tax return. If you itemize

deductions, you can deduct hobby expenses up to the amount of your hobby income. See the tax

return filing requirements to find out if your hobby income requires you to file a tax return.

I Am Self-Employed, So What Taxes Do I Have to Pay?

As a self-employed individual, you are responsible for paying income taxes and “self-

employment taxes.”

What Are Self-Employment Taxes?

Self-employment taxes are paid in addition to regular income taxes. Self-employment tax is

made up of Social Security and Medicare taxes.

Do I Have to Pay Estimated Taxes?

If you are self-employed, and you expect to owe $1,000 or more in tax when you file your return,

then the IRS requires you to make quarterly estimated tax payments.

When Do I Pay Estimated Taxes?

You may have to pay estimated income tax four times throughout the year (quarterly) because

you do not have taxes withheld from your pay by an employer. The quarterly tax payment

periods are due 4/18/17, 6/15/17, 9/15/17 and 01/15/2018.

******

Contact us to schedule your consultation to identify proven

tax-smart strategies, options & solutions that deliver real value for

the professional services needed based upon your particular

situation by calling (314) 205-9595.

******

18

TAX ACCOUNTING ADVISORY

Providing a wide array of specialized non-traditional solutions plus offering

traditional CPA services including:

Real Estate Transactions

Entity Structuring

Asset Protection Solutions

Tax & Business Advisory

Strategic Tax & Business Planning

Comprehensive Accounting Solutions including data and payroll processing

Representation for Resolution of Tax Problems involving levy, liens, audit defense,

payment plans, un-filed tax returns, penalty abatement and offer in compromise.

Tax Return Preparation for individuals, investors, professionals, real estate and business

owners, Corporations, Partnerships, Trusts and tax exempt organizations.

Our knowledgeable and experienced team of dedicated Professional Accounting Professionals

are committed to providing personal attention, quality work, reliable, proactive, helpful services

and solutions to make complex accounting and compliance tasks easier, gain greater financial

control and increase profitability by providing timely, accurate and complete accounting, data

and payroll processing services. This allows you more time to focus on growing your

enterprise.

Professional Tax Advisors & Experts consult on all aspects of tax compliance, advisory and

planning, as well as, Tax Return preparation and Tax Problem Resolution Specialized Solutions.

These tax related services are provided by Zerjav & Associates, Certified Public Accountants,

which has an alternative practice structure that is a separate and independent entity which works

together with the Advisory Group to serve clients‟ needs.

Our Core values include: Accountability, Accuracy, Collaboration, Commitment, Efficiency,

Integrity, Passion, Quality, Respect and Service Excellence offered by our team of Professional

Tax & Accounting Associates.

Our primary objective is the well-being of clients, their family and their survivors,

as well as their satisfaction with the work we do, while our goal is to be the premier choice

of Tax & Advisory firms, not the biggest firm, by sharing solutions that deliver real value.

19

Visit our NEW website launched January 25, 2017:

www.advisorygroupassociates.com

Are we providing the Tax, Advisory & Accounting services you want?

How may we better service you?

Your opinion matters!

For More Information, Contact by phone or email

(314) 205-9595 or toll free (888) 809-9595

[email protected]

Our professional service offerings are tailored to each stage of a client's tax life, from basic

compliance and tax return preparation, where our process is imperative to minimizing costs, to

many complex circumstances, where both our process and specialized knowledge is the key to

successful results and the best outcome.

Our complimentary monthly electronic newsletter to subscribers provides comprehensive and

timely insight on a wide range of taxation issues including federal and state tax incentives and

current issues.

We also offer an initial complimentary consultation to help identify proven tax-smart strategies,

options and solutions that deliver real value for the professional services needed based upon the

particular situation of any taxpayer.

ADVISORY GROUP ASSOCIATES’ Tax & Advisory Firms

Trusted Advisors & devoted professional experts providing tax, accounting, compliance and

business solutions.

Our Mission: Sharing Solutions that deliver real value.

NOTICE: This “TAX TIPS NEWSLINE” publication is designed to provide accurate and authoritative

information regarding the subject matters covered. The information contained herein have been

compiled from sources considered reliable. ADVISORY GROUP ASSOCIATES‟ Tax & Advisory

firms staff and associates do not receive fees or commissions for any recommendations of service

providers, professionals or products nor offer any investment recommendations which carry inherent

risks.

If you are not the original addressee of this communication you must delete this message from your

computer system. Any disclosure, copying, distribution of this communication or the taking of any

action based on it is strictly prohibited.

You have received this communication because you may have agreed to receive correspondence from this

office. If you no longer wish to receive this newsletter, or you need to update your email address you

must respond to this e-mail and place "UPDATE INFORMATION" in the subject line.